Turning the COVID19 Crisis into Opportunity

Arunma Oteh, OONAcademic ScholarUniversity of Oxford

Turning the COVID19 Crisis into Opportunity

Key Recommendations for turning the COVID19

crisis into opportunity

COVID19 - An Unprecedented Crisis

Post COVID19 context for Global Development

Organisations (GDOs)

COVID19 - An Unprecedented Crisis

The COVID19 Health Crisis • As at 7th of July, there were over 11

million COVID-19 infections, with over

530,000 deaths.

• The outbreak of the COVID19 pandemic

presents a startling health crisis

believed to be the worst since the

Spanish flu of 1918.

• Despite concerted efforts, there are

presently no widely accepted and

proven therapeutics or vaccines against

COVID-19.

• Uncertainty about timing and extent of

second wave of infections

Source: WHO

Confirmed COVID-19 deaths

COVID19 hotspots by the number of infections and deaths

Source: European CDC, OurWorldInData

Country Total cases

United States 2,938,625

Brazil 1,623,284

India 719,665

Russia 687,862

Peru 305,703

Chile 298,557

United Kingdom 285,768

Mexico 261,750

Spain 252,130

Iran 243,051

Top 10 countries by infections

Country Total cases

United States 130,306

Brazil 65,487

United Kingdom 44,236

Italy 34,869

Mexico 31,119

France 29,920

Spain 28,392

India 20,160

Iran 11,731

Peru 10,772

Top 10 countries by death cases

2020 - Black Swan Year

A contraction of the global economy (IMF)

• IMF projects global GDP growth at –4.9% y/y

in 2020.

• Deepest contraction since World War II, when

the global economy shrank by 15.4% between

1945-1946

• Over 95% of countries are expected to have

negative per capita income growth in 2020

• A cumulative loss of over US$12trn in Global

GDP over two years (2020–21)Source: IMF

Actual Real GDP growth (%, y/y) vs forecast for 2020

-10

-8

-6

-4

-2

0

2

4

6

8

10

198

0

198

4

198

8

199

2

199

6

200

0

200

4

200

8

201

2

201

6

202

0

Advanced economies Emerging market and developing economies World

A contraction of the global economy (World Bank)

• The World Bank envisions a -5.2% y/y contraction in

2020 global GDP

• Advanced economies are projected to shrink by -7%

• Emerging market and developing economies

(EMDEs) are forecast to contract by -2.5%.

Source: World Bank

GDP Evolution for the world, Advanced economies and the EMDEs

f

f

-8.0

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

2017 2018 2019 2020 2021

World Advanced Economies EMDEs

Trade (WTO)

• The volume of merchandise trade contracted by -3% y/y in Q1

2020.

• Initial estimates for Q2, indicate a decline of about -18.5% y/y.

This is the steepest volume of merchandise trade decline on

record.

• Two plausible paths projected

• A relatively optimistic scenario in which the volume of

world merchandise trade in 2020 would contract by -13%,

• A pessimistic scenario in which trade would fall by -32%.Source: WTO/UNCTAD and WTO Secretariat estimates

World Merchandise Trade Volume

Decline in FDI and Remittances (UNCTAD)

• Downward pressure on FDI flows could range

from -30% to -40% during 2020-2021.

• Global remittances projected to decline sharply

by about 20% in 2020

Source: World Bank

Net flows of FDI, Portfolio equity and Remittances n (US ’trillions) globally

(0.50)

-

0.50

1.00

1.50

2.00

2.50

3.00

3.50

198

0

198

3

198

6

198

9

199

2

199

5

199

8

200

1

200

4

200

7

201

0

201

3

201

6

201

9

Foreign direct investment, Portfolio equity Remittances

Crude Oil (OPEC)

10.0

20.0

30.0

40.0

50.0

60.0

70.0

80.0

Source: Bloomberg

UK Brent Price

• A decline of 6.4 million bpd y/y and 17.3 million bpd y/y in Q1

and Q2 2020 respectively.

• Record output cuts from OPEC+ and steep production

declines from non-OPEC producers saw global oil production

fall by 12 million bpd in May.

• OPEC+ decided on 6th June to extend their historic output cut

of approximately 10 million bpd through the end of July.

• Oil prices hit a record low of US$19.33/b in April.

Global public debt Global debt will rise to unprecedented levels…and is predicted to exceed the post-World War II peak

Source: Historical Public Debt Database; IMF, World Economic Outlook; Maddison Database Project; and IMF staff calculation

Global public debt, % of GDP

Debt – Regional and Sector Breakdown

Global debt has trended up since 1970,

reaching around 230% of GDP in 2018.

Source: International Monetary Fund; World Bank

Evolution of debt

In Q3 2019 global debt levels reached

an all-time high of nearly US$253trn,

about 320% of global GDP.

• About 70% of global debt is held by

advanced economies

• About 30% is held by emerging

markets.

Unemployment

The OECD Employment Outlook 2020 says that, even in the more optimistic scenario for the evolution of the pandemic, the

OECD-wide unemployment rate may reach 9.4% in the fourth quarter of 2020, exceeding all the peaks since the Great

Depression.

The OECD unemployment rate rose to 8.4% in April 2020 compared to 5.5%, a month earlier. Similarly, the number of

unemployed in the OECD increased by 18.4 million to 55 million in April. Unemployment claims in the US alone reached a

staggering 45.7 million after 13 weeks of the COVID19 crisis

Recent estimates by the ILO Monitor revealed a decline in global working hours of 14% in Q2 2020, equivalent to 400

million full-time jobs. Even in the optimistic scenario, which assumes a fast recovery, global working hours are unlikely to

return to the pre-crisis level by the end of 2020.

According to the ILO, close to two-thirds of the world’s employed population make their living in the informal economy (when

Agriculture is included). In the same vein, 93% of the world’s informal employment is in emerging and developing countries

(EMDEs). Most workers within the informal economy earn daily wages. The lockdowns and restrictions have weakened daily

earning capacity.

Food Security

The United Nations World Food Programme (WFP) has warned that an estimated 265 million people

could face acute food insecurity by the end of 2020, up from 135 million people before the crisis.

Labour shortages (due to morbidity, movement restrictions, social distancing rules)

are also starting to impact producers, processors, traders and trucking/logistics

companies in food supply chains.

The pandemic is already affecting the entire food value-chain.

Restrictions on movement within and across countries are hindering food-related

logistic services, disrupting entire food supply chains and affecting the availability of

food.

Key Elements of the Unprecedented Intervention

• The Great Lockdown

• Global Fiscal Support in excess of US$10 trillion

• Advanced countries have had more headroom for fiscal

support than EMDEs

• Dramatic easing of monetary policies around the world

(Interest rate cuts, Liquidity injections, Asset purchases)

• Strengthening of Health care systems

• Social Safety Net Programs

• Debt Standstill granted by G20 countries to the poorest nations

in the world

• Other types of interventions – cheques to the poor, job

retention schemes, support to sectors of the economy including

airlines, hospitality

Interventions

0.9

0.3 0.2

7.7

2.5

1.2

Advanced Economies Emerging Markets Low Income Countries

Health Sector Other Sectors

Discretionary spending and revenue measures (% of GDP)

Source: IMF staffs estimates from the Survey of policy Response to COVID-19

Interest Rates

0

2

4

6

8

10

12

14

16

18

20

1980

1983

1986

1989

1992

1995

1998

2001

2004

2007

2010

2013

2016

Japan United Kingdom United States

Source: IMF

Lending rate for selected Advanced Economies

Source: IMF

80

100

74 78

2

31

1823 21

World AdvancedEconomies

Emerging Markets Low IncomeCountries

Loosen

Monetary policy responses (% of total)Monetary

U.S.A

• Federal funds rate were lowered by 150bp in

March to 0 - 0.25%

U.K

• Bank of England cut interest rates to an all-

time low of 0.1% in March

Russia

• The Central Bank of the Russian Federation

cut the policy rate by 100 bps to 4.5%.

Eurozone

• The interest rate in the Eurozone were

already at record lows

• main refinancing operations 0.00%

• marginal lending facility 0.25%

• deposit facility -0.50%

Policy responses as at June 2020Some monetary and fiscal policy responses to COVID-19 from selected countries:

• An estimated US$2.3trn (around

11% of GDP) Coronavirus Aid,

Relief and Economy Security Act

• US$483bn Paycheck Protection

Program and Health Care

Enhancement Act.

• US$8.3bn Coronavirus

Preparedness and Response

Supplemental Appropriations Act,

US$192 billion Families First

Coronavirus Response Act.

• Federal funds rate lowered by

150bps to 0-0.25bp

• Additional funding for the NHS, public

services and charities (£16bn)

• Measures to support businesses

(£29bn)

• Strengthening the social safety net

to support vulnerable people (£8bn)

• Reducing Bank Rate by 65bps to

0.1%

• Expanding the bank’s holding of UK

government bonds and non-

financial corporate bonds by

£300bn

• A series of fiscal measures adding

up to 11% of GDP

• Invocation of the escape clause of

the constitutional expenditure

ceiling to accommodate

exceptional spending needs

• The central bank lowered the policy

rate (SELIC) by 200bps since mid-

February, to the historical low of

2.25%.

• A stimulus package valued at

approximately 0.8% of GDP

• An additional 150 billion rupees

(about 0.1% of GDP) devoted to

health infrastructure, including for

testing facilities for COVID-19,

personal protective equipment,

isolation beds, ICU beds and

ventilators

• On March 27, the Reserve Bank

of India (RBI) reduced the repo

and reverse repo rates by 75 and

90bps to 4.4% and 4.0%

respectively.

U.S.A U.K Brazil India

Source: IMF

Impact of the Interventions

Prevented large scale bankruptcies

Supported livelihoods

Credit spreads have narrowed

Portfolio flows to emerging markets have stabilized

Equity prices have rebounded

Currencies that previously declined are currently strengthening

Post-COVID19 Context for Global Development Organisations (GDOs)

• Family Trusts

• Religious Charities

• Think Tanks

• Advocacy/Industry

groups

• For-Profit Government

Contractors

• Non-Governmental Organizations

• Foundations donors allocating

funds globally

• Bilateral Donors allocating funds

globally

• multilaterals donors allocating

funds globally

• Universities sending funds across

the world to

faculty/students/researchers

Global Development Organisations (GDOs)

The Post-Covid19 context for GDOs

• Shift to multi-stakeholder approaches even before COVID19 –

• Sustainable Development Goals

• Principles of Responsible Investing Initiatives /Business Roundtable

• Widely accepted research by Prof. Colin Mayer, University of Oxford and Others

• Greater focus on addressing global challenges, post COViD19

• Complex Operating Environment will require greater leadership

• GDOs will be the best placed to help authorities reach the most vulnerable populations

GDOs are Champions

GDOs will be faced with

even tighter budgets

• Significant budget constraints.

• High Expectations

• Cost cutting will be prevalent

Key Recommendations for turning theCOVID19 crisis to opportunity

Key Recommendations – First Survive

Tactical Actions

• Cut costs

• Delay or stagger payments and payables

• Accelerate receipts and receivables

• Use overdraft and credit lines

Strategic Actions

• Cut costs

• Cash calls, donations and government support (if possible)

• Sale of Assets

Forecast your cash flow situation in the short term, medium term and long term

Model various scenarios and at least three – base case/best case/ worst case

Cash is

King

Tactical / Strategic Actions

Key Recommendations – Astute Risk Management Always

Risk management is the Queen

Mother

Operational RiskRisk Management

FrameworkKey Market Risks

• Occupational Health and Safety

Issues are heightened in crisis

• Operating from multiple locations

heightens cyber risks

• Business Continuity

Planning/Disaster Risk Recovery

become real time functions

• Revisit your insurance policy

including business interruption

insurance

• Liquidity Risk

• ncreased Currency

Volatility during

COVID19 period

• Don’t have any residual

currency risk

• Don’t have any residual

interest rate risk.

• Ensure assets are

matched to liabilities.

• Understand your risks.

• Quantify your risk.

• What is your risk appetite

and philosophy?

• Proactive Reporting and

Monitoring

• Design a process for

exceptions monitoring

• Develop shock

immunization

mechanisms

Key Recommendations – Innovation is key

Innovation is

Crown Prince

Review your business model

Cut Costs

Review your funding sources

Leverage technology

Leverage partnerships

Innovation - Leveraging technology

Virtual Offices

Data Analytics and Big Data

Distributed Ledger and Blockchain technologies

Robotics and Artificial Intelligence

Mobile and Cloud technologies

3D Printing

Key Recommendations - Leveraging Partnerships

Within Network

• Treasury management systems

• Payment systems

• Foreign exchange

• Donor funds management

• Disbursements

Outside the Network

• Governments and public entities

• Vendors of services notably banks and Fintech companies

• Technology and telecom companies

• Expand operating capacity through strategic alliances

Facilitates Cost Cutting through scale, aggregation and efficiencies

Accelerating economic relief efforts

• Leveraging payments companies for more rapid disbursement of government relief funds, especially to those

without bank accounts.

GDOs must lead a systems approach to ending poverty, inequalities, injusticeThe Impact of COVID-19 on Global Extreme Poverty

Source: Lakner et al (2020), PovcalNet, Global Economic Prospects

• Prior to the COVID19 crisis, 783 million people lived in extreme poverty

• The World Bank expects COVID-19 to push an additional 71 million

people into extreme poverty. This represents the first increase in the global

extreme poverty since 1998, and following the Asian Financial Crisis.

• Oxfam’s Time To Care report (January 2020) revealed that:

• The world’s 2,153 billionaires have more wealth than 60% of the

world’s population (4.6 billion people)

• The richest 1% in the world have more than double the wealth of 6.9

billion people

• Women and girls put in 12.5 billion hours of unpaid work every day

• All nations are struggling with poverty

• In 2018, 21.7% Europeans and 14.1% Americans lived in poverty.

• Over 180 million Americans are struggling with their finances

• Robin Hood also reports that 50% of adults in New York City had

lived in poverty, for at least one year, between 2012 and 2018

• Interventions by GDOs must also cover advocacy including for

relevant public policies

Turning the COVID19 Crisis into Opportunity

Arunma Oteh, OONAcademic ScholarUniversity of Oxford