Business24 Newspaper (1 April 2020) by Business24 Online

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WEDNESDAY APRIL 1, 2020

COVID-19 opens up GH¢11.4bn budget gap

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Assibey-Yeboah backs proposal to spend Heritage Fund MORE ON PAGE 3

MORE ON PAGE 03

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News/Editorial Editorial: Critical Times call for decisive actions 1

Wash your hands 2

The Finance Minister’s decision to seek an amendment to the law to allow government use monies from the Heritage Fund, in addition to other sources, to mitigate the impact of COVID-19 on the country’s fiscal health, has generated passionate debate. Indeed, the Heritage Fund was created by law to serve as endowment for future generations of Ghana citizens who will be alive at the time when petroleum activities come to an end. The law also stipulates that Parliament can

also pass a resolution of majority of Parliamentarians only after 15 years from 2011 (which can only happen from 2026) to withdraw a portion of the accumulated interest and not the principal. Chairman of the Finance Committee of Parliament, Dr. Mark Assibey-Yeboah posit that: “To return to the pre-coronavirus era means we have to make hard choices. It will be absurd for Ghanaians to die while we hold US$591million in the Heritage Fund. I don’t want to be a Member of Parliament at a time when the House decides not to touch the Heritage

Fund and Ghanaians die. This is the time for us to dig our hands into the Heritage Fund.” The situation, he stressed, is dire, considering the impact on jobs, inflation and petroleum receipts, urging all the citizenry to rally behind the government to successfully implement the measures it has put in place to contain the virus, save lives and bring the Ghanaian economy back to life. “We are going to experience a global recession this year. No country is left out. Our economy could grow at 2 percent or 1 percent or even negative. So these

are not times for anybody to be partisan. These are serious times and let us be guided. Let us support government in this trying moment,” he underscored. Indeed, Business24 believes that in as much as the Heritage Fund was set up for a specific purpose, the current pandemic necessitates usage of part of the Fund but we must be careful not to deplete it.

COVID-19 opens up GH¢11.4bn budget gap BY EUGENE DAVIS

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The coronavirus (COVID-19) outbreak has opened up a budget financing gap of GH¢11.4 billion that needs to be closed, Finance Minister Ken Ofori-Atta told lawmakers in Accra on Monday when he presented a statement on the government’s interventions to address the raging pandemic. The effects of the pandemic will result in significant shortfalls in petroleum receipts, shortfalls in import duties, shortfalls in other tax revenues, increased healthrelated expenditures, and tight financing conditions, Mr. Ofori-Atta revealed. The financing gap includes the cost of revenue losses and additional COVID-19related public spending, which together was pegged at GH¢9.5 billion (2.5 percent of revised GDP). Meanwhile, the economy’s growth rate, which surpassed 6 percent in each of the last three years

and was initially projected at 6.8 percent for 2020, could fall to a record low of 1.5 percent under a partial lockdown scenario, or worse if a full lockdown is imposed, according to the Finance Minister. Since Monday, the metropolises of Greater Accra, Greater Kumasi, Tema and Awutu Senya East have been on a 14-day lockdown in a bid to stem the spread of COVID-19, which had registered 161 cases as at press time on Tuesday. The government has also announced a raft of measures to mitigate the impact of the coronavirus on businesses and households, and ensure that economic activities are sustained while minimising job losses. “A recalibration of the 2020 fiscal framework underpinning the approved 2020 Budget to reflect the fiscal impact of the coronavirus, without incorporating measures, shows that the overall fiscal deficit will increase from the programmed GH¢18.9

billion (4.7 percent of GDP) to GH¢30.2 billion (7.8 percent of revised GDP). The primary balance will correspondingly worsen from a surplus of GH¢2.8 billion (0.7 percent of GDP) to a deficit of GH¢5.6 billion (1.4 percent of GDP),” Mr. Ofori-Atta said in his statement. “Measures are therefore required to close the fiscal gap of GH¢11.4 billion (2.9 percent of revised GDP),” he added. The measures he outlined include a deferral of interest payments on non-marketable government bonds and securing an emergency International Monetary Fund (IMF) facility of GH¢3.1 billion cedis. The government will also propose a change in legislation to allow borrowing of as much as 10 percent of the previous year’s tax revenue from the central bank “in the event of tight financing conditions.” Other measures are a GH¢1 billion Coronavirus Alleviation Programme (CAP), realignment of statutory funds towards sanitation and

health-related expenditures, limiting the award of new contracts while focusing on the payment of arrears, and the establishment of a COVID-19 Fund to receive contributions and donations from the public to support the CAP and to assist in the welfare of the needy and the vulnerable. For now, these remain proposals which are expected to be given legal backing by Parliament to enable government close the budget gap that the virus has occasioned. The Finance Minister also promised to return to the House in July to present a midyear budget review statement. Unlike the three previous years when growth was driven by rising output in the extractives sector, the 2020 Budget was hinged on extensive investment into construction and the development of the manufacturing sector. The outbreak of COVID-19, however, represents a major setback to the government’s plans.

Grim outlook as economy reels from shocks continued from page 1 shortfalls in petroleum revenues, import duties and tax revenues as well as increased health expenditures and tighter financing conditions will have consequences on the 2020 budget.” Mr. Ofori-Atta’s forecasts are grimmer than those put out in mid-March by the Bank of Ghana, which projected economic growth falling to 5 percent in the baseline scenario and to 2.5 percent in the worst-case scenario. Key areas of the economy

such as the manufacturing, pharmaceuticals, aviation, banking and hospitality sectors are currently experiencing the pain of the virus, with some suggesting they need a bailout from the government to survive and keep people in work. The Finance Minister confirmed that the impact of the coronavirus on the Ghanaian economy has been diverse: from the employer who sees demand dropping drastically to the employee whose job and income are at risk. The total estimated fiscal impact of the pandemic is GH¢9.5 billion, which

represents 2.5 percent of revised GDP. Overall, the crisis has opened up a budget financing gap of GH¢11.4 billion, equivalent to 2.9 percent of revised GDP. This, according to Mr. Ofori-Atta, includes the cost of shortfalls in petroleum receipts, import duties, tax revenues and the proposed stimulus package for small and medium businesses and households. The stimulus package will provide at least GH¢1 billion to support households and firms deal with the repercussions of the virus, which have been exacerbated by the partial lockdown imposed in four

major metropolises of the country since Monday. The harsh impact of the pandemic on the world economy is equally enormous, with the International Monetary Fund (IMF) predicting “a recession at least as bad as during the global financial crisis or worse”. The United Nations Economic Commission for Africa (UNECA), meanwhile, sees Africa’s GDP growth dropping by 1.2 percentage points from 3.2 percent to 2 percent as a result of the pandemic.

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COCOBOD Supports COVID-19 Fund The Ghana Cocoa Board (COCOBOD) has presented a cheque of Ghc200,000 and assorted products worth over GHc1,032,000 to support the Covid-19 Fund set up by government to mobilize logistics to contain the spread of the pandemic in the country. Presenting the cheque and items on behalf of the Board of Directors, management, staff and cocoa farmers to the Minister for Health, Kwaku Agyemang Manu, the Chief Executive of COCOBOD, Joseph Boahen Aidoo stated that there was the need for all stakeholders to support the fight against the virus which poses a major threat to the survival of the country including all persons within the cocoa value chain. Mr. Boahen Adioo lauded government for showing strong commitment to fighting the disease which has so far affected 152 lives in the country ‘Government has shown fortitude, commitment and passion to fight this dangerous disease and it is good we support this worthy gesture’, he added. The items which included 5,000 litres of alcohol based sanitizers valued at Ghc150,000 produced by Cocoa Clinic, 5,000 cartons of

natural cocoa (royale) costing Ghc882,000, 10,000 pieces of liquid soap were to be distributed to frontline staff of the Ghana Health Service to keep them safe and reduce their risk of contracting the disease in the course of duties. “The sanitizers and antibacteria liquid soap are to help the frontline Health Professionals to clean their hands regularly adding that regular consumption of the natural cocoa powder by such

essential workers will boost their immune system against contracting the pandemic,” he indicated. Mr. Aidoo further said the natural cocoa powder – Royale should be given to all persons who have tested positive to the disease to consume regularly during their period of quarantine to boost their immune system and speed up the rate of recovery. “Yes, cocoa contains polyphenols and anti-oxidant

properties which help boost the immune system. I believe in this critical time, when we try this product on the victims, they will recover faster than expected,” he assured. Mr. Boahen Aidoo further stated that he and his three deputies will pay 50% of their net salary to the Fund for the next three months as part of their personal support towards the eradication of the disease in the country.

Receiving the support on behalf government, the Minister for Health, Mr. Kwaku Agyemang Manu was full of appreciation to COCOBOD for the gesture and goodwill and promised they would be put to the intended use. According to him, government’s efforts at containing the disease are yielding positive results as so far, 31 of the persons who tested positive to the virus have recovered and have been integrated into society. He urged all Ghanaians to observe the safety measures announced by government and stay at home to prevent further spread of the disease. “Do you all see that as we took those bold decisions, the numbers are not rising any further…it means we are containing the situation collectively and let’s sustain the momentum,” he added. Mr. Agyemang Manu urged all to avoid the tendency of travelling to places such as their villages because of the lockdown as that would cause the disease to spread further. ‘Let’s stop community mobility at this time. Stay home and observe all the directives especially social distancing and good personal hygiene and we will get out of this menace victoriously’, he advised.

Assibey-Yeboah backs proposal to spend Heritage Fund continued from page 1 The Chairman of the Finance Committee of Parliament, Dr. Mark Assibey-Yeboah, has said there could be no proper time than now to dig into the Heritage Fund to address a national emergency brought on by the spread of the coronavirus (COVID-19). The Member of Parliament for New Juaben South was contributing to a debate on the floor of Parliament House on Monday, shortly after Finance Minister Ken Ofori-Atta had presented a statement to lawmakers seeking approval to use funds from the Ghana Heritage and Stabilisation Funds to help ease the economic impact of the pandemic. The country’s count of confirmed COVID-19 cases as at Tuesday evening stood at 161, with five deaths and 31 recoveries, according to the Ministry of Health. Efforts to prevent an uncontrollable spread of the virus led to the imposition of further restrictions on people’s movements at the start of the week. “To return to the precoronavirus era means we have to make hard choices. It will be absurd for Ghanaians

to die while we hold US$591million in the Heritage Fund. I don’t want to be a Member of Parliament at a time when the House decides not to touch the Heritage Fund and Ghanaians die. This is the time for us to dig our hands into the Heritage Fund,” Dr. Assibey-Yeboah said. Commenting further, he said considering the devastating impact of the coronavirus on the global economy, it will take at least two years for affected economies, including Ghana, to recover. The situation, he stressed, is dire, considering the impact on jobs, inflation and petroleum receipts, urging all the citizenry to rally behind the government to successfully implement the measures it has put in place to contain the virus, save lives and bring the Ghanaian economy back to life. “We are going to experience a global recession this year. No country is left out. Our economy could grow at 2 percent or 1 percent or even negative. So these are not times for anybody to be partisan. These are serious times and let us be guided. Let us support government in this trying moment,” he underscored.

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Cash hoarding Vrs digital financial solutions BY SAMSON ADDO The immediate reaction from people, especially city dwellers, in the wake of the partial lockdown announced by the President of Ghana on Friday 27th March 2020 is the spontaneous decision to hoard essential items that can help one to survive within the lockdown period. People rushed to stock food, water, sanitary products and even money from financial institutions. I guess you can imagine the sudden disregard to social distancing protocols due to this rush. Whilst it’s reasonable to get enough for the period, it is just not necessary that some are rushing for their money from the financial institutions. This only creates a semblance of panic withdrawal, which is not in the interest of Ghana’s financial system especially at this uncertain time. It is noteworthy that these financial institutions are well capitalised, being managed better and are ready to serve customers. At least this can be boldly inferred considering the recent ‘cleansing’ of the financial system by Bank of Ghana. Risks of hoarding Cash There are risks of hoarding cash at home. Hoarding cash at home predisposes you to theft. Armed robbers are attracted to places where the potential for stealing money is high. Hoarding cash at home

only increases the potential that armed robbers or ‘area boys’ will break into your home and make away with your money. Area boys is a term used to describe undisciplined youth in communities that engage in stealing items from homes or causing unnecessary disturbances. Additionally, hoarding cash at home makes you engage in unnecessary buying. You have a life to live after COVID-19. You will survive this disease. This is not the time to engage in buying things that you really don’t need. It therefore makes sense to keep enough with your financial institution and just depend on the money you just need now. Moreover financial institutions have provided multi-channel access to your funds. You can utilize the channels to transact at any time. Banking and other financial institutions are currently educating their customers on the use of the alternate channels of service delivery and so you have to know and use those convenient channels instead of queuing at the banking halls. Contact your financial institution now to enquire about their digital offerings. Your Deposits Matter Financial institutions thrive on customers deposits. They need your savings to help stimulate economic growth through provision of loans to businesses. Financial institu-

tions provide employment to people and therefore their existence need to be safeguarded not only by the government BUT by everybody. This is why I support the call by Bank of Ghana to all persons not to misunderstand the partial lockdown directive and engage in panic withdrawal. Adopt Digital banking behavior

and very advantageous to all customers. Apart from saving you time, it is very convenient because the service is borderless i.e. one can transact anywhere in Ghana. Using digital banking services helps to promote cashless society, which is a key global land mark in our evolution that we cannot escape from.

In any case moving to the banking halls to withdraw money is not a highly recommended practice because Ghana is making efforts to promote social distancing protocols. In place of this you are highly encouraged to patronize digital banking solutions offered by financial institutions. To enhance broader penetration financial intstitutions have mobile applications that enable you to perform your desired financial transactions. Others have USSD platforms that help both smart and non-smart phone users to perform same banking transactions. Additionally some financial institutions have deployed internet banking that is available to customers. You have a bouquet of options that meet your peculiar needs and you must decide to use these safe services especially at this time that we are making efforts to prevent COVID-19 from spreading within our communities. The importance of digital financial solutions is enormous

Financial institutions should make their digital services very simple and understandable. If customers find it difficult to use their service, then they may be hesitant in utilizing digital channels being offered or promoted. In addition, the downtime of these services should be reduced to the barest minimum. Since more people will be using their electronic gadgets, i.e. mobile phones and computers, to access these services it is recommended that the IT teams of the financial service providers and their outsourced counterparts should monitor their networks closely to ensure seamless service is delivered to Ghanaians that need the assurance that digital solutions are more convenient and faster. Financial service providers should see investment in digital solutions as an

Behavior change: Role of Financial Institutions

investment that yields returns in the medium to long term and must deploy and sustain these services with a different mindset. In our part of the world where literacy is relative low and adoption of new technology takes a longer curve, delivering digital solutions must be done in a sustained and dedicated manner supported by management and staff. They must constantly engage their customers on this. Same must apply to investors in these financial institutions so that their expectations on short term dividends and returns will be appropriately positioned. Role of Bank of Ghana Bank of Ghana is a key player in regulating financial service providers in Ghana and for that matter it is necessary that they engage the public in understanding the role of digital financial services. Instead of only communicating in English they have to adopt a strong strategy to reach less literate in society. They have to engage the local radio stations so that the right information can be communicated directly to the populace. As we endeavor to be resilient in the face of the spread of CVID19 I encourage everyone to adopt safe digital banking lifestyles and continue to observe the recommended health protocols.

Samson Addo, a young entrepreneur and an Energy Economics student with interest in Economic Development. Contact Samson on 2010risk@gmail. com or 0541834811.

Kennedy Agyapong supports gov’t COVID-19 fight gloves,100 gallons of hand sanitisers, 12,000 face masks and 1,000 personal protective equipment (PPE). The Minister for Finance, Ken Ofori-Atta, who received the items on behalf of government, thanked the MP and urged all Ghanaians to contribute towards the COVID-19 Fund that has been set-up. “We are not sure what the extent or cause will be to the nation. Government instructed for US$100m for a start and that is ready to be deployed. The two, three weeks partial lockdown is going to create additional cost and we need to find a way to help our citizens who may not be able to afford food. “So this will go a long way to ensure that we are able to take care of everybody. The key thing is to keep our people alive and that is what we will do, whichever way we can, to make it happen. He also urged Ghanaians to change their hygiene habit, attitude and come out much stronger as a nation after this pandemic.

BY EUGENE DAVIS The Member of Parliament for Assin Central, Kennedy Ohene Agyapong, has urged all Ghanaians not to underestimate the novel coronavirus (COVID-19), given its devastating impact on people and economies around the world within the past few months. According to him, rich countries “have been exposed” on the account of the disease and urged Ghanaians who are well-placed to come over and support government’s efforts to combat the disease. He made these comments when he presented items worth GH¢670,000 to government for distribution to the 16 regional hospitals and health care centres in the country. The items included: 20 beds for the 37 Military hospital; 20 beds for Korle-Bu Teaching Hospital; 20 beds for Ridge Hospital; 15 beds for Tema General Hospital; five (5) beds for Police Hospital; 10 beds for Assin Fosu Catholic Hospital; 20 beds for Komfo Anokye Teaching Hospital; 20,000

Kennedy Agyapong (in blue polo shirt) presenting a sample of the items to Finance Minister, Ken Ofori-Atta, while National Security Minister, Albert Kan Dapaah, looks on.

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Vice-Chancellors support gov’t to fight COVID-19 In the wake of the COVID-19 pandemic facing the country and the world at large, Vice Chancellors Ghana, (VCG) - the Committee of Vice-Chancellors of Public Universities in Ghana - commits to support the measures put in place by Government to combat the pandemic. To this end, all VCG member institutions have shut down in accordance with the Presidential directive, the committee said in a statement. VCG entreats all students and employees of Public Universities to commit themselves seriously to the guidelines issued by the Ministry of Health to curb the pandemic. We must be ambassadors of the basic principles of sanitization and hygiene in the family, the community and the country as a whole, to support Government to contain and eradicate this pandemic from the country.

VCG will continue to work with Government to ensure that the proposal to roll out a distance-learning plan to keep students academically active during the period of the closure, is implemented effectively. VCG acknowledges that this arrangement, though laudable under our current circumstances, may be fraught with some challenges particularly for students in remote communities in the country where there is limited Internet access. “We do however recognize the importance of rolling out this platform and continuing to build on it to achieve better outcomes. VCG would take account of the challenges faced by students and employees and make the necessary adjustments, including the revision of the academic calendar, if necessary, and in line with further Government directives,” the statement said.

VCG urges the research community of Ghana to harness its resources to contain this pandemic and collaborate to conduct research and develop systems to enhance Ghana’s epidemic and disaster preparedness and management. VCG would continue to explore and make appropriate submissions to

government using all research facilities and research personnel as it becomes necessary, while supporting Government in every way possible in the effort to eradicate this pandemic from the country. VCG commends the University of Ghana for its timely action to trace and

successfully quarantine and subsequently test about eighty students who came into contact with an infected student on campus. This singular action of the University has averted a potential community spread of the virus. We therefore earnestly appeal to the InterMinisterial Coordinating Committee on COVID-19 to support the University of Ghana with the necessary finances and logistics to take care of these quarantined students, just as has been done for the returnees from outside the country. Finally, VCG commends Government for the fumigation and disinfection exercise being carried out in markets across the country, and requests that the exercise be extended to cover all university campuses across the country to enhance hygiene and sanitisation on the campuses.

Vice President launches Online Scholarship Application System The Vice President of the Republic, Dr Mahamudu Bawumia, has launched the Scholarship Secretariat’s Online Scholarship Application and Administration System, www.scholarshipgh.com, in Accra. From April 1, 2020, in just four (4) easy steps, any applicant can apply from the comfort of their homes, take an aptitude test and be interviewed in their own districts without coming to Accra as in was the case in the past. The launch of the Online portal is in line with President Akufo-Addo’s vision to digitize and formalize government service delivery processes, help to eliminate the inconveniences that applicants experience seeking government sponsorship and also help the Secretariat in proper and efficient administration of scholarships in the country. Speaking at the launch on Tuesday, March 31, 2020, Vice President Bawumia said the digitization of scholarship processes has come at the appropriate time, when the world is faced with the COVID-19 pandemic which has temporarily shut down almost all social institutions, especially the education sector. “The enhanced use of technology, which is reflected in this administration’s digitization agenda, is a very relevant tool in the fight against the COVID 19 pandemic, as digitization by its nature leads to social distancing. Today, we can access many services while sitting in the comfort of our homes, without the human interface

which could lead to the spread of the virus. “We are delivering and will continue to deliver more services online, such as the ECG app, paperless ports, DVLA, Passport Office and the rest. Indeed, God willing, we will launch the Ghana.gov portal next month, a one-stop shop for accessing government services. Scholarshipgh.com will be included in due time,” the Vice President disclosed. Vice President Bawumia recalled that the Scholarships Secretariat, since its establishment in 1960 as an extra-ministerial body under the Office of the President, has

operated below capacity in its traditional bricks and mortar setting. During these times, government sponsorship opportunities were perceived as the preserve of politicians and those well connected in government. Shortly after assumption of office in 2017, President Akufo-Addo instructed the Scholarships Secretariat to decentralize its operations to increase access and eliminate the inconvenient experiences of Ghanaians in accessing sponsorship opportunities, specifically those from the hinterlands.

In line with the strategic directive of the government, the Secretariat initiated processes aimed at increasing access and ensuring transparency in its scholarship awards and administration processes. This culminated into the piloting of the award processes at the Regional levels in the 2018/2019 academic year and narrowed the process down to the Metropolitan, Municipal and District Levels in the 2019/2020 academic year. The period witnessed significant achievements in the increase of scholarships awarded to Ghanaian students

pursuing higher education in local tertiary institutions, both public and private, with more than thirty thousand (30,000) Ghanaian students in locally accredited tertiary institutions benefitting from the scheme in the 2019/2020 academic year. For the 2020/2021 academic year, Scholarships Secretariat and GETFund has made a provision for eighty million Ghana Cedis (GH¢80,000,000.00) to students in local tertiary institutions. The number of beneficiaries is expected to increase to about 70,000. “The launch today of this Online Scholarship Application and Administration System is a proud moment that will revolutionize scholarship administration in Ghana and beyond. “With this new system government is seeking to ensure transparency in the scholarship awards and by this, the risk of corruption will be reduced as all workflow regarding scholarship application will be streamlined. Again, the new system will provide accurate and reliable data on scholarship beneficiaries as well as tracking their academic progress.” The Registrar of the Scholarship Secretariat, Kingsley Agyeman, who took participants through the processes of application, expressed appreciation to Government for the support over the years, and pledged the commitment of the Secretariat to do even more to make accessing Scholarships easier and more efficient.

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Ensuring the hunger does not kill more people than COVID-19 in Africa

BY NDIDI OKONKWO NWUNELI

With the global spread of the COVID-19, and gradual lock downs in cities and countries across Africa, I have new fears – that starvation and hunger are mounting threats for people across the continent. These fears are hinged on the realization that it is planting season in most parts of the Continent, and yet farmers are being asked to sit at home, the movement of seasonal workers is restricted, research institutes that provide seeds, fertilizer blending companies and agrodealers, processors and markets are all being shut down. Our regional and national borders are closed, and trading is being restricted. These realities, if pro-longed and not urgently addressed, will lead to short term consequences of food shortages, price hikes, and medium to long term consequences of undernutrition, mass starvation and eventually death, especially among our most vulnerable populations. We have to act with urgency to stem the virus through social distancing and lock downs. At the same time, we must recognize that farmers and workers in the food industry are essential to the fight against the pandemic and desperately need to be protected and supported. Indeed, without nutritious food, the sick cannot recover, and the healthy will eventually become unwell. My fears are shared by a few

stakeholders on the Continent and around the world. The EU Farmer’s organization – COPA-COGECA earlier this week actively advocated for support to ensure minimal disruptions to the food supply chain, worker protection and contingency plans. The United Kingdom and the United States have already outlined comprehensive plans to provide intervention grants, loans, and tax holidays, for stakeholders in the food industry, including restaurant owners and retailers affected by the economic fallout of the pandemic. In Mexico, farmers who continue to plough their fields are being celebrated as heroes. Sadly, there has been no coordinated action from industry groups, the private sector, civil society, or the public sector to raise awareness about the looming food crises on the African Continent, linked to COVID-19. Thankfully, it is not too late to act! We must take decisive and proactive steps to ensure that our people have access to affordable nutritious food in both our urban and rural communities. This will require that: 1. Our governments at the federal, state, and local levels recognize key stakeholders in the food and agricultural landscape as essential workers and provide them with the protection and support that they need to continue to work, following pre-stipulated safety and health protocols. We must keep food markets and factories open, with

clear guidelines around limiting crowds, and widely publicized schedules for who can enter during what periods of time. We can also learn from China’s example over the last few months, where government officials, especially the Ministry of Agriculture and Rural Affairs (MARA) and Ministry of Human Resources and Social Security and National Health Commission repeatedly issued comprehensive notes to farmers on the control and prevention of the virus in rural areas, as well recommendations and protocols for preparing for their planting season and sustaining the livestock and poultry sectors. Beyond guidance and protocols, our governments must urgently partner with the financial services sector to develop comprehensive loan packages for farmers, and entrepreneurs who are committed to working during the crises and can demonstrate their capacity to fill critical gaps in the food ecosystem. These interventions must actively engage women, who play a critical role in the sector. In addition, our governments must assess the national strategic and emergency grain reserves to gauge what is available and how to effectively manage and deploy these reserves in a transparent and accountable manner to minimize price hikes and widespread shortages. 2. Our industry associations, fast moving consumer goods companies, international

trading companies, aggregators, wholesalers, and retailers must work together seamlessly to ensure the efficient and effective provision of affordable food to the masses of people. Leveraging technology, raw material suppliers and processors can actively partner with logistics providers and retailers to ensure that food is moved to where it is needed most, and no community is left behind. This is not a period for hoarding and price gouging, with a focus on profits and growth at all costs. Companies must rise to the higher ideal of shared corporate values, where they put the needs of their customers and the African people ahead of their own requirements for profits and shareholder value. To ensure that this occurs, consumer protection and anticompetition agencies must closely monitor the activities of the largest actors in the food industry to ensure a level playing field. In addition, the private sector can facilitate the introduction of drones, sensors and other precision agriculture and innovative technology solutions, which will allow for active monitoring of commercial farm activity from a distance. Companies such as Atlas AI have demonstrated the power of technology to manage farms and assess impact, without direct human contact. Our nonprofit organizations and media organizations must provide thought-leadership, monitoring and guidance

to the entire ecosystem. Organizations such as GAIN are already providing critical guidance during this period. 3. Finally, average citizens must invest in their own backyard and community gardens, while ensuring social distancing, manage their food budgets judiciously and share with their neighbors. Faith based organizations must open soup kitchens, offering free meals and partner with logistics providers to coordinate drop-offs. We must rebuild trust in our communities by caring for the most vulnerable at this exceedingly challenging time in our history as humanity! As an eternal optimist, I am hopeful that as a people we will survive the COVID-19 pandemic, emerging with some critical lessons and a more resilient, united, and efficient food ecosystem. Now is the time for governments, stakeholders in the food ecosystem and citizens to act! Every minute counts!

Ndidi Okonkwo Nwuneli is the managing partner of Sahel Consulting Agriculture & Nutrition and the Co-Founder of AACE Foods, which is located in Nigeria. Ndidi is a member of the Transformation Leadership Panel (TLP), an initiative of the African Center for Economic Transformation (ACET). This article was first published by Sahel Consulting Agriculture and Nutrition.

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COVID-19 and the world of work: Impact and policy responses This is International Labour Organisation’s (ILO) preliminary assessment concerning the possible impacts of COVID-19 on the world of work and proposes a range of policy options to mitigate these impacts and facilitate strong and fast recovery.

inally estimated (i.e. an overall decline of 5.2 million working poor in 2020 compared to a decline of 14 million estimated preCOVID-19). Under the mid and high scenarios, there will be between 20.1 million and 35.0 million more people in working poverty than before the pre-COVID-19 estimate for 2020.

Why are labour markets important? The COVID-19 pandemic, which has already infected almost 170,000 people in 148 countries, resulting in more than 6,500 deaths,1 has the potential to reach a large proportion of the global population. Some estimates suggest that 40-70 per cent of the world’s population could become infected. The crisis has already transformed into an economic and labour market shock, impacting not only supply (production of goods and services) but also demand (consumption and investment). Disruptions to production, initially in Asia, have now spread to supply chains across the world. All businesses, regardless of size, are facing serious challenges, especially those in the aviation, tourism and hospitality industries, with a real threat of significant declines in revenue, insolvencies and job losses in specific sectors. Sustaining business operations will be particularly difficult for Small and Medium Enterprises (SMEs). Following travel bans, border closures and quarantine measures, many workers cannot move to their places of work or carry out their jobs, which has knock-on effects on incomes, particularly for informal and casuallyemployed workers. Consumers in many economies are unable or reluctant to purchase goods and services. Given the current environment of uncertainty and fear, enterprises are likely to delay investments, purchases of goods and the hiring of workers. Prospects for the economy and the quantity and quality of employment are deteriorating rapidly. While updated forecasts vary considerably -- and largely underestimate the situation -- they all point to a significant negative impact on the global economy, at least in the first half of 2020. These worrisome figures show growing signs of a global economic recession. Swift and coordinated policy responses are needed at national and global level, with strong multilateral leadership, to limit the direct health effects of COVID-19 on workers and their families, while mitigating

Who are particularly vulnerable?

the indirect economic fallout across the global economy. Protecting workers and their families from the risk of infection needs to be a top priority. Demand-side measures to protect those facing income losses because of infection or reduced economic activity are critical to stimulating the economy. Income protection also mitigates the disincentives against disclosing potential infections, especially amongst lowincome and already disadvantaged groups of workers. Deeper institutional and policy reforms are also required to strengthen demand-led recovery and build resilience through robust and universal social protection systems that can act as automatic economic and social stabilizers in the face of crises. This will also help to rebuild trust in institutions and governments. Tripartite social dialogue between Governments and Workers’ and Empoyers’ organizations is a key tool for developing and implementing sustainable solutions, from the community level to the global level. This requires strong, independent and democratic social partner organizations. The Great Recession and other crises have shown that we can prevent the risk of a vicious downward cycle only through large-scale, coordinated and decisive policy measures. Impacts: How will COVID-19 affect the world of work? COVID-19 will have far-reaching impacts on labour market outcomes. Beyond the urgent concerns about the health of workers and their families, the virus and the subsequent economic shocks will impact the world of work across three key dimensions: 1) The quantity of

jobs (both unemployment and underemployment); 2) The quality of work (e.g. wages and access to social protection); and 3) Effects on specific groups who are more vulnerable to adverse labour market outcomes. Impact on global unemployment and underemployment: Initial ILO estimates point to a significant rise in unemployment and underemployment in the wake of the virus. Based on different scenarios for the impact of COVID-19 on global GDP growth, preliminary ILO estimates indicate a rise in global unemployment of between 5.3 million (“low” scenario) and 24.7 million (“high” scenario) from a base level of 188 million in 2019. The “mid” scenario suggests an increase of 13 million (7.4 million in high-income countries). Though these estimates remain highly uncertain, all figures indicate a substantial rise in global unemployment. For comparison, the global financial crisis of 2008-9 increased unemployment by 22 million. Underemployment is also expected to increase on a large scale. As witnessed in previous crises, the shock to labour demand is likely to translate into significant downward adjustments to wages and working hours. While self-employment does not typically react to economic downturns, it acts as a “default” option for survival or maintaining income - often in the informal economy. For this reason, informal employment tends to increase during crises. However, the current limitations on the movement of people and goods may restrict this type of coping mechanism. The decline in economic activ-

ity and constraints on people’s movements is impacting both manufacturing and services. The most recent data shows that the total value added of industrial enterprises in China declined by 13.5 per cent during the first two months of 2020.4 Global and regional supply chains have been disrupted. The services sector, tourism, travel and retail are especially vulnerable. An initial assessment by the World Trade and Tourism Council forecasts a decline in international arrivals of up to 25 per cent in 2020, which would place millions of jobs at risk. Implications for labour income and working poverty: Labour supply is declining because of quarantine measures and a fall in economic activity. At this point, a preliminary estimate (up to 10 March) suggests that infected workers have already lost nearly 30,000 work months, with the consequent loss of income (for unprotected workers). Employment impacts imply large income losses for workers. Overall losses in labour income are expected in the range of between 860 and 3,440 billion USD. The loss of labour income will translate into lower consumption of goods and services, which is detrimental to the continuity of businesses and ensuring that economies are resilient. Working poverty is also likely to increase significantly. The strain on incomes resulting from the decline in economic activity will devastate workers close to or below the poverty line. The growth impacts of the virus used for the unemployment estimates above suggest an additional 8.8 million people in working poverty around the world than orig-

Epidemics and economic crises can have a disproportionate impact on certain segments of the population, which can trigger worsening inequality6 Based on past experience and current information on the COVID-19 pandemic and insights from previous crises, a number of groups can be identified: • Those with underlying health conditions and older people are most at risk of developing serious health issues. • Young persons, already facing higher rates of unemployment and underemployment, are more vulnerable to falling labour demand, as witnessed during the global financial crisis. Older workers can also suffer from economic vulnerabilities. After the MERS outbreak, older workers were found to be more likely than prime-age individuals to experience higher unemployment and underemployment rates, as well as decreased working hours. • Women are over-represented in more affected sectors (such as services) or in occupations that are at the front line of dealing with the pandemic (e.g. nurses). The ILO estimates that 58.6 per cent of employed women work in the services sector around the world, compared to 45.4 per cent of men. Women also have less access to social protection and will bear a disproportionate burden in the care economy, in the case of closure of schools or care systems (ILO, 2018). • Unprotected workers, including the self-employed, casual and gig workers, are likely to be disproportionately hit by the virus as they do not have access to paid or sick leave mechanisms, and are less protected by conventional social protection mechanisms and other forms of income smoothing. • Migrant workers are particularly vulnerable to the impact of the COVID-19 crisis, which will constrain both their ability to access their places of work in destination countries and return to their families. To be continued… (Source: ILO)

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Welcome to the Post-Virus World

Just two months ago, most people believed that random mass death no longer stalked the Earth. Reconciling ourselves with the reality that it does clarifies much, including how to resist the current onslaught, how to fortify ourselves against the darker days that still await, and how to reopen the economy responsibly. We live now in the post-virus world. For the United States, passage into this world came suddenly, less than a month ago. The world as we knew it before the arrival of COVID-19 has gone. It is never coming back. Once you reconcile yourself with this reality, many things become clearer, including how to resist the current onslaught, how to fortify ourselves against the darker days that still await, and how to reopen the economy responsibly. With the right understanding, we can rebuild appropriately, with greater resilience and more fairness. At the start of 2020, we believed random mass death did not stalk the Earth. For most of human history, infectious disease was a constant threat, and the struggle against it was an essential element of human civilization. By the mid-nineteenth century, science began to gain the upper hand against afflictions such as cholera. In the early 1900s, Europeans

learned how to limit the damage from malaria and yellow fever, at least for themselves. Penicillin and streptomycin were deployed in force during the 1940s. Childhood vaccinations for smallpox, measles, mumps, rubella, and chickenpox soon followed. Over two centuries, roughly from the invention of inoculation against smallpox to its eradication, science rose to dominate the environment. To be sure, new diseases emerged – beginning in the 1980s, for example, when HIV/AIDS devastated some communities and countries. But the prevailing view was that such health emergencies – while needing resources and demanding attention – were not central to the organization of our economies, our societies, and our lives. The global impact of COVID-19 makes that view obsolete. Random mass death is back, and this reality will now dominate everything, for two reasons. First, and more generally, this is not the first coronavirus, and it is one of several lethal variants to emerge since the turn of the millennium, including severe acute respiratory syndrome (SARS) and Middle East respiratory syndrome (MERS). There is no reason to think it will be the last. Second, this particular coronavirus derives its lethal power from its specific profile: it is

highly infectious and can be transmitted even by asymptomatic people. And, while many people who contract COVID-19 will suffer only a mild form, it appears most likely to kill older people and those with underlying health conditions, such as hypertension, diabetes, and obesity. But why would any future coronavirus necessarily have a similar profile? Other coronaviruses – from those that cause the common cold to the deadly ones that cause SARS and MERS – do not. It is entirely plausible, given the weak state of our scientific understanding, that a future coronavirus could profile in a different way – for example, proving more lethal to young people than to the old. Or perhaps it will target our children. Once you have had that thought, it is not possible to believe that we can return to the pre-virus world. Everything we do, all of our investments, and the way we organize ourselves will be influenced by consideration of whether we are protected from COVID-19 and its successors or made more vulnerable to them. With this understanding, several points become clear, or even – at a difficult and tragic time – potentially reassuring. The US and Europe have obviously massively underinvested in preparation – including the relevant science and how

to apply it – and COVID-19 will likely prove devastating in the West. But the reason is not so much a lack of available technology. After all, China eventually managed to contain its outbreak – after a two-month lockdown – while Taiwan and Singapore never fell behind, and South Korea pulled off an amazing escape at what appeared to be a very dangerous moment. It is not our lack of technology that has left the West vulnerable; rather, it is the interaction of COVID-19 with our social structure and healthcare provision. In the US, in particular, the virus exploits an unequal society and a fragmented health system. We have more than enough weapons to fight back, but too many of them are pointed in the wrong direction – designed with precision for previous and much smaller crises, such as hurricanes. Powerful organizations, with deep capabilities, are held back by leaders who fail: to collect the necessary intelligence, to coordinate sufficiently, or even to use data in a coherent manner to make decisions.1 This phase will not last long. Soon, we will learn how to fight back and with full force. We will get ahead of COVID-19. Then we can start to rebuild a more resilient set of information, decision-making, and health-care systems. As part of that, we must make an un-

precedented commitment to develop and deploy every scientific and organizational idea that increases the survival chances for our children and our neighbors’ children. Eventually, we will prevail in the post-virus world. But it will be a long haul. The best way to shorten it is to recognize that a return to “normal” is not an option.

Simon Johnson, a former chief economist at the International Monetary Fund, is a professor at MIT Sloan and co-chair (with Retsef Levi) of the COVID-19 Policy Alliance, focused on actionable intelligence and operational recommendations to limit the human damage from the pandemic. He is the co-author, with Jonathan Gruber, of Jump-Starting America: How Breakthrough Science Can Revive Economic Growth and the American Dream.

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Beware viral enabling acts

JAN-WERNER MUELLER It is crucial that opposition parties are broadly on board with measures taken to address what seems like a once-in-a-century public-health crisis. But the line between government and opposition must not be blurred in the name of “national unity,” and the mechanisms of political accountability must be strengthened, not weakened. There is no doubt that the coronavirus is a global emergency. There is also no doubt that governments will use this emergency to add to their powers. And some of them probably won’t relinquish their new powers once the threat is over. It is crucial that opposition parties are broadly on board with measures taken to address what seems like a once-in-a-century publichealth crisis. But the line between government and opposition must not be blurred in the name of “national unity.” Criticism by opposition leaders should not be branded as illegitimate “infighting.” And the mechanisms that allow oppositions to hold governments accountable must be strengthened, not weakened. Emergencies have two effects: in democratic states, they concentrate power in the executive. Leaders claiming new powers can usually count on citizens’ support. Even US President Donald Trump, whose performance has been disastrous from the start, is

benefiting from a rally-aroundthe-flag dynamic. The other effect is more obviously pernicious: in countries already threatened with what some social scientists are now calling “autocratization” (the reverse of democratization), leaders are using the COVID-19 crisis to do away with the remaining obstacles to their permanent rule. Russian President Vladimir Putin is in the process of making himself president for life. Israeli Prime Minister Binyamin Netanyahu is weakening the Knesset and the courts. Hungarian Prime Minister Viktor Orbán, the pioneer of “autocratization” in the European Union, can now rule by decree, and wants to suspend elections and referenda and give the government the authority to jail journalists. Plenty of authoritarians conjure up pseudo-crises; in a real one, they can take what look like perfectly justifiable measures to crack down on opponents. Anti-terrorism legislation enacted in the wake of the September 11, 2001, attacks on the US was routinely used to repre’ss legitimate forms of political dissent. What is particular to the coronavirus pandemic is that one of the most obvious ways to protest against governments is disabled. When Putin announced changes to the constitution, demonstrations could be prohibited, because they would allow the virus to spread. When Orbán does away with elections, he can say that social distancing is

incompatible with a procedure that calls on everyone to come to the same place on the same day. An entirely reasonable precaution allows autocrats to proceed unchallenged. What can be done? In functioning democracies, parliaments and courts have to keep working. But if business and academia can shift online, there is no reason why these institutions cannot conduct “distance democracy.” Parliaments – which have been losing power to executives anyway in recent decades – should accept selective rule by decree only for a strictly limited time, and only under circumstances in which rule by conventional law has significant drawbacks in dealing with the crisis. While rule by law, as opposed to decree, might be difficult when a vaccine must be found quickly, and resources must be deployed swiftly, there is absolutely no reason to suspend the rule of law itself (contrary to what prominent theorists of states of emergency, like the German jurist Carl Schmitt, long argued). Most important, an opposition should support a government, but also offer alternatives, and, above all, hold a government strictly to account. It is often forgotten just how crucial it is for democracies properly to institutionalize the role of an opposition. Mechanisms for doing this vary. They include a procedure enabling opposition leaders to reply immediately to ministers’ speeches, dramatize differences, and demonstrate

an alternative; low thresholds for establishing committees of inquiry; opposition days, when an election’s losers set the parliament’s agenda; even installing opposition figures as the chairs of important committees (where much of the real work of parliaments gets done). A government is authorized to have its way, but, at all stages, an opposition must have its say. New Zealand’s Prime Minister Jacinda Ardern has proposed a plausible solution in the face of the country’s lockdown and the temporary suspension of parliament. Rather than having a grand coalition or papering over all legitimate disagreement with the rhetoric of unconditional “national unity,” she has suggested a select committee chaired by the opposition leader, which can hold the government to account. To prevent emergency measures from becoming permanent – especially once public attention has shifted elsewhere – the American law scholar Bruce Ackerman has advocated the ingenious mechanism of a “supermajoritarian escalator”: laws and decrees can be renewed periodically, but only if ever larger majorities agree to do so. This would focus political debate on the question of whether a return from the new to the old normal is possible. In particular, it would put the spotlight on protection of basic rights (think of the attempt by the Trump administration and UK Prime Minister Boris Johnson’s government to claim powers to hold citizens in detention

during the pandemic). And the autocrats? Opposition leaders and civil society should use all the space they still have to resist. Whatever they do, they will be maligned by governments that, even before the current crisis, tended to accuse whoever disagreed with them of betraying the nation. More important still, while international attention on anything other than COVID-19 is in short supply right now, it remains crucial to speak out against the Putins, Kaczyńskis,and Orbáns of the world. Their citizens, alas, will learn soon enough how their kleptocracies have shortchanged health care. Under the circumstances, it’s all the more important that an institution like the European Commission closely monitor emergency measures in EU states.

Kevin Watkins

Jan-Werner Mueller is Professor of Politics at Princeton University. He is the author, most recently, of Furcht und Freiheit (Fear and Freedom), which was awarded the Bavarian Book Prize.

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Foreseeable Unforeseeables

BY JEFFREY FRANKEL Events like the COVID-19 pandemic, the US housing-market crash of 2007-2009, and the terrorist attacks of September 11, 2001, are often called “black swans.” The term is meant to suggest that no one could have seen them coming. But, in fact, these episodes each involved known unknowns, rather than what former US Secretary of Defense Donald Rumsfeld famously called “unknown unknowns.” After all, in each case, knowledgeable analysts were aware not only that such a thing could happen, but also that it was likely to happen eventually. Although the precise nature and timing of these events were not predictable with high probability, the severity of the consequences were. Had policymakers considered the risks and taken more preventive steps in advance, they might have averted or mitigated disaster. In the case of COVID-19, epidemiologists and other health experts have been warning about the danger of a viral pandemic for decades, including as recently as last year. But that has not stopped US President Donald Trump from claiming that the crisis was “unforeseen,” that it is an issue that “nobody ever thought would be a problem.” Likewise, after the attacks of September 11, 2001, President George W. Bush wrongly asserted that, “There was nobody in our government,

at least, and I don’t think the prior government that could envision flying airplanes into buildings on such a massive scale.” In light of such statements, it is tempting to attribute these disasters solely to executive incompetence. But human error at the top is too facile to be a complete explanation, considering that the general public and financial markets have also often been caught by surprise. Stock markets had reached historic highs just before the 2008 financial crisis, and again before the latest crash that began in late February. In both cases, there were plenty of foreseeable tail risks that should have militated against irrational exuberance. On these occasions, investors were not just following overly optimistic baseline forecasts. Rather, they saw essentially no risks at all. The VIX – a measure of perceived financial-market volatility (sometimes known as the “fear index”) – was near record lows in advance of both 2007-2009 and 2020. Several factors help to explain why extreme events so often catch us by surprise. First, even technical experts can miss the big picture if they do not cast their net wide enough when analyzing the data. They sometimes look only at recent data sets, assuming that in a fast-changing world, events from 100 years ago are irrelevant. Americans often come with an additional set of blinders: an excessive focus on the United States. Giving little mind to the rest of

the world is one of the perils of American exceptionalism. In 2006, for example, the finance whizzes who priced US mortgage-backed securities relied primarily on the recent history of US housing prices, effectively operating under the rule that housing prices never fall in nominal terms. But that rule merely reflected the fact that the analysts themselves had never witnessed housing prices falling in nominal terms simultaneously. Housing prices had indeed fallen in the US in the 1930s, and in Japan as recently as the 1990s. But those episodes did not coincide with the lived experience of US-based financial analysts. If those analysts had only consulted a broader data set, their statistical estimates would have allowed for the probability that housing prices would eventually fall, and that mortgage-backed securities would therefore crash. Financial analysts who limit their data to their own country and time period are like nineteenth-century British philosophers who concluded by induction from personal observation that all swans are white. They had never been to Australia, where black swans had been discovered in a previous century, nor had they consulted an ornithologist. Moreover, even when experts get it right, political leaders often don’t listen. Here, the problem is that political systems tend not to respond to warnings that estimate the risk of some disaster at a seemingly low figure like 5%

per year, even when the predictable costs of ignoring such probabilities are massive. The experts who had warned of a serious pandemic got the risk assessment right. So, too, did Bill Gates and many other astute observers working in sectors as far afield as public health and the movie business. But the US federal government was not prepared. Worse, in 2018, the Trump administration actually eliminated the National Security Council unit that had been created by President Barack Obama to deal with the risk of pandemics; and it has regularly tried to slash the budgets of the Centers for Disease Control and Prevention and other public-health agencies. It is little wonder that America’s handling of the pandemic – the lack of testing and the dangerous shortage of critical-care equipment and facilities – has fallen so far short of other advanced economies, not least Singapore and South Korea. But, in addition to reducing America’s capacity to respond to pandemics, the White House simply had no plan, nor recognized that it would need one, even after it had become obvious that the coronavirus outbreak in China would spread globally. Instead, the administration dithered and diverted blame, failed to ramp up testing, and thereby kept the number of confirmed cases artificially low, perhaps to support stock prices. As for Trump’s claim that, “Nobody has ever seen anything like this before,” one

need only look back four years to the deadly Ebola outbreak that killed 11,000 people. But they were far away, in West Africa. The 1918-19 influenza pandemic killed 675,000 Americans (along with some 50 million worldwide), but that was 100 years ago. Apparently, our political leaders are impressed only when a disaster has killed a large number of citizens within their own country and within living memory. If you have never seen a black swan with your own eyes, they must not exist. The world is now learning about pandemics the hard way. Let us hope that the price in lives is not too high – and that the right lessons are learned.

JEFFREY FRANKEL

Jeffrey Frankel is Professor of Capital Formation and Growth at Harvard University. Copyright: Project Syndicate, 2020. www.project-syndicate.org

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The Two Pandemics

BY ROBERT J. SHILLER We are feeling the anxiety effects of not one pandemic but two. First, there is the COVID-19 pandemic, which makes us anxious because we, or people we love, anywhere in the world, might soon become gravely ill and even die. And, second, there is a pandemic of anxiety about the economic consequences of the first. These two pandemics are interrelated, but are not the same phenomenon. In the second pandemic, stories of fear have gone so viral that we often think of them constantly. The stock market has been dropping like a rock, apparently in response to stories of COVID-19 depleting our lifetime saving unless we take some action. But, unlike COVID-19 itself, the source of our anxiety is that we are unsure what action to take. It is not good news when two pandemics are at work simultaneously. One can feed the other. Business closures, soaring unemployment, and loss of income fuel financial anxiety, which may, in turn, deter people, desperate for work, from taking adequate precautions against the spread of the disease. Moreover, it is not good news when two contagions are, indeed, global pandemics. When a drop in demand is confined to one country, the loss is partially spread abroad,

while demand for the country’s exports is not diminished much. But this time, that natural safety valve won’t work, because the recession threatens nearly all countries. Many people seem to assume that the financial anxiety is nothing more than a direct byproduct of the COVID-19 crisis – a perfectly logical reaction to the disease pandemic. But anxiety is not perfectly logical. The pandemic of financial anxiety, spreading through panicked reaction to price drops and changing narratives, has a life of its own. The effects financial anxiety has on the stock market may be mediated by a phenomenon that psychologist Paul Slovic of the University of Oregon and his colleagues call the “affect heuristic.” When people are emotionally upset because of a tragic event, they react with fear even in circumstances where there is no reason to fear. In a joint paper with William Goetzmann and Dasol Kim, we found that nearby earthquakes affect people’s judgment of the probability of a 1929- or 1987-size stock-market crash. If there was a substantial earthquake centering within 30 miles (48 kilometers) within the previous 30 days, respondents’ assessment of the probability of a crash was significantly higher. That is the affect heuristic at work. It might make more sense to expect a stock-market drop from a disease epidemic than from a recent earthquake, but

maybe not a crash of the magnitude seen recently. If it were widely believed that a treatment could limit the intensity of the COVID-19 pandemic to a matter of months, or even that the pandemic would last a year or two, that would suggest that the stock-market risk is not so great for a long-term investor. One could buy, hold, and wait it out. But a contagion of financial anxiety works differently than a contagion of disease. It is fueled in part by people noticing others’ lack of confidence, reflected in price declines, and others’ emotional reaction to the declines. A negative bubble in the stock market occurs when people see prices falling, and, trying to discover why, start amplifying stories that explain the decline. Then, prices fall on subsequent days, and again and again. Observing successive decreases in stock prices creates a powerful feeling of regret for those who have not sold, together with a fear that one might sell at the bottom. This regret and fear prime people’s interest in both pandemic narratives. Where the market goes from there depends on their nature and evolution. To see this, consider that the stock market in the United States did not crater when, in September-October 1918, the news media first started covering the Spanish flu pandemic that eventually claimed 675,000 US lives (and over fifty million worldwide). Instead, monthly prices in the

US market were on an uptrend from September 1918 to July 1919. Why didn’t the market crash? One likely explanation is that World War I, which was approaching its end after the last major battle, the Second Battle of the Marne, in July-August 1918, crowded out the influenza story, especially after the armistice in November of that year. The war story was likely more contagious than the flu story. Another reason is that epidemiology was only in its infancy then. Outbreaks were not as forecastable, and the public did not fully believe experts’ advice, with people’s adherence to social-distancing measures “sloppy.” Moreover, it was generally believed that economic crises were banking crises, and there was no banking crisis in the US, where the Federal Reserve System, established just a few years earlier, in 1913, was widely heralded as eliminating that risk. But perhaps the most important reason the financial narrative was muted during the 1918 influenza epidemic is that far fewer people owned stocks a century ago, and saving for retirement was not the concern it is today, in part because people didn’t live as long and more routinely depended on family if they did. This time, of course, is different. We see buyers’ panics at local grocery stores, in contrast to 1918, when wartime shortages were regular occurrences. With the Great

Recession just behind us, we certainly are well aware of the possibility of major drops in asset prices. Instead of a tragic world war, this time the US is preoccupied with its own political polarization, and there are many angry narratives about the federal government’s mishandling of the crisis. Predicting the stock market at a time like this is hard. To do so well, we would have to predict the direct effects on the economy of the COVID-19 pandemic, as well as all the real and psychological effects of the pandemic of financial anxiety. The two are different, but inseparable.

Robert J. Shiller, Professor of Economics at Yale University, is the author of Narrative Economics: How Stories Go Viral and Drive Major Economic Events. Copyright: Project Syndicate, 2020. www.project-syndicate.org

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