Public safety versus economic survival

THESE ARE some of the troubling headlines in the newspapers as banks and businesses grapple with the impact of the coronavirus pandemic. All things considered, an economic depression seems inevitable at this point and what is more alarming is the Government’s subtle acknowledgement of the economic fallout ahead.

But with the number of reported cases rising rapidly to over 350 with seven deaths so far, the Government is at a crossroads. The Holness administration, losing leverage over the containment of the virus following its outbreak at a BPO in Portmore, intensified the curfew and stayat-home order where the entire parish of St Catherine was placed under lockdown and curfews extended islandwide. These necessary containment measures should bring us closer to winning the war against COVID-19 but the battle is far from over.

The US economy jobs number for April will be released next week and experts are anticipating a surge in the unemployment rate between 15 per cent and 20 per cent. According to the Washington Post, the US now has over 22 million unemployed, wiping out a decade of all job gains. St Louis Fed is projecting total job losses, post-COVID-19, of 47 million with the unemployment rate reaching 32 per cent. The International Monetary Fund is projecting the global economy to decline by more than three per cent which is much higher than the 2007-2008 Financial Recession. These are unprecedented statistics and should alarm every Jamaican.

CAN JAMAICA SURVIVE?

At this point only essential businesses – supermarkets, food manufacturing seem to be doing well. The supply chain seems to be holding, at least for now. The sectors that have been hit the hardest are tourism, entertainment, and the agriculture. The ability for these sectors to survive, as outlined by Dr Nigel Clarke, minister of finance, is limited by the measures put in place to fight the virus. The fallout from the impacted sectors is already having a ripple effect on the economy as the level of aggregate demand has decreased. This is brought on by the fact that income earnings for many Jamaicans have slowed and for some, halted.

One expects that the end of May will see a further rise in jobless claims as high levels of layoffs will be the prudent decision for most businesses as they struggle to meet payroll obligations due to low levels of consumer spending.

Many employees are working from home. However, some companies might be uncomfortable with the idea as they perceive that workers may not be as productive as when they work in-office. This fear is also underscored by the closure of the school system which means there would be a trade-off between family time and work time.

I caution workers to keep their eyes open – literally. I believe that companies, during this time, are looking for ways to restructure their businesses in the event that the new normal may not prove financial feasible with the current staff complement. With the precipitous decline in demand, firms are looking for ways to surgically cut costs. Workers may be in for a big surprise in coming weeks.

E-COMMERCE – LIFELINE OR DEATH SENTENCE?

E-commerce could have cushioned this fallout. However, Jamaican businesses have struggled to invest in the necessary information and communications technology (ICT) to make Internet shopping, at all levels, a new normal.

Many firms have quickly implemented take-out services, online orders and deliveries in an effort to keep the doors open. However, much more needs to be done. A greater level of efficiency is needed in business processing to make online shopping effective and efficient.

The banking sector must be given credit for the level of technology integration in banking practices. They have managed to invest in the necessary ICT over the years and are now better positioned to sail the stormy seas than other sectors. The flip side of such investment however will see many jobs are made redundant. Indeed, automation in the banking sector has reorganised the production function and so far has proven effective. Already commercial banks have communicated to their customers that certain services such as cash deposits and utility payments will not be done in house. Customers are being directed online.

The question is, will some of these workers who were sent home be relevant post-COVID-19? Yes, in this age of technology machines are more valuable than humans. They need not to wear a mask nor do they need to practise social distancing. Embracing e-commerce will undoubtedly spike the unemployment rate moving forward.

BUT HOW DO WE PROCEED POLICY WISE?

An editorial last week recommended that the Government of Jamaica should print money to support income. I agree; however, it must be managed properly to offset the effects of inflation. In economics, inflation is said to be a monetary phenomenon resulting from too much money chasing too few goods. This can happen as more money is printed, the level of demand increases as people have more access to funds which creates excess demand. If production is not able to rise to meet the level of demand, prices will rise.

However, we find ourselves in a different scenario. Given that there is excess capacity in the economy due to the low levels of economic activities, printing money may not be bad right now. Maybe, the increase in the monetary base will allow for banks to be able to lend more money, thus increasing the money supply and stimulating demand. This will increase expenditure in the economy and create a multiplier effect. This method of quantitative easing however requires non-political coordination between the Government and the banking system.

With the fallout in foreign exchange, maybe it is time draconian measures are implemented to curtail the level of importation of food in the country. Indeed this has been a long-standing problem as in 2018 the percentage of import of goods and services to GDP was 51 per cent.

The tourism sector is the largest earner of foreign exchange and is basically nonexistent right now and may take more than a year to recover. My outlook on this sector is not an optimistic one as globally discretionary spending is low and there will be fear of flying for some time.

With the expected 32 per cent unemployment rate projection in the US, remittances will also plummet as many Jamaicans working abroad will be without jobs and unable to send money home. How else will we get US dollars to buy the oil and facilitate the high level of imports? Could we see further depreciation of the Jamaican Dollar? We must therefore think seriously about policies to curtail unnecessary spending abroad. The time is now to buy Jamaican and build Jamaica. Sounds hopeless?

It seems so, but I believe that Jamaica is resilient, its leaders competent and the people will adjust. We do not have a choice, we have to.

The health crisis from COVID-19 is real. However, the Government will be faced with the challenging decision of opening up the country and relaxing the stay-athome orders in the name of economic survival. I am hoping that as early as June, our borders will be reopened although I am still not optimistic as to how much good it will do for the tourism industry. With the US set to reopen its economy come the end of May, the Government should strategically do the same with very careful considerations, it is a ticking time bomb that can go either way.

With the recent disappointments in the healthcare system, I am even more fearful of the outcome of relaxing the measures. The recent incident at Andrews Memorial Hospital, the University Hospital of the West Indies and the Victoria Jubilee Hospital should have many Jamaicans worried about the readiness of the health sector. This pandemic has brought United Sates to its knees, so expect us to fall right on our faces if we do not act prudently about reopening our borders. But do we have a choice economically? But wait, we also do not have a choice medically.

The bottom line is firms are not able to sustain this fallout in revenue any longer and should there be an outbreak, our health system is incapable of managing the load. It’s the trade-off that is frightening. GDP or Lives? The opportunity cost either way is heavy.

After reading this, you were expecting answers, instead I have a question- Will we survive? My answer is Yes! But only if the trajectory changes. If this path continues, welcome to the Great Depression of the 1930s Part Two.