This article was written by Dr. Tawanda Chingozha, OAD Fellow on Development Economics, summarising the main points presented by a panel of experts during a UNDESA webinar on 9 April 2020. Powerpoint presentation and Webinar recording
The Office of Astronomy for Development (OAD) of The International Astronomical Union (IAU) has spearheaded efforts to translate astronomy into development outcomes over the past decade. During that time the OAD has funded more than 150 astronomy-for-development projects, established 11 regional offices,, and has taken part in and collaborated on various activities, such as the recent co-hosting of the Science for Development Workshop together with the International Science Council’s (ISC) Regional Office for Africa (ROA) in January 2020. Yet the COVID-19 pandemic has disrupted the status quo, forcing us all to rethink the different ways in which we work to achieve societal, development and business objectives. As almost every organization is forced to go back to the drawing board, it is important to dissect our new reality and get an understanding of the different ways in which the COVID-19 pandemic has affected the economy and society in general. By revealing many of the pandemic-induced difficulties, science for development organizations such as the OAD stand a chance to identify areas in which they can turn challenges into opportunities. To that end, some in the OAD team had the opportunity to attend a highly informative webinar hosted by The United Nations Department of Economic and Social Affairs (UNDESA) “Economic and Social Impacts of COVID-19” on 9 April 2020. A panel of experts gave talks on the various impacts of the pandemic and proffered a set of policy responses. This article summarises and discusses the main points that were covered in the UNDESA webinar.
Introduction
The global COVID-19 pandemic has affected us all and it has disrupted supply chains across various industries. It is not the first crisis of a global scale that has gripped the world in the past few decades – although it is different in a number of ways. For example, the means of production have been left intact unlike during natural disasters such as hurricanes, floods and earthquakes. Although the production infrastructure has not been affected, the ability of humans to participate is what has been severely constrained by the pandemic. In the decade before the 2008 Financial Crisis, global Gross Domestic Product (GDP) grew by 4%, yet in the ten years before the COVID-19 pandemic, the global economy only grew by 2%. Hence in terms of timing, the pandemic could not have come at a worse time.
The COVID-19 pandemic has already had, and will have economic, investment, market contagion and social effects that may be everlasting depending on how long until eradication/control of the epidemic, whether or not there will be a resurgence and also on the effectiveness of adopted policies. The different economic effects discussed during the webinar can be classified as production disruptions, unemployment, output contraction, debt crises, financial market crash, capital flight from developing countries and lower government revenues.
Economic effects
As at April 2020, production and supply chains have been severely affected. The demand side has also suffered major set-backs and this is compounded by the fact that the downswing happened too quickly. The global oil markets have not been spared, with oil futures such as the US West Texas Intermediate (WTI) falling below zero as at 21 April 2020 – an unprecedented development which means that traders would pay to get oil off their hands given high storage costs. As a consequence of production disruptions and shrinking demand, the world is experiencing record levels of unemployment. The International Labour Organization (ILO) (2020) estimates that 80% of the world’s employees have been affected in one way or another. Where possible, team members have been working remotely – although this is not possible in many industries (especially personalised services). As at 21 April 2020, more than 20 million people had registered for unemployment benefits in the US alone. The production disruptions, unemployment and other factors will lead to a deep recession and contraction of the global economy.
There will also be a debt crisis as governments increase borrowing to meet emergency expenditures. As of April 2020, more than one hundred countries have gone to the IMF looking for help already. Financial markets have also not been spared due to fear, uncertainty and panic selling. To try and stimulate the economy, countries have and continue to lower interest rates. In South Africa the South African Reserve Bank (SARB) has made substantial interest rate cuts twice already since the beginning of the crisis. This will mean lower income for those who rely on investment income – further subduing demand for goods and services. As more governments pile up debt and fail to meet obligations to creditors, they will obtain worse Credit Ratings and the result will be more capital outflows. This is particularly true for developing countries. Current crisis-induced capital outflows from developing countries have been greater than those induced by the 2008 Financial Crisis. Lastly, the lower economic activity will lead to lower tax revenue collections by governments and worsen debt risk in developing countries.
Investment and market contagion costs
In terms of investment costs, households cut back spending and businesses lay off workers in times of crisis. Precautionary savings may be held in liquid form (cash) and cannot earn a return on the market hence greater opportunity costs. Equally important, market contagion effects will mean that the economic shutdown in developed countries will affect other countries through reduced tourism, investment, capital and Official Development Assistance (ODA). Hence developing countries will be hit by the economic shock before a health crisis gains momentum – although the UNDESA experts believed that this was an important window of opportunity for these countries to adequately prepare their public health response strategies.
Social costs
There are also social costs. The pandemic may reverse progress made on many social outcomes that has been recorded and it will affect target timelines under the Sustainable Development Goals (SDGs). For example, in South Africa – a group of doctors were concerned that further continuation of lockdown has affected access to health for patients suffering from many other chronic and life threatening conditions. The COVID-19 pandemic has increased and revealed inequalities. For example, workers who receive a daily rate (for example those in restaurant and domestic care) have been affected more than those whose jobs allow them to work remotely. As governments mull how best to save the academic year for pupils, some have advocated for continued and wide scale online schooling for learners – yet the majority of schools may not have the required technological facilities. Inequality does not only exist laterally across schools as some students may not have computers, phones and even an internet connection at home. At the macro level, the different ways in which countries have responded to the pandemic and varying capabilities that they have shown also lay bare deep inequalities. Lastly, the crisis may affect trust and social cohesion. Recent reports have highlighted increasing cases of stigma against patients who have recovered, as well as racial profiling and stigmatization where cases cluster along racial lines. The effectiveness of government responses may also affect citizen-state trust.
Lessons from the 2008 Financial Crisis
Countries that implemented faster and stronger intervention packages emerged stronger, and those that lifted support too soon did not achieve higher benefits. Labour policies may aim to protect jobs as much as possible since it may be less costly than paying unemployment benefits. Governments and other stakeholders should ensure that migrants and other minority groups have access to healthcare. New and old comprehensive social protection systems are key to mitigate the economic effects of the pandemic, however history has shown that scaling up already existing interventions (where there are already in existence) may achieve more results than creating new ones.
The Way Forward and into the Future
There is a need for a coordinated effort first to contain the virus and secondly to recover from it. The pandemic has shown the importance of preparedness for shocks. Additionally, public health, economic stimulus and social welfare interventions should be implemented timeously and fully. As a move towards the gradual re-opening of economies, important/required health interventions must include antibody testing, universal testing and tracing – innovation is key. To stimulate household consumption and ramp up aggregate demand, spending vouchers may be more effective than income pay-outs.