Professor Lina Pelliccione, Pro-Vice Chancellor Curtin Mauritius, Professor Linley Lord, Pro-Vice Chancellor Curtin Singapore, and the Curtin University Risk & Assurance Team

In this paper, Lina Pelliccione and Linley Lord review how Curtin University’s values-led system and effective risk management structures across its national and international campuses have fed a culture of risk management, agility, care and communication. These have been instrumental in the university’s resilience and ability to adapt and successfully transition to fully online learning during the current pandemic. In light of Curtin’s success, the authors propose some guiding principles that may be helpful to other organisations in preparing for and surviving future crisis incidences.

Curtin’s values: Building on a foundation of integrity and respect, and through courage, we will achieve excellence and have an impact on the communities we serve.

What role do universities play in times of crises? What can we learn about resilience that will help individuals and organisations grow following this current global pandemic? Professor Deborah Terry, AO, Universities Australia Chair, Vice-Chancellor, Curtin University in her address at the Australian  National Press Club Address, 26 February 2020 explained that:

Curtin University is a leading global university with a mission to transform lives and communities through teaching, research and its industry and community relationships. It has campuses in Western Australia, Malaysia, Singapore, Dubai and Mauritius and is ranked in the top 1% of universities worldwide in the highly regarded Academic Ranking of World Universities (ARWU) 2019.

Curtin University, like most education Institutions, has been impacted by COVID-19. This includes concern for the safety of staff and students in all their locations and financial losses resulting from the closing of borders to international students. Similarly, the sudden need to move everything online and to self-isolate has put significant pressure on university systems. Suddenly, the university community had to navigate new learning, teaching and research environments.

Values Led Learning Organisation

Curtin University is a values-based learning organisation, with proactive risk assessment and dynamic Prevention Preparedness Response and Recovery (PPRR) systems in place.  There are sophisticated and mature communication protocols which help ensure people stay connected and have access to relevant information.  These key elements have proven essential in such a complex global organisation spanning different countries, cultures and importantly, Government Authorities.  This paper outlines these elements concluding with some key guiding principles that may be helpful to other organisations in preparing for and surviving future crisis incidences.

Curtin has a strong risk management culture which, coupled with a dynamic critical incident approach, has enabled the University to act swiftly to respond to COVID-19.

Risk Management Culture & Critical Incident Approach

Curtin University has a distributed leadership model (1). This has proven to be well suited to its global network of campuses, especially during these challenging times. Curtin also has a strong risk management culture which coupled with a dynamic critical incident approach has enabled the University to act swiftly to respond to COVID-19.

The Risk Reference Tables developed by Curtin are based on ISO 31000, the international standard for risk, guiding how risks are evaluated, assessed, measured, accepted and reported. As well as establishing a common language, the use of semi-quantitative measures removes some of the subjectivity of assessment processes and allows risks to be assessed across all Curtin’s locations.

Curtin uses five different rating tables: Controls; Consequence; Likelihood; Risk Matrix; and Risk Acceptance Criteria.  The Consequence rating categories include key areas (listed below), which, if impacted would have a significant effect on Curtin’s ability to achieve its goals. Not surprisingly, the nine consequence categories have all been impacted by COVID-19.

Curtin Risk Reference Table – Consequence ratings categories

The regular use and monitoring of the risk framework as a benchmark has been essential for building a strong appropriately calibrated risk management culture.  Adding to this is the confidence in and success of the Critical Incident Approach (PPRR) adopted by the University. These systems and protocols are embedded in the culture, enabling individuals to respond within an understood framework that recognises the particular context reflected in different campus locations.

Outlined below are the key stages of the Critical Incident Approach adopted by Curtin. The focus is on the Australian context but the principles apply across all locations with global issues considered and managed by the Critical Incident Management Team (CIMT). The CIMT consists of University Executives, Directors and Managers, who together, provide stewardship in times of crisis. Members are selected based on the appropriate knowledge, skills, experience, authority and accountability to resolve the incident and facilitate a coordinated approach.

As a learning organisation, there is a culture of sharing, gathering and analysing information, together with regular reviewing and reporting.

Prevention and Preparedness – In line with the PPRR approach, the University has appropriate controls and processes in place.  Key elements include the critical incident management framework, the alert matrix, emergency management plan, pandemic plan, and the CIMT structure. As a learning organisation, there is a culture of sharing, gathering and analysing information, together with regular reviewing and reporting.

The CIMT normally meets monthly where function leaders and alternates practise as a team. CIMT reviews and considers a range of emerging threats and implements outcomes from lessons learned to strengthen the CIMT framework. To strengthen its preparedness, the CIMT uses its external networks to form collaborations with State and National agencies, other universities, emergency providers, and subject matter experts.

The University’s Incident Alert Matrix is aligned with Risk Reference Tables providing clear understanding of the nature of incidents wherever they occur and the level to which these should be escalated.  Ongoing disclosure of incidents is actively encouraged across areas in all locations and links to Curtin’s risk culture. Understanding the severity levels are critical to identifying and prioritising incidents against agreed levels of Yellow, Amber and Red.  This helps avoid individuals applying their personal risk appetite and provides a shared view of Curtin’s risk appetite.

The PPRR Continuum below, illustrates the rhythm and flow of prevention actions, preparedness that instructs an Incident/Emergency response. The CIMT takes stewardship almost immediately after the incident has been assessed as critical.  When critical processes are operational, the Business Response Team takes over to initiate long term recovery.  Once normal operations resume, a key part is capturing lessons learned, resulting in corrective actions.

 Prevention, Preparedness, Response and Recovery (PPRR) Continuum

Putting it into Action

Global framework encompassing local directives and initiatives

Curtin activated the CIMT and its Pandemic Plan on 23 January, after issuing travel safety guidance to staff and students the day before. On 28 February 2020, the World Health Organisation increased the global rating for the COVID-19 virus outbreak to ‘very high risk’ at a ‘global level’ triggering the Australian Government’s activation of its emergency response plan. The Curtin Pandemic Plan is overseen by the CIMT, led by the Chief Operating Officer. As well as implementing the University’s Pandemic Plan the CIMT were bound and guided by Government directives in all its locations. The common mantra advocated by the Vice-Chancellor was always to follow the Government directives of the specific location.

The Pandemic state highlighted some added complexities when dealing in a global arena with campuses around the world. In particular, how each of the local Governments responded to COVID-19 and how quickly each campus could transition staff and students to online learning.

Each campus was required to adapt quickly to their own context while working within a global framework. The framework had to be robust, yet agile enough to allow for differentiated actions. The Senior Executive received updates from the CIMT leader and campus Pro-Vice Chancellors at their weekly meetings. Thus, the experience and learnings from each context contributed to the overall management of the organisation and the well-being of Curtin’s global community.

The experience and learnings from each context contributed to the overall management of the organisation and the well-being of Curtin’s global community.

Values based leadership and risk culture facilitated agile and innovative actions

Additional initiatives supporting staff and students accessible by all campuses were established at the central level. In collaboration with each of our partners, global campuses provided additional support (setting up virtual community groups, IT help, mobilised administrative staff to support students and teaching staff, food packages etc.) to complement those at the central level. The University made special bursaries available to students in need and launched the Curtin Cares campaign to raise additional funds to further support students. Staff and students were also able to access well-being support during this crucial time. This demonstrated a key signature behaviour of the values based and led University; the health and safety of its people, including the wider community which were are at the heart of decisions and their first priority. The general consensus from students across all campuses is that they were satisfied with the way the University has been dealing with COVID-19.

Communication – effective and timely is essential

In this current crisis where our world has shrunk to our own home and in many cases, social isolation for a prolonged period of time, communication becomes a lifeline to the outside world. Importantly, there is always a key Communication specialist on the CIMT. They collaboratively developed a dedicated website for students, staff, and the wider Curtin Community. The Vice-Chancellor communicated very regularly via email and video with concise, relevant information. These messages were monitored carefully and contextualised for the appropriate global target audience instilling a high level of confidence in the University.

Final Comment – Key Principles

As a values-led, learning organisation, Curtin University is a place where behaviours and actions are guided by values and learning is deeply embedded in the culture.  The organisation has developed a strong risk management culture and incident/crisis management demonstrating their commitment to the health and safety of people and the organisation.  Their agile frameworks and distributed leadership model across campuses is a valuable blueprint for a global organisation needing to respond to constant change.

In summary, the following key principles have been important in guiding Curtin’s response and will continue to see the organisation through this crisis and what will follow:

• Values based leadership with a priority on health and safety
• A global unified plan that recognises the requirement for a local differentiated approach
• Building an effective risk management culture that informs agile and strategic decision making
• Effective targeted and timely communication

How has your organisation responded to the pandemic? Use the comment section to add other key learnings.  

(1) See also Peter Senge (1990)’s seminal book, the Fifth Discipline, which introduced the concept of distributional leadership where organisational and individual learning are linked.

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).

Andy Sumner, King’s College London; Christopher Hoy, Australian National University, and Eduardo Ortiz-Juarez, King’s College London

As COVID-19 slows in developed countries, the virus’s spread is speeding up in the developing world. Three-quarters of new cases detected each day are now in developing countries. And as the pandemic spreads, governments face juggling the health consequences with economic ones as this shifts to becoming an economic crisis.

Our research shows that the poverty impact of the crisis will soon be felt in three key ways. There is likely to be more poverty. It is likely to become more severe. And as a consequence, the location of global poverty will also change.

Having looked at estimates from a range of sources – including the Asian Development Bank, Goldman Sachs, IMF and OECD – we considered three possible economic scenarios stemming from COVID-19, where global income and consumption contracted by 5%, 10% or 20%. We found that the economic shock of the worst-case scenario could result in up to 1.12 billion people worldwide living in extreme poverty – up from 727 million in 2018.

This confirms our earlier estimates that the coronavirus could push up to 400 million people into extreme poverty, defined by the World Bank as living on less than US$1.90 per day – the average poverty line in low-income developing countries. This number rises to over 500 million if using the World Bank’s higher average poverty lines for lower middle-income (US$3.20) and upper middle-income (US$5.50) developing countries.

The potential increase is driven by millions of people living just above the poverty line. These people are likely to be badly affected because many of them work in the informal sector, where there is often little in the way of social security. Such a rise in extreme poverty would mark the first absolute increase in the global count since 1999 – and the first since 1990 in terms of the proportion of the global population living in poverty.

On the intensity of the poverty, the resources needed to lift the incomes of the poor to above the poverty line could increase by 60%, from US$446m a day in the absence of the crisis to above US$700m a day. For the existing extreme poor and those newly living in extreme poverty, their loss in income could amount to US$500m per day.

In terms of where poverty is located, it is likely to increase dramatically in middle-income developing countries in Asia, such as India, Pakistan, Indonesia and the Philippines. This points to the fact that much of the previously poor population in these countries moved to just above the poverty line. In other words, these countries’ recent economic progress has been relatively fragile. We’ll also likely see new poverty in countries where it has remained relatively high over the last three decades, such as Tanzania, Nigeria, Ethiopia and the DRC.

How to respond to the poverty pandemic

COVID-19 poses a significant threat to developing countries, as their health systems tend to be weaker. More severe cases have also been linked to high blood pressure, diabetes and air pollution, all of which are prevalent in developing countries. Meanwhile, there are suggestions that COVID-19 could hinder the treatment of other illnesses such as TB, HIV/AIDS and chronic malaria.

But developing countries generally have a lower proportion of people at high risk from COVID-19 in terms of age (>70 years). As such, economic shocks may pose a greater relative risk to their populations. The question emerges as to whether lockdowns are the best option to contain the virus in developing countries if they entail severe income losses. Estimates of the share of jobs that can be performed at home is less than 25% for many developing countries – much lower than the ~40% recorded in, for example, the USA and Finland. It’s as low as ~5% in countries such as Madagascar and Mozambique.

Consequently, there’s also a clear need for a range of social safety-net policies. These already exist in many developing countries, but their coverage and funding needs to be expanded substantially. Such policies include cash transfer programmes, universal one-off cash payments, in-kind food/vouchers, school feeding schemes and public works programmes. In middle-income developing countries, these are funded by the national government, whereas in low-income countries these are often co-funded by donors. Any set of policies should also incorporate “pay to stay home” or “pay to get tested” schemes.

The long crisis

Looking further ahead, the poverty impacts beyond 2020 are closely related to if or when an effective vaccine is developed. Even if we take the best-case scenario and a vaccine is discovered later this year, it’s uncertain how long it would take to reach the entire global population. It could take years.

There is no guarantee developing countries would get access to the vaccine at a reasonable cost, or if everyone in developing countries would get the vaccine for free. We could end up living in a new COVID-19 apartheid, with the vaccinated and non-vaccinated residing in separate areas and working in different labour markets. This is a startling but very real possibility that no one is talking about much yet.

While this might sound far off, there are already some countries – such as Chile – issuing “immunity passports”. Such passports might determine what work people can do by determining where they can go. This could leave the poorest without access to earning opportunities or only with lower-income opportunities if their movement is restricted.

The crisis is increasingly looking like a long crisis. If so, it will have repercussions on global poverty for years to come.

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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).

Ibrahim Malleck, Managing Partner, Ebonia Capital

The decision of the EU to put Mauritius on its list of Third Countries having strategic deficiencies in their Anti-Money Laundering and Combatting the Financing of Terrorism (AML/CFT) framework could hardly have come at a worse time. With the world economy at a standstill due to Covid-19, the EU decided to act on the Financial Action Task Force (FATF) February decision to grey-list Mauritius and hit it hard. The EU did not give Mauritius the time to put up a case.

The country cannot afford to wake up on October 2nd, 2020, and be officially ‘’blacklisted’’. All local stakeholders are committed to working towards the implementation of any pending issues, with the hope that the FATF recognises Mauritius’ efforts, thus sending a clear message to the EU not to blacklist the country. Unfortunately, it has very limited time to convince its international partners.

EU blacklisting and the FATF recommendations

To put things into context, Mauritius’ strong legal environment, the absence of Foreign Exchange Controls, and an educated and bilingual workforce have helped propel the Financial and Insurance sector (banks, non-bank financial institutions and offshore management companies) to third place in terms of its contribution to the domestic economy. The sector contributes about 12% of GDP – within which Global Business contributes 6% of GDP-, and employs close to fourteen thousand people. It has become a pillar of the economy and a blacklisting, compounded by the pandemic blow on the tourism sector, would have a devastating impact on the international reputation of Mauritius, as well as on the domestic economy.

Both the decision, as well as the timing of the blacklisting, are open to debate. Although the list has to be ratified by the European Parliament on  October 1st, 2020, Mauritius is already starting to feel the initial backlash of being grouped together with a number of countries with a much longer list of non-fully compliant FATF recommendations ranging from 22 to 39 compared with only 5 for Mauritius.

The country cannot afford to wake up on October 2nd, 2020, and be officially ‘’blacklisted’’.

The FATF, via its regional body the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG), released a Mutual Evaluation Report in September 2018 which highlighted twenty-one Technical Compliance Issues (total of 40 assessed). Subsequently, in September 2019, nineteen of these were revised, clearly showing the progress that Mauritius was making in addressing the underlying issues. Importantly, Mauritius is largely compliant on three of the five compliance recommendations and partially compliant on the remaining two. There is no recommendation whereby it is fully non-compliant.

Supervision and non-financial business and professions

Interestingly, the five points recently raised by the Financial Action Task Force focus on the ability of stakeholders to carry out effective risk-based supervision, proper anti-money laundering investigations, access to information on beneficial owners, and the lack of targeted financial sanctions related to terrorism and proliferation financing. No direct mention is made of either the banking regulator or Offshore Management Companies, especially in terms of the way they carry out business and apply existing anti-money laundering and financing of terrorism guidelines. It is noteworthy that the country already has a robust legal framework (Financial Intelligence and Anti-Money Laundering Act) which underlines the parameters and provides guidance to all stakeholders in terms of combatting financial crime.

In fact, the fight against financial crime is constantly gaining momentum internationally and over the past decade, a number of banks and other institutions have been heavily fined by the likes of Office of Foreign Assets Control (US Department of Treasury) and the EU, leading to a complete revamp of their internal compliance and anti-money laundering structures. With the implementation of the Common Reporting Standards (CRS) to fight tax evasion, global frameworks have been tightened to prevent tax leakages in addition to illicit flows.  The Mauritius banking sector is considered to be largely compliant, with the FATF clearly highlighting weaknesses mostly with the non-financial business activities (Designated Non-Financial Business and Professions – DNFBP). However, it seems that banks which have been particularly diligent in building up a robust anti-money laundering and combating the finance of terrorism framework, stand to be among the initial losers.

Reduced foreign exchange flows and the macro-economy

Already, the intention of the EU to place Mauritius on their blacklist prevents European Development Finance Institutions (DFIs) such as Proparco, CDC and Norfund, to use Mauritius as an intermediary jurisdiction for onward investments into Africa. Mauritius has been a preferred choice for these institutions for a number of years given the country’s political and economic stability and its strong rule of law. The country will no longer be able to host such structures as things stand.

Considering that other stakeholders such as Private Equity firms and Impact Investors also set-up their Fund structures in Mauritius, often to invest alongside these DFIs across Sub-Saharan Africa, the country risks facing a significant reduction of business in the Offshore sector. Coming at a time when Mauritius is still re-inventing itself after the re-negotiation of its Double Taxation Avoidance Agreement (DTAA) with India which reduced the incentives for investors to route funds through Mauritius, the hope of an ‘’Africa Strategy’’ to boost this sector has suddenly faded. This is all the more worrying given the current post-Covid environment: unemployment is expected to rise to 17% over the coming 12 months and the country can ill afford lay-offs of specialised staff (accountants, fund administrators, lawyers) who form the backbone of Mauritius Global Business sector.

The potential impact on banks is also very worrying. There are early indications that local banks are already facing Enhanced Due Diligence on a number of their transactions with European counterparties [1]. This makes it more costly for correspondent banks to deal with Mauritius and could put pressure on relationships built over a number of years, even decades. Mauritius has built its economic success on the export of goods and services and it simply cannot afford to put its correspondent banking relationships at risk.  It is worth noting that any reduced flows from the Global Business sector will also negatively impact banks in terms of Foreign Exchange flows and deposits.  Indeed, the Bank of Mauritius has recently become a net seller of USD in the market, with commercial banks managing their foreign exchange positions very tightly.

Any reduced flows from Global Business, coming at a time when Tourism inflows are close to zero, will compound the Current Account deficit and push the country’s overall Balance of Payment into the red.

It is vital to grasp the macro-economic impact that Mauritius could be facing. The island operates under a freely-floating currency regime, and over the past decade, Mauritius has benefited from substantial USD liquidity. Any reduced flows from Global Business, coming at a time when Tourism inflows are close to zero, will compound the Current Account deficit and push the country’s overall Balance of Payment into the red. Mauritius will lose an important buffer which has also helped the country’s international reserves and rupee stability. This can only lead to macro-economic instability.

The way forward

The Government, together with financial regulators and other stakeholders, have come together to find ways to prevent any blacklisting in October. In the recent Budget, the Government has clearly stated its commitment to complete the remaining five FATF recommendations by September 2020 and to complement and strengthen the existing legislative framework through a new Anti-Money Laundering and Combating the Finance of Terrorism (Miscellaneous Provisions) Bill, which is to be presented to the House on 23 June 2020. This should send a clear signal to the FATF (and the EU), that Mauritius has taken a dynamic approach to addressing their recommendations and is looking to be proactive and address areas of concern in a timely manner.

Mauritius is facing a very steep uphill battle. By not being stringent enough, especially around risk-based regulation and monitoring, a gap seems to have been exploited by international regulators to take the country to task. Mauritius has worked hard over the past decade to build its reputation as an international financial jurisdiction and to comply with international taxation and financial regulations such as the Common Reporting Standard and the Base Erosion Profit Shifting. The risk of being branded together with countries considered to be fragile states with serious structural deficiencies is serious indeed. The country’s reputation is at stake. The immediate focus must be to limit any fall-out and do everything possible to avoid being blacklisted.

Rethinking economic diplomacy 

However, Mauritius must also ask itself whether it acted quickly enough, particularly on the economic diplomatic front. There was a time where Mauritius was one of the drivers within the ACP when it came to the Sugar Protocol and Multi-Fibre Agreement. Now, as the country aims to attain High-Income country status by 2030, it will need to operate differently. This requires judicious diplomatic lobbying, clear internal policies (understood and correctly applied by all relevant stakeholders) coupled with accountabilities, as well as medium to long term strategies. And the island needs, once and for all, to better monitor sectors such as Gambling and Real Estate, where the risk of AML remains high. It should also apply a stronger risk-based approach across the Global Business industry. The onus is on the relevant regulators to make this happen.

Mauritius has to demonstrate that it is doing the right thing to sustain its reputation and relationships with its international partners. There is no other option.

Mauritius is at crossroads. The global impact of the Coronavirus, coupled with the potential threat of a blacklisting by the EU, should force Mauritius to take some difficult structural decisions. Financial Crime continues to be closely monitored internationally and countries are increasingly expected to tackle issues in a dynamic manner. Mauritius has to demonstrate that it is doing the right thing to sustain its reputation and relationships with its international partners. There is no other option.

[1] evidence at this stage is anecdotal but the author’s feedback from local banks suggests that enhanced due diligence is already starting to affect transactions with the European Union.

Ibrahim Malleck is a Managing Partner at Ebonia Capital a trade and corporate finance advisory firm based in Mauritius. With more than 25 years of leadership experience in corporate banking in Mauritius and across the Middle East, he has worked, among others, for the Mauritius Commercial Bank Ltd, Standard Bank Ltd. and HSBC Ltd. In 2019, he founded Ebonia Capital to provide financial and risk advisory services, as well as funding solutions to entities in Mauritius and across East Africa. Ibrahim has a Masters in International Trade and Finance from Lancaster University.

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).

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).

Gilles Michel, Président, Charles Telfair Institute, Ex Directeur Général du Fonds Stratégiques d’Investissement Francais.

A l’instar de celle du Covid-19, beaucoup des crises économiques récentes ont été le résultat d’un choc externe (e.g. guerre, catastrophe naturelle) ou sectoriel (e.g. cours des matières premières, défaillance financière, défaut d’un pays) qui, en se propageant rapidement dans des économies très intégrées se sont amplifiés en occasionnant des dommages considérables. De nombreuses entreprises se sont en effet trouvées fragilisées, voire menacées, par une brutale chute de la demande, un système financier soudainement inopérant, ou la défaillance de pans entiers de l’économie, alors même qu’elles étaient saines, profitables et bien gérées. Des risques majeurs montaient en termes d’emploi, de pérennité du tissu économique ou de contrôle du capital des entreprises.

Intervention de L’Etat

Dans un tel contexte, et quelle que soit sa coloration politique ou sa philosophie économique, la puissance publique se trouve immanquablement confrontée à une très forte demande d’intervention au nom de la préservation de l’emploi et de la protection du tissu économique. Deux logiques auxquelles s’ajoute souvent une sorte d’argument moral : ni les entreprises, ni les personnes qui y travaillent ne sont « responsables » de ce qui leur arrive. Après tout, n’est-ce pas le rôle régalien ultime d’un Etat, que de mobiliser, en cas d’agression, sa puissance afin de protéger le pays et de donner à ses citoyens les moyens de se battre ? Mais quand c’est la « signature » de l’Etat qu’il s’agit de mobiliser, de nombreuses questions, dont certaines redoutables se posent : est-il légitime d’intervenir plutôt que de laisser agir le marché ; est-ce efficace ; quelle contrepartie exiger ; quelle nature d’intervention ; au travers de quel type d’instrument ; comment définir les secteurs ou entreprises à soutenir ; quelle influence sur celles-ci ; quelle rentabilité pour l’argent public ? Etc.

Cette problématique n’épargne pas l’île Maurice en 2020. L’effondrement des flux aériens et touristiques, la chute du commerce mondial et donc de la demande de produits et services exportés par le pays, la baisse des actifs mondiaux sont en effet autant de menaces sur des pans essentiels de l’économie du pays. Les secteurs hôteliers, textiles, de la construction ou financier sont tous aux premières loges de cette crise. Au moment où des réponses se mettent en place, en particulier avec l’annonce de la création d’un fonds d’investissement public (Mauritius Investment Corporation – MIC) il est utile de se pencher sur des expériences passées pour pouvoir bénéficier de leurs leçons.

Or, de ce point de vue, la création d’un « Fonds Stratégique d’Investissement » fin 2008 en France est une référence particulièrement intéressante. En effet, alors que le monde se trouvait encore dans la sidération de l’effondrement du système financier provoqué par la chute de la banque Lehman Brothers, la France choisissait très tôt de mettre en place un Fonds spécifique. Ce Fonds entièrement nouveau et massivement doté (20 Mrds€ de capitaux propres) avait pour vocation d’intervenir en fonds propres au sein des entreprises. Procédant de la volonté politique du Président de la République, le choix d’un nouvel outil ad hoc était la conséquence du parti pris délibéré de ne pas utiliser les dispositifs et instruments publics existants dans un pays qui, pourtant, n’en manquait pas. De ce Fonds on attendait qu’il renforce avec réactivité et agilité des entreprises, certes fragilisées par la crise, mais porteuses d’avenir en investissant de manière professionnelle et avisée. Il était, ainsi, un levier essentiel du dispositif anti crise mis en place par les autorités.

Le Fonds était, ainsi, un levier essentiel du dispositif anti crise mis en place par les autorités.

Le rapport d’information rédigé mi 2011 par le sénateur Fourcade pour la Commission des Finances du Sénat français analyse les premières années de fonctionnement du FSI, celles des premiers pas dans l’urgence de la crise. Et il en dresse le constat très largement positif d’un « nouvel acteur de politique industrielle à la doctrine originale ». En effet, le FSI  a fait des choix originaux et forts dans trois domaines essentiels – gouvernance, doctrine et professionnalisation – qui sont autant de clés de son bilan et des enseignements que l’on peut en tirer.

Gouvernance

Du fait de sa nature même comme du contexte dans lequel il était créé, la gouvernance du FSI allait devoir répondre à des défis dépassant largement les classiques missions de direction et de contrôle [1]. D’une part, le FSI allait immanquablement faire face à de nombreuses injonctions de la part d’une « sphère politique », qui se considérait comme l’ultime donneuse d’ordre et la propriétaire de l’institution. Et d’autre part, étant donnée l’ampleur des enjeux, il serait nécessairement l’objet de considérables pressions visant à orienter son intervention. La gouvernance fut donc organisée autour de trois « étages » se répartissant clairement les rôles de supervision, de responsabilité opérationnelle et d’orientation :

• un Conseil d’Administration resserré avec trois hauts représentants des actionnaires publics (Caisse des Dépôts et Consignations, Etat) et trois dirigeants reconnus du monde des affaires. Le conseil, décisionnaire ultime et exclusif des actions du FSI, disposait d’une forte autorité de compétence. Il pouvait alors non seulement « rendre compte » efficacement auprès de ses actionnaires ou de la sphère politique, mais aussi le « protéger » vis-à-vis de ceux-ci;
• un Directeur Général, issu du monde de l’entreprise privée, rapportant au seul Conseil d’administration. Il était l’unique responsable de la marche opérationnelle et des résultats du Fonds et la seule voix autorisée à s’exprimer à ce titre. Il avait ainsi les moyens de mener à bien sa mission sans interférence ou perturbation;
• un Conseil d’Orientation, organe consultatif composé d’une vingtaine de personnalités. Le parcours de ces dernières était représentatif de la diversité des parties prenantes du Fonds (syndicats, professionnels, politiques, société civile). Ce Conseil était chargé d’assurer la cohérence de la doctrine d’investissement du Fonds et de sa stratégie à long terme au travers d’un dialogue régulier.

‘Répondre aux difficultés des entreprises, mais pas aux entreprises en difficulté’

Le mandat du FSI avait été résumé dans une habile formule – « répondre aux difficultés des entreprises, mais pas aux entreprises en difficulté » – pour signifier que sa vocation était celle du développement plutôt que du retournement. Cette voie étroite a rapidement été traduite dans une « doctrine » d’investissement, posant un cadre de référence public à l’action du FSI autour des principes suivants:

• l’intervention était réservée aux secteurs de l’industrie et des services;
• les investissements devaient se faire auprès d’entreprises porteuses du renforcement de la compétitivité de l’économie française : Petites et Moyennes Entreprises (PME) de croissance, Entreprises de Tailles Intermédiaires (ETI) au potentiel d’acteur de référence de leur secteur, ou plus grandes entreprises. Ils pouvaient être fait soit, de manière privilégiée, par la voie de fonds propres ou de quasi fonds propres, soit, le cas échéant, au travers de fonds spécialisés;
• la décision d’investir était basée sur le projet de l’entreprise, et associée à une perspective de rendement justifiant la qualité d’investisseur avisé du Fonds;
• l’investissement devait être minoritaire, en accompagnement d’autres investisseurs privés, pour ne pas créer un effet d’éviction et, au contraire, faciliter l’engagement du privé par effet de levier et d’entraînement;
• le FSI avait vocation à participer aux organes de gouvernance des sociétés. Il devait y adopter une posture d’investisseur « socialement responsable », non pour imposer son propre agenda mais pour le promouvoir en participant à l’élaboration et à la mise en œuvre de la stratégie;
• l’investissement était envisagé avec un terme. Le FSI avait en effet une mission d’accompagnement sur une période, et pas de construction d’un nouveau pôle d’entreprises à capitaux publics dans le pays.

La nécessité de mettre en œuvre le projet du FSI avec un professionnalisme rigoureux et irréprochable est vite apparue comme une condition de sa capacité à agir.

Professionnalisme

La nécessité de mettre en œuvre le projet du FSI avec un professionnalisme rigoureux et irréprochable est vite apparue comme une condition de sa capacité à agir. Toute lacune de ce point de vue aurait d’ailleurs présenté un angle de remise en cause facile et attractif à tous ceux qui avaient intérêts à ne pas le laisser prospérer. L’attention s’est tout particulièrement portée dans trois domaines :

• Le choix des équipes : Il fallait s’assurer de la bonne adéquation de leurs profils avec les besoins et missions du Fonds et une loyauté sans ambiguïté vis-à-vis de leur employeur. Ainsi, l’intégralité d’entre eux a fait l’objet d’un recrutement ad hoc, sur contrat de droit privé, via un process de sélection confié à un cabinet de recrutement externe. Avec cette approche la neutralité et l’équité des recrutements, et donc la crédibilité des collaborateurs a été établie dès l’origine du Fonds ;
• Le process de prise de décision : au-delà d’une exigence de rigueur et de qualité des projets d’investissements, la question de l’équité dans le traitement des dossiers était jugée existentielle pour le FSI. Porteur d’une mission d’intérêt général lui donnant obligation d’instruire tout dossier lui étant présenté, le FSI devait s’organiser pour pouvoir rendre compte de ses décisions. Une grande attention a donc été portée à jalonner les étapes d’instruction, à normer le contenu des dossiers, à définir les niveaux de délégation et responsabilité des différentes instances de décision. Le FSI a toujours pu rendre compte non seulement de ses investissements, mais aussi de ses non investissements malgré, parfois, polémiques et procès par médias interposés ;
• La présence dans les entreprises : une condition à l’investissement du FSI était sa participation à la gouvernance, partie intégrante de l’accord capitalistique négocié avec l’entreprise. Pour éviter de créer un puissant repoussoir avec la perception d’une intrusion politique ou administrative, le parti a été pris de recourir à des administrateurs indépendants acceptant de représenter le FSI au travers d’une « lettre de mission » partagée avec l’entreprise. Cette posture exigeante supposait l’identification de personnalités crédibles et reconnues du monde des affaires acceptant de jouer un délicat exercice d’équilibre. Elle a fortement contribué à crédibiliser le FSI auprès des entreprises.

  La Banque Centrale de Maurice a mis en place la Mauritius Investment Corporation

En quelques semaines, le FSI s’est construit comme une institution professionnelle, transparente et réactive, capable de mobiliser de considérables moyens publics et d’accomplir son ambitieuse mission en résistant aux jeux d’influence et en ne se substituant pas aux acteurs privés de l’investissement. En 24 mois, le Fonds aura investi 3,8 Mrds€ dans près de 800 entreprises au travers d’une vaste palette de modalités (investissements directs, fonds d’investissement sectoriels ad hoc ou abondement à des fonds préexistant), et en assurant un retour convenable aux capitaux investis. Ainsi que le résume le rapport Fourcade au Sénat, il aura « démontré son utilité » et passé le test de « la rationalité économique ».

Bien sûr, le contexte de l’île Maurice n’est pas le même que celui de la France en 2008. Mais le projet de la Mauritius Investment Corporation fera, à bien des égards, face à de nombreux défis analogues : agir vite, établir sa crédibilité par un bon équilibre dans ses choix et modalités d’investissement, bâtir la confiance avec le secteur privé, investir de manière équitable et transparente, assurer un bon usage des fonds publics, résister aux pressions et influences, rendre compte à la nation. S’il peut s’inspirer de l’expérience, il aura à cœur de le faire grâce à une gouvernance forte et cohérente, à une doctrine d’investissement claire, à des équipes et des processus internes d’un haut niveau de professionnalisme et à des administrateurs indépendants crédibles et loyaux.

[1] Missions visant à garantir un fonctionnement de l’entreprise conforme à la loi et aux règles de place, à sa mission et à ses valeurs, à l’intérêt de ses actionnaires et, plus généralement à celui de ses « parties prenantes »)

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).

Jun Du, Aston University; Agelos Delis, Aston University; Mustapha Douch, Aston University, and Oleksandr Shepotylo, Aston University

The COVID-19 pandemic is now expected to trigger the worst economic downturn since the Great Depression. Many argue it could unravel globalisation altogether.

Globalisation relies on complex links – global value chains (GVCs) – that connect producers across multiple countries. These producers often use highly specialised intermediate goods, or “inputs”, produced by only one distant, overseas supplier. COVID-19 has severely disrupted these links.

Although the global economy was fragile at the start of 2020, many hoped for increased international trade following the US-China Phase One trade deal. COVID-19 has scuppered those hopes, bringing the world’s factories to a standstill and severely disrupting global supply chains.

China plays a key role in this. According to Chinese customs statistics, the value of Chinese exports in the first two months of 2020 fell by 17.2% year on year, while imports slowed by 4%.

This drop in Chinese trade impacted some markets more than others. Comparative figures between the first two months of 2019 and the first two months of 2020 reveal a collapse in Chinese trade with the EU and US. Chinese exports to the EU fell by 29.9%, while imports from the EU declined by 18.9%. Exports to and imports from the US tumbled 27% and 8% respectively.

These substantial declines are likely related to the strong interdependence between European and US firms and Chinese ones.

The scale of the shock

To understand the magnitude of the supply shock in China and its global propagation, the Lloyds Banking Group Centre for Business Prosperity (LBGCBP) at Aston University has mapped China’s global trading networks using official Chinese data.

In 2019, the US had the highest trade dependence on China, followed by seven European countries and Japan. By 2020, European countries had moved even further up the rankings.

As the pandemic continues, the worst affected Chinese exports include capital goods such as nuclear reactors, intermediate goods like iron, and labour intensive final goods such as furniture.

The most disrupted Chinese imports include intermediate goods such as organic chemicals, a likely result of factory closures in China, and capital goods like electrical machinery. Hardest hit were precious stones and metals, highlighting the emergence of a sophisticated middle-class of Chinese shoppers and how COVID-19 has reduced their demand for luxury goods.

Interestingly, Chinese imports of meat and mineral fuels increased sharply in 2020. The first can be explained by China’s weakened domestic supply of food during lockdown. The second highlights China’s growing demand for crude oil.

Four product categories have been particularly hard hit as both imports and exports: nuclear reactors, electrical machinery and equipment, plastics, and organic chemicals. These categories include some commonly used intermediate goods (those that are used for producing other goods).

Under normal circumstances, such goods would be traded back and forth between China and other countries as part of the heavily interconnected global production system. This significant drop in their international trade highlights the devastating effect of COVID-19 on GVCs.

An uncertain future

But an unprecedented, synchronised and likely deep fall in demand is now developing. And China was again among the first to feel its impact.

Chinese workers returned to work in April but many no longer had jobs. Widespread cancellations of international orders and delayed payments have led to liquidity problems and mass closures of businesses reliant on global demand.

Investment also tumbled. During February and March 2020, official Chinese statistics report 24.4% fewer new foreign trade enterprises established in China compared to the same period last year. Meanwhile, 12,000 existing foreign trade enterprises closed down.

Agriculture, logistics and those producing raw materials, textiles and clothing have been hardest hit. But, on a more positive note, there has been a surge in demand for medical supplies.

Many are now highlighting the dangers of relying on global value chains – and in particular, those linked to China – leading to talk of “de-globalisation”.

The European Commission president, Ursula von der Leyen, for example, has called for the “shortening” of global supply chains because the EU is too dependent on a few foreign suppliers. Similarly, the French president, Emmanuel Macron, has argued for a strengthening of French and European “economic sovereignty” by investing at home in the high tech and medical sectors.

So is this the end of globalisation? No. But a reconfiguration of GVCs is inevitable.

A way forward

Global supply chains are extremely complex, and no sector or country is an island.

But GVCs follow the principle of efficiency. They are the result of businesses sourcing the best possible inputs to meet their production needs at the lowest cost – wherever those inputs come from.

This is good news for globalisation’s survival. While efficiency remains the main target, businesses will continue to shop globally.

Concerns about an overreliance on complex GVCs are justified in the case of products related to national security, such as medical supplies. Many countries will now ensure they can produce such goods without relying on imports.

Nobody can predict the next crisis. But the most reliable and efficient insurance by far is to build a strong international cooperation network. As yet, global political consensus on this remains elusive. But that doesn’t mean we should ever lose the ambition.

Jun Du, Professor of Economics, Centre Director of Lloyds Banking Group Centre for Business Prosperity (LBGCBP), Aston University; Agelos Delis, Lecturer in Economics, Aston University; Mustapha Douch, Research Fellow in Economics, Lloyds Banking Group Centre for Business Prosperity (LBGCBP), Aston University, and Oleksandr Shepotylo, Lecturer in Economics, Aston University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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).

Michael Kare, Five College professor emeritus of peace and world security studies.

Deadly, disruptive, and economically devastating as COVID-19 has proved to be, in retrospect it may turn out to have had at least this one silver lining.

Energy analysts have long assumed that, given time, growing international concern over climate change would result in a vast restructuring of the global energy enterprise.

The result: a greener, less climate-degrading system.

In this future, fossil fuels would be overtaken by renewables, while oil, gas, and coal would be relegated to an increasingly marginal role in the global energy equation. In its World Energy Outlook 2019, for example, the International Energy Agency (IEA) predicted that, by 2040, renewables would finally supersede petroleum as the planet’s number one source of energy and coal would largely disappear from the fuel mix.

As a result of COVID-19, however, we may no longer have to wait another 20 years for such a cosmic transition to occur — it’s happening right now.

So take a breath and, amid all the bad news pouring in about a deadly global pandemic, consider this: when it comes to energy, what was expected to take at least two decades in the IEA’s most optimistic scenario may now occur in just a few years. It turns out that the impact of COVID-19 is reshaping the world energy equation, along with so much else, in unexpected ways.

That energy would be strongly affected by the pandemic should come as no surprise. After all, fuel use is closely aligned with economic activity, and COVID-19 has shut down much of the world economy. With factories, offices, and other businesses closed or barely functioning, there’s naturally less demand for energy of all types. But the impacts of the pandemic go far beyond that, as our principal coping mechanisms — social distancing and stay-at-home requirements — have particular implications for energy consumption.

Among the first and most dramatic of these has been a shockingly deep decline in flying, automobile commuting, and leisure travel — activities that account for a large share of daily petroleum use. Airline travel in the United States, for example, is down by 95 percent from a year ago.

At the same time, the personal consumption of electricity for telework, distance learning, group conversations, and entertainment has soared. In hard-hit Italy, for instance, Microsoft reports that the use of its cloud services for team meetings — a voracious consumer of electricity — has increased by 775 percent.

These are all meant to be temporary responses to the pandemic. As government officials and their scientific advisers begin to talk about returning to some semblance of “normalcy,” however, it’s becoming increasingly clear that many such pandemic-related practices will persist in some fashion for a long time to come and, in some cases, may prove permanent.

Social distancing is likely to remain the norm in public spaces for many months, if not years, curtailing attendance at theme parks and major sports events that also typically involve lots of driving. Many of us are also becoming more accustomed to working from home and may be in no rush to resume a harried 30-, 60-, or 90-minute commute to work each day. Some colleges and universities, already under financial pressure of various sorts, may abandon in-person classes for many subjects and rely far more on distance learning.

No matter how this pandemic finally plays out, the post-COVID-19 world is bound to have a very different look from the pre-pandemic one and energy use is likely to be among the areas most affected by the transformations underway. It would be distinctly premature to make sweeping predictions about the energy profile of a post-coronavirus planet, but one thing certainly seems possible: the grand transition, crucial for averting the worst outcomes of climate change and originally projected to occur decades from now, could end up happening significantly more swiftly, even if at the price of widespread bankruptcies and prolonged unemployment for millions.

Oil’s Dominance in Jeopardy

As 2019 drew to a close, most energy analysts assumed that petroleum would continue to dominate the global landscape through the 2020s, as it had in recent decades, resulting in ever greater amounts of carbon emissions being sent into the atmosphere.

For example, in its International Energy Outlook 2019, the Energy Information Administration (EIA) of the U.S. Department of Energy projected that global petroleum use in 2020 would amount to 102.2 million barrels per day. That would be up 1.1 million barrels from 2019 and represent the second year in a row in which global consumption would have exceeded the notable threshold of 100 million barrels per day. Grimly enough, the EIA further projected that world demand would continue to climb, reaching 104 million barrels per day by 2025 and 106 million barrels in 2030.

In arriving at such projections, energy analysts assumed that the factors responsible for driving petroleum use upward in recent years would persist well into the future: growing automobile ownership in China, India, and other developing nations; ever-increasing commutes as soaring real-estate prices forced people to live ever farther from city centers; and an exponential increase in airline travel, especially in Asia.

Such factors, it was widely assumed, would more than compensate for any drop in demand caused by a greater preference for electric cars in Europe and a few other places. As suggested by oil giant BP in its Energy Outlook for 2019, “All of the demand growth comes from developing economies, driven by the burgeoning middle class in developing Asian economies.”

Even in January, as the coronavirus began to spread from China to other countries, energy analysts imagined little change in such predictions. Reporting “continued strong momentum” in oil use among the major developing economies, the IEA typically reaffirmed its belief that global consumption would grow by more than one million barrels daily in 2020.

Only now has that agency begun to change its tune. In its most recent Oil Market Report, it projected that global petroleum consumption in April would fall by an astonishing 29 million barrels per day compared to the same month the previous year. That drop, by the way, is the equivalent of total 2019 oil usage by the United States, Canada, and Mexico.

Still, the IEA analysts assumed that all of this would just be a passing phenomenon. In that same report, it also predicted that global economic activity would rebound in the second half of this year and, by December, oil usage would already be within a few million barrels of pre-coronavirus consumption levels.

Other indicators, however, suggest that such rosy predictions will prove highly fanciful. The likelihood that oil consumption will approach 2018 or 2019 levels by year’s end or even in early 2021 now appears remarkably unrealistic. It is, in fact, doubtful that those earlier projections about sustained future growth in the demand for oil will ever materialize.

A Shattered World Economy

As a start, a return to pre-COVID-19 consumption levels assumes a reasonably rapid restoration of the world economy as it was, with Asia taking the lead. At this moment, however, there’s no evidence that such an outcome is likely.

In its April World Economic Outlook report, the International Monetary Fund predicted that global economic output would fall by 3 percent in 2020 (which may prove a distinct underestimate) and that the pandemic’s harsh impacts, including widespread unemployment and business failures, will persist well into 2021 or beyond. All told, it suggested, the cumulative loss to global gross domestic product in 2020 and 2021, thanks to the pandemic, will amount to some $9 trillion, a sum greater than the economies of Japan and Germany combined (and that assumes the coronavirus will not come back yet more fiercely in late 2020 or 2021, as the “Spanish Flu” did in 1918).

This and other recent data suggest that any notion China, India, and other developing nations will soon resume their upward oil-consumption trajectory and save the global petroleum industry appears wildly far-fetched.

Indeed, on April 17th, China’s National Bureau of Statistics reported that the country’s GDP shrank by 6.8 percent in the first three months of 2020, the first such decline in 40 years and a staggering blow to that country’s growth model. Even though government officials are slowly opening factories and other key businesses again, most observers believe that spurring significant growth will prove exceedingly difficult given that Chinese consumers, traumatized by the pandemic and accompanying lockdown measures, seem loath to make new purchases or engage in travel, tourism, and the like.

And keep in mind that a slowdown in China will have staggering consequences for the economies of numerous other developing nations that rely on that country’s tourism or its imports of their oil, copper, iron ore, and other raw materials. China, after all, is the leading destination for the exports of many Asian, African, and Latin American countries. With Chinese factories closed or operating at a reduced tempo, the demand for their products has already plummeted, causing widespread economic hardship for their populations.

Add all this up, along with a rising tide of unemployment in the United States and elsewhere, and it would appear that the possibility of global oil consumption returning to pre-pandemic levels any time soon — or even at all — is modest at best.

Indeed, the major oil-exporting nations have evidently reached this conclusion on their own, as demonstrated by the extraordinary April 12th agreement that the Saudis, the Russians, and other major exporting countries reached to cut global production by nearly 10 million barrels per day. It was a desperate bid to bolster oil prices, which had fallen by more than 50 percent since the beginning of the year. And keep in mind that even this reduction — unprecedented in scale — is unlikely to prevent a further decline in those prices, as oil purchases continue to fall and fall again.

Doing Things Differently

Energy analysts are likely to argue that, while the downturn will undoubtedly last longer than the IEA’s optimistic forecast, sooner or later petroleum use will return to its earlier patterns, once again cresting at the 100-million-barrels-per-day level. But this appears highly unlikely, given the way the pandemic is reshaping the global economy and everyday human behavior.

After all, IEA and oil-industry forecasts assume a fully interconnected world in which the sort of dynamic growth we’ve come to expect from Asia in the twenty-first century will sooner or later fuel economic vigor globally. Extended supply lines will once again carry raw materials and other inputs to China’s factories, while Chinese parts and finished products will be transported to markets on every continent.

But whether or not that country’s economy starts to grow again, such a globalized economic model is unlikely to remain the prevailing one in the post-pandemic era. Many countries and companies are, in fact, beginning to restructure their supply lines to avoid a full-scale reliance on foreign suppliers by seeking alternatives closer to home — a trend likely to persist after pandemic-related restrictions are lifted (especially in a world in which Trumpian-style “nationalism” still seems to be on the rise).

“There will be a rethink of how much any country wants to be reliant on any other country,” suggests the aptly named Elizabeth Economy, a senior fellow at the Council on Foreign Relations. “I don’t think fundamentally this is the end of globalization. But this does accelerate the type of thinking that has been going on in the Trump administration, that there are critical technologies, critical resources, reserve manufacturing capacity that we want here in the U.S. in case of crisis.”

Other countries are bound to begin planning along similar lines, leading to a significant decline in transcontinental commerce. Local and regional trade will, of course, have to increase to make up for this decline, but the net impact on petroleum demand is likely to be negative as long-distance trade and travel diminishes. For China and other rising Asian powers, this could also mean a slower growth rate, squeezing those “burgeoning middle classes” that were, in turn, expected to be the major local drivers (quite literally, in the case of the car cultures in those countries) of petroleum consumption.

A Shift toward Electricity — and a Greater Reliance on Renewables

Another trend the coronavirus is likely to accelerate: greater reliance on telework by corporations, governments, universities, and other institutions. Even before the pandemic broke out, many companies and organizations were beginning to rely more on teleconferencing and work-from-home operations to reduce travel costs, commuting headaches, and even, in some cases, greenhouse gas emissions. In our new world, the use of these techniques is likely to become far more common.

“The COVID-19 pandemic is, among other things, a massive experiment in telecommuting,” observed Katherine Guyot and Isabel Sawhill of the Brookings Institution in a recent report. “Up to half of American workers are currently working from home, more than double the fraction who worked from home (at least occasionally) in 2017-2018.”

Many such workers, they also noted, had been largely unfamiliar with telecommuting technology when this grand experiment began, but have quickly mastered the necessary skills. Given little choice in the matter, high school and college students are also becoming more adept at telework as their schools shift to remote learning. Meanwhile, companies and colleges are investing massively in the necessary hardware and software for such communications and teaching. As a result, Guyot and Sawhill suggest, “The outbreak is accelerating the trend toward telecommuting, possibly for the long term.”

Any large increase in teleworking is bound to have a dramatic dual impact on energy use: people will drive less, reducing their oil consumption, while relying more on teleconferencing and cloud computing, and so increasing their use of electricity. “The coronavirus reminds us that electricity is more indispensable than ever,” says Fatih Birol, executive director of the IEA. “Millions of people are now confined to their homes, resorting to teleworking to do their jobs.”

Increased reliance on electricity, in turn, will have a significant impact on the very nature of primary fuel consumption, as coal begins to lose its dominant role in the generation of electrical power and is replaced at an ever-accelerating pace by renewables.

In 2018, according to the IEA’s World Energy Outlook 2019, a distressing 38 percent of world electricity generation was still provided by coal, another 26 percent by oil and natural gas, and only 26 percent by renewables; the remaining 10 percent came from nuclear and other sources of energy. This was expected to change dramatically over time as climate-conscious policies began to have a significant impact — but, even in the IEA’s most hopeful scenarios, it was only after 2030 that renewables would reach the 50 percent level in electricity generation. With COVID-19, however, that process is now likely to speed up, as power utilities adjust to the global economic slowdown and seek to minimize their costs.

With many businesses shut down, net electricity use in the United States has actually declined somewhat in these months — although not nearly as much as the drop in petroleum use, given the way home electricity consumption has compensated for a plunge in business demand. As utilities adapt to this challenging environment, they are finding that wind and solar power are often the least costly sources of primary energy, with natural gas just behind them and coal the most expensive of all. Insofar as they are investing in the future, then, they appear to be favoring large solar and wind projects, which can, in fact, be brought online relatively quickly, assuring needed revenue. New natural gas plants take longer to install and coal offers no advantages whatsoever.

In the depths of global disaster, it’s way too early to make detailed predictions about the energy landscape of future decades. Nonetheless, it does appear that the present still-raging pandemic is forcing dramatic shifts in the way we consume energy and that many of these changes are likely to persist in some fashion long after the virus has been tamed. Given the already extreme nature of the heating of this planet, such shifts are likely to prove catastrophic for the oil and coal industries but beneficial for the environment —- nd so for the rest of us.

Deadly, disruptive, and economically devastating as COVID-19 has proved to be, in retrospect it may turn out to have had at least this one silver lining.

Dr. Michael T. Klare is a professor of Peace and World Security Studies. He teaches courses on international peace and security issues at Hampshire College and, in rotation, at Amherst College, Mount Holyoke College, Smith College, and the University of Massachusetts at Amherst.

This article was first published in Foreign Policy in Focus on 29 April 2020.

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