The Coronavirus calls for a Tech-inspired Economic Rethink

 

Zaheer Allam, Urban Strategist, The Port Louis Development Initiative

 

Technology has the potential to be a tool as well as a mean for a faster and more sustainable post-Covid recovery in Mauritius.  In this article, Zaheer Allam reminds us that SMEs are key players in digital innovations and a crucial component of a more equitable growth path.  Governments should put SMEs and technology driven infrastructure at the heart of their recovery plan to catalyse the socio-economic benefits of boosting technology driven activities.   

 

While warning signs usually precede recessions, the COVID-19 story unfolded at unprecedented speed and gave no prior indication. In just five months after the coronavirus outbreak, we are bracing ourselves as we enter what is forecasted to be one of the worst recession since the Great Depression. Then again recessions are not new, we are equipped to understand what’s coming, and today we have new tools at our disposal to better respond to incoming economic blows.  Leveraging on the power of technology will be more important than ever, and will provide a much needed boost to some economies to better address sustainability and inequality.

Unprecedented crisis

Over the last seventy years, the world has experienced a number of economic crises and while each have had their own specificity, they have shattered economies. The current crisis is no different. The latest projections by the International Monetary Fund (IMF) hints that the year 2020 will experience, at best, a negative 3% growth and, at worst, an 8% drop in global GDP. Unfortunately, the latter forecast seems probable. Experts in the medical sector indicate that the earliest and most optimistic projection for a vaccine is late 2021.

The crisis is already triggering unemployment as seen in the record numbers reached in the USA and Europe. The International Labour Organisation (ILO) projects that unemployment may reach half of the global labour force, equating to 1.6 billion. Similarly, in Mauritius, an initial estimate by the Minister of Finance and Economic Development (MoFED) projects unemployment figures to reach 100,000, equivalent to 17% unemployment, a figure last seen in 1984. In response to this, numerous fiscal measures were provided as social buffers, namely in the form of Wage Assistance Schemes (WAS) to prevent layoffs. The extension of lockdowns and sluggish demand post-lockdown will dangerously thin down SME liquidities resulting in 3 possible scenarios: forced salary cuts, termination of employees, or bankruptcy.

Leveraging on the power of technology will be more important than ever.

 

Recessions are generally followed by a reduction in private investments, especially in infrastructural non-residential projects, leading to a slow growth in governmental revenue [1]. Low private investments reverberates into relatively slow rates of emergence of new businesses and industries during recovery periods. Arguably, such severe trend is somehow understandable as during the past crises, save for the 2007-2009 one, technological advancement was not as extensive as it is now.

Technology can speed recovery

Today, countries host a wide technological infrastructure, with affordable services, and an array of technological tools [2]. We have the power to stir up the emergence of new businesses, promote innovations, and allow for a quicker economic recovery compared to past average recession recovery period.

While there is no direct precedence on tech-infused recovery mechanisms, we do know that recovery periods can be shortened through different avenues. The case of  China is helpful here, where the country recovered in six months to over 65% of its economic growth post 2008 recession.

Technology towards a sustainable recovery

Recoveries from previous recessions have been far from sustainable. Each recessions over the past seventy-year stressed the global economic system and created inequalities on an unprecedented scale.

Past recovery models have tended to only addresses short term problems and failed to act on more fundamental economic and humane concerns such as poverty and inequality. Unless we change our approach as we address the current crisis, we will inherently end up with the same result -a global disruption rendering inhumanely larger and deeper inequalities.

 

Many small scale start-up rose from the ground during the Covid-19 crisis.

At the edge of crafting economic emergency-response packages that may have an impact on the world for decades to come, it is time to do things differently, to go deeper -in a more meaningful way, and adopt a different approach rendering a decentralised, more resilient and less capitalistic global ecosystem. For now, this may seem as an ambitious call, but since the wake of the fourth industrial revolution, characterised by advanced technologies, there is hope that we have the tools to adopt a paradigm shift to build a more resilient and equitable system.

Interestingly, technology based solutions tend to be offered by the smaller scaled companies, providing new opportunities and an increasing competitive edge against large corporations. This has the potential of building  a more sustainable and inclusive economic and tech landscape. Indeed, SMEs have been identified as key to more inclusive growth.

There is hope that we have the tools to adopt a paradigm shift to build a more resilient and equitable system

 

Technology at the centre of a recovery plan 

Some examples are the mobile applications for contact tracing such as Singapore’s Bluetooth powered tracing solution (the first in the world). They are among the tools available that have already been tested in  Singapore, South Korea and 27 other countries.  Those solutions are backed by data -which is now available from a vast array of different sources, and these could be enhanced further by investing in new, or existing, digital infrastructures, in the likes of Smart Cities, where the use of thermal cameras are often integrated.

Unfortunately, with scarce financial resources, current government funds tend to be directed towards tackling immediate health and economic needs rather than towards investing and supporting technological infrastructure development.  Yet, on the health front itself the use of technology is playing a critical role in winning the war against the pandemic. In my research with G. Dey and D.S. Jones, we showed how the role of Artificial Intelligence (AI), Machine Learning and Natural Language Processing algorithms aided in providing an early detection of the coronavirus in China.  This is arguably the start of an increasing role for technology in supporting policy making beyond the health dimension. Hence, in anticipation of this near future, we must align our current policies accordingly. As resources are being re-allocated to support the health sector and economic recovery initiatives, this should not be done at the expense of the digital sector.  Indeed, the latter is both a tool and a mean towards a more rapid and sustainable recovery.

Support tech start-up to boost recovery

On the societal front, there is ground for worry regarding the foreseen increasing inequality that will emerge post-pandemic, particularly in developing economies. Evidence is suggesting that bailout money is disproportionately reaching large corporations at the expense of SMEs. Yet the informal sector, freelancers, and small businesses are essential to the balance of the economic fabric. In a digitally connected world, we need to find new ways to look at wealth (re)distribution to ensure an equitable process, not aimed at enriching mostly corporations as a result.

Since the emergence of the digital revolution, the world has witnessed a disruptive process, with start-ups and IT companies taking the lead. In the financial sector, the global consumer market is now shifting to digital transactions; thus, prompting the even the established institutions like banks, and large insurance companies to shift toward adopting digital mechanisms. The knowledge that the coronavirus survives temporarily on the surface of  banknotes and coinage is providing the financial landscape with incentives to look into ways to improve the digital transaction experience. Similar changes are conspicuous in the retail market where online shopping is seen to be emerging locally generally spearheaded by small startups and individuals in a makeshift fashion. Even if those temporary setups may be short lived post-virus, government support and incentive schemes should focus on how to cater for those small and informal businesses and startups.

By ensuring an equitable bailout strategy, we underline the need for these small businesses, and the service brought about by informal economies in the crafting of our communities.

 

We shouldn’t forget that, during this current crisis, SMEs were the ones that sustained communities and emerged as innovators by designing different avenues for ensuring that goods and services reached almost every individual in the society. By ensuring an equitable bailout strategy, we underline the need for these small businesses, and the service brought about by informal economies in the crafting of our communities. Doing so, we’ll have the opportunity for a better redistribution of resources, while at the same time, stimulate the growth of varying scaled companies, from an array of different sectors -helping everyone equally.

Towards an equitable recovery

While we are heading into hard times, a fairer and more just global economic system is needed. In Mauritius, we have both the hard and soft infrastructural capacity for this actualisation. The country boasts strong financial and trusted systems, a robust judiciary, and a decent digital infrastructure network. Hence, driving innovation-supportive of tech-infused policies should be easier as limited renovation and investment will be required.Therefore, bailouts should not only be crafted as relief mechanisms but as transitional mechanisms to building a more economically resilient and inclusive fabric.  They should be designed such that they also accommodate financing options for businesses irrespective of scale, size, and location. The technological backbone that led to a quicker recovery post 2008 needs to be replicated and reinforced as we respond to this current crisis. By ensuring the actualisation of technology through our recovery mechanisms, it may be possible to spur new opportunities that would empower communities. It would be a source of economic growth bringing new job opportunities, new form of products while encouraging market competition across sectors.

Since long, we were wary of disrupting economic systems but, today, our economy is at a standstill. We have the opportunity to turn towards new solutions, even if those call for radical changes riding in the digital realm. One challenge to this will be to ensure decentralised solutions for the creation of resilient economic systems, where the measure of success would be redefined, and quantified equally on its humanity.

 

[1] Almor, T. Dancing as fast as they can: Israeli high-tech firms and the great recession of 2008. Thunderbird International Business Review 2011, 53, 195-208

[2] Allam, Z. Cities and the digital revolution: Aligning technology and humanity. Springer International Publishing: 2020.

Charles Telfair Centre is an independent nonpartisan not for profit organisation and does not take specific positions. All views, positions, and conclusions expressed in our publications are solely those of the author(s).