Impact of pandemics on economy and livelihoods

Uganda confirmed its cases of Covid-19. The pandemic is another reminder of our global interconnectedness.

It is a reminder of how an issue that is completely external can dramatically influence economies, through effects like killing tourism, trade, impacting livelihoods and weakening the currency.
Even prior to registering any cases, Uganda had already revised its GDP growth rates downwards from 6 per cent to anywhere between 5.2 per cent to 5.7 per cent.

Tourism, which contributes 7 per cent of GDP and employs anywhere between 200,000 to 500,000 people per year, was one of the first sectors to be hit, with hard currency flows that tourists bring each year slashed downwards for at least the next four to six months.
Sustained livelihoods are key to getting people out of poverty. To be financially included, people need money to save, spend and invest.

Continuing with the tourism industry example: Tourism involves holiday planning with travel agents, visa revenues for the government, domestic transportation bookings with taxis and tour vehicles, accommodation and food at resorts, entertainment options, shopping, visit experiences at national parks or even local sightseeing.
Tour guides and hotel workers spend their wages in local shops. Declines in just tourism will have a direct impact on the revenues of all actors across this value chain, heavily compromising their economic resilience levels and upward mobility.

Additionally, this will further exacerbate the government’s domestic revenue mobilisation gap.

Economies are interconnected networks. Rural areas will also be harder hit than is yet visible.
Export-import disruptions imply that agricultural exports like dairy and coffee will be affected – impacting farmers, while sourcing of raw materials from countries like China will become a big challenge resulting in suspended lines of production and temporary shutdowns.

If the world cannot contain and curtail the rise of Covid-19 in the next couple four to six months, the impact on the global and Ugandan economy will be huge.

The Ministry of Finance estimates that an additional 2.6 million Ugandans will go into poverty in case of a heavy rise of Covid-19 cases in Uganda.

The Ugandan government, The Ministry of Finance, and The Bank of Uganda through their action plans have shown true leadership in making the hard choice and getting ahead of the curve. The private sector is also playing its role, with the banking and mobile money sectors making lower tier on-net transactions free.

Of course, an even stronger response would be for these partners to increase the tiers for no-fees encouraging people to go cashless. Thus, reducing the risk of virus spread through the most commonly touched surface by all cash.

The financial sector actor with an opportunity to rise to this unprecedented challenge is the insurance industry. Many insurance companies don’t cover pandemics and epidemics. However, in Kenya, the Insurance Regulatory Authority was successfully able to negotiate with the insurance industry in covering patients of Covid-19 (link here), while Indian insurers are honouring life insurance policies of patients who have died of Covid-19. Uganda can follow suit or even better lead by example.

Health insurance can help with hospital bills, medicines or even cash to replace lost income. If insurers can find a way to honour pandemic-related bills and consequences, it will go a long way in building awareness of why insurance is important, as well as trust in a sector which is otherwise viewed with skepticism.

What about the aftermath? This will require a concerted effort between government, all financial sector and development actors. For example, how can government, banks and investors help credit only institutions, non-deposit taking MFIs, or pay-go-solar, leasing and other types of sectors when regular customers can’t repay on time?

If companies force repayments or collateral seizure when livelihoods are lost or reduced, this could push clients further into poverty. On the other hand, adjusting repayment tenors will have liquidity and cashflow implications for credit providers.

At FSD Uganda, we are closely monitoring the impact of COVID-19 on the economy. We are in regular touch with our partners in the financial sector, the refugee space, and the beneficiaries they are working tirelessly to serve day in and day out. We know the hard part is just beginning.

The road to recovery will require even greater collaboration, unconventional thinking, and most importantly, urgency from the entire industry to start planning today to lessen the pain of tomorrow. We cannot wait until the dust, or virus, clears.

Ms Pillai is the executive tirector Financial Sector Deepening Uganda.