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Covid-19: Poverty, economic growth

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By Gilbert Kachamba:

WREAKING HAVOC—Coronavirus

Covid-19, caused by coronavirus, is now a global pandemic which has shaken the world to the core. It has reached every corner of the world. A lot of things have been said about this virus and so many conspiracy theories are circulating around us and many will emerge, but one fact that still stands is that coronavirus is here.

The contagion is not only a healthy issue but also an economic problem. Economies are experiencing slow growth as many activities have been brought to a standstill because of lockdowns.

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This pandemic has hit hard big economies compared to poor countries in terms of infected people and the number of deaths according to Worldometer latest figures. Whether the numbers from poor countries are due to inability to test is a story of another day; time will judge us.

I would like to talk about the measures that the global economy is taking to curb this pandemic and how it will affect economies across the globe, especially poor countries like Malawi. With this pandemic, it is no longer a secret that poor countries will be affected differently compared to rich economies.

For instance, we have seen China containing the virus in a short period and Germany has managed to ‘flatten the curve’. The United States of America has introduced a stimulus package for their industries so that they induce demand to avoid collapse of their industries and they have also reduced the federal interest rate to less than one percent. Economies are going for a one-size-fitsall solution called ‘lockdown’.

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The bigger question is: Can this work in our poverty-stricken economies? Shutting down all the economic activities and remaining only with essential services?

Income levels for most Malawians are low and most of us leave on hand-to-mouth basis and many are working on the informal sectors where their wages are tied to productivity.

Our economy is predominantly an importing one and we rely much on inputs from China and South Africa for our small industries. In the lockdown, will we survive? I may not have a straight answer to the question but this will depend on the nature of the recovery to the shock caused by the Covid-19 pandemic.

The longer the lockdown, the harder will our economy be affected. With our major trading partners in the lockdown, production will slow down, firms will reduce the number of workers, demand will fall down and at the end, growth will slow significantly if not coming to a halt.

People on the edge of becoming poor will fall into the poverty trap. In fact, the lockdown in this part of the world will just aggravate our poverty and we may end up dying of other secondary factors rather than Covid-19 itself.

We are soon to enter into the tobacco selling season and assuming that we enter into total lockdown, where our borders are closed, it means we have to keep our tobacco home and lose the much needed foreign exchange.

I believe that there is need to have different remedies in different parts of the world as there is no one-size-fits-all solution for all nations on earth. Poor countries like Malawi have not fully recovered from the weather and the political climate-induced shocks.

Now with the coming of this pandemic, it is a triple tragedy for us. As a small economy, a total lockdown will not help us. Some quarters have been proposing the closure of the country’s entry points so that nothing enters and nothing leaves. That will be a good precautionary measure but its consequences will be devastating.

We cannot afford to close the entry points, otherwise poverty will kill us and lack of essential things that we import from our major trading partners will bring misery more than the virus itself.

Malawi cannot adopt measures like those adopted by the rich economies. We cannot reduce the interest rate like the United States of America as it will just lead to a higher inflation. We cannot go the stimulus package way to induce production and demand as our economy is too weak to sustain that.

We cannot manage to close our entry points as we rely heavily on imports like medicines and other essential things. Should economic life stop because of the coronavirus? My answer to that is ‘no’. We need to reach a compromise, otherwise the secondary factors that may come after the total lockdown will be more catastrophic than the coronavirus itself.

We have people who are selfemployed, what will happen to them? We have a lot of women engaged in businesses where they buy different types of merchandise from China and Tanzania and they pay import duty whenever they are bringing in their goods. What will be their future? How about revenue collection?

Let rich economies use the remedies that are possible for them and we, the poor economies tread carefully with our own measures other than total lockdowns. We cannot afford to go the rich economies’ way as a single day of no business in Malawi will bring consequences that will take more days to recover.

It is just the nature of our economy that we are so vulnerable to different shocks and they hit us so hard time and again and they have severe implications on poverty reduction strategies, economic growth and our general welfare.

Let us leave our entry points open. Let us continue trading. The current measures set by the government are enough; otherwise our poverty levels will get worse.

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