When the underlying market fundamentals are disrupted, one can speak of the foreseen recession that looms ahead. The great recession of 2008 was caused by the implosion of the real estate market in the United States due to rising level of debts. Since then, countries have pulled their hamstring weight to ensure quick recovery.
Little did the world know that we were about to be hit by a pandemic. It wasn’t a case of debt which we know is always the root of financial crisis often leading to a recession. The corona virus which originated in Wuhun, China in December 2019 was declared a global pandemic by WHO on the 11th of March 2020. This has proved that beyond economic fundamentals which may trigger a recession, a collapse in the health sector could have an even greater impact on global trade.
The virus has resulted in the restriction of the movement of people, goods and services, manufacturing has come to a standstill in some regions leading to an imbalance in the supply and demand chain and most important is the reduced confidence in global economic growth.
Two world economic super powers now compete with the highest number of corona virus cases as the US has recorded over 100,000 cases, while China, the epicentre of the virus has over 81,000 cases as of 27th March 2020. With the two world economic watchdogs severely hit by the virus, it’s certain that the rest of the world would be affected by the drop in economic activities. The IMF has said that China’s initial growth forecast of 5.6 percent in 2020 would drop as a result of the headwind. JP Morgan has also forecasted a drop of up to 40 percent in the annualised quarter for China, possible drop of up to 14 percent in Q2’20 for the US and up to 22 percent drop for the Euro zone within the same period.
The economic impact of the virus continues to spread globally at an unprecedented rate. Businesses have been forced to rethink and re-strategize in this period of preached self isolation, social distancing and virtual working engagements. There has been a continuous reduction in revenue generation for some businesses while running expenses continue.
According to Bruce Kadman, Chief Economist at J.P Morgan, the likelihood of a global recession caused by COVID-19 shock is very likely.
Countries such as the United States had approved $2 trillion economic stimulus. The European Central Bank approved a €750 billion pandemic emergency purchase program. The IMF made available $50 billion to fight the virus through its rapid-disbursing emergency financing facility. The AFDB has also raised a $3 billion three-year social bond to fight the economic impact of the COVID-19 pandemic at an interest rate of 0.75 percent. The Central Bank of Nigeria injected a N50 billion credit facility to cushion the impact of the pandemic for which Nigeria as of 27th of March recorded 81 cases of COVID-19. This credit is eligible to households, MSMEs, existing enterprises with verifiable evidence of business activities affected by the COVID-19 pandemic, and Enterprises with bankable plans. The fund is to be financed from the Micro, Small and Medium Enterprises Development Fund.
International and Local Institutions are pouring out huge sums of money to control the pandemic and bring an end to this global glut.
So how can businesses tap into this challenging situation?
- Be solution driven:In the wake of the pandemic, some critical sectors particularly the healthcare sector has seen a surge in demand for essential products as the fight against the pandemic rises. Countries which prior to this time did not invest maximally in their healthcare sector across the entire value chain from local sourcing of production materials to the manufacturing and the proper remuneration of their medical practitioners will be forced to learn the hard way.
- Re-strategize:The stay at home policy has reaffirmed the need to invest more in information and communication technology infrastructure as businesses are now left with no choice but to work from home and rely on the internet for the effective execution of set deliverables. This may be time for businesses to cut down on unnecessary expenses
- Diversify investment portfolio: Prior to now, some investors prioritised investing in luxurious commodities than in essentials. Today we see these funds invested in essentials as the fight against the virus lingers. Stocks have tanked continuously with rising uncertainties globally.
In conclusion, with oil price in near jeopardy, dwindling economic activities, the sudden bust of the boom market and depressed prices of stocks among others, this should give countries and companies alike a good reason to strategise and identify what really matters for their growth, investment opportunities to leverage on and learn to always measure their level of preparedness against impending global problems.
IRENE UBANI
Ubani is a business journalist at Plus TV Africa and a regular contributor on the BBC Money Daily programme BIZ100 which airs in Nairobi. Irene is currently running the Women in Business (WIMBIZ) mentoring program
