Business24 Newspaper - August 19, 2020 by Business24 Online

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WED. AUGUST 19, 2020

Gov’t to launch US$500m gold IPO in Sept. Suspending fiscal rules for 4 years is risky, warns economist Government’s decision to suspend the fiscal rules till at least 2024 has been described as a risky adventure by Courage Martey, an economist with investment banking firm Databank. >> PAGE 3

>>PAGE 3

Ghana, Africa’s largest gold producer, wants to monetise future royalty income to finance development projects.

BY EUGENE DAVIS

overnment is targeting the first week of September to launch the international initial public offer (IPO) of Agyapa Royalties Limited, the company formed to monetise Ghana’s future gold royalties by raising equity capital from investors. The transaction, which received the approval of a divided Parliament on Friday, will raise at least US$500m to finance development projects. Minority Members of Parliament staged a walkout during the debate on the transaction, describing it as “opaque” and leaving the majority side alone to ratify it. The transaction has been structured based

on the Minerals Income Investment Fund Act 2018, which established the Minerals Income Investment Fund to manage Ghana’s equity interests in mining companies. The act empowers the fund to create and hold equity interests in special purpose vehicles (SPVs), which may operate as regular commercial companies in any jurisdiction; to assign the mineral equity interests, including the right to receive mineral royalty payments, to an SPV in furtherance of the fund’s objectives; and to procure the listing of an SPV on any reputable stock exchange. In July, Parliament passed amendments to the act to facilitate the realisation of the transaction. The transaction structure includes two special

Develop programme of action to attain benefits of AfCFTA — Trade Minister Trade and Industry Minister, Alan Kyerematen, has called on African countries to prioritise the development of a national programme of action in order to harness the benefits of the Africa Continental Free Trade Area (AfCFTA). According to him, such programmes must be mainstreamed into national development strategies. >> PAGE 3

>> MORE ON PAGE 2

AfCFTA could boost Dubai-Africa trade by 10% over next 5 years

UMB Hosts Webinar to Help Sustain SMEs amid COVID-19

ECONOMIC INDICATORS *EXCHANGE RATE (INT. RATE)

US $ 1 = 5.6797

*POLICY RATE

14.5%*

GHANA REFERENCE RATE

15.12%

OVERALL FISCAL DEFICIT

11.4 % OF GDP

PROJECTED GDP GROWTH RATE AVERAGE PETROL & DIESEL PRICE:

GOLD $/TROY OUNCE CORN $/BUSHEL

>> MORE ON PAGE 5

GHc 5.13*

INTERNATIONAL MARKET BRENT CRUDE $/BARREL NATURAL GAS $/MILLION BTUS

>> MORE ON PAGE 19

0.9%

43.22 1.79 1,842.40 329.50

COCOA $/METRIC TON

1,562.00

COFFEE $/POUND:

$109.65

COPPER USD/T OZ.

220.15

SILVER $/TROY OUNCE:

17.07

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NEWS/EDITORIAL

WED. AUGUST 19, 2020

EDITORIAL

Wash your hands 2

Cover your cough

AfCFTA offers hope for intra-Africa trade African countries currently trade more with Europe and other regions of the world than amongst themselves. But that all is about to change with the ground breaking Africa Continental Free Trade Area (AfCFTA). Indeed, this is Africa’s time and the continental agreement is finally the vessel to boost intra-Africa trade, and help grow indigenous businesses on the continent. It is estimated that intra African trade will increase by as much as US$35bn per annum or 52 per annum by 2022 Just like it did in the 1950’s Ghana has provided all the support and now plays host to this Africa Union driven project. What is left now is for African countries to prioritise the development of a national programme of action in order to harness the benefits of the Africa

Continental Free Trade Area (AfCFTA). Such programmes, according to Alan Kyerematen, Trade and Industry Minister, must be mainstreamed into national development strategies. The free trade area for Africa is the first major building block for the African Economic Community, after which it is expected to transition into a Customs Union which is the overall goal. “In addition, the effective implementation of the AfCFTA will require sustained political will and commitment from the highest level of executive authority in each country, in respect of providing adequate budgetary resources to support the growth and development of priority sectors, as well as creating the appropriate incentive and regulatory framework to attract investments from the private sector, both domestic and

foreign. At the national, regional and continental levels, the need to develop modern trade related infrastructure, including multi modal transport infrastructure to improve connectivity, cannot be overemphasized,” Mr. Kyerematen noted. Business24 is optimistic that the AfCFTA is a great opportunity to cure the trade and economic challenges— market fragmentation, smallness of national economies, over reliance on the export of primary commodities, narrow export base, caused by shallow manufacturing capacity, lack of export specialisation and tariff barriers to intra-Africa trade-- on the continent .

Gov’t to launch US$500m gold IPO in Sept. CONTINUED FROM COVER

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LIMITED Copyright @ 2019 Business24 Limited. All Rights Reserved. Editorial Team Dominic Andoh: Editor Eugene Kwabena Davis (Head of Parliamentary Business & Commodities) Benson Afful (Head of Energy & Education) Patrick Paintsil (Head of Maritime & Banking) Nii Annerquaye Abbey (Online Editor) Marketing Alexander Lartey Agyemang (Business Development Manager) Ruth Fosua Tetteh (Dept. Business Development Manager) Gifty Mensah (Marketing Manager) Irene Mottey (Sales Manager) Edna Eyram Swatson (Special Projects Manager ) Events Evelyn Kanyoke (Snr. Events Consultant) Finance/Administration Joseph Ackon Bissue (Accountant)

purpose vehicles, Agyapa Royalties Limited (Agyapa) and its subsidiary ARG Royalties Ghana Limited (ARG). The sole shareholder of Agyapa is the Minerals Income Investment Fund, which, through the MIIF Act, has been assigned rights to Ghana’s mineral royalties and equity interests in mining companies. Under an investment agreement between Ghana, the Minerals Income Investment Fund, Agyapa and ARG, the fund has assigned its right to receive royalties to ARG, which, upon receipt, will transfer the revenue to Agyapa. In exchange, Agyapa will issue shares worth US$1bn to the fund. The planned IPO of Agyapa will offer some of the shares held by the fund to investors in order to raise the US$500m targeted. “The value proposition for investors is that Agyapa is entitled to receive the allocated mineral royalties, which can then be distributed to its shareholders (including the fund) as dividends,” said a report by Parliament’s Finance Committee on the transaction.

The report added: “Gold prices have soared beyond the US$2,000/ ounce mark, thus making investments in gold and goldrelated vehicles very attractive to international investors. There is the need therefore to undertake this transaction in a timely manner so as to realise the most optimum amount from the transaction.” In giving the green light to the deal, Parliament approved five agreements submitted by the Ministry of Finance to facilitate the process. These were the Minerals Royalties Investment Agreement (among the parties), the Amended and Restated Minerals Royalties Investment Agreement, the Relationship Agreement, the Assignment Agreement, and the Indemnity Agreement (which provides loss-protection to investment banking parties expected to be involved in the IPO). Justifying the need for the transaction, Finance Minister Ken Ofori-Atta said in a memorandum to Parliament that, whereas Ghana conventionally raises funding for development from debt capital markets, the government “seeks to diversify its capital portfolio by obtaining long-term capital, without repayment obligations, through

equity capital market transactions.” He added that the deal will reduce Ghana’s budgetary exposure to mineral royalty revenues due to fluctuations in mineral prices and mine output. In 2019, Ghana’s income from mineral royalties stood at about US$200m, according to Finance Ministry figures. Following the IPO, Agyapa will be listed on both the Ghana Stock Exchange and the London Stock Exchange.

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News

Suspending fiscal rules for 4 years is risky, warns economist Mr. Martey told Business24 in an interview that while government is justified, given the poor revenue performance caused by the pandemic, to suspend the fiscal rules, the projected duration of the suspension is somewhat problematic. “The government currently finds itself between a rock and a hard place. It’s difficult to comply with a 5 percent [of GDP] deficit limit and a primary surplus when revenue collection is weak. So, in that sense, one can understand the rationale for the suspension until 2024,” he said. “But then again, it is my considered opinion that certain COVID-19 related spendings are one-off and should not necessarily repeat themselves every year. This should provide the opportunity to trim expenditure (or slow down the growth in expenditure) while aggressive enforcement of revenue measures from, at most, 2022 should help bring forward

the time when we restore the fiscal rules in the Fiscal Responsibility Act,” he argued. According to him, so long as the fiscal rules remain suspended, the country risks piling its debt at a faster rate than during the preCovid-19 period. “The growth in the debt portfolio was about 22 percent in 2016, when we had a more than 7 percent of GDP budget deficit, a more than 1 percent of GDP primary deficit and more than 9 percent cedi depreciation against the dollar. But the growth rate of the debt portfolio slowed down to about 15 percent in 2018, when the budget deficit declined to 3.9 percent of GDP with a primary surplus of about 1.4 percent of GDP. However, with the latest fiscal forecasts indicating a suspension of the fiscal rules until 2024, the growth in the public debt stock could quicken firmly above the 20 percent levels witnessed pre2017,” he noted.

Per Ken Ofori-Atta’s projections, the government will be able to come back to compliance with the fiscal rules by 2020

Mr. Martey further mentioned that with 2024 being an election year, there are risks posed to the country’s quest to even achieve the set deficit target for that year. “Being another election year (which could be keenly contested), I would be rather cautious in my expectations that the fiscal rules can be effectively restored in 2024. I feel it would have been a lot easier to implement if we had pushed to restore the fiscal rules earlier than 2024. But this would mean more aggressive fiscal

consolidation measures, which it appears the government is not prepared to undertake, given the expected financial and economic scares of the COVID-19 pandemic.” Another economist, Dr. Theo Acheampong, also expressed the view that the period set by government to rein in the deficit could have been shorter than four years. He added that, given the uncertainties caused by the virus, predicting economic events in four years’ time is likely to be an overstretch.

Develop programme of action to attain benefits of AfCFTA — Trade Minister Speaking at the inauguration and formal handing over of the AfCFTA secretariat building to the African Union Commission in Accra, he said the establishment of a free trade area for Africa is the first major building block for the African Economic Community, after which it is expected to transition into a Customs Union which is the overall goal. “In addition, the effective implementation of the AfCFTA will require sustained political will and commitment from the highest level of executive authority in each country, in respect of providing adequate budgetary resources to support the growth and development of priority sectors, as well as creating the appropriate incentive and regulatory framework to attract investments from the private sector, both domestic and foreign. At the national, regional and continental levels, the need to develop modern trade related infrastructure, including multi modal transport infrastructure to improve connectivity, cannot be overemphasised,” he said. On the benefits of AfCFTA, he

said that it will increase the level of intra African trade through better harmonisation and coordination of trade within the African continent. It is estimated that intra African trade will increase by as much as US$35bn per annum or 52 per annum by 2022. Secondly, the initiative will address the challenge of small fragmented markets in Africa by creating a single continental market which will lead to economies of scale. Also, it will add value to Africa’s abundant natural resources and promote economic diversification and industrialisation. President Akufo-Addo speaking at the ceremony stated that the onset of AfCFTA remains one of the significant decisions taken by the African Union. “I have no doubt that the coming into being of the African Continental Free Trade Area is one of the most important decisions taken by the AU. When you consider the fact that trade between African countries remains low, currently standing at some 16 percent of our combined

Ghana is home to the AfCFTA secretariat which will lead the intra-African trade agenda. The continental trade agreement is expected to increase trade among member countries by US$35bn per annum

GDP, compared to other parts of the world, like the European Union’s 75 percent, it is obvious that these very low levels of intraregional trade constitute one of the defining characteristics of our continuing poverty. They hinder our prospects of bringing prosperity to our peoples. A large part of the growth and prosperity that we seek on the continent will come from us trading more among ourselves,” he added.

The Secretary-General for AfCFTA, Wamkele Mene argued that AfCFTA offers Africa an opportunity to confront the significant trade and economic development challenges of its time including market fragmentation, smallness of national economies, over reliance on the export of primary commodities, narrow export base, caused by shallow manufacturing capacity, lack of export specialisation and tariff barriers to intra-Africa trade amongst others.

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Professor Lumumba to address Africa Supply Chain in Action conference Renowned Kenyan panAfricanist, Professor of Law and anti-corruption crusader, Patrick Loch Otieno (PLO) Lumumba, has been confirmed as the opening keynote speaker at the upcoming “Africa Supply Chain in Action” (ASCA) event, Africa’s biggest ever virtual conference for supply chain and procurement professionals. Hosted by SAPICS (The Professional Body for Supply Chain Management) and Smart Procurement, ASCA 2020 takes place on 19 and 20 August. It is expected to bring together more than 1 000 supply chain and procurement professionals. The event’s theme is “Adapt and Thrive for the New Tomorrow”. Lumumba’s keynote will focus on overcoming challenges and the opportunities for Africa beyond Covid-19. “Now more than ever it is critical to have solidarity throughout supply chains,” he asserts. “The recovery of the economy in countries all over Africa is imperative, and efficient and effective procurement processes and supply chain management will be critical to this recovery.” Lumumba is famously quoted for proposing that corruption should be treated as a crime against humanity because it has killed more people than Africa’s civil wars combined. “We give men and women the opportunity to serve and they steal from us. We give men and women the opportunity to preside over our health services;

they acquire expired drugs, and women and children die. We are giving men and women the opportunity to preside over our transport department. They take the money; compromise the quality of our roads. Corruption is a cancer that has ravaged Africa for far too long,” he states. Lumumba’s ASCA presentation will highlight how Africa can and must work together ethically to respond to the new tomorrow as a continent. “African unity and solidarity are no longer dreams. They must be expressed in decisions. I believe that we have reached a stage in the economic development of Africa where moving forward is perilous, moving backwards is cowardice and standing still is suicidal.” Lumumba is a Professor of Law, Advocate of the High Courts of Kenya and Tanganyika and Founder of the PLO Lumumba Foundation in Kenya. He is a former Director of the defunct Kenya Anti-Corruption Commission (now the Ethics and Anti-Corruption Commission). He has written several books and published numerous articles. SAPICS President Keabetswe Mpane says that The Professional Body for Supply Chain Management and Smart Procurement are delighted to have Lumumba opening the groundbreaking ASCA virtual conference. “Professor Lumumba is no stranger to the SAPICS stage and to the African supply chain community. His powerful, award

winning presentation at the 2011 SAPICS Conference netted him the Best Speaker Award. It was so highly rated by SAPICS delegates, that he was invited back onto the SAPICS stage the following year.” Since its foundation in 1966, SAPICS, The Professional Body for Supply Chain Management, has become the leading provider of knowledge in supply chain management, production and operations in Southern Africa. SAPICS builds operations management excellence in individuals and enterprises through superior education and training, internationally recognised certifications, comprehensive resources and a country-wide community of accomplished industry professionals. This community is ever expanding and now includes a multitude of associates in other African countries as well as

around the globe. SAPICS is proud to represent the Association for Supply Chain Management (ASCM) as its exclusive premier channel partner in Sub-Saharan Africa. Established 41 years ago, the annual SAPICS Conference is the leading event in Africa for supply chain professionals. The 2020 SAPICS Conference takes place in Cape Town from 22 to 25 November 2020. Smart Procurement (SP) is the largest professional development event for procurement and inbound supply chain, supported and endorsed by industry professional bodies. SP also achieves professional development for procurement and supply chain professionals while achieving economic development objectives in each region through enterprise, supplier development linking small business to supply chain.

UMB Hosts Webinar to Help Sustain SMEs amid COVID-19 Universal Merchant Bank (UMB) organized its maiden virtual edition of the annual SME Clinic for over two hundred of its SME customers across different business sectors on the theme, “Running a Successful SME Business in a Disruptive Environment”. In his welcome address, the Chief Executive of UMB, Mr. Benjamin Amenumey stressed on the Bank’s commitment to its SME customers who have been hard hit by the novel coronavirus, with the decision to offer financial and non-financial support including free business advisory services, extension of loan moratoriums and several other interventions. He added that the SME Webinar is one of many initiatives the Bank has implemented to continuously engage and gain deeper understanding into

customers’ needs and challenges and to improve service delivery, tailor-make products and services specific to the needs of customers, especially in these uncertain times. In her submission, UMB Director for SME Banking, Madam Charlotte Lily Baidoo, emphasized the need

for owners of SMEs to consider managing their finances prudently by allowing for the right amount of balance between risk and profit maximization, thereby ensuring business continuity for posterity. Speaking on the topic “Harnessing Tech Innovations: a Catalyst for SME Growth”,

Sebastian Yalley, the CEO of Global Accelerex Ghana advised participants to embrace new and emerging technology in the service they render to their customers. Finally, presenting on the topic “The Opportunities Presented by Social Media for SMEs”, Faustina Yaa Appiah, of the Marketing and Communications Department of the Bank, also stressed on the need for SMEs to seize the many exciting opportunities on social media to build and grow their brands, reach new markets and ultimately drive sales to dovetail into business profitability. At the end of the maiden UMB SME Webinar, participants expressed their profound gratitude for the timely nature of the session and for the continuous commitment, UMB demonstrates to its customers.

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African Union Commission inaugurates AfCFTA permanent secretariat as launchpad for Africa’s economic transformation At a ceremony on Monday to commission the permanent secretariat of the African Continental Free Trade Area (AfCFTA), Ghana’s President Nana Akufo-Addo and Moussa Faki Mahamat, chairperson of the AU Commission, reiterated the importance of the body to the continent’s economic transformation agenda. “The economic integration of Africa will lay strong foundations for an Africa beyond aid. Africa’s new sense of urgency and aspiration of true self-reliance will be amply demonstrated by today’s ceremony,” Akufo-Addo said. Ghana was selected as the venue for the headquarters by African leaders during a Summit of AU Heads of states in Niamey in July last year, to launch the implementation phase of the agreement, which is expected to spur regional trade among member countries. Currently, 54 states have signed on to AfCFTA, out of which 28 have ratified. President Akufo-Addo appealed to member states that have not ratified to do so before the next AU summit in December, “to pave the way for the smooth commencement of trading from 1

January 2021.” The COVID-19 pandemic has heightened the importance of the success of the AfCFTA, the Ghanaian president said. “The destruction of global supply chains has reinforced the necessity for closer integration amongst us so that we can boost our mutual self-sufficiency, strengthen our economies and reduce our dependence on external sources,” he said. AfCFTA, the world’s largest free trade area, has the potential to transform the continent with its potential market of 1.2 billion people and combined GDP of around $3 trillion across the 54-member states of the AU. Mahamat said the opening of the secretariat marked a milestone in the vision of Africa’s founding

founders for continental integration. Wamkele Mene, the first Secretary-General of the AfCFTA, said the agreement offered an opportunity for Africa to confront the significant trade and economic development challenges: market fragmentation, small national economies, overreliance on primary commodity exports, narrow export base, lack of export specialization, underdeveloped regional value chains and high regulatory and tariff barriers to trade. “We have to take action now. We have to take action to dismantle the colonial economic model that we inherited,” Mene reiterated. The African Development Bank Group provided a $5 million institutional support grant to the

AU towards the establishment of the AfCFTA secretariat which is located in an ultra-modern office complex in the central business district of the Ghanaian capital. “The African Development Bank congratulates the AU/AfCFTA on the investiture of the Secretariat hosted by Ghana on 17 August 2020.The Bank is delighted to be associated with this groundbreaking, game-changing, transformational continental initiative in furtherance of the objective to create the Africa we want,” said Solomon Quaynor, the Bank’s Vice-President for the Private Sector, Infrastructure and Industrialization. “Our support to the AfCFTA is in keeping with the Bank’s role of continental leadership in helping to build special-purpose vehicles that are critical to the successful implementation of crucial institutions to accelerate Africa’s economic development objectives,” Quaynor added. The event also featured virtual goodwill remarks from AU Chairman, President Cyril Ramaphosa of South Africa, and Nigerien President Mahamadou Issoufou.

AfCFTA could boost Dubai-Africa trade by 10% over next 5 years Dubai’s trade with Africa could see an annual increase of up to 10% over the next five years following the implementation of the African Continental Free Trade Agreement (AfCFTA), according to Dubai Chamber of Commerce and Industry’s latest forecast. The outlook for Dubai-Africa trade and new bilateral business opportunities created by AfCFTA were among the main topics covered during a recent webinar organised by Dubai Chamber’s representative offices in Africa. The virtual event, held in cooperation with Dubai International Financial Centre (DIFC) and ABSA Group, was attended by 340 businesspeople from the UAE, Africa and other markets, who represent a wide variety of economic sectors and fields. A presentation from Dubai Chamber’s Economic Research Department noted that changing dynamics brought forth by AfCFTA and the Covid-19 situation have created an opportunity for businesses in Dubai to re-position themselves and explore new African markets as they prepare for recovery. AfCFTA, set to officially launch in January 2021, is expected to unlock new business prospects across Africa, with logistics, cold storage and warehousing, manufacturing,

agribusiness, infrastructure, healthcare and pharmaceuticals, and technology, identified as key sectors and areas where which Dubai businesses can tap into new opportunities. Dubai’s trade with Africa has increased significantly over the last 5years, registering a compound annual growth rate (CAGR) of 11%. Over the same period, imports from Africa increased by 14%, exports increased by 13% and re-exports by 6%. Bilateral non-oil trade reached nearly AED 1 trillion ($272 billion) over the 2011-2019 period. “AfCFTA will offer a huge opportunity for UAE investors who will be able to do business on a single set of trade and investment rules across the African continent. Dubai is well placed to benefit from the landmark trade agreement

due to its status as a preferred reexport hub for African traders and strong presence of UAE companies in African markets and vice versa,” Omar Khan, Director of International Offices at Dubai Chamber said during his welcome remarks. Khan described Africa as a market of strategic importance for Dubai and noted that Dubai Chamber’s representative offices in Ghana, Kenya, Mozambique and Ethiopia are facilitating Dubai-Africa trade and investment by identifying new business opportunities for Chamber members in various African markets and exploring new avenues of economic cooperation. Salmaan Jaffery, Chief Business Development Officer, DIFC, revealed that 5% of companies and 10% of the workforce at DIFC are

from Africa. He described Dubai as a preferred hub for African companies looking to access capital finance, adding that DIFC has witnessed an accelerated trend in investment to support smaller companies navigate the Covid-19 situation, and larger projects for digitising African economies. Cheryl Buss, CEO, Absa Group highlighted emerging opportunities across different economic sectors in Africa ranging from power and utility, infrastructure, agriculture, natural resources and oil and gas. She noted that the group has active corridor links supporting China Africa trade and Middle East, Asia Africa trade, adding that the MEA corridor is increasingly becoming an important area for strategic investments. A poll conducted during the webinar revealed that 91% of participating businesspeople believe that AfCFTA will strengthen Africa’s relations with Dubai and the UAE. The UAE has invested $25 billion in Africa over the 2014-2018 period, making it the fourth largest global investor in Africa after China, Europe and the United States. Connecting 1.3 billion people across 55 countries, the AfCFTA will create the largest free trade area in the world with a combined gross domestic product (GDP) valued at US$3.4 trillion.

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Cultural Decoupling from China Will Hurt the US BY MINXIN PEI

“Decoupling” is central to the geopolitical duel between the United States and China. Conceived and promoted by hawks in US President Donald Trump’s administration, this strategy has now become America’s principal tool to weaken Chinese power. The first act of decoupling – the Sino-American trade war that began in 2018 – has substantially reduced bilateral trade. A similar process is now in full swing in the technology sector, with the US pursuing an unrelenting campaign against Chinese tech giants such as Huawei and ByteDance (the owner of the popular video app TikTok). With the Trump administration threatening to have Chinese firms delisted from US stock exchanges if they fail to give US auditors access to their audit records in China, financial decoupling has begun as well. Although it remains to be seen whether economic decoupling will succeed in containing China, the strategic logic at least sounds compelling. Because China benefits from its economic ties with the US, severing them will inevitably weaken Chinese growth. Unfortunately, US China hawks are not content to stop there, but also want to cut America’s cultural and educational ties with China – as their recent actions show. Earlier this year, pressure from Republican lawmakers forced the Peace Corps, which has sent more than 1,300 Americans to China since 1993, to terminate its program in the country. And in July, Trump suspended America’s Fulbright program in mainland China and Hong Kong as part of a package of US sanctions in response to the Chinese government’s security crackdown on the city. Likewise, in late May, two Republican lawmakers proposed a bill to bar Chinese nationals from coming to the US to pursue graduate studies in the socalled STEM subjects (science, technology, engineering, and mathematics). And on August 13, the US State Department designated the Confucius Institute US Center, a Chinese governmentsponsored entity that provides language programs, as a “foreign mission,” which will almost certainly result in the termination of its activities in the US. Journalism has suffered the fastest decoupling. After the Wall Street Journal published a

commentary in early February with a headline that referred to China as “the real sick man of Asia,” the Chinese government expelled three journalists working for the newspaper. The US retaliated in early March by forcing 60 Chinese citizens working for Chinese stateowned media outlets in America to leave the country. China then expelled all US citizens working for the New York Times, Wall Street Journal, and Washington Post, effectively crippling these publications’ newsgathering capabilities in the country. Cutting cultural, educational, and journalistic ties between the US and China is unwise and counterproductive for America. Instead of advancing long-term US strategic objectives by promoting American values and maintaining the moral high ground, the Trump administration is playing into the hands of the Chinese government, which regards these ties as conduits for American ideological and cultural infiltration. Without government-sponsored exchange programs such as the Peace Corps and Fulbright schemes, the US will have no direct channels for engaging ordinary Chinese people, especially the young. Through these programs, Americans teach English, American history and literature, and Western social sciences, often in remote areas of China that have limited contact with the outside

world. Such activities help Chinese people to gain a more accurate understanding of the US, and help to neutralize official anti-American propaganda. Scrapping these programs thus amounts to unilateral ideological disarmament by the US. Some US retaliation against Chinese bullying of American journalists seems reasonable. But the Trump administration’s disproportionate expulsion of 60 Chinese journalists gave the Chinese government an excuse to do something it had wanted to do for a long time: throw out the best American reporters. The mass tit-for-tat expulsions of US and Chinese journalists will hurt America far more than China. Whereas reporters at Chinese state-owned news outlets in the US do little serious independent reporting that could educate the Chinese public, American journalists who cover China – despite constant harassment and surveillance by the Chinese government – provide invaluable information about the country. The loss of these channels will undercut US policymakers’ ability to track critical developments in China. Finally, blocking Chinese graduate students from studying STEM subjects in the US would deprive America of top talent in

these fields and help China to advance. Gifted Chinese students will instead go to other developed countries to study – and many of them will then return home, because STEM-related career opportunities outside the US are less plentiful. While China will benefit from this reverse brain drain, the US will miss out on contributions from tens of thousands of engineers and scientists. Of the 31,052 PhDs awarded in all STEM fields in the US between 2015 and 2017, Chinese students received 16% of the total, including 22% of engineering PhDs and 25% of those in mathematics. Moreover, some 90% of Chinese science and engineering students stay in the US for at least ten years after completing their doctorates – the highest rate of any nationality. US-China relations are on the brink of collapse. Economic decoupling is already a reality, and US-led cultural separation – an unthinkable prospect not so long ago – may soon be. That would be a tragedy, and America will be the main loser.

Minxin Pei is Professor of Government at Claremont McKenna College and a non-resident senior fellow at the German Marshall Fund of the United States. Copyright: Project Syndicate, 2020. www.project-syndicate.org

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The Quiet Revolution in Emerging-Market Monetary Policy BY PIROSKA NAGY-MOHACSI

entral banking in emerging markets has undergone a quiet revolution during the COVID-19 pandemic. Unlike in past crises, they have been able to mimic what central banks in advanced economies have been implementing: countercyclical policies with quantitative easing (QE), local-currency asset purchases, interest-rate cuts, and monetization of government deficits. In the past, such policies would have fueled inflation and downward exchange-rate pressure. Not so this time. With the exception of a few central banks that were already in trouble before the pandemic, emergingmarket central banks have been able to use QE to create more room to maneuver in responding to the crisis. Monetary policies in the advanced economies enabled this change. Their own QE programs have had positive spillover effects, and they have expanded their currency swaps and foreign exchange repurchase (repo) operations in response to the crisis. Among the measures taken by the globally systemic central banks (GSCBs), the US Federal Reserve’s response has been the most important, but swaps and repos by the European Central Bank (ECB) and the People’s Bank of China’s (PBOC) have also had a significant impact at the regional level. The effects of interest-rate cuts and huge liquidity injections in advanced economies have reached emerging markets as a result of the global search for yield. After an initial market stumble in March, capital flows returned to emerging markets, which have seen high debt issuance in subsequent months. Emerging markets have also been able to reduce their interest rates, and their central banks have started issuing domestic-currency-denominated assets in cases where the market is sufficiently large. Meanwhile, the massive expansion of currency swaps by GSCBs has eased exchange-rate pressures. These swap lines act as safety nets to forestall foreigncurrency shortages in domestic markets. Early in the pandemic, the Fed reactivated its standing swap arrangements with the ECB, the Bank of Canada, the Bank of England, the Bank of Japan, and the Swiss National Bank, while also extending their maturities. It then followed up by providing swap lines to the central banks of Australia, Brazil, Denmark, South

Korea, Mexico, New Zealand, Norway, Singapore, and Sweden. While the Fed deployed similar measures during the global financial crisis a decade ago, it has now gone much further. At the end of March, it started offering a new additional temporary repo facility for foreign and international monetary authorities (FIMAs). This arrangement allows central banks and public monetary institutions around the world to use their existing stock of US Treasury bills as a channel for accessing US dollar liquidity. Although repos are not genuine currency swaps (because the FIMAs must already have dollardenominated assets on hand as collateral), they have nonetheless proven to be a powerful source of market confidence. And because the mere availability of repos can be enough to reassure markets, they do not need to be used in many cases. Moreover, repos can serve as a precursor to true currency-swap arrangements, following the model of the ECB’s repo operations with Poland and Hungary in 2009. In the current crisis, the ECB and the PBOC have both expanded swap lines and repos within their monetary spheres of influence, allowing for a sharp reduction in exchange-rate risks in emerging markets.

Emerging-market central banks’ additional room to maneuver will last for as long as advanced economies’ monetary policies remain sufficiently expansionary. The chances for that are high in the near and medium term, because advanced-economy central banks have been unable (for various reasons) fully to exit from the QE that they launched a decade ago, even after growth and employment recovered. Now, given the pandemic and the deep economic recession that it has caused, there is effectively no end in sight for QE. Several central banks, moreover, are formally committed to keeping interest rates low or even negative, and new central-bank digital currencies could make such policies relatively easy to implement. The upshot for emerging-market central banks, then, is that they will most likely continue to enjoy monetary-policy spillovers from the GSBCs for the foreseeable future. But there are limits to the benefits of this policy freedom. Many emerging-market central banks may soon experience unintended consequences in terms of financial stability and governance. After all, QE and a prolonged recession will inevitably hit the

balance sheets of companies, households, and eventually banks. When that happens, bankruptcies and non-performing loans will soar, and governments in emerging markets will find that they still have much less fiscal space than their advanced-economy counterparts do for addressing such problems. Governance issues also are likely to surface. Central-bank asset purchases that go beyond government bonds will raise concerns about transparency and accountability. In fact, this may well become an issue in advanced economies, too (though they will still have the advantage of more fiscal space and robust institutional arrangements). One way or another, emergingmarket vulnerabilities are likely to become apparent soon in various domains of domestic financial stability and governance. Policymakers in these countries would do well to keep their guard up.

PIROSKA NAGY-MOHACSI IS PROGRAM DIRECTOR AND SENIOR FELLOW AT THE INSTITUTE OF GLOBAL AFFAIRS, LONDON SCHOOL OF ECONOMICS. COPYRIGHT: PROJECT SYNDICATE, 2020. WWW.PROJECT-SYNDICATE.ORG

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CRI pushes for permanent free lunch at JHS level post-COVID-19 Child Rights International (CRI) has lauded the decision by government to provide one hot meal per day to all final year Junior High School ( JHS) children, calling for a policy that will make the initiative permanent at the JHS level. “This is a laudable idea and a good social intervention programme. However, the programme should not be discontinued after the current exams. This is so because we would have to ensure consistency in implementing social intervention programmes at the primary, JHS, and Senior High School levels,” A statement signed CRI’s Executive Director, Mr. Bright Appiah, said. According CRI, there is currently a comprehensive policy regarding enrollment, infrastructure, feeding and others for the primary and SHS levels; however, the JHS level has been deprived. “Government intervention at the JHS is limited in terms of social intervention programme so this new initiative should be used as a springboard in measuring the

extent to which students across all board can enjoy such social intervention programme”. Touching on some of the disparities that exist in the education sector with regards to social intervention programme, CRI said students in the JHS had not benefited much as compared to those in primary and SHS. “At the primary level, students are enjoying capitation grants as well as school feeding programme. At the SHS level and under the Free SHS education, day students enjoy one hot meal while the boarding students get three meals per day. So it is only the JHS where the social intervention programme is limited,” the statement explained. On private schools, CRI stated it would be needful for the government to extend the recently announced social intervention programme to GES approved private schools especially in deprived areas. Background President Nana Addo Dankwa Akufo-Addo announced in his 15th address to the nation on measures

taken to help contain the COVID-19 pandemic that that all final year Junior High School ( JHS) students are to be given one hot meal per day effective Monday, August 24, 2020. This comes after it was reported that some final year students had been “going hungry in complying with the Covid-19 protocols”. President Akufo-Addo disclosed that he had instructed the Minister

for Gender, Children and Social Protection, Cynthia Morrison, to begin the necessary preparations of making one hot meal available to all final year Junior High School students and staff. According to him, this measure, expected to be in place for close to one month, is to ensure “full observance of the Covid-19 safety protocols” by both students and staff.

Standard Chartered Ghana adjudged Best Wealth Management Bank Standard Chartered Bank Ghana Limited, has been adjudged the Best Wealth Management Bank in Ghana by the UK-based Global Business Outlook Awards 2020. The current recognition adds to the growing list of local and international awards won by the Bank this year. Commenting on the awards, Setor Quashigah, Head, Wealth Management, Standard Chartered Bank Ghana Limited, said, “At Standard Chartered, we continue to pride ourselves in our ability to guide clients to make the right investment decisions through different stages of their life cycle”. She said the advisory-led Wealth Management approach allowed the bank to operate with no product bias to enable better investment outcomes for our clients. “Our highly skilled and professional local advisory team, coupled with our network of investment specialists, leverage our openarchitecture model to help clients assess a comprehensive range of Wealth Management solutions,” Quashigah said. “This award means a lot to us as it comes to further enhance our clients’ confidence in our advisory capabilities, and our commitment to guide them while investing, especially during these times of global economic uncertainties brought about by COVID-19,” she

added. Standard Chartered provides the best in class specialized managed investment services to clients in Ghana – portfolio diversification, local currency bonds and treasury bills and offering competitive rates on forex investments. The bank’s presence in multiple markets mean it can provide cross border services to meet the needs of clients and currently the only bank that can transfer in destination currencies of the G10 countries. The Bank has the widest range of Bancassurance solutions available in the market providing a holistic insurance proposition for all our clients. Wealth Management offers Life insurance solutions to protect you and your loved ones from Life’s rainy days and facilitates preparations towards major life events including

retirement and your wards’ tertiary education. In line with digitizing services, Clients are now able to get direct access to investment ideas through “Market Views On-the-Go. Client investment profiling, investing and buying insurance can all be done on the SC Mobile App. The Bank continues to provide clients the convenience of transacting anywhere and anytime. The Bank has just introduced SC DigiAdvisory, with this, clients can connect with Relationship Managers or Insurance Specialists and receive access to tailored wealth management advice from the comfort of their homes. The Global Business Outlook Awards aim to recognize and reward excellence in business to companies in the public and private sector, all over the globe. The goal is

to ensure that innovation, creativity and the drive to create value is duly recognized. Standard Chartered Bank Ghana Limited was lauded for building the skill and drive to succeed in the competitive sector. With this award, the Bank adds to its list of growing awards which include the Best Bank for Transformation in Africa and the Best Bank for Financing at the 2020 Euromoney Awards for Excellence and underscores its brand promise, Here for good. The Bank has achieved key milestones in its digital transformation agenda, initially by launching the first full digital bank on mobile – SC Mobile app with enhanced features including full on boarding of new clients in 15 minutes then installing Digital Banking Centres (DBCs) to augment its branch network and give clients access to investment products through its digital banking experience. Since inception in 2015, Global Business Outlook has successfully evaluated a vast number of companies covering various sectors of the industry, including but not limited to Banking. The awards were created to recognize companies of all sizes which are prominent in particular areas of expertise and excellence within their respective sectors.

WED. AUGUST 19, 2020

Africa Economy

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Nigeria’s long-awaited oil reform bill to go to president – sources Nigeria’s oil ministry will present a long-awaited oil and gas reform bill to the president in the coming days aimed at boosting output and attracting foreign investment, three sources close to the negotiations told Reuters. The reforms, 20 years in the making, are particularly urgent this year as low oil prices and a shift towards renewable energy have made competition tougher to attract investment from oil majors. Fiscal uncertainty has delayed a decision reut.rs/3g28DoM on a multi-billion dollar expansion by Royal Dutch Shell and its partners, while Chevron, Total and ExxonMobil reut.rs/348WfAX are selling various Nigerian assets. A spokesman for the Petroleum Ministry, which led the bill’s drafting, did not reply to a request for comment and the president’s office declined to comment. Royal Dutch Shell, the largest international operator in Nigeria, said a botched reform effort would be “putting at risk and making unviable most of the planned projects.” “We hope that the final bill would be one that would unlock potential

investments that Nigeria’s rich resource base truly deserves,” a spokesman for Shell companies in Nigeria said. A draft summary seen by Reuters included provisions that would streamline and reduce some oil and gas royalties. One of the sources described even the government’s reduced take of oil revenues, through taxes, royalties and other fees, as “aggressive” compared

with other nations. Some African countries are trying to cut red tape and taxes in order to make developing their oil and gas reserves attractive to companies. It proposes to boost the amount of money companies pay to local communities and for environmental cleanups. It would also alter the dispute resolution process between companies and the government,

though specifics of the changes were not included in the summary. The bill also included measures aimed at pushing companies to develop gas discoveries and a framework for gas tariffs and delivery. Commercializing gas, particularly for use in local power generation, is a core government priority. The bill will be presented in one piece with four chapters, the sources said. An effort to pass reforms by breaking them into several bills in 2018 fell flat; just one portion made it to President Buhari’s desk, and he never signed it reut.rs/346RIPH. Once Buhari signs off on the draft, it will go to the National Assembly, which is controlled by his All Progressives Congress party. The alignment of the presidency and the assembly give the measure the best chance of passage it has had in years. The law underpinning oil, the financial lifeline for Africa’s biggest exporter, has not been updated since the 1960s. Pumping its oil has historically been hugely profitable, but changes late last year that hiked Nigeria’s take of oil earnings, and a VAT increase, frustrated companies. (Reuters)

Eskom implements Stage 2 loadshedding from 4pm as generation units break down State-owned power utility Eskom said on Tuesday it would implement rolling blackouts from 4 pm until 10 pm, and again the following day, after breakdowns in some generation units left the electricity system severely constrained. In a statement, Eskom said six generators had been returned to service at its Medupi, Tutuka, Kendal, Majuba and Grootvlei power stations the previous day, but the breakdown of four units overnight and on Tuesday morning, as well as a delay in the expected return to service of one, had left the grid under pressure. This made it necessary to apply ‘stage 2’ loadshedding entailing the suppression of 2 000 megawatts of demand to avoid tripping the grid. “Any further deterioration in the generation performance may ... necessitate the escalation of load shedding at short notice,” Eskom added. The entity, which supplies about 95 percent of South Africa’s electricity, most of it coal-fired, has been forced to apply load shedding on and off in recent years due to breakdowns largely attributed to years of inadequate maintenance of its infrastructure. It did so again for a couple of days last week, citing an increase in breakdowns. “As the aged generation infrastructure is unreliable and

volatile, this constrained power system is expected to persist for the rest of the week, particularly as the cold front hits,” Eskom said on Tuesday, referring to the weather service’s predictions of what is likely to be the final cold spell in parts of South Africa as the winter season draws to a close. The utility said unplanned

breakdowns currently stood at more than 11 900 megawatts of capacity, adding to the 4 350 MW currently out on planned maintenance. Eskom is one of several stateowned companies beset with financial problems largely due to mismanagement. Several former senior executives

have left the utility after being implicated in the so-called “state capture” corruption scandal in which the wealthy Gupta family allegedly conspired with politicians in former president Jacob Zuma’s administration to influence decisionmaking in order to advance their own interests. (www.iol.co.za)

WED. AUGUST 19, 2020

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Time to adhere to malaria control protocols to sustain gains in the midst of COVID-19

BY: AFEDZI ABDULLAH alaria still accounts for 40 percent of all outpatient attendance, with the most vulnerable groups being pregnant women and children under five (5) years. The incidence of malaria, according to the Ghana Health Service (GHS) increased by 3.5 percent in the first quarter of 2016. This was mainly attributed to poor drug treatment practices. Between January and March 2020 alone, the country has recorded a total of 1,001,070 malaria cases with 54 deaths. Of the figure, 21,201 are children under five years. Malaria control protocols In 2014, the Ministry of Health (MoH) in accordance with international guidelines for case management of malaria, indicated that all suspected case of malaria must be tested by Rapid Diagnose Test (RDT) or microscopy before treatment. But interestingly, home based remedies that involved over the counter and left-over drugs as well as use of uncertified herbs are often the first treatment strategies for malaria treatment for most Ghanaians. Most often than not, individuals only visit a health facility after such remedies have proven ineffective and their conditions gotten worse. Dr Emmanuel Ofori, a Senior Medical Officer at the Cape Coast Teaching Hospital (CCTH) says, compliance of “test before you treat” among patients are generally low. According to him, people do not test but still go to the drug store or pharmacy to buy malaria drug, while others still treat for malaria even if they test negative with various flimsy excuses. “I have had adamant patients who after testing negative for malaria still thinks they have malaria and would go ahead to buy malaria drug to treat,” he revealed adding that “it is real. People are buying at the counter all the time”. Mr Kwabena Nimako, a Pharmacist at the CCTH agrees with Dr Ofori and says compliance to malaria protocols among the general public is low. “The government has put in place preventive measures, but compliance have been a big issue. “People are not complying, they are not sleeping in mosquito nets, they are staying out late at night, there is poor sanitation that is why malaria is still one of the top ten OPD cases in the Country,” he indicated. Mr Nimako said as per the malaria control programme, before any malaria drug is dispensed to a patient, the person must test positive. But according to Dr Ofori, the

pharmacies though are aware of the policy on malaria, sell malaria drugs to people while they have not done the test. He insisted that “the first thing to do is to test to be sure the person has malaria prior to administering any form of treatment”. Dr Ofori admitted that even health professionals faced a difficult challenge in diagnosing malaria, “the rapid test is not 100 percent, it is not conclusive. You could test negative and still have the parasite,” he added. Self-medication and homebased treatment According to research, about 69 percent of urban poor communities in Ghana self-medicate and resort to herbal medications as the first response to suspected malaria. Health insurance status, economic status, level of social support, and area of residence are associated with one seeking alternative treatment for malaria relative to orthodox treatment. Many of the people interviewed for the purpose of this article admitted to having engaged in self-medication for malaria treatment with only a handful saying they always went to the hospital. “I only go to the hospital when I have severe malaria but if it is not so serious, I just go to the drug store to buy some malaria drug”. This was a response from Madam Sarah Koomson when asked about her first point of call when she experience symptoms of malaria. Another person, Mr Joseph Bentsil provided a similar response and explained that it was convenient. Mr Nimako expressed worry about the practice of home-based medication as treatment for malaria and indicated that such practices may provide negative feedback for the government and largely impact policy decision. “It is worrying when people are treating malaria at home. That does not give us the real facts about malaria prevalence because it is only when people come to the hospital for treatment that we will know the exact number of people infected by malaria which will inform any policy decision,” he explained. He warned that taking malaria drug without testing could have serious implications for the person. “Under normal circumstance, if

you have the malaria parasite, when you take the medicine, it will fight the parasite. But here is the case that people take the medication when there is no parasite to fight. So it will rather fight on other organs to make the whole situation become complicated,” Mr Nimako explained. Traditional and Alternative Medicine is allowed but... Regarding traditional and herbal medication, Mr Nimako said its abuse was what has given it a bad image. “As we all know, people are mixing concoctions and using them to treat malaria and all sort of illness,” he said. That, he said was the reason why the Ministry of Health (MoH) was streamlining all traditional medicine to incorporate them into the formal health system such that patients could opt for traditional medicine against the orthodox. The move, he said had resulted in some hospitals in the country setting up traditional medicine units where patients who prefer traditional medication were treated with certified herbal medicines. “I have had some people who rejected the orthodox medication, saying they are not as effective as herbal medicine,” Mr Nimako said. Mr Osman Gambo, a resident of Cape Coast, shared his experience with herbal medication and said herbal medicine had always proven effective whenever he was used to treat malaria. But Mr Nimako advised that “even if you prefer the traditional medicine, you still have to visit the hospital and test for malaria before you using it”. “Go to hospital and ask for certified herbal malaria drug and it would be given to you,” he advised. Education Mr Nimako largely attributed the practice of self and home-base medication as well as the use of uncertified herbal concoctions to the fact that education had not gone down well with the people. Though a lot of education and sensitisation is being done, he admitted that more education was needed to make the public understand the issues, and visit the hospital for malaria treatment. Way Forward Dr Ofori want stakeholders to address the underlying deterring factors that make the formal health sector unattractive to clients to be addressed. He indicated that such deterring factors, which include bad staff attitude, time wasting and poor customer relations, badly affected the quality of health care provision. According to Dr Ofori, there was too much time wasting in accessing health care which was

very detrimental to the health of patients and the facilities as well and therefore it must be addressed urgently. “A market woman for instance will not go to the hospital to spend long hours. She will never do that unless she is dying,” he said. “Herbalists are all around them, they are very close to them. How close is the CHPS compound or health facility to the community and even if they go, do they get the required attention and medication?” he quizzed. Dr Ofori believes that if the above mentioned issues are holistically addressed to improve standards, reduce time wasting among others, patients would be willing to visit the hospital whenever they experienced symptoms of malaria knowing that they would not spend longer time at the hospital. Mr Nimako advised Ghanaians to desist from the habit of treating malaria at home to avoid complications leading to serious financial burden or even death. “I will advise each and every one, though we are not in normal times, but because we do not want to complicate issues, everyone should come to the hospital for malaria treatment”. Conclusion Data from the GHS shows that malaria related deaths had reduced by almost 91 percent and its prevalence among vulnerable groups such as children under five years and pregnant women had reduced since 2010. This is a massive achievement but to sustain the gains in the midst of the COVID-19 pandemic, is overstretching the health system than it could withstand, because people fear to report and come in when their conditions had worsened. The World Health Organisation (WHO) have admonished countries to intensify malaria interventions as COVID-19 rages on. Ms Helen Amegblor, a concerned health worker, encouraged the Government and the GHS to do more, using structures and resources at their disposal to sustain the gains made. “Now more than ever, it is critical that we safeguard these gains so that we do not see mortality cases on two fronts, (i.e malaria and COVID-19). If we need to integrate malaria with COVID-19 messages for a wider reach, let us begin to do it,” she stated. This article was produced as part of the People for Health (P4H) project being implemented by SEND Ghana, Penplusbytes and the GNA with the aim of reducing inequities in the delivery of health services through promotion of good governance practices of accountability, transparency equity and participation.GNA

WED. AUGUST 19, 2020

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Is high inflation coming back? BY IRA KALISH

In2020, the governments of the largest economies have increased spending by a volume not seen since the end of World War II. In the United States, for example, the budget deficit this year will be roughly 18% of GDP, a figure only ever surpassed on three occasions during the War in the early 1940s— and at that time, the government implemented wage and price controls to limit inflation. Meanwhile, central banks of the leading economies have engaged in massive asset purchases, boosting their balance sheets and helping to fund the large budget deficits. Money supply has grown at a rate not seen in decades. All of this sounds like a recipe for horrendous inflation. And yet the behavior of investors does not indicate any such concern. In fact, key indicators suggest that investors don’t expect any spike in inflation in the next decade. Are investors ignoring important information? Or is it possible that, after more than 40 years of low inflation, the developed world is about to see a new round of high inflation, fueled by a combination of monetary and fiscal policy that cannot be sustained? The answer is that there is a growing debate about this. First, the facts. Money supply growth has accelerated sharply in both the United States and the Eurozone. This is different from what happened in 2008 ̶ 10 when, despite a huge increase in the balance sheets of central banks, money supply actually decelerated as banks became less willing to lend in the face of serious nonperforming assets. In this case, however, there is no systemic problem with banks. Thus, as central banks have massively purchased assets, this has led to a massive expansion of money supply. In the Eurozone, broad money supply is up around 9% from a year earlier, the fastest rate since just before the last financial crisis. In the United States, broad money is up more than 23% from a year earlier, the fastest pace on record. Also, during this crisis, government debt has grown sharply as government spending soared while tax revenue fell. With central banks buying government bonds, much of the incremental debt is being financed by monetary growth—normally a recipe for inflation. The investor community, however, appears not to be concerned. The best measure of market expectations of inflation is the so-called breakeven rate. It is the difference between the yield

on a government bond and the yield on a bond that is protected from inflation. In the United States, this is the Treasury inflationprotected security, also called the TIPS. The yield on TIPS is the real, or inflation-adjusted, yield. Thus, the gap between the two yields is the market’s expectation of inflation. The breakeven rates in the United States and Europe fell sharply at the start of the crisis and have since risen but remain below the pre-crisis level. In other words, investors today expect that inflation over the next decade will be lower than they had expected prior to the crisis. This suggests that many investors are not concerned about the mix of monetary and fiscal policy. That said, the price of gold has soared in recent months. In the past, gold has sometimes been driven by investor worries about inflation. It is often seen as a hedge against inflation. Thus, it seems some investors are worried about inflation and some are not. Meanwhile, although actual inflation in the United States and Europe remains low, it has accelerated somewhat lately. What are the arguments for and against much higher inflation? The late great economist Milton Friedman once wrote that inflation is always and everywhere a monetary phenomenon. With money supply increasing rapidly, Friedman’s view suggests that inflation is just around the corner. It means that there will soon be too many dollars or euros chasing too few goods. Of course, it also depends on the velocity of money (the number of times money gets exchanged), which has declined dramatically in the last year. Meanwhile, the massive shift in fiscal and monetary policy that we have seen lately is reminiscent of what transpired during the two world wars. After each war, there was a brief period of very high inflation in major economies. In Germany, after the first war, the inflation was catastrophic. The main argument against the likelihood of much higher inflation is that the economy is likely to remain weak for a prolonged period of time. Activity is currently well below capacity and, even if there is a relatively robust growth path in the next few years, it will take at least until 2022 before economic activity returns to a pre-crisis trajectory. In the interim, there would not be a general inflationary impulse. Also, given that consumers are saving an unusually large share of income, and assuming that this will persist until a vaccine or treatment emerges, it is hard to

see how there will be strong excess demand that could drive inflation. Instead, much of the extra money being created is being hoarded. Thus, inflation is likely to remain muted. Moreover, even when the economy returns to normal activity, the Federal Reserve has sufficient tools to reverse course and remove excess liquidity. Plus, the extra government borrowing would quickly unwind as revenue rebounds and spending returns to normal levels. Nonetheless, governments could choose to finance massive debts through inflationary monetary expansion. That is, high inflation would help to quickly reduce the debt-to-GDP ratio, thereby making it easier to finance the debt without having to resort to higher taxes or onerous cuts in expenditures. Of course, the central banks of the United States, United Kingdom, and the Eurozone are meant to be independent of political concerns, at least for now. Still, the longer the COVID-19 crisis goes on, and the longer governments feel compelled to engage in dramatic spending increases, the greater the likelihood that inflation will be more appealing to policymakers. Finally, we have been through a prolonged period of very low inflation, which started in the early 1980s. This has led investors, consumers, workers, and businesses to expect low inflation. Moreover, expectations of inflation have a major impact on actual inflation. For example, if businesses expect low inflation, they will be less likely to raise prices, even in the face of strong demand. Consumers will be less willing to pay higher prices. Thus, a move to higher inflation would require a change in expectations, something that doesn’t happen easily. Recall that the high inflation of the 1970s was only ended after central bank policy managed to break people’s expectations of high inflation. British economy plummeted, but a rebound is coming As predicted, the British economy contracted at a record pace in the second quarter, according to the government’s data released last week. From the first to the second quarter, real GDP fell 20.4%, or at an annualized rate of 59.9%. Real GDP in the second quarter was 21.7% below the year earlier level. Looking at it another way, real GDP fell to a level last seen in 2003. Not only was this the worst decline in British history, it was also the worst decline in Europe. By comparison, real GDP fell at an annualized rate of 55.8% in Spain, 41.0% in Italy, 44.8% in

France, and 34.7% in Germany. The catastrophic decline in the United Kingdom was almost entirely due to what happened in the first month of the quarter, April. After that, activity began to rebound in May and June. In fact, the government estimates that real GDP increased 8.7% from May to June. This was attributable, in part, to the phased reopening of the economy that took place in the latter part of the quarter. The British government reports GDP growth both from the supply side and the demand side. Regarding demand, while real GDP fell 20.4% in the second quarter, real household spending fell 23.1% and gross capital formation fell 25.5%. The latter includes business investment that fell 31.5%. The decline in household and business spending was partly offset by an increase in government purchases. In addition, imports fell far more quickly than exports, meaning that trade made a net positive contribution to GDP growth. On the supply side, output of services fell 19.9%, disproportionately driven by the collapse of the food service and accommodation sector which fell 86.7%. Production output fell 16.9%, driven largely by a sharp decline in manufacturing. The latter included a 49.1% decline in production of transport equipment. Finally, output by the construction sector fell 35.0%. Going forward, it is likely that third quarter growth will appear strong given the rapid rebound in many areas of economic activity. Still, it will take some time before the economy returns to a precrisis level. Part of the problem is fear of the virus. Even with the removal of restrictions, many consumers are wary of social interaction. The government is offering subsidies to get people to visit restaurants. Moreover, Chancellor of the Exchequer Rishi Sunak warned that there are likely to be job losses in the near future, even without a second wave of the virus, which itself remains a possibility. Plus, the government program to provide subsidies to employers that retain workers on the payroll is set to expire in October, potentially leading to a sharp rise in unemployment and a commensurate decline in personal income. The program currently supports roughly nine million people. The government says it is not likely to be extended. Thus, Britain is by no means out of the woods.

TO BE CONTINUED

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WED. AUGUST 19, 2020