BIZweek n°283 27 mar 2020
BIZweek n°283 27 mar 2020
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  • Parution : n°283 de 27 mar 2020

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  • Editeur : Capital Publications Ltd

  • Format : (240 x 330) mm

  • Nombre de pages : 6

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VENDREDI 27 MARS 2020 BIZWEEK ÉDITION 283 ACTA PUBLICA BLUNTING THE IMPACT AND HARD CHOICES Early Lessons from China Le groupe ENL affiche pour le premier se The impact of the coronavirus is having a profound and serious impact on the global economy and has sent policymakers looking for ways to respond. China’s experience so far shows that the right policies make a difference in fighting the disease and mitigating its impact—but some of these policies come with difficult economic trade-offs Successin containing the virus comes at the price of slowing economic activity, no matter whether social distancing and reduced mobility are voluntary or enforced. In China’s case, policymakers implemented strict mobility constraints, both at the national and local level—for example, at the height of the outbreak, many cities enforced strict curfews on their citizens. But the trade-off was nowhere as devastating as in Hubei province, which, despite much help from the rest of China, suffered heavily while helping to slow down the spread of the disease across the nation. This makes it clear that, as the pandemic takes hold across the world, those hit the hardest—within countries but also across countries— will need support to help contain the virus and delay its spread to others. HIGH COSTS The outbreak brought terrible human suffering in China, as it is continuing to do elsewhere, along with significant economic costs. By all indications, China’s slowdown in the first quarter of 2020 will be significant and will leave a deep mark for the year. What started as a series of sudden stops in economic activity, quickly cascaded through the economy and morphed into a full-blown shock simultaneously impeding supply and demand—as visible in the very weak January-February readings of industrial production and retail sales. The coronavirus shock is severe even compared to the Great Financial Crisis in 2007–08, as it hit households, businesses, financial institutions, and markets allat the same time—first in China and now globally. QUICK ACTION Mitigating the impact of this severe shock requires providing support to the most vulnerable. Chinese policymakers have targeted vulnerable households and looked for new ways to reach smaller firms—for example, by waiving social security fees, utility bills, and channelling credit through fintech firms. Other policies can also help. The authorities quickly arranged subsidized credit to support scalingup the production of health equipment and other critical activities involved in the outbreak response. Safeguarding financial stability requires assertive and well-communicated action. The past weeks have shown how a health crisis, however temporary, can turn into an economic shock where liquidity shortages and market disruptions can amplify and perpetuate. In China, the authorities stepped in early to backstop interbank markets and provide financial support to firms under pressure, while letting the renminbi adjust to external pressures. Among other measures, this included guiding banks to work with borrowers affected by the outbreak ; incentivizing banks to lend to smaller firms via special funding from China’s central bank ; and providing targeted cuts to reserve requirements for banks. Larger firms, including state-owned enterprises, enjoyed relatively stable credit access throughout—in large part because China’s large state banks continued to lend generously to them. Of course, some of the relief tools come with their own problems. For example, allowing a broad range of debtors more time to meet their financial obligations can undermine financial soundness later on if it is not aimedat the problem at hand and time-limited ; subsidized credit can be misallocated ; and keeping already non-viable firms alive could hold back productivity growth later. Clearly, wherever possible, using well-targeted instruments is the way to go. NOT OVER While there are reassuring signs of economic normalization in China—most larger firms have reported reopening their doors and many local employees are back at their jobs— stark risks remain. This includes new infections rising again as national and ADMINISTRATION Jessie Bappaya MARKETING ET PUBLICITÉ Emall  : 5. Antonio Street, Port Louis T6I ; (+230)2111744, 211143 Fax  : 4230) 2137114 Email AU 4 PREM ENL aff chiffre d’a nette am chiffre d’affaires de Rs 8,7 milliards, soit 9% Cela est attribuable aux bonnes performanc et hôtellerie du groupe. 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VENDREDI 27 MARS 2020 BIZWEEK ÉDITION 283 ACTA PUBLICA COVID-19 Implication on the Implementation of the African Continental Free Trade Area Agreement The implementation of the African Continental Free Trade Area (AfCFTA) Agreement will make the African continental market the largest free trade area. As its implementation date arrives, global markets and countries in Asia, Europe and the Americas are currently being affected by the new coronavirus (COVID-19). The World Health Organisation (WHO) has declared the spread of COVID-19 a pandemic. This is having a multiplier effect on almost allaspects of human engagements including trade, finance, travel, employment, contracts etc. Although African countries have not been as affected as their non-African counterparts by the pandemic, the surge in the number of reported cases in Africa within the past week, (three (3) months to the take-off date of AfCFTA), is resulting in many African countries taking proactive steps to prevent the spread of the virus within their borders. In light of this, this commentary will be discussing the implications of Covid-19 on the implementation of the AfCFTA should the pandemic still persist past 1st July 2020 African countries agreed in 2018, to sign the AfCF- TA Agreement in Kigali, Rwanda with the intention of facilitating the political and socio-economic integration of the continent and to allow for the free movement of persons, capital, goods and services between the countries makingup the African economic bloc. In an era where countries are entering into agreements to facilitate trade and grow their economies through mutual trade interaction, the AfCFTA’s goal is no different – to promote in Africa, agricultural development, food security, industrialization and structural economic transformation by creating a single continental market governed by the free movement of business, people and investments. However, the benefits – a larger market, more jobs, and an improved supply chain, that are to accrue from the implementation of the AfCFTA will only be made possible when all the countries have not only ratified the AfCF- TA Agreement but have also followed through with policies that spur local productivity. This is more so in the face of the huge challenges which the AfCF- TA will need to surmount before it can be successful – inefficient bureaucracy, poor infrastructure, persistent non-tariff barriers and other protectionist measures – and very recently, the Covid-19 pandemic. IMPLEMENTING THE AFCFTA IN A TIME OF COVID-19 The increase in the global cases of Covid-19, particularly its recentupsurge in African countries and the attendant effect of the pandemic on world trade and economy means that Covid-19 is a factor worthy of consideration when discussing the implementation of the AfCFTA especially in the event of the likely possibility that the pandemic and its effects persist past the expected date of take-off of AfCFTA, 1 July 2020. At the core of the AfCFTA’s objectives is the free movement of people, goods and services within the continent. Transportation is no doubt an essential factor for this free movement. With African countries declaring total or partial lock-down on travel and movement, it means that only the transportation of necessary goods and services, medical supplies and emergency supplies will be given priority. This is in addition to the fact that factories, offices, malls, schools, movie theatres, museums, gyms (and basically anywhere there could be a gathering of people) may most likely be restricted. Factories are important to the implementation of the AfCFTA. Covid-19 implies that African Union member countries may prioritize the manufacture of medical supplies and essential goods over other non-essential goods and the factories which manufacture those non-essential goods may most likely remain restricted until Covid-19 is declared contained. This may adversely impact the intercontinental trade of goods that are not medical supplies and essential services. Having a protracted shutdown of factories and businesses will have the likely result of termination of many jobs, termination of cross-border contracts (which do not contain properly drafted force majeure provisions), decrease in the supply of luxury goods, decrease in the supply of non-essential services and an increase in the demand for and supply of essential services such as medical services, emergency services and food providers. For many in Africa who survive by earning daily wages and have little or no savings, a potential lock down would adversely affect their finances and their lives. Small businesses may be the hardest hit unless governments put in place emergency interventions and incentives to dampen the economic impact of Covid-19 such as postponement in principal and interest repayment for loans to SMEs for at least 6 months, increased credit support to the manufacturing sector especially sectors involved in the manufacture of essential and medical goods, tax breaks, delayed tax payments, reduction in interest rates etc. However, a government stimulus may amount to a further financial burden on countries such as South Africa which is already in the throes of a recession or Nigeria where dipping oil prices mean that government’s projected earnings are at an all-time low. In essence, the requirements for a successful containment of Covid-19 by African countries means that if the pandemic were to still persist by 1 July, 2020, the take-off date for trading under the AfCFTA may inevitably be postponed or suspended until further notice. This is because containing the virus may entail a restriction on international trade contrary to the principles of the AfCF- TA Agreement. African countries however, have the option of concentrating more on manufacturing and trading in essential and medical goods and thereby creating a market for these if Covid-19 still persists by 1 July 2020. CONCLUSION Although the AfCFTA, if successfully implemented will be Africa’s solution to a rising debt profile, increase in inflation and massive unemployment, the obvious hurdle facing the implementation of the treaty – failure to ratify the treaty – appears minuscule when compared to the fact that Covid-19 will necessitate African countries albeit involuntarily to adopt or rather, continue their protectionist policies of trade. [Source  : Brooks & Knights Legal Consultants] 5

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