As the world rattle to respond to global pandemic caused by COVID 19, the 17 Sustainable Development Goals of ending extreme poverty, giving people better healthcare, and achieving equality for women among others have been besieged by public health problem that has halted economic growth globally. But in the face of the current pandemic, what do, or should countries do? How can economies get back to their own footings? John Maynard Keynes offered interesting theory to guide these thoughts. Therefore, the basis of this submission is hinged on the Keynesian theoretical model.
As of 1st April 2020, World Health Organization (WHO) reported 750,890 confirmed cases of COVID 19 globally. The total deaths as a result of the virus stood at 36,4051). Out of these, African region had a share of 3,786 confirmed cases and the total confirmed deaths of 77 with 17 new deaths occurring within the 24 hours. This new strain of virus called Severe Acute Respiratory Syndrome Coronavirus 2 (SARS-CoV-2) cascaded to more than 175 countries and territories globally starting from China which is considered the epicenter of the pandemic. The symptoms of the virus in most of the countries include; dysnea, respiratory rate of more than 30bpm, hypoxemia, pulmonary infiltration of more than 50 percent within 24-48 hours, respiratory failure, septic shock and organ failure which require intensive care admission.
While this disease was first reported in December 2019 in Wuhan City in Hubei province of China, the virus has rocked almost all the continents of the world. In Africa, the first case was reported in Egypt followed by Algeria. As of April 1st Algeria, had recorded 585 confirmed cases with 35 deaths. In East Africa, Rwanda was the first country to confirm an imported case of the virus on 13th March who was a male Indian citizen who arrived in the East African nation from Mumbai on March 8th, 2020 This was followed by Kenya of a 27-year-old female Kenyan who travelled from the United State via London.
On 20th March, Uganda also followed suit and registered the first case of COVID 19. This was a case of a 36-year-old male Ugandan who traveled to Dubai on 17th and returned on 20th March. As of 2nd April according to WHO in East Africa, Kenya had 81 confirmed cases with 3 deaths, Rwanda had 80 confirmed cases with no death, Uganda had 45 confirmed cases with no death, Tanzania had 19 confirmed cases with no death and Burundi had 2 confirmed cases and the rate of infections was steadily increasing which forced governments to adopt raft measures to contain the spread of the virus.
Policy responses for preventing spread of COVID 19
In Uganda by 18th of March 2020, a series of measures were issued by the government which included; temporary closure of all the schools for 32 days, a ban on public gatherings including religious activities, bars and night clubs. Furthermore, the government issued additional policy measures which included prohibition of all incoming passengers (air, land and water), prohibition of all passengers’ planes from outside Uganda except the cargo planes and the United Nations relief planes that were to seek clearance from government before operating.
While addressing Ugandans during live TV broadcasts regarding the measures aimed at containing the pandemic, President Museveni both explicitly and implicitly implored economic policy measures that could boost the economy. Museveni acknowledged that some sections of the economy such as tourism and small businesses would suffer, while at the same time, others like agriculture and food businesses would rise. He implored the need to support local manufacturers thereby, underscoring the importance of import substitution industries.
In a fragile economy like that of Uganda, boosting consumer demands is critical. This is similar to the proposition of John Maynard Keynes; in his Keynesian theory, boosting of consumer demands through fiscal policies is significant in addressing major economic downturn. Keynes urged governments who were faced with a similar situation as that of (1929-1940) economic depression to correct the structural break in the economy through the use of fiscal policies by increasing the public expenditures on infrastructures and productive sectors, reduction in the tax rate in order to increase people’s disposable and hence stimulating aggregate demand to its normal equilibrium. By doing this, more jobs are to be created, the populace will be able to earn, save and invest hence increasing the volume of gross national product.
While it’s hard to accurately predict and quantify the economic impact of COVID19 on Ugandan economy, the signs are quite clear and visible. Many Ugandans in urban areas earn daily for their own sustenance. The fact that major businesses and daily activities have been disrupted, raising income to feed is difficult. It’s also difficult for government to generate revenue in taxes. Consequently, this will slow growth. While demand for agricultural products at home may increase at this time, household incomes for many Ugandans will decline and thus reducing consumption. Many Ugandans are likely to lose their jobs. Small businesses need to be empowered through a series of measures aimed at raising their productivity, quality and competitiveness.
Since the policy options proposed by President Museveni are provoked by the pandemic, its good intentions and long term sustainability are likely not to be realized. A good policy measure must be deliberately planned, formulated and executed. It’s not an emergency prescription.
Currently the Uganda’s trade statistics from the World bank indicates that Uganda exports goods and services worth 3 billion dollars and imports goods and services worth 6.7 billion dollars giving the economy a trade deficit of 3.6 billion dollars. The gross domestic products for Uganda are worth 27.5 billion dollars. As a result of the closure of the national boundaries and international flights in Africa and many parts of the world, volume of international trade will decline and industries that strongly rely on imported goods and services for their operations will be negatively affected. Importation of goods and services from countries like China, India Japan and United Arabs Emirates will fall because most of these countries have been locked out due to the ban in all inbound and outbound planes and closure of the national borders.
The tourism sector contributed in 2018 over 1.4 billion US dollars in foreign exchange earning. This is close to 10% of Uganda’s GDP share. Its disruption causes significant strain to the economy. As if that is not enough, the small and medium enterprises in Uganda employs over 2.5 million Ugandans and contributes over 90% of the private sector led entity in Uganda but also generates close to 20% of the country’s GDP.
With the current lockdown, the negative impact and its ripple effects is immeasurable to Uganda’s economy. Many people who are employed in hotels, bars and restaurants, passenger transport, air transport, cultural and recreational services are likely to lose their jobs because of the measures undertaken. The already affected investments include the aviation and shipping companies and these will be forced to reduce the number of workers in order to stabilize operation which would lead to fall in aggregate demand for goods and services for people who will lose their jobs since the tax rates have remained constant yet majority are not working and earning reliable incomes.
While the Presidential address on measures to contain the virus highlighted the need to empower local businesses, the short term and medium term effects cannot be ignored. The local producers/suppliers like Mukwano group of companies, Steel and tube industries, Crown beverages , Nile breweries among others will be affected as a result of fall in aggregate demand for their goods and services making it hard to maintain stable equilibrium ultimately laying off other workers and the grand effect will be fall in volume of gross domestic products and without incentives like tax and interest rates cut, the economy will suffer and others within the region may collapse.
Since evidence has shown that aggregate demand is directly proportional to the level of national income in an economy, Keynesian economic school of thought attributed the outbreak of the great economic depression between 1929 – 1933 that affected the entire world to substantial fall in autonomous aggregate demand, and the multiplier effect which led to the reduction in volume of national income and they therefore advocated for government intervention in regulating the market forces of demand and supply through the use of fiscal policies amidst such economic crisis.
Its time for economists in government to follow on some of the proposals articulated by President Museveni to boost the Ugandan economy. There will be no short-cut other than series of deliberate economic policy actions to steer the country to the right path.
In the United States, in response to such economic distortion brought about by COVID 19 and its associated impact, the United State Federal Reserve has taken a number of significant measures to provide monetary stimulus for stable economic growth patterns. These measures include; slashing off the fed funds by 0.5 percent, liquidating the banking system with 1.5 trillion dollars to increase the short-term loans for the banks, cutting interest rates by 0.25 percent as well as the reserve requirements and President Trump signed 8.3 billion dollars to fund efforts to fight the spread of the virus and several relief aid has been provided to the populace. This economic stimulus is aimed at fighting against COVID 19 as well as maintaining stable aggregate demand and production amidst the rage of the pandemic. Ugandan government needs to not only learn from its US counterpart, but adjust their own measures based on the economic realities of the economy.
Therefore, in order to maintain a stable pattern of economic growth and development in Uganda and rest of Africa even after COVID 19, the impact of the virus on the economy should not be underestimated. The governments need to intervene through the use of fiscal and monetary measures to protect employment, keep the rate of inflation low, reduce income inequalities and poverty rate as well as ensuring that the debt burden is sustainable by borrowing a leaf from developed countries that have adopted several economic policies to stabilize their economies by stimulating aggregate demand and supply.
Isaac Amuku
