EXISTING AT THE MERCY OF GOD

Last week President Yoweri Museveni extended the lock down for an additional two weeks. We had laready endured five weeks indoors.

The lockdown was intended to break the chain of infection. It seems to have suceeded in reducing the rate of infection in Uganda. 

At the time of writing we had just crossed the hundred positive test mark, more than a month after we registered our first positive test. Going by the curve of infections in other parts we should have hit the thousand-infection mark by now.

Already the government is being feted for its handling of the crisis.

That being said the damage to the economy has been severe. Production has shut down and demand has collapsed. It is unlike any other crisis in known history in the way it is affecting the whole world. No economy has been spared.

Last week the Financial Sector Deepening Uganda (FSD) released a report, "Assessing the economic resilience of Uganda househoulds before COVID" . 

The report compiled with the finance ministry, is the first to try and understand the capacity has the everyday man to cope in times of extreme economc stress. It also has some useful recommendations for mitigating against the worst effects of the lockdown and economic collapse for your man on the street.

Part 1 of the report that was released last week was based on a study done before the lockdown.

It was shocking to learn that

three quarters of Ugandan adults befor the lock down could not meet their living expenses, essentially most of us are living beyond our means...

It therefore came as little surprise then that 57% of us would not be able to sustain our lifestyle after one day in a lock down and 81% of us would fail the test after 15 days.

FSD also reported that the median amount of saving in cash was sh4,800. If we line up all our savings in order of quantity those with sh4,800 would be at the half way mark, basically that most of us have very little saved up.

So going into the lockdown at the beginning of April, most of the population was extremely vulnerable, so much so that it is estimated that at least three million people are going to regress, swelling the ranks of the eight million already living below the poverty line.

  

These disturbing figures are self explanatory, that for the majority of us life is not going to be the same again, at least in the short term, 23% of us are in danger of losing 100% of our income.

Beyond the dire numbers the report was useful in suggesting ways in which the everyday man's plight can be alleviated through governmnet intervention.

FSD suggests that

since a large proportion of the poor and middle class bank and borrow from savings groups, SACCOs and deposit taking financial institutions, that are a lower tier frrom the commercial banks, helping these stay liquid and viable is critical...

 
Fiscal policy, such as tax relief and grants, should be targetted at companies with strong employment retention and job expansion plans. In addition small retail and wholesale shops should be helped bounce back.

   
They recommended that online platforms, that have proved useful in distribution and linking small producers should be encouraged and fintech companies eg mobile money companies, which have proved useful in promoting financial deepening should be supported to grow and widen their reach.  Related to these efforts to increase telephone and internet deepening should be encouraged.

Older people who have been benefitting from the Social Assistance Grant for Empowerment (SAGE) have been left high and dry during the lock down and digitization of this process, would help maintain sustainability of this effort.

Finally they recommended unconditional cash grants for the most vulnerable, as a way to support them during the lock down and subsequent downturn and as a way to lift them out of poverty. Experience has shown that contrary to some opinions actually help the poor accumulate assets leading to self sufficiency.

Production has been shut down, as a result people have lost their jobs and livelihoods, as result they can't spend and therfore production will remain suppressed, a vicious cycle that has to be broken in order for the economy to recover.

It has been argued that inflationary fears are unwarranted as fiscal stimulus work in conditions of production overcapcity and joblessness.

During the last financial crisis western economies focused their bailout efforts on the big corporations, fearing that if they collapsed they would take the whole economy along with them. The critics warned that bailing out the big corproations would not ensure the trickle down effect that would help the poorest in the societies, but would instead save the few at the top of the pyramid....

Since then wealth and income inequalities have widened, forcing a rethink in the economic stimulus packages governments are resorting to today.
While the big companies will need some relief, for a more sustainable recovery the most vulnerable need to be direct beneficiaries through the finanacial institutions they patronise, improved internet access and in the most dire case cash handouts.

Finance ministry officials look on handouts with a jaundiced eye, fearing that they can not only be abused by implementing officers but can also create a dependency among the population that is not sustainable.

This crisis may very well be the opportunity the government needs to streamline their social protection mechanisms and put in place mechanisms to support ailing companies recover in ensuing economic shocks.