By Ndubuisi Idejiora-Kalu
Many countries are currently under lockdown with major macroeconomic activity suspended and replaced with strengthened efforts and concern for tackling the coronavirus (COVID-19) pandemic which to date has killed more than 200,000 globally and infected almost 3 million. Budgets and financial securities formally meant for handling recurrent expenditure, debt servicing, capital projects, critical infrastructure development as well as other aspects of national development and security are now dedicated to containing the COVID-19 pandemic with of course the huge financial injection made available as palliatives for many citizens who are currently locked-up against their wish in their homes. This is how global economies look like today.
Heightened efforts are also currently dedicated to creating critical healthcare infrastructure alongside their supportive (also critical) medical equipment and expensive research for understanding the coronavirus and vaccines for preventing it. It is important to note that current research activity alone dedicated to understanding the COVID-19 pandemic or discovering appropriate vaccines for it is having a huge financial strain on economies with estimates already running into several billions of dollars. Most countries have secretly slashed their budgets to meet funding demands for such research. The world has never seen anything close to this magnitude.
But a more bordering and somewhat menacing (if not deadlier) reality which many countries haven’t seriously thought about is the unavoidable global recession that will follow after the COVID-19 pandemic. Another reality check is that monies spent either as palliatives for citizens who were locked down or for containing the pandemic were taken from somewhere and must be paid back and the “how” this will be done is in the “usual” application of austerity measures particularly targeted at shifting the burden to innocent citizens who at the end would bear the brunt of high taxes, high interest rates, huge job cuts, massive spending and out of control borrowing for developing countries who do not have structured taxation infrastructure in their countries but must somehow recover spending made during the COVID-19 containment season and balance budgets. But increasing taxes, raising interest rates and ferocious job cuts as preferred austerity measures for recovering from the COVID-19 economic strain will only heat-up already heated-up economies and exacerbate already heightened socio-economic and political tensions in these countries.
Imagine coming-out of the COVID-19 season and being met with high taxes and high interest rates with the associated psychological trauma of layoffs as a result of massive job cuts or loss of loved ones. What all these call for are for alternative macroeconomic strategies, “unusual macroeconomic strategies” that would ease the pressure on both citizen and the economy. Such alternative (an unusual macroeconomic strategy) is presented here in form of a Two-Tier Macroeconomic Preparedness strategy which countries can adopt for the post COVID-19 global recession season.
The first stage of this strategy (which can be run concurrently with the second stage, it is advised that this be the case) entails boosting production and export activity in countries at least for what can be considered a >60% increase of whatever is the country’s statistical production mean and this should be implemented immediately. Serious countries would therefore have to adopt mercantilism, maximize export and minimize imports as a palliative and best fit macroeconomic measure to helping them gain either revenue or interest-free capital which could be redirected to other ailing areas of the economy.
This is economically reasonable because countries coming out of the recession will need products and services to get back in shape. So as the lockdown is going on, production capacity in industries should be boosted – awaiting yearning demands from both internal and external needs, from the insatiable global market. The workforce for this sector (like their counterparts in the healthcare sector) should quickly assume statuses of “Critical Infrastructure Workers” to enable them have mobility to sustain this activity and government policy must see to this. Availability of products for internal use and export would mean high revenue and capital for countries who would position themselves well to meet this soon coming ferocious global demand, therefore “Mass production to meet expectant ferocious global demand” are key words here.
China is already seriously implementing this strategy of increased production activity as their industries have been mandated by the Chinese government to exceed their statistical production mean by 35%. If the rest of the world does not beat this feat by increasing production activity, we will meet a recession world that would be solely and unbelievably dependent on China for supply of needed products and servives, in fact at the mercy of China for solutions for the post-COVID-19 global recession. This could further create a global economic imbalance that could be dangerously used by China as global power leverage.
The second stage of the Two-Tier strategy will be to take commodities seriously. Countries that have market-centric natural resources must be keen to invest in their development and heighten export capacities of these commodities as a potential revenue earner as there will be a post-COVID-19 world agape for commodities and countries who can provide these commodities will have huge economic and political leverage. The understanding of this will also see a shift in foreign policy of most powerful nation states who would choose to use various tricks to invade weaker nation states to claim these commodities by hook or crook. Like a thirsty lion held for long in the wilderness and brought to a stream, that is how countries will react to commodities and countries which have them. Those nation states who are aware of these tricks and position themselves strategically on guard, to guard their natural resources against rogue states and put in place firm modalities for developing these commodities and prepare them for export, are expected to enjoy an economic boom.
The global oil and gas commodity sector which in recent times has experienced unbelievable downturn will bounce back because in the quest to sustain high production levels, countries will need energy to power their industries and support production activity and oil and gas (even with the slow entry of renewables) would still play a major role as the prime source of energy for industries as well as the transport and logistics sector which function alongside industrial activity and are heavily dependent on oil and gas. Another expected dependant on oil and gas will be for war effort, sustaining military operations (if wars are used as a guise for invading weaker nation states to grab natural resources). Also, oil and gas is expected to play lead roles for heating purposes for the 2020-21 winter which ongoing research by the World Meteorological Organization (WMO) already indicate would be a record cold spell. Although renewables are being suggested as possible alternatives or replacements for fossil fuel-centric energy, statistics indicate this would still take a very long time.
A 2018 report of the International Energy Agency (IEA) indicate that the share of renewables in meeting global energy demand is expected to grow by one-fifth by 2023, about 12.4%. The means that renewables will provide the global electricity sector with just 30% of power demand by 2023, up from 24% in 2017. Wind will generate (6%), Solar PV (4%), and Bioenergy (3%) of global energy demand. Should progress continue at this pace, current forecasts are that the share of renewables in final energy consumption would be roughly 18% by 2040 – significantly below the IEA Sustainable Development Scenario’s benchmark of 28% and an insignificant input for sustaining global energy demand for production activity and other energy dependent sectors.
Therefore, oil and gas commodities will still be in hot demand by countries powering their industries and production sectors. This trend of use of oil and gas as the main energy criteria for industries and global production activity (with their sister sectors like transport and logistics) is expected to continue till 2040 with renewables playing only meager complementing roles. At it will still take many years before we see our gas dependent delivery trucks replaced by solar or electric powered trucks or our trains and airplanes replaced with similar technologies. This will mean huge for oil and gas commodity-centric countries and can fit well as strong revenue stream projections at least till 2040.
History has shown many countries doing economically better than others with huge surprises just after global recessions and those countries that would do better in a post-COVID-19 world would be those countries that would think strategically and do what is considered the “macroeconomic unusual”. The Two-Tier macroeconomic strategy presented here is considered one of such “macroeconomic strategic unusuals” which countries and commodity regulators can consider adopting. It is even reasonable because we would not want a post-COVID-19 ‘survival of the fittest world’ where powerful rogue states would invade weaker ones and implement a Master-Slave Psychological Syndrome for controlling and plundering them as well as acquiring their essential natural resources illegally. It would also be good to apply every means possible to shorten the duration of the unavoidable post-COVID-19 global recession and its associated negative effects on our citizens and economies and get the world back to normal.
*(Ndubuisi Idejiora-Kalu is an engineer and strategist with interest in national security and international relations. He is author of the bestseller, Strategy).