The coronavirus disease caused by a virus officially named as SARS-CoV-2 has stopped us all in our tracks and has led us to re-evaluate and rapidly review contingency and business continuity plans, which are now in sharp focus.
As per the IMF, the global economy is expected to experience it’s the worst recession since the Great Depression. Governments are struggling with the health situation, as well as trying to focus on the economic activities and devise strategies for long-term targets to get the economy back to normal. For many companies, normal feels far off; the idea right now is to survive.
This blog will focus on the measures taken to date by the Governments of the GCC region and India to balance between the health situations and simultaneously start working on reviving the economic activities.
GCC countries have invested heavily in Energy, Transport & Logistics, Real Estate; with only UAE having a significant contribution from Wholesale & Retail and Tourism contributing 28% (approx.) to GDP. Logistics is more likely to contribute to economic health because of its geographic advantage for several countries. Energy, Real Estate, Tourism & Retail will take longer to revive, as they are a function of global GDP, which in turn means FDI into GCC will be limited. Due to the impact of COVID-19, like world powers, GCC countries were also caught unprepared to deal with the health crisis, leading the Government to invest in the healthcare sector. The silver lining is that due to positive current account balance that has led to strong forex reserves, GCC countries have deep pockets to enhance their healthcare systems.
Although most of the GCC Countries have strong forex reserves, which can aid/ give stimulus to the private sector, this is a short-term solution. The central objective should be diversification and reducing dependency on oil and energy exports. UAE is better covered because of investment around Retail and Tourism.
Getting back to normal will take time, and it will be a gradual process. The UAE Government imposed a two-week lockdown and opened its lockdown right before Ramadan for the revival of economic activities; opening its malls on the occasion of Ramadan. But that doesn’t mean that due measures weren’t taken; the Government was disinfecting public areas. It’s clear that before we get back to business as usual, we need to ensure new social norms are followed and Governments will be pro-actively implementing measures to support this.
The massive lockdown imposed in India was first of its kind in human history, which essentially meant that 1.3 billion people were brought to a standstill.
The positive aspect is that the Government acted well in advance imposing nationwide lockdown; however, this cannot continue for long as food and grain storage, as well as the economic activities, cannot be stalled for too long. As the Prime Minister of India, rightly said, ‘Jaan Bhi Jahan Bhi,’ i.e. we need to save lives but livelihoods as well. The third phase of the lockdown came as a relief to some sectors; the Indian Government allowed the opening of many sectors to resume economic activities.
In terms of absolute value, the contribution to India’s GDP is quite diversified. E.g. close to a quarter comes from the manufacturing sector, and more than half comes from the service sector. Although manufacturing contributes close to 25%, it employs more people than the service industry, which will disrupt livelihoods for a lot of families. The Government has announced a stimulus package of USD 267 billion focusing on land, labour, liquidity and laws. The relief package is 10% (approx.) of India’s GDP which is expected to come from Government coffers. However, in my view, the Government will struggle to maintain pre- COVID-19 economic growth rate with revenues coming primarily from the service sector. Geographic advantage, skilled workforce, high domestic consumption and ease of doing business will contribute to the inflow of FDI. But as said earlier, getting back to normal will take time, and this will require concentrated efforts from various stakeholders, changes in Government policies, collaboration by a group of experts, and of course, investors.