The post COVID-19 economy

 

SPECULATION on the morphology of global economies as they pass through COVID-19 and its effects has become a niche category amongst talking heads everywhere. A sharp contraction; followed immediately by an equally sharp recovery. A sharp contraction; scraping the bottom of a deep (or shallow) trough for a while before rapidly mending. A sharp contraction; followed by several recovery iterations. The combinations vary. And the only thing on which all commentators agree is that the entry into the coming recession will be nasty and brutish. Another view is currently not in doubt. Despite the fancy, alphabet-themed shapes being peddled by eggheads across the world on the possible trajectories of recovery, different economies are going to emerge from this crisis in their own way. In a broader sense, though, the general biology of the global economy will matter. For instance, it will matter how work changes as a result of this crisis, and how the changes to work help alter the outcomes of the crisis. This part of the conversation is not just about whether work, as we once knew it, changes under pressure from some staff becoming completely free of their desks at HQ. It has more to do with that part where the realisation of how integral China is to global supply chains forces companies to restructure in mitigation of what is now considered a severe vulnerability.

China’s emergence as the world’s contract manufacturer was not always the liability it seems today. In an alternate reality, it enabled mass production of goods and parts thereof on its territory, and just-in-time production in more advanced economies. It brought down prices across the board. Laptops, flatscreen television sets, cars ― all became affordable to more people. At a point, one of the strongest arguments against the trade wars initiated by the U.S. against China involved reminding the world that were the iPhone to be manufactured solely in the U.S., higher labour costs there would have put it beyond the reach of the many who now tout it as a fashion accessory. Such was the strength of this argument that in raising his multiple tariffs against imports from China, Donald Trump, the U.S. president, took pains to exclude Bluetooth-enabled devices.

But that was such a long time ago, now. In a couple of months time, the strategic challenge before companies with a link to global supply chains will be to organise their processes to reduce the dependence on suppliers elsewhere. So, they will keep more inventory. They will move suppliers closer ― preferably opting for those located as close to them as possible. If the advances in global freight and logistics was a key part of the broadening of the idea of nearness to raw materials and supplies as a key consideration in the siting of industries in the old days, the reduction of vulnerabilities from exposure to one main, albeit low-cost supplier to the world, will help redesign global freight and logistics businesses going forward.

Airlines and the hospitality business have taken a hit from the lockdowns imposed by governments worldwide to try and tame the virus behind the COVID-19 pandemic. It is a fair bet that they will hurt more as global production rules change. And global prices will rise. Final demand will be crimped everywhere. And hopefully, economies will become that much inefficient, if not smaller, even. Worse, for frontier and emerging economies, a major part of their development storyline will change radically. The bit about emerging economies moving into the production value chain that China abandons as it moves up the product quality log, will no longer be available. How to spur growth and development in such economies will become a new field for study. Using foreign exchange from the export of crude oil will certainly play no part in the new narrative. Forsooth, except for the likes of Norway, and to a lesser extent, Australia, this part of the development dynamics for commodity exporting countries was always a myth.

So, what is an economy like ours to do? Put differently, what are our chances of emerging in decent fettle from this crisis? And of making a decent fist of the post-Covid-19 world? Slim. And slimmer. Yet, there is agreement that we improve our chances by reforming the economy. The Buhari administration’s biggest conceit is to advertise itself as a reforming government. But even before this pandemic, it had superintended over what might arguably be the biggest enlargement of government as a player in the economy in recent times. To no effect. Alternative views describe a path out of our current crisis in terms of finding answers to one question: “What do we need to do to make our economy attractive to capital investment?” Much of the answers available run counter to current received opinion in the country. Take our insistence on conflating the naira’s exchange rate with national virility. In vindication of this reading of the imperatives before our economy, we have squandered several kings’ ransoms defending the naira’s exchange rate against “speculators” and “saboteurs”. This mindset may help hold psychoses down, but by keeping the naira’s exchange rate artificially high, we enforce an arbitrary allocation of wealth in favour of our cities and against rural communities.

Yet, the urban petty bourgeoisie’s love of imported goods and services is but a miniscule part of this claim. Prices matter for how a society allocates resources between the production of different goods and services, and how much it saves or invests. And that is for internal prices. As an external price, the naira’s exchange rate describes how much non-residents are willing to spend to hold local assets. And when that price is costlier than elsewhere, the only way you can keep money interested in this economy is tie yourself in knots as constraining as the central bank has done over the last three years. We will need to do more by way of reforms if our economy is to live up to our sundry aspirations for it. For instance, we do not even know how many businesses have been bankrupted by the recent lockdown. How many employees have lost their jobs? Or how many of the latter are temporary. Consequently, it is improbable that the size of official intervention in support of all of these would be significant enough to push the economy’s envelope. Simply by having data that reflect, as faithfully as possible, the conditions of the economy, we indicate our preparedness to better plan for our people.

• Oladeji writes in from Lagos.

 

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