COVID-19 – BARING OUR VULNERABILITIES, CREATING A MOMENT OF OPPORTUNITIES?
Regardless of what the results are when this is all over, the one thing, which is clear, is that in modern history no other event has laid bare the interconnectedness of the world and uncover the vulnerabilities of certain countries and regions. COVID-19 has also provided a window through which we can look and more clearly examine national leadership across the globe. This health event, which is driving a global economic upheaval, is showing in very important ways how fundamental leadership is to national life, a matter of life or death in instances. The contrasts are glaring and the results pronounced. The big issue on many minds is when this is all over will we learn the lessons and emerge a better world; more focused on embracing our interdependencies; gentler and kinder in our interaction with others; and disciplined and responsible in discharging our obligations of leadership. Will the world be better for having experienced this health disaster or will we soon forget and quickly get back to business as usual?
The ongoing covid-19 event has shown how geopolitics and geo-economics control our lives every day without us taking too much notice. China is the production juggernaut of the world. The advent of the virus in Wuhan, China created a significant double-sided play, which underline its significance. Almost immediately, supply chains were radically disrupted. For those who do not ordinarily engage their awareness to the fact became acutely conscious of the ubiquity of China’s involvement in providing, finished products, raw materials or component parts for the world’s consumption and productive output. Its aggressive approach to the event, essentially locking down cities, created immediate spill over to the rest of the world. The fact that the virus started in China carried a uniqueness that most countries would not replicate. In one swoop, it disrupted a significant supply source and cut off a dominant source of demand.
Based on 2018 numbers, China is responsible for 14% of gross export, 11% of gross imports, account for about 20% of world population and 19% of world Gross Domestic Product. In 2018, China exported $2.49 trillion in goods while it imported $2.13 trillion. Add to this the fact that it is one of the world’s strongest growing economy at around 5-6% and you have a clear appreciation of the potency of the disruption it triggered. COVID-19 is projected, early in, to cut expected world growth by as much as half to around 1.7% from its earlier projection of 3.3%. China and its expectation for slowdown is a significant contributor to that reality. China is a huge demand market and a supplier to the world. China is an important centre of world innovation and a capital seeking capitalistic paradox. Economically, there could not have been a worse initiation point for this COVID-19 event. From a health perspective, we cannot help but be somewhat thankful that it started there and not Europe or the USA.
China has undoubtedly demonstrated serious and committed leadership in moving to contain the spread of the virus. Its approach unfortunately contrast with the shaky start demonstrated by the United States, a country which poses great risk to many in the Caribbean region, and ever increasing risk should it get its response terribly wrong. With three hundred million potential cases sitting on the doorsteps of the region, as we noted before, their success is our success and their failures could be our long-term catastrophe. Despite the alacrity displayed, the one thing we must appreciate is that with displacement of workers, shuttering of factories, slowdown in cash flows, undoubted backlog of orders, restarting and repairing the disruption to supply chains will not be quick or easy. It therefore means that China will continue, at least over the near term to contribute significantly to the supply side shock or this health event turn economic. As noted, this will continue to have a debilitating impact on world trade and economies.
In a world, which was already, grappling with great uncertainties and economic headwinds this creates could not have come at a worst time. The global trade wars, prosecuted between China and the United states especially, were already making the economic ship unstable. Brexit also added a significant level of uncertainty both economically and geo-politically with the angst between it and the European Union. Here again the issue of leadership looms large with larger than life personalities, who consistently attract questions of competency, sitting at the center of these critical world developments.
Countries such as The Bahamas therefore, which is still coming to grips with the impact of Hurricane Dorian, is faced with the daunting fact that it likely to see its tourism economy drastically curtailed immediately as a result of COVID-19. The sad but unfortunate truth is that the hospitality and travel industry while taking the biggest hit upfront and is likely to see a long tail drag as both the airline and cruise ship industry grapple with the challenges of righting their path over the next few months. It is a reality, which we fervently wish, does not materialize. This is certainly one of those moments when we hope the tea leaves projections are all wrong.
Jamaica flying high on its recent successes in making positive changes to its economic fate is faced with making earlier than anticipated moves to stimulate and keep the country chugging along on the path to desired prosperity. It too will take a beating in tourism and across other sectors. Fortunately, maybe, fiscal measures foreshadowed in the recent speech from the throne seem to be right on time and should have a positive impact on the efforts there. The Bahamas on the other hand being a bit further away from the budget presentation and concerned with the after effects of Dorian will now need to look seriously at what treatments, fiscal or otherwise, it will apply should this event have a prolonged impact.
The United Sates central bank cut its reference rate twice recently to end at a range of 0 - .25%. This is a signal of an expected recession (and there is talk of and eventual period of depression) and it has all the hallmarks of 2008 again, minus the slow down. In this instance, it is a dramatic disruptive, uncertain stop. For those living in The Bahamas a casual walk along the historic Bay Street will need no further convincing. Many of the major players (countries) believe the world is in for a recession, as evidence by their fiscal and monetary responses. We cannot therefore hold on to uninformed faith that this will be short. While the world and the region would desire a V shaped recovery, this is an unlikely proposition and from our vantage point and understandings, a more U shaped recovery seems the likely prognosis. Here again leadership is playing an important role. While, refreshingly, across the region we see admirable efforts by leaders both on the health side of the event and on the economic side, it is clear that what happens over the next few months have little to do with what is in our control and more so what happens primarily in China, USA and Europe.
The American election looms large. Like 2008, the US airline industry has already started the chorus for bailouts, for us this is a kind of leading indicator of what is to come. The reason the US election is so important is that the performance of the economy represents a significant positive factor for the incumbent president. Many would readily agree that the administration's performance to date in leading the health response effort raises many questions. One can expect that there will be further unsettling of the markets in that country. Recovery of the important investor confidence therefore could lag and consequently give legs to the economic fallout, even in the face of a contained health response by say the end of the second quarter of the year. Our fortunes here in the region does rest in a large way with our neighbour and friend, the USA. Again, we recognize that their successes will be our successes. We must therefore hope that their efforts in managing the health situation and the economic recovery, which will follow, is as clinical as possible and effective. To the leaders of our region though, we would implore them to keep their powder dry, develop clear and cogent immediate, short term and long-term responses. Be ready for the long haul.
How vulnerable are our economies? This is an oft-echoed question with a familiar and well-practiced refrain. The realities is that in largely tourism dependent economies like the Bahamas and Jamaica, with the latter having the extra wrinkle of being highly dependent on remittances, the vulnerabilities are real. Some natural out-turns from this health and economic event is rising unemployment in the countries from which we get visitors, this leads to reduction in disposable and discretionary income and therefore a reduction in demand for vacation. Adjusting for the health element here, we could see arrivals fall significantly from their robust peaks in recent years. This does not auger well for both countries.
The Bahamas enjoys a direct contribution of approximately 50% from tourism with allied earnings taking it as high as 75%, depending on which day you ask and whom you ask. Jamaica with a more diversified economy enjoys tourism contribution of around 35 - 40%. Research shows that visitor expenditure accounted for approximately 50 per cent of Jamaica’s foreign exchange inflows for 2018. Such is the significance of the industry to the country. Allied earnings is likely to take that output close to 50%, at least. Despite being more diversified, it will not necessarily fare much better as remittances, which accounts for approximately 16% of GDP, could also take a significant hit. This is collectively 51 - 66% of the economy. Potential hit to tourism together with fallout from disruptions in supply chains, which could also affect its manufacturing and export sectors, and cause some bother for Jamaica. What will be the response for The Bahamas given current challenges and low growth? How will Jamaica seek to continue its impressive 20 consecutive quarters of growth but anaemic growth of less than 2%? Leadership will be critical over this period. The moment calls for calm, serious, deliberative and consultative leadership.
Both political and private sector leadership will be important determining factors. This, after all is another financial crisis and it will come with opportunities to pave a path for a better future, but only if there is bold and smart leadership. Both countries will be looking especially to their ministers of finance. Beyond the immediate response (phase one) what manner of economic wizardry will they be able to conjure up in the face of a potential global recession/depression? Fiscal stimulus, public sector spending; monetary policy treatments (for those who have one); forward contracts taking advantage of cheap oil; continued tight fiscal management with an eye on debt-to-GDP and the creation of future fiscal headroom. Or will their powder need not be exposed? On the other hand, will current leadership cease the moment to tap into our collective genius, inspiring us to advance together or will we tinker with the chance of showing to the world what is possible when national leadership effectively harnesses the common national consciousness?
For The Bahamas, COVID -19 is placing a bright light on the need for at least one more well-developed sector. The traditional two-pronged economy is not sustainable. While the current arrangement has swerved the country reasonably well, the need for reducing reliance on single sectors and finding ways of positively impacting the economic welfare of a growing citizenry is urgent. We do not propose to have the answers but we are convinced that a deliberate effort is needed in restructuring the economy, causing it to be at least a more balanced “three-legged stool”. Jamaica on the other hand must become more insulated from the vagaries of remittances and engender deeper local economic expansion if it is to create substantive value for the wider populace. With its economic appetite whetted in recent times, the outlook and vision must be for growth that is more robust.
How will this be achieved? A maintenance of the status quo will certainly not achieve any marked change and this holds true for both countries. Does agriculture hold any fortunes for the Bahamas? Are there opportunities for horizontal integration in the marine and fisheries sector? Or is there really a trillion dollar opportunity in natural resources available to be exploited for national gain? Can Jamaica find growth in lagging sectors, fix agriculture, and grow its export to better leverage the current value of its currency? Wherever the answers are they must be found and open minded leadership will play a significant role in this. Leadership must challenge our thinking and impress up on our minds the need for and commitment to become more innovative, more productive and therefore more resilient in the face of cataclysmic disruption like COVID-19 and its attendant impact.
Interdependencies are real and necessary in our global digital village but they render us highly vulnerable especially when the economy is not sound. Leadership is fundamental to the economic fortunes of any country. As we observe the world’s response to COVID-19, we are undoubtedly appreciating the criticality of effective leadership and lauding all instances where it is observed. On the other hand, we cringe at the pronouncements and actions of those who are otherwise. This moment demands the former, and as a region, we must proactively fight against the latter. In the face of this economic crisis, are we prepared to take the bull by the horn, act decisively, move intentionally and fix the issues that are in our control but with a firm eye on the longer-term future? We must! It is no longer sufficient to sign the refrain of vulnerability, it is no longer appropriate to question the quality of leadership; it’s not enough to acknowledge our lack of productivity or competitiveness. Now is the time to fix the things that ail us. Now is the time to take responsibility for the things in our realm of control. With our known weaknesses violently exposed again, now is the time to start down the path of making our circumstances that much better, such that when we are again faced with the like of a COVID-19 or Dorian we are better funded to weather the storms that they throw at us!
In our next piece, we will look at the measures already announced by The Bahamas and Jamaica and explore specific ideas that we think should be given consideration.