JULY 2020 |ISSUE 20
Dubai Keynes Society Newsletter
"If economists could manage to get themselves thought of as humble, competent people on a level with dentists, that would be splendid." — John Maynard Keynes
Table of Contents EDITORIAL ISSUE TWENTY
Oil markets break under weight of COVID-19 demand collapse | Frankie Evers Economic impacts of the coronavirus | Thomas Rose and Matthew Johnstone Protection or Pollution? | Mia James Opinion: China and Covid-19: Uncertainty in the Horizon | Nishka Keni Paving the way for Africa | Abhay Nischal Has the diamond industry lost its sparkle? | Ashrita Ganesh Book Review: Nudge by Richard Thaler | Chloe Russo A brief insight into behavioral economics | Kian Kazranian The century’s worst recession: the debilitating impact of COVID-19 on the world economy | Khwaish Lakhiani What is the definition of foreign aid? | Aman Doshi Continuing threats pose prolonged suffering for Dubai’s economy | Zainab Hussain The Environmental Impact of COVID-19 | Nina Hindocha COVER: WUHAN, HUBEI, CHINA. THE PHOTOGRAPH WAS TAKEN IN JANUARY, ONE MONTH AFTER THE FRIST IDENTIFICATION OF COVID-19 IN THE CITY.
editorial
It has been an honor to serve as Heads of the Dubai Keynes Society this year. We would like to thank everyone who has attended our sessions this year; those who have written articles for our newsletter; the speakers who have presented at the Society, both internal and external; the members of the Economics department; and most importantly, Mr Christopher, who has been a great support for all three of us, without whom the Society couldn’t have continued. We would also like to thank Aanya, Diptasri, and Jahnvi, the previous Heads for their help and assistance throughout the year. We look forward to continued involvement with the Society, albeit in a different capacity, next year. Tiya Bhatia and Rohan Khaleghian — Editors
ABOVE: DUBAI'S WORLD ISLANDS REMAIN VACANT, AS DUBAI SUFFERS A PROLONGED ECONOMIC DOWNTURN.
Oil markets break under weight of COVID-19 demand collapse Frankie Evers
The history of the international markets is littered with signature dates that defined moments of great change of eras ending and new dawns beginning. The great depression was the worst economic downturn in the history of the industrialized world, and it was triggered by the stock market crash in October 1929. Almost 60 years later, black Monday (October 19th, 1987) is forever imbedded in history as the largest unexpected stock market crash that propelled the world into a global recession. April 20th,2020, maybe one of those dates as it was the day that oil fell to the point that it had no value. The United States oil (USO) exchange traded fund, faced with no storage availability in Cushing, Oklahoma, did something no financial institution had ever done before; it paid an investor $40 for every one of their barrels of oil that they were willing to take ownership of. The first domino of this story was pushed over 6 weeks earlier far away from middle America in the Austrian Capital. On March 6th, a Saudi prince and a Russian minister, custodians of world’s two largest oil producers after the US, failed to agree on a reduction in oil supply in the face of declining demand in the early days of the coronavirus outbreak. They both left Vienna,
ABOVE: THE WALL STREET BULL IN NEW YORK WALL STREET WAS AT THE CENTRE OF THE STOCK MARKET CRASH OF OCTOBER 1929.
growling at each other while global oil production remained fixed at 100 million barrels a day.
"The USO exchange paid an investor $40 for every one of their barrels of oil that they were willing to take ownership of."
Over the following three weeks, the G7 countries, one by one, started to lock down their economies beginning with Italy on March 9th and following the WHO’s declaration on March 11th that the coronavirus outbreak had reached the status ‘global pandemic’ the rest followed. Before the end of the month, the international energy agency had forecast that oil demand would likely fall by 30% in April as almost half the world’s population was in some form of quarantine. And yet, global oil producers kept supplying 100 million barrels of oil into a market that only wanted 70. There was only ever going to be one outcome in that basic mathematical equation, the unwanted 30 million barrels of oil each day in April found a resting place in every available storage facility in the world. While Saudi Arabia and Russia finally came to an agreement with a number of other countries on April 12th to cut oil supply by almost 10 million barrels a day, oil markets were convinced that it was too little too late, and prices continued their trend from the previous month and fell to 20-year lows. So when the USO fund managers came into work on Monday after a relaxing weekend in Denver, unbeknownst to them, they were walking into the perfect storm, with the largest holding of US oil contracts on the last day before expiring with no storage available. — Frankie Evers
ABOVE: SCHÖNBRUNN PALACE, VIENNA, AUSTRIA. TALKS BETWEEN SAUDI ARABIA AND RUSSIA ABOUT OIL PRODUCTION WERE HELD IN AUSTRIA.
Economic impacts of the coronavirus
Thomas Rose and Matthew Johnstone
COVID-19 has brought across a sharp decline in consumption worldwide, bringing the world economy into a very deep depression, with global GDP falling by around 20-25%. As a result, this unprecedented fall in GDP, investment, consumption and economic activity will cause lasting scars on the economy – higher debt, business closures, growing unemployment, permanently lost income, and new barriers to global trade will cause a prolonged economic downturn. To begin with, large sections of the economy have ground to a halt causing a record fall in GDP, and record rises in unemployment. This change was so rapid and so unforeseen that it is virtually impossible to measure the impact on unemployment statistics. As a result, benefit agencies are overwhelmed with surges in demand; and this will profoundly affect confidence and lead to firms cutting back investment and households saving what they can. Furthermore, as output falls, there are numerous knock-on effects. For example, If UK and US clothes shops shut down for three months, they will not be ordering clothes. This will affect manufacturing workers in China (along with other nations which produce clothing) and even cotton pickers around the world. As a result, China receives not only a fall in consumption but also a reduction in output. This could have detrimental effects of the economy and may lead to a fall in their inward investment
ABOVE: CHANGES IN DEMAND DOMESTICALLY CAN HAVE GLOBAL REPERCUSSIONS.
– affecting many countries who have benefitted from their investment. Finally, the shutdown is causing permanently lost output that will not be recovered. As a result of the mass economic slowdown, firms are facing detrimental decisions and are having to permanently cancel events and projects. Therefore, we are seeing a permanent loss in output and income, that will have long-lasting effects. In conclusion, there is going to be a very deep recession, the length of time the slump remains is uncertain. The biggest factor is how the virus spreads. If it begins to fade away or some vaccine is developed, it will help to restore confidence and re-open economies. However, if it doesn’t it will lead to a prolonged economic slump and it may be very hard to re-open borders and usual economic activities. — Thomas Rose and Matthew Johnstone
"There is going to be a very deep recession... the biggest factor is how the virus spreads."
TOP: IF A VACCINE IS DEVELOPED, IT WILL HELP TO RESTORE CONFIDENCE AND RE-OPEN ECONOMIES
BELOW: THE HEADQUARTERS OF THE DEPARTMENT FOR WORK AND PENSIONS IN THE UK. THE SITUATION HAS LED TO RECORD RISES IN UNEMPLOYMENT.
JULY 2020 |ISSUE 19
Protection or Pollution? Mia James
Face masks, gloves, protective equipment, body bags: the Covid-19 crisis has spurred a rapid expansion in the production of plastic products which are essential for protecting our frontline workers. This pandemic has governments racing to boost their stockpiles - an estimate from Grand View Research suggests that the global disposable mask market will grow from $800 million in 2019 to $166 billion in 2020. Such production is necessary. However, what we do not realize is that this plastic is ending up in waterways all over the world, from latex gloves in the Thames river to surgical face masks on the beaches of Soko Island in Hong Kong. In Athens, there has been a 150% increase in the amount of plastic found in the general waste stream, and evidence from the International Solid Waste Association (ISWA) shows that this is a worldwide trend. UN Environment Programme estimates that as much as 13 million tonnes of plastic goes into the oceans each year, and these figures risk growing substantially as countries face the coronavirus pandemic. It has already led to most of the US lifting its ban on single-use plastic bags, and the postponing of other anti-plastic bans in Britain. A WWF Report stated that ‘’if just 1% of the masks were disposed of incorrectly, this would result in as many as 10 million masks per month polluting the environment… this would result in the dispersion of more than 40 thousand kilograms of plastic in nature". According to ISWA, it is estimated that this pandemic has led to a 250-300% increase in consumption of single use plastic in America. Much of this is due to personal protective equipment, however that is only part of the story. Lockdowns have led to a boom in e-commerce, as well as home deliveries from restaurants. These goods are often wrapped in, or come with, layers of plastic which are hard to recycle. But the waste produced by personal protective equipment is especially harmful.. ABOVE: PLASTIC DRINKING BOTTLES ARE A LARGE SOURCE OF PLASTIC POLLUTION.
PREVIOUS : GEORGE WASHINGTON BRIDGE IN NEW YORK. NEW YORK HAS BEEN ONE OF THE WORST-HIT STATES OF THE U.S. WITH REGARD TO THE PANDEMIC.
John Hocevar, oceans campaign director at Greenpeace USA, stated "The structure of PPE will make it particularly hazardous for marine life. Gloves, like plastic bags, can appear to be jellyfish or other types of foods for sea turtles, for example. The straps on masks can present entangling hazards." In addition, these items break down over time and add to the enormous collection of microplastics in the sea and air, the effects of which on humans are still being studied. While polymers (the base that plastics are made from) are chemically inert, many chemicals are added to plastics during the manufacturing stage, some of which could be released in the body. Moreover, when microplastics pass through wastewater, they pick up harmful bacteria which we may ingest along with the microplastics. A major cause of the growth of plastic waste is due to consumers not wanting to buy recycled goods given the higher costs. The plummeting oil prices brought by this pandemic has led to a dramatic decrease in the value of plastics thereby exacerbating this cost differential. This gives firms and consumers less of an incentive to use recycled materials. Further, the recycling industry is in financial distress as worries about contaminated rubbish and citywide lockdowns have made refuse collectors nervous about going in to work. This has led to more plastic products ending up in landfills (and eventually the oceans) or being incinerated. Whilst this increase in single-use plastics is understandable, we must think about our planet’s health. It is a common assumption that plastics are less likely to carry the virus, however studies have shown that the virus can live up to 72 hours on plastics and hard shiny surfaces, compared to 24 hours on paper and fabrics. Reusable masks can be easily disinfected and would save the planet of tens of thousands of contaminated plastic waste. A few things we can do to reduce our plastic waste during this pandemic include using reusable shopping bags, buying products in bulk, and using biodegradable plastic to encourage a circular economy. The effects of Covid-19 have scarred the planet and will linger in the world’s landfills and oceans. We must act now to create a healthier future for our planet because for now, we are on a track to a future in which there is more plastic in the ocean than fish. — Mia James
ABOVE: PLASTIC POLLUTION IN MANILLA PHILIPPINES
China and COVID19: Uncertainty on the Horizon Nishka Keni
t is undeniable that the Covid-19 pandemic has affected the economy of every country around the world and the development of globalisation. However, it could be disputed that this impact will have the greatest long-term implication on the China’s economy, in particular, its status as a global trading giant. For decades, China has retained its reputation of being an exporting-heavy country, and now, as the aftermath of the pandemic seems to be approaching in the horizon, it has brought along with it, a variety of speculation on how this country will survive the inevitable collapse. Chinese exports went down by $71,342 million in early 2020, as a result of the pandemic. This decline in demand is expected to continue for forthcoming months, partly due to China’s involvement in the outbreak of the disease – unwarranted forms of xenophobia – and the fear and protectionist views of foreign countries. Global supply chains have been disrupted, as well as the flow of free trade between countries. One example of a country that has been negatively affected by this is the United States. For instance, the US had the highest trade dependency on China in 2019, often relying on Chinese exports to produce their own exporting goods and services. In particular, the US’ pharmaceuticals industry has taken a hit as 70% of these are imported from the US’ trading partners, including China. However, pre-Covid-19, China was already producing almost half of the world’s supply of medical masks. The country is a key source of protective equipment and pharmaceutical products, which means that many countries still rely on China to support them through the pandemic. In fact, China’s exports rose in April by TOP: THE LUOHU DISTRICT SKYLINE WITH KK100 AND SHUN HING SQUARE IN THE CENTER
around 4%, suggesting that despite the pandemic, China will remain an influential exporter. This could be as a result of the increase in demand for ‘fast-fashion’ – as more people move to online shopping to satisfy their lockdown needs. Businesses like H&M, Forever 21 and Zara were thriving during the virus season, with consumers often neglecting the underlying disruption of ethical codes these firms practiced. Most fast-fashion brands have faced scrutiny for providing manufacturers in developing countries less than adequate forms of protection against the virus, in an attempt to satisfy the increasing demand of their products. Although there are speculations from both sides of the argument, without a doubt, China’s economy will no longer represent the prosperity it held in past decades. Whether this is an issue that proves to benefit other countries or disrupt global trade in the long run is a question that can only be answered with time. However, Covid-19 certainly has left a lasting impact on trade, and in particular, countries that rely heavily on exports to achieve economic growth and diversification. — Op-Ed by Nishka Keni
ABOVE: HUAIBEI, CHINA - FEBRUARY 21 2020: WORKERS MAKE MEDICAL ISOLATION GOWNS IN A STERILIZED WORKSHOP OF GARMENT FACTORY.
Paving the way for Africa Abhay Nischal
Introduction African countries have been struck with unprecedented poverty and inequality; they have fallen far behind the rest of the world’s economies due to reasons associated with not only their geographical location but for their history as a continent as well. It’s argued that Europe has permanently halted growth within the African region due to their exploitation in the colonial era. On the contrary, economists believe that it’s predominantly poor economic policies that have played a substantial role in the lack of development. In addition to this, geographic seclusion is something African countries have had to battle with. Trade and globalisation work closely together and result in exponential growth, but something as fundamental as this is highly difficult for African nations to execute. Having 30% of its countries landlocked makes it difficult for African economies to connect globally and puts heavy restrictions on international connectivity. It’s rare to see a country’s economy grow rapidly, especially when it has severe constraints due to its financial and historical background, but recently an emergence of one economy has swept the world off its feet. Ethiopia has been akin to the same limitations as other African nations but has recently been able to rise from the ashes, only to experience expeditious economic growth. An increase of industrial activity and a shift away from agricultural production is Ethiopia’s key to success. The only question is, can this help Africa construct interconnections with the rest of the world, similar to some of the most prosperous global economies?
So, how exactly did Ethiopia do it? Ethiopia is one of the 16 countries landlocked within the African continent, yet still managed to utilise its resources and become a flourishing and thriving economy. With a population of 100 million alongside a sustained annual growth rate of around 10% for the past 15 years, Ethiopia has secured the spot for the world’s fastest-growing economy, leading us to question what assisted this sudden boom? 1. Foreign investments: much of Ethiopia’s growth is owed to global investors who saw potential in the country’s economy, leading to increases in privatization inflows and industrial parks. Due to political reasons, China decided to take Ethiopia under its wing; becoming its biggest investor and trading partner. Due to their cheap labour costs and rivalrous manufacturing industry, it is said that Ethiopia has to potential to become the China of the African continent
ABOVE: THE NATIONAL CEMENT SHARE COMPANY OF ETHIOPIA'S NEW PLANT IN DIRE DAWA.
2. Industrialization: The government of Ethiopia saw industrialisation as a means to transform the country’s economy, whilst simultaneously reducing poverty, introducing jobs and creating opportunities in the process. The country continues to attract international attention for its endeavours and home-grown development strategy; their industrial policy was a vehicle for them to catch up with some of the major global economies today. Vision 2025 plans to sustain Ethiopia’s shift to industrialisation and aims to position the country as the leading manufacturer in the continent. 3. Social stability: at a point, Ethiopia was identified as one of the most authoritative states in the entirety of Sub-Saharan Africa but recently has experienced radical reforms transforming it into a more democratised and unrestricted country. They have established deeper relations with several parties who have assisted their instantaneous growth by providing the country with political and financial support, some of which include The World Bank, European Union and IMF. The steps taken by the country have ensured national security and will play a large role in their continuing development. 4. Youthful population: more than 70% of the Ethiopian population are under 30 years of age. This youth-heavy population puts Ethiopia on the right path to a population age structure which is exactly what is required of them to continue growing. The Ethiopian government began valuing the worth of education and formulated an education development roadmap after realising the structural demographic of their economy. By 2030, Ethiopia will consist of the ideal age structure, which will continue being a key economy-boosting asset.
Africa’s takeaway The Industrial Revolution in 1760 is always turned to as something which remodelled global economies; a means of migrating away from agricultural societies and transforming them into more urbanized and industrial ones. Ethiopia is on the path to achieving this as they yearn to become a middle-income nation by 2025. Mr Owusu of the UN believes that this desire “is what drives everything the government and the people are doing.” Although Ethiopia is banking on industrialisation, its agricultural sector is still highly prevalent amongst the general population. 46% of the country’s total GDP is still derived from farming meaning that it’s still heavily relied upon.
UPPER: HUAJIAN SHOE FACTORY IN THE EASTERN INDUSTRIAL ZONE, ETHIOPIA. LOWER: AGE DISTRIBUTION IN ETHIOPIA AND FUTURE PROJECTIONS.
Similarly, Africa’s GDP is substantially consumed by the primary sector; but how is Ethiopia thriving after severe famine? With economic growth comes productivity and efficiency and that’s the missing piece of the puzzle. Ethiopia has focused a lot of attention on increasing their productivity, although not having a perfect market structure, which has resulted in improved farming techniques. Whether this is the usage of technology or access to newer markets, Ethiopia has been able to outshine most African nations. Although Ethiopia is banking on industrialisation, its agricultural sector is still highly prevalent amongst the general population. 46% of the country’s total GDP is still derived from farming meaning that it’s still heavily relied upon. Similarly, Africa’s GDP is substantially consumed by the primary sector; but how is Ethiopia thriving after severe famine? With economic growth comes productivity and efficiency and that’s the missing piece of the puzzle. Ethiopia has focused a lot of attention on increasing their productivity, although not having a perfect market structure, which has resulted in improved farming techniques. Whether this is the usage of technology or access to newer markets, Ethiopia has been able to outshine most African nations. Their economic model is not flawless, but when compared to other African economies, they are much further ahead. Ethiopia has religiously allocated funds (10-17%) to developing its agricultural sector as they are aware that even after industrialisation, it will continue to be a major revenue generator. The Agricultural Transformation Agency (backed by the UN) has helped build resilience around food insecurity. After experiencing severe famine, food distribution networks have become highly efficient, minimising any future implications of droughts and other scarcity issues. Whilst economic models differ between country to country, there is a lot that African economies can capture from Ethiopia’s accomplishments. It wouldn’t be wise to follow the same that Ethiopia did, but countries can take on a more active role to prevent economic suffering and encourage growth. It’s safe to say that agriculture will continue being an integral part of the African economy, in saying so, some parts of Africa are more involved in enhancing this crucial sector compared to others. When linked back to the idea of differing models, African countries should not follow Ethiopia’s triumphs, but instead, they should adapt and come to terms with their circumstances to understand how to benefit the model of their own economy. It’s worth looking into how compliance and flexibility were primary contributors to this sudden security; African economies will have to adjust this abstract to see how it best fits in their model. But something that all countries can learn from this is to understand the importance of communication and technology as interconnection will be integral when they inevitably seek change. — Abhay Nischal
ABOVE: ETHIOPIA EXPORT TREEMAP FROM MIT– HARVARD ECONOMIC COMPLEXITY OBSERVATORY. (2014)
JULY 2020 |ISSUE 20
Has the diamond industry lost its sparkle? Ashrita Ganesh
Given the spread of COVID-19, quarantine, and a deteriorating economic outlook, it was inevitable that demand for luxury items such as diamonds would fall. Even before the pandemic, the diamond industry was struggling with competition from substantially cheaper lab-made synthetic diamonds and a glut of small, lower-quality stones. With a global recession looming, diamond sales are likely to remain under pressure. If we were to analyse the different segments of this sector, diamond miners have been badly affected, with likely consolidation among the weaker, smaller producers. This is due to the fact that the smaller producers will find it extremely challenging to cover their fixed overheads as production drops drastically due to lower demand and lockdowns in many producing countries. For instance, the world’s largest producer, Alrosa, recently announced plans to curtail production at its Lomonosov mine in Russia. This inevitably leads to job loses, affecting the livelihoods of many workers. Elsewhere, mines across Lesotho, Namibia, Zimbabwe, India and parts of Canada are on hold due to lockdowns or, in some cases proactive steps due to falling demand. Overall, mines that would otherwise account for over 16% of the world’s diamond output in 2020 are on hold. The next stage in the diamond supply chain is the cutting and polishing sector where India has a monopoly with fourteen out of every fifteen rough diamonds in the world being processed in Surat, Gujarat. Currently, most of the units are lying vacant. It is estimated that around 250,000 migrant workers have gone back home due to lack of work. Recently, some workshops have re-opened but are operating at a minimal capacity of around 30%. The country’s diamond polishing industry is set to plunge in fiscal year 2021 to a low of $13-15 billion, compared with the $24 billion in fiscal 2019, and an estimated $19 billion in fiscal 2020. Of late, the Indian diamond processors have been urged by trade organizations to curtail the import of rough stones for one month from May 15 to June 15, hoping that the move will help the industry clear inventory and ease the working capital situation. Curtaining the rough imports would also give a signal to bankers that the trade would not increase its indebtedness, and make bankers confident to continue supporting the sector. Many industry leaders are of the opinion that if the sector could manage to stop rough imports for the next three months, the situation should come under control, and they also expect demand to be restored by 2021. ABOVE: SURAT DIAMOND MARKET, GUJARAT, INDIA. PREVIOUS: THE MARRINER S.
ECCLES FEDERAL RESERVE BOARD BUILDING, HOME TO THE U.S. FEDERAL RESERVE BANK.
The shift in the epicentre of Covid-19 pandemic to the US and the European Union (EU) from China also added to the woes of the diamond industry as both together account for over 45% of India’s polished diamond exports. India’s polished exports to the two geographies declined by about 41% in February year on year. It has plunged further since then, especially with the nationwide lockdown which began mid-March. In addition, demand from Hong Kong and China, which accounted for about 45% of the exports, also declined 79% in February and even further since then. As inventory levels increased 15-20% over the March quarter, prices fell by an average 7% across various cuts of polished diamonds in March 2020 as the pandemic hit all major global markets, which resulted in inventory losses. Meanwhile, since March, payments from across geographies have reduced to about 25% of the actual monthly dues, putting further stress on their financials. The final stage is the retail industry where demand has plummeted due to lockdowns and falling disposable incomes. Even though many companies have tried to make the shift to online retailing, this will take time to arrest the steep decline in sales. Given the high value of diamonds, most consumers prefer to try them on and spend time inspecting various options before finally purchasing. Even with the easing of lockdowns in many countries, it will take a long time before activity in this industry reaches pre-virus levels. Since the virus has spread to other parts of the world, limitations on travel are further impacting sales events. For example, De Beers cancelled a sales event, its third ‘sight’ of the year, which was due to take place end of March. It has also closed stores in London, Paris, US, Canada, Russia and Saudi Arabia until further notice. Moreover, the initial outbreak of Covid-19 led to a fall in demand from the Chinese market, which is reported to account for 15% of global demand. In early March, De Beers, the world’s second-largest producer, reported a 28% year-on-year decline in sales. Looking ahead, it will take quite some time for the diamond industry to regain its sparkle. This will depend on a combination of factors including increasing consumer confidence, disposable incomes not deteriorating further and resumption of travel. — Ashrita Ganesh
ABOVE: DIAMOND CUTTING AND POLISHING FACTORY, SURAT, GUJARAT, INDIA.
nudge: improving decisions about health, wealth and happiness by richard thaler and cass sunstein
This book is about behavioral economics , and examines some of the principles used in behavioral economics to understand and influence behaviors. Nudge is a book for helping people to make better decisions and to act in their own best interests, but not forcing people to. Both authors would like to limit government coercion in peoples lives , but they recognize that by providing good incentives, it can channel behavior in directions that will increase overall happiness and economic efficiency. Richard H. Thaler shows that we are all susceptible to biases that can lead us to making bad decisions. I found it very interesting and insightful to find out how governments could help improve people’s lifestyles and decisions relatively easily through “choice architecture”, this is a way of influencing decisions by how choices are presented. They use many interesting and some famous experiments in psychology and behavioral sciences to illustrate their points. One of their examples of choice architecture and ‘nudging’ is to rearrange a school
cafeteria so that healthier foods are seen first by students , or are easier to reach then unhealthy foods. Although they are still allowed to choose the unhealthy option, they are more likely to consume healthier foods simply due to the arrangement of the food choices. This takes barely any time to do , but can lead to much more significant long term benefits such as a healthier life for people. Nudge provides many more excellent examples of this throughout the book. You don’t need to know anything about economics to understand and enjoy this book, it will still change the way you think — not only the world around you and some of its bigger problems — but also about yourself and the way you make decisions and how you could potentially make better ones. The book is not only filled with good ideas, which are especially relevant for legislators and policy makers, but it also includes humour to keep the reader engaged and to allow this book to be Interesting for a wider range of audiences. — Chloe Russo
book review by chloe russo
A brief insight into behavioral economics Kian Kazranian
What can we do to get people to exercise more, invest in a savings account and make better choices in general? The answer to these questions is Behavioural Economics, a fascinating subject that combines two social sciences (psychology and economics) to study the rationale underlying economic decisionmaking. It acknowledges the ‘irrationality’ that humans inherently possess, which is expressed through our impulsive, visceral and occasionally unpredictable behaviour. To help deepen my knowledge of this complex yet intriguing field, I completed the University of Toronto’s Massive Open Online Course (MOOC) entitled ‘Behavioural Economics in Action’, instructed by Dilip Soman, a professor at the Rotman School of Management. This self-paced online course was divided into three parts: main principles; methods to aid decision-making; and the application of nudging in real-life scenarios. The initial section introduced me to numerous key concepts which helped me understand how influential and relevant context is in decision-making. Firstly, the compromise effect - a finding published by Itamar Simonson in his Journal of Consumer Research – states that a consumer is prone to desiring and choosing the medium option between a set of choices, thus firms can surround a ‘medium’ product with larger and smaller sizes, instilling a natural attraction towards that compromise option. Furthermore, the default effect – conceived by Johnson and Goldstein in 2003 ABOVE: TORONTO, CANADA. THE MOOC KIAN TOOK WAS FROM THE UNIVERSITY OF TORONTO.
– is a notion that a no-action default is the outcome when an individual fails to make a certain decision. This refers to the intrinsic ‘herd mentality’ that we possess whereby we constantly follow social norms, as well as our innate laziness since a simple barrier or obstruction can easily prevent us from reaching a certain outcome, resulting in a large intention-action gap. Another key term mentioned in the MOOC was nudging, which is any aspect of a decision that influences people’s behaviour by changing the way choices are presented in an environment, and to classify as a nudge, the intervention must be cheap and easy to evade. Failure rates of new products are often high, and this could be justified by firms’ negligence to underlying human psychology, therefore it is imperative to implement nudging strategies to positively influence consumer decision-making. Additionally, policymakers must factor human behaviour into their various schemes by making it easier for people to get their outcome, which can otherwise be expressed as providing them with a crutch. Along with the ample information the course put forward, many interesting debate topics were mentioned, of which the most thought-provoking were: Is irrationality truly damaging to human welfare? Are credit cards a boon or a curse? Do laboratory studies or field studies yield the best insights? Is it more important to develop a unified theory or invest in experimentation? Completing this engrossing MOOC was an extremely valuable use of my time, and, in addition to the knowledge it provided me, it opened my eyes to the sheer relevance of Behavioural Economics in real-life scenarios, and I consequently developed a curious intuition, constantly questioning why a particular decision was or wasn’t made. — Kian Kazranian
ABOVE: A SUPERMARKET AISLE IN INDONESIA. RETAIL IS ONE OF MANY SECTORS THAT COULD BENEFIT FROM IMPLEMENTING BEHAVIORAL ECONOMICS TECHNIQUES TO MAXIMIZE SALES.
JULY 2020 |ISSUE 20
The century’s worst recession: the debilitating impact of COVID19 on the world economy Khwaish Lakhiani
Today, our governments, our healthcare systems, our generation are enduring the detrimental impacts of the health virus: COVID-19. It has stalled the economy, caused stock prices to plummet and battered consumer spending to the extent that our present day situation is being compared to major recessions in the past – namely the great depression of the 1930s – making it indisputably the worst recession of the 21st century. The extent of damage that has been inflicted by COVID-19 is particularly due to its contagion; global markets have experienced a fall in demand as with social distancing regulations consumer spending has dropped. This can be seen in the travel and tourism industry, where imposed travel bans has led to a significant loss of revenue and in a desperate attempt to earn profits airlines have had to cut costs by reducing the number of flights and laying off staff. Such extensive actions were taken by Emirates Airlines, the dominators of the airline industry, who have had to fire 600 pilots and 6,500 cabin crew staff in a second wave of job cuts. Unemployment rates have reached a record high where in the United States alone, the number of people filing for
ABOVE: SHENGSHENG AREA OF WUHAN, CHINA. COVID-19 ORIGINATED IN WUHAN.
unemployment benefits has spiked, signaling an end to a decade of expansion for one of the world’s largest economies. Global shares have taken a big hit, as market insecurity has led to plummeting stock prices with the Financial Times Stock Exchange and Dow Jones Industrial Average announcing their biggest quarterly drops in the first three months of 2020 since 1987. This proves to show how the economic hubs of the world are suffering from such unprecedented effects. However, the lowincome countries are enduring the worst. Based on the IMF estimates, there are predictions of an increase of nearly 420 million additional people living in extreme poverty and when comparing data for the periods March 2020 vs. December 2019 (precrisis) and March 2020 vs. March 2019 (yearover-year approach), the majority of countries considered (77% and 72%, respectively) registered a negative IIP growth. When comparing the recession of 2020 to that of 2008 many parallels can be seen, the
"When comparing the recession of 2020 to that of 2008 many parallels can be seen" common being that in both cases the global economy suffered tremendously. In 2008, global markets tanked and banks were in such a futile situation that lending essentially froze to a virtual halt. However, economists believe that nothing truly happened to the real economy meaning that people could still spend money and trade amongst borders was still intact. The situation today is different, as COVID-19 has induced a “coma� onto our economic activity. Schools, ports, businesses are shut, employees are asked to work from home and consumers cannot spend in the traditional manners: our economy has reached a standstill like never before. Figures about the global economy said it would shrink by 3% in 2020, much worse that the financial crisis of 2008 and to quote the chief economist at IMF, Gita Gopinath, "The accumulative loss of 2020-21 could be $9 trillion which is equal to the size of combined economies of Germany and Japan. It is first time since great recession that both advance and emerging economies are in recession. If the pandemic does not recede in H2 2020 and financial condition worsens, in this cases the global economy will fall another three per cent in 2020. And if crisis rolls over into 2021, it will reduce global GDP by eight per cent based on baseline scenario."
Nevertheless, there can be a revival of the economy depending on how the governments play their cards. Once COVID testing has been made a nation priority, governments must strive to ensure that the people are protected from unemployment whether that means subsidising firms that have been badly hit or increasing SNAP benefits so that low-income families can get food or sending checks to households whilst providing additional support for the economy. Actions have been taken with the US Federal Reserve cutting down interest rates, buying up debt to add to the financial system and passing a $2 trillion coronavirus aid bill to help workers and businesses. While some argue that this will cause the federal debt to rise exceedingly, interest rates are at a historically low which means that debt will not be too costly. It is better to spend to insure the economy against this recession than not spend and allow the virus to further inflict negative impacts on the economy. While the situation is far from ideal, silver linings can be found: new policies are being introduced to not only help foster a recovery but also provide an opportunity to strengthen certain sectors of industry and enable productive diversification in what is expected to be a changed landscape of global value. This unprecedented situation has forced companies to develop new business models and ways to organise production, which may eventually help the science, technology and innovation sectors. Other than this, the crisis will allow for a rebalancing of state-market relations and a rebalancing between hyper-globalisation to national autonomy. Some governments are considering the advantage that such plans might offer as can be seen in India, where the government has announced a relief package for industry with an aim to achieve self-reliance while simultaneously enhancing the country’s competitiveness in the global economy. In conclusion, COVID-19 has launched the world into the 21st century’s worst recession with
ABOVE: THE UNITED STATES CAPITOL. THE U.S. HOUSE AND SENATE PASSED A STIMULUS PACKAGE THAT INCLUDED AND INCREASED SNAP (FOOD STAMP) BENEFITS.
devastating impacts felt by all sectors of industry. There are still many variables at play that could affect economic growth and recovery. Nevertheless, this health crisis has allowed certain sectors of industry, namely ecommerce, to provide at least some economic growth to account for the drop in GDP. This virus may well be a way for our society to experience a necessary remodelling for a more efficient global economy for the future. So, taken together this means that there is some hope, some possibility that the global economy could experience a sharp rebound once the pandemic is over and with the right government initiatives this time may soon pass. — Khwaish Lakhiani
"This virus may well be a way for our society to experience a necessary remodelling for a more efficient global economy for the future"
ABOVE: THE GROWTH IN ECOMMERCE HAS SLIGHTLY OFFSET THE LARGE FALLS IN ECONOMIC ACTIVITY RESULTING FROM CORONAVIRUS..
What is the definition of foreign aid? Aman Doshi
To reach a definition for foreign aid, we must first evaluate foreign aid over 3 levels. In this system, level 1 provides the understanding of foreign aid from the perspective of an uneducated individual, such as the typical consumer. In level 2, we delve deeper into the uses of foreign aid to arrive on the perspective of foreign aid in the eyes of a well-educated school student. In level 3, we analyse the different types of foreign aid in depth, review case studies, and decide upon its advantages and disadvantages to reach the outlook of economists on foreign aid. When evaluating over all 3 levels of our understanding of foreign aid, we can finally arrive at a set definition. Level One: Perspective L1: foreign aid is the voluntary transfer of resources, typically a flow of capital, from a developed nation to a developing nation, with aims of benefiting the recipient.
This viewpoint represents the understanding of foreign aid in the eyes of a member of the general population. At first appearance, such a viewpoint appears absolute yet provides an interesting paradox which was at first not accounted for: if international economies compete from every second of every day in scientific research, health care, military prowess and technological advancements, why should nations choose to donate billions of dollars under the blanket term known as “Foreign Aid�? Such capital, which may have served to boost economic growth, reduce ABOVE: THE STATUE OF LIBERTY. THE UNITED STATES HAS THE WORLD'S LARGEST DEVELOPMENT AID BUDGET IN THE WORLD: 31 BN USD.
national debt, or support struggling health care systems in times of emergency, appears seemingly wasted as an economic leakage. As economists, we must ask if this is some form of human virtue, or payment for reparations of past or foregone mistakes, or merely carelessness? Yet, when dealing with politics and capital, our presumed answer as economists must never be ignorance or sympathy but rather a strategical move made by governments and politicians on a chess board. Level Two To combat the arrival of a paradoxical viewpoint of foreign aid from level 1, we can now look towards its uses in modern day society. Governments tend to use foreign aid in numerous methods, whether it may be a signal of diplomatic approval, or to strengthen a military ally. Other reasons may include: to reward for behaviour approved by the donor, to extend a donor’s cultural and political influence, to provide infrastructure required by the donor for resource extraction from the recipient country, or to gain commercial access.
Such drastic uses of aid contrast the perspective of level 1, where foreign aid was typically described as solely beneficial to the recipient country. However, we have reached examples of foreign aid where it seemingly benefits both parties, allowing us to revise a new perspective of foreign aid from the viewpoint of a well-educated school student. Perspective L2: Foreign aid is the international transfer of resources, mainly capital, from a developed nation to a developing nation. Such a transfer can benefit both the developed nation and, mainly, the recipient nation. Level Three Arriving at level 3, we must now evaluate the 6 types of foreign aid, review case studies,
ABOVE: TAIPEI 101, TAIWAN. TAIWAN HAS HISTORICALLY BEEN A BENEFICIARY OF AMERICAN DEVELOPMENT AID.
and decide upon its advantages and disadvantages. There are 6 main types of foreign aid to be discussed: bilateral aid, multilateral aid, tied aid, project aid, military aid, and voluntary aid. Bilateral aid Bilateral aid is the assistance given by one government directly to another government; it is when capital flows from developed nations to developing nations (if you take notice, this form of aid is very similar to our level 1 perspective of foreign aid).
Strategic political and humanitarian considerations usually direct bilateral aid; this capital assists in long-term projects to promote healthy economic growth, democracy, stability, and infrastructure development. Multilateral aid Multilateral aid is the assistance offered by many governments who pool funds into internationally recognized organisations – examples include the World Bank, United Nations, and the International Monetary Fund. These funds tend to be directed towards poverty control and infrastructure development. Project aid Project aid is the use of funds to finance particular projects, including building and developing schools or hospitals in povertystricken nations. Voluntary aid Voluntary aid is usually funds provided in the form of a charity. For example, Médecins Sans Frontières is an international humanitarian, non-governmental charity best known for projects in regions which are wartorn or severely affected by endemic disease outbreaks. Military aid
ABOVE: UNITED NATIONS SECRETARIAT BUILDING, NEW YORK. THE U.N. HELPS ORDGANIZE MULTILATERAL AID PROGRAMS .
Military aid, the opposite of voluntary aid, is never charitable. It is commonly used to assist a country or group of people in defence efforts, as well as support developing states maintain control over their own territory. In 2011, the United States provided funds for roughly $15 billion in military aid (recipient countries including Afghanistan, Iraq, Jordan, Egypt, Ethiopia etc). In most cases, the aid required receiving nations to purchase arms of defence deals from the US. In other cases, to simplify the process, the federal government of the US would purchase arms itself and ship them via US military transport vessels. Tied aid Tied aid is when aid given to a recipient country must be spent in the country providing the aid or in a group of selected countries; the developed country provides a bilateral loan or grant to a developing nation, but mandates that the money be spent on goods and services produced in the selected country. This can lead into untied aid, which has no geographical limitations.
One major example of tied aid is food aid: virtually all foreign food assistance by the United States is required to be produced and packaged in the US and shipped on US flagged vessels halfway around the world. This results in levels of export values rising of the US, which can balance the current accounts. Another major example of tied aid is in the battle of influence on Bangladesh from Asia’s giants: China and India. The Indian government see Bangladesh as an important neighbour for political, national security and religious interests. Bangladesh is the transport corridor to India’s north-eastern states and a vital alternative route the vulnerable Siliguri corridor, which is frequently threatened by China’s military in the past, which could have led to the isolation of all North-East India. In contrast, China’s border program to permeate influence throughout Asia through trade, finance and military co-operation include Bangladesh. As the world’s seventh most populous nation, Bangladesh is the only country, other than Bhutan, bordering India where Chinese influence is not dominant. To maintain influence over Bangladesh through trade, the Asian giants run huge current account surpluses with Bangladesh. China’s foreign aid assistance amounts to $1 billion a year and has exported an aggregate of $16-17 billion worth of goods. Both India and China offer numerous infrastructure projects to promote railroads and deep-sea ports for trade.
ABOVE: PAMIR MOUNTAINS, AFGHANISTAN. AFGHANISTAN HAS BEEN THE RECIPIENT OF MILITARY AID FROM THE U.S. IN THE PAST.
Advantages and Disadvantages There are four economic advantages of foreign aid, some of which are outlined above: humanitarian interests, positive international image, improved relationships, and promotion of peace and stability. As we can observe, foreign aid offers political interest and advantages to both recipient and donor nations.
On the other hand, the disadvantages of foreign aid primarily affect recipient nations: 1. Interference – donor countries interfere with political and economic activities of recipient nations. 2. Inequality – most foreign aid focuses on the modern sectors, thus promoting inequality of living standards between the rich and poor. 3. Failed execution – if aid concerns with unproductive fields or old technology, the economy may experience inflation without any outweighing benefits. 4. Lack of good intentions, leading to failed execution – aid used for self-beneficiary reasons, such as shining positive press release on re-election campaigns, may result into mismanaged or neglected execution of aid. This results in inefficiency and wastage of resources.
"the disadvantages of foreign aid primarily affect recipient nations" Here are some examples of these negative impacts. 1. There exist many food-aid programs in which millions of dollars of food becomes exported to African nations. The nations heavily rely on primary sectors of agriculture to generate tax revenue and exports which to GDP. However, when aid arrives, produced supplied by farmers depreciates in demand, resulting in rapid price dips; this may lead to rising poverty and income inequality as farmers salaries fall. 2. In 2010, earthquakes and a hurricane in Haiti encouraged the UN’s tied aid in form of billions of dollars of food, water, and medical equipment under good intentions. However, with failed execution, and mismanaged resources, little affect was achieved. A cholera outbreak stemmed from UN camps from their contaminated water supplies; therefore, the UN shifted attention to supply chlorine to combat an epidemic, drastically slowing down supply of food and medical care. Once supplied, excess food further undercut prices of farmers, further damaging the recovery period of the economy. 3. In Bangladesh, because of misguided intentions, there has been poor infrastructure development in the nation. Bangladesh remains affected through political, social, and environmental damage. ABOVE: PORT-AU-PRINCE, HAITI. HAITI HAS EXPERIENCED SOME OF THE NEGATIVE IMPACTS OF FOREIGN AID.
Perspective L3: In the eyes of economists, we can observe foreign aid as an offer of goods and services alongside capital from countries or international organizations. It is also a seen as a common disguise of international trade, where benefits often assume towards donors, whether in terms of political or cultural influence, or military success. Conclusion Throughout all levels of understanding, we have learnt that foreign aid is matter of trade in policies in exchange for currency and strategical positioning. A trade made not by countries or citizens, but rather leaders and governments. Politicians arrange deals to benefit personal interests, often with neglect towards recipients’ interests.
However, the positive aspects of foreign aid often outweigh the unprecedented costs, especially during times of natural disasters, war, and epidemics. Even in scenarios where countries disguise trade as charity and aid, if both parties remain satisfied, then the outcome remains beneficiary. With this understanding, we finally recognise a definition of foreign aid. Conclusive definition Definition of Foreign Aid: The international transfer of capital, goods, or services from one country or international organisation to another, typically from a developed country to a developing country. Benefits are mainly directed towards recipients, but aid may serve as beneficiary towards donors with false pretence of substantive benefits to the recipient. — Aman Doshi
ABOVE: SEOUL, SOUTH KOREA. THE U.S. HAS USED AID TO SOUTH KOREA TO GAIN STRATEGIC POSITIONING IN A VOLATILE REGION.
JULY 2020 |ISSUE 20
Continuing threats pose prolonged suffering for Dubai’s economy Zainab Hussain
Located at the heart of the Persian Gulf, Dubai emerged from sand dunes to become an internationally acclaimed, futuristic metropolis of diverse trade, opulent tourism and a melting pot of over 190 nationalities. Though, hidden behind the flashy cars, luxury hotels and glittering real estate, is an economy threatened to underperform as planned, particularly citing the coronavirus pandemic in 2020. However, the virus outbreak isn’t fully accountable; the Emirate’s predicament was first triggered by the 2009 ‘Dubai debt crisis’ and has been worsening ever since.
Following the burst of the local 2009 real estate bubble, which was backed by speculative investment and borrowed cash - much like the cause of the global financial crisis Dubai’s state-backed entities, or GREs, requested a delay on the repayment of a substantial $20 billion loan. This shocked markets worldwide and set investors in dire straits as their ‘fool proof’ investments were no longer that simple. As a result of the impressive 40% return per annum advertised locally, Dubai was always considered a risk-free, safe haven for investors, particularly into a company funded by an organisation as stable as the government. Contrary to these marketed benefits, international investors were staggered after they came to realise that if the GREs failed, their money wouldn’t be returned to them. In response and in order to alleviate that uncertainty among investors, Dubai’s wealthier and more conservative neighbouring Emirate, Abu Dhabi, had bailed them out by loaning them the hefty $20 billion. Banking then came to a halt, the stock market plummeted 70% in value and a total of $582 billion worth of construction projects were cancelled or ceased. Dubai’s debt continued to pile on to a huge $60 billion, 50% of the Emirate’s GDP, by the end of the year. The Emirate had entered its first crisis, succeeding its extraordinary six-year boom earlier that decade.
Dubai’s problems started to snowball, and it was all downhill after the 2014 real estate highs. Property prices then slumped 30% due to its oversupply, proving that the ‘build it and they will come’ strategy had run its full course and had become ineffective. Thereafter, the US and China trade war also posed a concern to Dubai’s economy. The American tariffs on aluminium tore away 10.5% of Dubai’s metal exports to America as well as threatening Dubai’s shipping, as 60% of China’s exports pass through its free zones to Africa and Europe.Whilst owning one of the most diversified and non-oil dependent economies, Dubai is predicted to be heavily affected by the current pandemic. Their thriving sectors, that make up 67% of the GDP, include tourism, hospitality and property, which are all coincidently coronavirus hotspots and are expected to suffer immensely. During the nationwide campaign to battle the virus, safety lockdown precautions have been taken, likely igniting the collapse of these industries and essentially making over half of the Emirate’s GDP at risk. In late March, Dubai International Airport, the 6th busiest passenger airport in the world, grounded all commercial flights and with holiday season in reach, this threatens the loss of billions of dollars. To worsen the situation, the long-awaited Expo 2020, which was planned to be held in Dubai, fell victim to the pandemic and has officially been postponed to 2021. The event was expected to pull in a grand 25 million visitors and estimated to provide a $38 billion boost to the economy, 33% of current GDP. This much needed optimistic bailout was set to fill up Dubai’s suffering tourism and service industry through huge revenues and attempt to aid their economy’s recovery.Learning from the last crisis, the Central Bank of the UAE moved quickly to stem the current situation from boiling over into a financial crisis by announcing a financial support program to the banking sector aimed at providing reciprocal support to the impacted economic sectors and ensuring that banking does not come to a halt as it did in 2009. The results of these initiatives have been positive with the confidence in the financial sector remaining intact as the Dubai Islamic Bank successfully closed a $1 billion Islamic bond in June 2020.
However, amid the lack of aggregate demand and globalization opportunities in the economy, businesses are having to make widespread redundancies, slash salaries and force workers onto unpaid leave, which is likely to cause a staggering 10% reduction in the Emirate’s population as expat residents return home after no luck in finding work domestically. Already more than 260,000 expats have applied to leave or have left the country and with 98% of private sector workers being expats, this number is prone to escalate.
ABOVE: GROWTH IN NATIONAL DEBT I N THE UAE ECONOMY
According to the IMF, the Emirate has accumulated 110% of their GDP in debt since the 2009 crisis, almost half due before the end of 2024. Fortunately, Dubai was predicted to have stellar growth rates in all of their main revenue-producing sectors this year, aiding the potential recovery of the economy. However, with the current circumstances and no opportunity for a stable oil-centred back up plan, these outcomes remain unlikely as planned. In an attempt to repair the damage in the form of enhancing liquidity and jumpstarting economic activity, Dubai has spent a huge $409 million in the form of a stimulus package as well as continuously lowering lockdown precautions, when safe, to get its 3.3 million inhabitants spending. The effects of global affairs have mainly struck Dubai’s economy negatively however, its future is hopefully bright with the upcoming Expo and relevant government policy currently working effectively.
ABOVE: GROWTH OF KEY INDUSTRIES IN THE DUBAI ECONOMY
The Environmental Impact of COVID-19 Nina Hindocha
In recent months, the Covid-19 pandemic has become one of the greatest problems facing humanity in the last 100 years. The increased focus on the pandemic and the economic fallout has been at the expense of many other pressing issues, including climate change. We must not allow climate change to become Covid-19s next victim. Instead, the current situation should be used to ensure that when the time is right, economies are rebuilt in a far more climate friendly manner. With 3.5 million people on Lockdown, the environment has been impacted in multiple ways. Paris has seen a 72% drop in CO2 levels, clearer skies have enabled people in Northern India to see the peaks of the Himalayas and Venice’s canals are clearer than ever. Whilst these short-term positive developments are welcome, significant longer-term challenges may lie ahead… Schools closed, marketplaces quiet, streets devoid of the usual traffic – In an attempt to slow down the rate of infection, governments around the world have introduced measures to restrict movement, leaving more than 3 billion people on lockdown. With the majority of non-essential workers operating from home, it is no surprise that there has been a strong decline in greenhouse gas emissions. According to the World Bank, transport usually accounts for 23% of the world’s global carbon emissions, but with fewer cars on the road and planes in the sky, emissions are lower and air quality has significantly improved. At the end of March 2020, the International Energy Agency (IEA) reported that the global average road transport activity fell 50% vs 2019. Whilst there may well be more remote working and less international business travel in the future, it is most likely that once stay-at-home orders are lifted and people are able to move freely, they will return to their old habits, driving up levels of emissions once again. Given the need for social distancing, it is also likely that those previously using public or mass transport systems may well start to use cars again, driving up emissions further. Another reason for the fall in emissions is the temporary closure of many factories, businesses and offices, reducing the need for power. According to the IEA, the world will use 6% less energy this year, equivalent to losing the entire annual energy demand of India. This lower energy demand is predicted to have a knock-on effect on the global demand for coal, which is set to fall 8% this year. However, recent evidence from China, the first country to remove lockdown measures, shows that whilst initially coal usage dropped sharply, it is now growing to a predicted state in which overall, the net demand will only be down just over 1%. ABOVE: THE REDUCTION IN MOTOR VEHICLE TRAFFIC HAS LED TO A DROP IN AIR POLLUTION LEVELS. INSET IS THE EMPTY A1 MOTORWAY IN SLOVENIA ON 22 MARCH 2020
Recently, the United Nations Conference on Trade and Development reported that the severe drop in fish and agriculture export (due to reduced transport options) has caused an unprecedented quantity of organic waste to mound. This is because many countries are unable to export their produce and do not have enough land (local markets and green spaces) for output to be disposed of. A huge volume of organic waste is being dumped in landfills, causing it to undergo anaerobic decomposition resulting in the production of methane, which is 20 times more potent that CO2 when released into the atmosphere. This could mean that although carbon emissions will likely drop, much more methane could be released instead, perhaps even increasing the relative rate of climate change in the long run.
he pandemic has also started to cause other environmental issues. For example, a surge in he amount of unrecyclable waste. According to the U.S. National Institute of Allergy and nfectious Diseases, the virus can survive on recycled plastics for up to three days, which as caused people to revert back to single use packaging where previously more ecoiendly materials had been used. Additionally, where before items such as cardboard boxes nd takeout containers would have been reused for other purposes, households are now isposing of them after their first use. Over the past few months, personal protection equipment has started to wash up on beaches alongside an increased amount of single use plastic packaging waste from food and other essential deliveries. Whilst pollution levels in China have temporarily decreased by an estimated 25% over the past two months, medical masks, gloves and other pieces of personal protection equipment (PPE) are washing up on the beaches of Hong Kong. In a recent interview, Gary Stokes, the founder of Oceans Asia, an environmental conservation group, mentioned how “we have only had masks for the last six to eight weeks, in massive volume but are already seeing the effect on the environment�. The demand for masks, as a form of preventing the spread of the virus, has massively increased but the consequences have already made their mark on the Soko Islands. As many of the masks are not disposed of properly, they are ending up on beaches and nature trails in masses. Stokes claimed to have initially found 60-70 masks over the 100m stretch of beach, and upon return after a week, discovered 30 more. This poses a threat to wildlife and the environment as these plastic pieces can be mistaken for food causing death and suffocation. In addition, as the masks are made of polypropylene, a thermoplastic polymer, they can take up to 450 years to decompose.
ABOVE: WASHED UP SINGLE USE PLASTIC ON THE INDIAN OCEAN
Clearly, the short-term effects on emissions has been overwhelmingly positive. However, previous drops in emissions caused by economic downturns have proved only temporary setbacks to the ongoing rise in emissions. The Asian financial crisis in 1997 and the global financial crisis of 2007-09 saw emissions stumble briefly before beginning to rise again and it is likely that we will see the same again this time. To meet long term climate change targets, we would need to see yearly drops in emissions, similar in magnitude to those seen during this crisis period, for the foreseeable future. The Covid-19 pandemic might have allowed us to see how we might achieve sustainable drops in emissions. It presents a new way of thinking about the climate crisis and this is important for leaders who will be beginning to think critically about how to rebuild their economies. More than ever, electric vehicles and mass transit systems should be promoted at the expense of transport reliant on the internal combustion engines (ICE). Today’s technology has allowed for working from home to be possible in many sectors of industry and highlighted the ability to reduce international business travel in many cases.
Governments around the world should continue to support the development of renewable energy generation over hydrocarbon-based generation. Solar and wind have recently shown their resilience to the crisis and should continue to be supported together with storage technology so coal and other dirty forms of power generation can be eliminated once and for all. Initiatives to reduce the use of single use plastics should continue and even be accelerated. Whilst it is highly likely that the need for face masks will be required for some time, switches to alternative materials for face masks could be made. For example, rather than using surgical masks outside of medical industries, people could use face masks that can be washed as well as masks made of recycled plastic. Recently, the Professional Association of Diving Instructors (PADI) have been creating reusable face masks using recovered ocean plastics and post-consumer plastic bottles. Reusable face shields could also be used in some cases. In the past, lower oil prices have fuelled a growth in its use which could be discouraged by governments by them either removing subsides or putting higher taxes on oil to keep the consumer price at levels similar to pre-Covid. The extra money raised could be used to promote the above initiatives. As we look towards a return to “normality” let us focus on a world of “new normal" where global emissions are reduced constantly. The world cannot afford to have its focus on climate change distracted by the current crisis or the short-term benefits to emissions that have emerged. We must not allow the next global crisis to be a climate crisis, especially given the high likelihood that its affects will be far more devastating than the current one. ABOVE: EMISSIONS TOWERS IN THE UNITED STATES
JULY 2020 |ISSUE 20