Rising above Corona

JOHANNES !GAWAXABThe invisible coronavirus has reached Namibian shores. This after leaving a trail of devastation in China, Europe and the world at large.In Namibia, priority should be on protecting lives and saving our economy. The main emphasis should be on containing and mitigating the disease itself. President Hage Geingob demonstrated decisive leadership on managing Covid-19 and this offers hope to controlling its impact.The coronavirus affects the world economy in three main ways, namely by directly affecting production, by creating supply chain and market disruption, and by its impact on business and financial markets.Back home, if we have to go by what happened in China or Europe, the coronavirus is bound to overwhelm our health system as it is estimated that about 20% of patients will require treatment and 5% will need intensive care unit (ICU) support.It already has led to the closure of schools and institutions of higher learning. There is blood on the floor at the Namibian Stock Exchange due to falling values, we can see a further economic slowdown and contraction in output. Over the past two weeks, the JSE has crashed about 10%, wiping billions off pensions and savings of Namibians.The tourism, travel and transport sectors have been hit hard; there will be reduced income for government and more pressure on public expenditure. Treasury’s latest revenue and growth forecast might fail to materialize and balancing the national budget under these circumstances will be challenging. The current volatility in capital markets caused by Covid-19 indicates that we could have a much deeper recession. Recessions are typically cyclical, not structural events, and fall into one of three categories:• Real recession: classically, this is where a boom in capital expenditure turns to bust and derails expansion of the economy. The downturn following the construction of the Neckartaldam, the Fuel Storage Facility and the construction of key public roads in Namibia is an example of this recession.• Policy recession: when the central bank leaves rates too high relative to the economy's "neutral rate", they tighten financial conditions and credit intermediation, and with a lag, choke off expansion. Namibian real interest rates are too high given where inflation is. Inflationary impact caused by Covid-19 could dampen this but the case for an interest rate reduction in Namibia can be argued very strongly at this juncture.• Financial crisis: financial imbalances tend to build up gradually over time before rapidly unwinding, disrupting financial intermediation and then impacting on the real economy. The financial crisis of 2007-08, also known as the global financial crisis, has been the most serious financial crisis since the Great Depression of the 1930s. DRIVING GROWTHThe path back to growth will depend on a range of drivers, such as the degree to which demand will be delayed or foregone, whether the shock is truly a spike or lasts, or whether there is structural damage to the economy.Depending on Namibia's response to the Corona-induced crisis, recovery could be:• V-shaped: In this scenario, annual growth rates could fully absorb the shock. This depicts the classic economic shock where growth eventually rebounds. Namibia’s growth rates would rebound to the current negative level.• U-shaped: Here the shock to the economy persists but there is some permanent loss of output or production after the initial shock.• L-shaped: This scenario is ugly and signals real structural damage to the economy - breaking some elements on the economy's supply side such as the labour market, capital formation or the productivity function. It simply has significant negative impact on growth and no self-respecting nation would want to go there.From the immediate reaction of Namibians to the coronavirus, it is clear that we need to seriously think about investing in: on-line shopping capabilities; e-learning; public health centres and equipment; e-consulting such as Teladoc (which allows patients to video chat with doctors), and local manufacturers of pharmaceutical products including diagnostic laboratories. The Coronavirus will most likely change how companies re-configure their supply-chains and reinforce the trend away from depending on a few large suppliers far away.What should all leaders do in relation to the economic crisis caused by Covid-19?Protect safety and well-being of employees; stabilise supply chains; and ensure there is adequate liquidity to weather the storm. Some form of support to SMMEs, in particular, is needed to ensure they are not closing down. For businesses including SMEs, refinancing of loans, rental holidays, accelerated VAT refunds and working capital assistance are some of the measures to be considered. It is almost a must to bring back Business Rescue in our Companies Act.Financial markets are currently reflecting great uncertainty and a wide range of scenarios remain plausible and should be explored by everyone. With the right policy response, Namibia can find advantage in adversity and turn this natural disaster into an opportunity. This will also come to pass, and we can temper the impact if we mount a well-coordinated but uniquely Namibian response.

Rising above Corona

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Republikein 2025-04-18

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Rising above Corona

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Republikein 2025-04-18

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