Amos Safo’s thoughts ….The path for COVID 19 economic recovery

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Ghana, like many other developing countries, is faced with putting the economy back on track since several forecasts have predicted difficult times ahead for poor countries.

On April 14 the International Monetary Fund (IMF) released its latest economic update, in which it provided details of impacts on the global economy from the COVID-19 pandemic. Gita Gopinath, IMF’s Chief Economist, reported that COVID-19 will likely have a severe impact on economic activity and lead to a ‘Great Lockdown’ recession. The IMF predicts the global economy could shrink by 3%, with all advanced economies expected to fall into recession and contract by 6.1% in 2020.

According to IMF, in comparison to previous downturns, the ‘Great Lockdown’ could become the worst recession since the ‘Great Depression’, and possibly worse than the Global Financial Crisis of 2008, which saw the global economy slow down by 0.1%. This unprecedented economic downturn has led many experts to discuss ways in which governments can turn around their economies and return to normal.

In Ghana, President Akufo-Addo has said several times that given the severity of the crisis, the COVID-19 pandemic provides an opportunity to think broadly and design a more sustainable recovery.  He has stressed that its negative impact aside, COVID 19 provides an opportunity for Ghana to devise homegrown solutions, as well as providing a springboard for local capacity building and productivity.

Government strategy

As part of plans to resuscitate the economy, President Akufo-Addo on April 5 announced a stimulus package of GH¢1billion for industry; out of which a soft loan component of GH¢600million is earmarked for Small, Medium and Small Enterprises (SMEs). It is expected that the intervention will sustain the country’s weak and uncompetitive industries and address disruptions to economic activities caused by the COVID-19 pandemic. More than 200,000 businesses will be supported under the COVID-19 stimulus package for SMEs. The package is under the ambit of the National Board for Small Scale Industries (NBSSI). NBSSI is the lead Agency under the Ministry of Trade and Industry (MOTI) that supports, promotes, develops and strengthens SMEs in Ghana.

Chamber of Commerce

Surprisingly, the Ghana Chamber of Commerce and Ghana Union of Traders Association (GUTA) and industry have described as inadequate the GH¢600million stimulus package for SMEs.  The beef of business stakeholders is that, on average, the estimated financial cost of the pandemic on businesses differs and increases with firm sizes: micro-enterprise (GH¢22,500); small enterprise (GH¢50,000); medium enterprise (GH¢500,000); and large enterprise (GH¢600,000). This suggests that government’s stimulus package of GH¢600million to be shared among about 200,000 SMEs is inadequate. Much against the proverb of “better little than none”, the business groups are lamenting that the delay in disbursement of the package is worsening the plight of SMEs.

Although industry and business associations appear genuinely concerned about the delay in disbursement, government needs to streamline things before the disbursement. This will force a departure from previous interventions when funds were doled out to people without business and sustainability plans – leading to low, if any, recovery of the money. It is equally prudent that government is doing disbursements through the commercial banks. This will stop money being given over the counter and possibly engendering corruption and nepotism. More than anything, the involvement of commercial banks will increase their liquidity and further boost their recovery after the recent banking crisis. By design, banks have become a key strategy for grooming SMEs into big enterprises everywhere; and Ghana cannot be the exception.

SMEs as foundation

Economist, Prof Peter Quartey of the Institute of Statistical Services (ISSER), has pointed out that Ghana’s economy can only rebound based on sustained support for SMEs. “It is very imperative for government to ramp up its support for the private sector. We are seeing how major economies like the UK and US are pumping in cash to keep struggling businesses afloat. A deviation from this course could spark an economic recession in the short-term,” he stated.

Various studies have found that SMEs are becoming the impetus of growth and development policies for both poor and rich countries. SMEs play a significant role in national economies by providing various goods and services, creating job opportunities, developing regional economies and communities, helping competition in the market, and offering innovation.

The notion of SME and entrepreneurship development was introduced into the growth and development landscape as early as the late 1940s, with the introduction of targetted policies (grants, subsidised credits, special tax treatment etc.) and the establishment of small business or SME support agencies by governments. As a result, the SME sector has become well-recognised worldwide due to its significant contribution to socio-economic objectives; such as higher growth of employment/ output, promotion of exports, and fostering entrepreneurship.

Recent empirical studies show that SMEs contribute over 55% of GDP and over 65% of total employment in high-income countries. In some low-income countries, SMEs and informal enterprises account for over 60% of GDP and over 70% of total employment. In middle-income countries, they contribute over 95% of total employment and about 70% of GDP.

There is growing interest in SMEs of developing countries for two main reasons. The first is the belief that SME development may prove to be an effective anti-poverty programme. The second is the belief that SME development is one of the building blocks of innovation and sustainable growth. These two reasons are, of course, linked; because most of the international evidence says that growth and real poverty reduction go hand in hand.

If SME development helps growth, more than likely it helps reduce poverty as well (Warner, 2001: 61). What’s more, in the context of developing countries like Ghana many SMEs are formed and owned by women, who in many instances are also breadwinners. The importance of SMEs in developing countries is even more critical for developing countries like Ghana, where many people rely on SMEs directly or indirectly.

Revitalisation

Besides driving the informal sector, SMEs play a central role in the revitalisation and development of national economies because of their capacity for creating jobs and promoting economic stability. In western contexts, SMEs also generate much of the creativity and innovation that fuel economic progress, promote competition, and produce value-added products.  Specifically, they play a central role with their contribution to labour absorption, poverty alleviation and revenue generation. Some economic experts have indicated that the importance of this sector warrants much attention by all the stakeholders – government agencies, academia and multinational companies because of their vested interest.

Energy efficiency

Apart from addressing the economic fallout, many governments (including ours) have had to issue stay-at-home orders for people to work from home.  This was to ensure strict observance of the WHO protocols; especially promoting social-distancing. However, there are repercussions from asking the population to stay at home.  As people work from home during, and possibly after COVID-19, there are indications that domestic energy consumption is increasing from frequent use of home computers and televisions. For households, the increase in energy consumption could potentially lead to higher monthly bills.

Thus, the short and long-term implications of people staying at homes will require the Ghana government to continually sensitise households and industry to reduce their energy demand by promoting the use of energy-efficient appliances and equipment. This policy needs to be directed to more energy-efficient appliances, which can help reduce energy demand and savings for both consumers and industries.

On the flipside, the move toward increased energy efficiency in homes could also have a positive impact on the economy. The International Energy Agency (IEA) has suggested that government support for energy-efficiency creates jobs and economic growth in the local economy. Therefore, as our economic management team develops economic recovery interventions, they need to factor-in energy-efficiency for households.

Public cooperation

All said, government alone cannot lead the economy out of the woods – it needs public support and cooperation; firstly, to combat the pandemic and limit spread of the virus by insistingGhanaians stay at home and abide by social distancing measures. In many countries, public support on implementing containment measures has been crucial in slowing the spread of COVID-19. South Korea is one of the leading examples where public cooperation has helped government carry out the ‘trace, test and treat strategy’ to contain the epidemic.

Though Ghana is doing well with the tracing and treatment strategy, the continual increase in new cases could reverse the social and economic gains. Government needs to focus on risk communications and community engagement for increased awareness of and compliance with preventive measures; and engaging the Ministry of Health, Ghana Health Service, Ministry of Information and the media.

References

Forbes (2020). Three Ways Governments Can Support a Sustainable Economic Recovery from COVID 19.

World Bank (2020). World Bank Group Supports Ghana’s COVID-19 Response.

 

(***The writer is a Communications and Development Management Specialist, and a Social Justice Advocate.  All views expressed in this article are my personal views and do not represent those of any organization. (Email: [email protected] Mobile: 0202642504 0243327586.

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