Opinion: After the Covid-19 recession, what next?

It is worth noting that during the 2008 financial crisis, one common question was ‘when will things get back to normal?’ I was four months into my second job and was thinking of pursuing the Certified Investment and Financial Analysts (CIFA) qualification. At the time, it was normal for me to hope for a return to the brighter times of the status quo ante. It took me sometime to understand and realise that this state was simply not going to happen again. Flash forward to 2019, the global economy had stabilised and was no longer in a catastrophe, but the steadiness, the new normal, was very different to the economics of pre-2008.

The same is probable for the world currently after the Covid-19 crisis. The world will come through the health crisis, through prayer, and recover from the slump that will follow it. But expecting life to go back to how it was in 2019 would be erroneous. In my view the twin crises; health and economic, will change humanity in four ways in particular.

First is the shape of the developing world economy. Most developing economies will move towards a bigger role for the state – particularly healthcare. There will be a move towards increased state support for indispensable services, the unemployed, workers in the formal economy and the homeless. Many countries (including the west) will have to either support or nationalise huge parts of their economy. Indeed, the UK has already extended state control to railways and much of the private medical sector. Developing economies will as well have to try and nationalize essential services including transport, agriculture, private education, private medical services (widen the scope of NHIF) amongst others. The results - find a way to increase levels of state borrowing and in time, much higher taxes will be inevitable.

The second big variation will be to the shape of international trade (supply chain). It is improbable that the country will return to the “just-in-time” global supply chain economy which characterised the last 10-15 years; it was somewhat efficient in financial terms but at the cost of lacking resilience and reliant on countries allowing trade and travel across borders freely. Africa, to be specific, will need to review its long-distance supply chains and reliance on just-in-time deliveries from halfway across the globe. MSME’s which deal in mitumba, electronics and other products for example, will be adversely affected.

The third change will be to the shape of society. There is a good chance that in many African nations there will be a greater sense of one nation, of social solidarity. But in this fight, we are very literally “all in this together”. The rich are locked down and need health services to survive and cope just as much as everyone else.

And the fourth, is risk management. Governments and private institutions will have more emphasis on risk. What will be the impact of the crisis on financial institutions in Kenya? The answer is likely “huge”. Other components of risk including operational, market, liquidity, climate and transitional risks besides their management during crisis, will be integral going forward.

The Covid-19 crisis will pass, and after the storm, the sun will shine again. But it will shine on a rather changed world.

FA Emlyn is a full and practising member of the Institute of Certified Investment and Financial Analysts.