The COVID-19 pandemic is the defining global health crisis of our time and the greatest global humanitarian challenge the world has faced since World War II. The virus has spread widely, and the number of cases is rising daily as governments work to slow its spread. India has moved quickly, implementing a proactive, nationwide, 21-day lockdown, with the goal of flattening the curve and using the time to plan and resource responses adequately.
Along with an unprecedented human toll, COVID-19 has triggered a deep economic crisis. The global economic impact could be broader than any that we have seen since the Great Depression.1 To understand the probable economic outcomes and possible interventions, The Jeeranont spoke with more than 600 leaders, including senior economists, financial-market experts, and policy makers, in 100 companies across multiple sectors. Based on these inputs, we modeled estimates for three economic scenarios in India (Exhibit 1).2
In scenario 1, the economy could contract by about 10 percent in the first quarter of fiscal year 2021, with GDP growth of 1 to 2 percent in fiscal year 2021. In this scenario, the lockdown would be relaxed after April 15, 2020 (when the 21-day deadline is due to expire), with appropriate protocols put in place for the movement of goods and people after that. Our economic modeling suggests that even in this scenario of relatively quick rebound, the livelihoods of eight million workers, including many who are in the informal workforce, could be affected. In other words, eight million people could have their ability to subsist and afford basic necessities, such as food, housing, and clothing, put at severe risk. And with corporate and micro-, small-, and medium-size-enterprise (MSME) failure, nonperforming loans (NPLs) in the financial system could rise by three to four percentage points of loans. The amount of government spending required to protect and revive households, companies, and lenders could therefore be in the region of 6 lakh crore Indian rupees (around $79 billion), or 3 percent of GDP.
In scenario 2, the economy could contract sharply by around 20 percent in the first quarter of fiscal year 2021, with –2 to –3 percent growth for fiscal year 2021. Here, the lockdown would continue in roughly its current form until mid-May 2020, followed by a very gradual restarting of supply chains. This could put 32 million livelihoods at risk and swell NPLs by seven percentage points. The cost of stabilizing and protecting households, companies, and lenders could exceed 10 lakh crore Indian rupees (exceeding $130 billion), or more than 5 percent of GDP.
Scenario 3 could mean an even deeper economic contraction of around 8 to 10 percent for fiscal year 2021. This could occur if the virus flares up a few times over the rest of the year, necessitating more lockdowns, causing even greater reluctance among migrants to resume work, and ensuring a much slower rate of recovery.
Robust measures to stabilize and support households, businesses, and the financial system
Assuming scenario 2 plays out, the potential economic loss in India would vary by sector, with current-quarter output drops that are large in sectors such as aviation and lower in sectors such as IT-enabled services and pharmaceuticals (Exhibit 2). Current-quarter consumption could drop by more than 30 percent in discretionary categories, such as clothing and furnishings, and by up to 10 percent in areas such as food and utilities. Strained debt- service-coverage ratios would be anticipated in the travel, transport, and logistics; textiles; power; and hotel and entertainment sectors.
There could be solvency risk within the Indian financial system, as almost 25 percent of MSME and small- and medium-size-enterprise (SME) loans could slip into default, compared with 6 percent in the corporate sector (although the rate could be much higher in aviation, textiles, power, and construction) and 3 percent in the retail segment (mainly in personal loans for self-employed workers and small businesses). Liquidity risk would also need urgent attention as payments begin freezing in the corporate and SME supply chains. Attention will need to be given to the liquidity needs of banks and nonbanks with stretched liquidity-coverage ratios to ensure depositor confidence.
Given the magnitude of potential unemployment, business failure, and financial-system risk, a comprehensive package of fiscal and monetary interventions may need to be planned, keeping scenario 2 in mind. This might be triggered progressively as situations evolve and as actions are taken to move to the more favorable scenario 1 through effective public-health measures and graded lockdowns.
Further fiscal-, monetary-, and structural-measure possibilities
Several measures have already been announced to provide liquidity, limit the immediate NPL impact, and ease personal distress for needy households in India. These amount to around 0.8 percent of GDP. Additional measures could be considered to the tune of 10 lakh crore Indian rupees, or more than 5 percent of GDP in fiscal year 2021. All the estimated requirements may not necessarily be reflected in the fiscal deficit of the current year—for example, some support may be structured as contingent liabilities that only get reflected when they devolve. However, a package of this order of magnitude may be essential in supporting those dealing with the possible steep declines in aggregate demand and in protecting the financial system from the possible solvency and liquidity risks arising from stressed companies if scenario 2 or scenario 3 plays out.
Household demand could then be boosted beyond the support provided to needy households that the Indian government has already announced. Consideration could be given to an income-support program in which the government both pays for a share of the payroll for the 60 million informal contractual and permanent workers linked to companies and provides direct income support for the 135 million informal workers who are not on any form of company payroll. India’s foundational digital-identity infrastructure, Aadhaar, enables effective mechanisms for direct support, including through the Pradhan Mantri Jan-Dhan Yojana (PMJDY) and Pradhan Mantri Kisan Samman Nidhi (PM-KISAN) programs and to landless Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) beneficiaries. Concessions for home buyers, such as tax rebates for a time-bound period, could stimulate the housing market and unlock the job multiplier.
For bankruptcy protection and liquidity support, MSMEs could receive liquidity lines from their banks, refinanced by the Reserve Bank of India and a loan program for first-time borrowers could be administered through SIDBI.3 Substantial credit backstops from the government could be instituted for likely new NPLs Timely payments to MSMEs by large companies and governments could be encouraged by promoting bill discounting on existing platforms.
For large corporations, banks could be allowed to restructure the debt on their balance sheets, and procedural requirements for raising capital could be made less onerous. The Indian government could consider infusing capital through a temporary Troubled Asset Relief (TARP)-type program (such as through preferred equity) in a few distressed sectors (such as travel, logistics, auto, textiles, construction, and power), with appropriate conditions to safeguard workers and MSMEs in their value chains. Banks and nonbanks may also require similar measures to help strengthen their capital, along with measures to step up their liquidity and the liquidity in corporate-bond and government-securities markets.
To manage the macroeconomic consequences of a large stabilization package, the government would also need to consider clearly communicating to the markets and population that these measures are deep but temporary. Given that India’s fiscal resources are constrained, the Reserve Bank of India may need to finance a portion of such incremental government spending. The spending could be tracked as a COVID-19 portion of the budget to boost transparency. The inflationary effects may be low, as lockdowns severely constrict demand and the fiscal support provided would be a substitute for expenditure rather than additional stimulus. Price increases could, however, occur in some sectors, such as food, so appropriate steps would be needed to maintain harvests and keep the food supply chain operating smoothly.
Overall, devising a credible, systemwide, stabilization package would benefit from being executed in a timely fashion so it can influence the pace of recovery and help avoid severe damage to livelihoods, the economy, the financial sector, and society. Many global economies are also facing these issues and having to put in place their own stabilization packages, with similar intent.
Following the first wave of stabilization measures, attention could shift to implementing the structural reforms needed to increase investment and productivity, create jobs quickly, and improve fiscal health. This could mean introducing further reforms in infrastructure and construction and accelerating investments in health, affordable housing, and other urban infrastructure. States could accelerate spending, and institutions such as NIIF4 could deploy domestic and long-term foreign capital faster. Such reforms could also enable Make in India sectors to become globally competitive and boost exports (such as electronics, textiles, electric vehicles, and food processing), strengthen the financial sector, deepen household financial savings and capital markets, and accelerate asset monetization and privatization to raise resources.
Emergence from lockdown, safeguarding both lives and livelihoods
Countries that are experiencing COVID-19 have adopted different approaches to slow the spread of the virus. Some have tested extensively, carried out contact tracing, limited travel and large gatherings, encouraged physical distancing, and quarantined citizens. Others have implemented full lockdowns in cities with high infection rates and partial lockdowns in other regions, with strict protocols in place to prevent infections.
The pace and scale of opening up from lockdown for India may depend on the availability of the crucial testing capabilities that will be required to get a better handle on the spread of the virus, granular data and technology to track and trace infections, and the build-up of healthcare facilities to treat patients (such as hospital beds by district). In parallel, protection protocols, cocreated with industry, could be designed for different settings (such as mandis [rural markets], construction sites, factories, business-process-outsourcing [BPO] companies, urban transit, and rural–urban labor movement). As an example, industrial areas (such as Baddi, Vapi, and Tirupur) could be ring-fenced and made safe, with local dormitories set up for the labor force and minimal, controlled movement in and out of the site allowed. There could be on-site testing at factories and staggered shifts for workers. While the principles may be the same for construction sites and BPO companies, the specifics would differ.
A geographic lens could be overlaid to determine how quickly the lockdown could be lifted when new protection protocols are in place. Red, yellow, and green zones could be earmarked based on unambiguous criteria, with clear rules for economic activity, entry, and exit. The classification of areas could be updated frequently as the situation evolves. The definition of a “zone” would need to be granular (such as by ward, colony, and building cluster) to allow as much economic activity as is safely possible while targeting infection as accurately as possible. Since there is a very real possibility of the virus lingering on through the year, this microtargeting approach could help decelerate its spread while keeping livelihoods going.
The alternative approach of opening up select industry chains would be less feasible, given that sectors are tightly intertwined. A textile-export factory, for instance, would require chemicals for processing, paper and plastic for packaging, spare parts for its sewing machines, and consumables such as thread. Segregating industrial establishments by size would also be difficult, since smaller suppliers are often bound to the larger manufacturers.
Actions would need to be implemented locally, with different approaches for districts based on their characteristics (such as rural versus urban, industrial versus service oriented, strong versus weak healthcare infrastructure, and heavily infected versus not infected yet). India could consider using the last week of the current lockdown to gear up for local execution, equipping more than 700 of the most appropriate government officers with insights gained from across the world and from ongoing efforts in cities such as Mumbai and states such as Kerala, which are currently fighting the pandemic.
As part of a set of options to consider, based on prior lessons learned in India from repurposing and redeployment of needed skills and expertise for nationwide efforts, such as after floods and natural calamities, these officers could potentially be deputed to work with the district magistrates (DMs) in each district. They could cooperate in dynamically developing and helping execute locally tailored healthcare-expansion efforts, local- or state-level lockdown timetables, and back-to-work protocols. The DMs and deputized officers in districts could potentially be supported by cross-functional centers of excellence (COEs) in states or at the center. These COEs would have medical, administrative, social, economic, and business experts using their considerable knowledge to collect best practices, conduct rapid analysis, and provide valuable suggestions and recommendations to the districts to ensure high-quality implementation.
Amid the rising deaths, infections, and possible economic implosion of the COVID-19 pandemic, our country’s most pressing need is to save lives and arrest any plunge into a prolonged recession or depression. The crisis is already hitting major social and economic systems, yet black Americans will experience a disproportionate share of the disruption—from morbidity and mortality to unemployment and bankruptcy.
The Jeeranont analysis shows that black Americans are almost twice as likely to live in the counties at highest risk of health and economic disruption, if or when the pandemic hits those counties.1 To assess disruption, we evaluated five indicators: underlying health conditions, poverty rate, number of hospital beds, percentage of people in severe housing conditions, and population density. This integrated health and economic perspective describes which counties are likely to take a “one-two punch” due to the pandemic and could get trapped in a vicious cycle of economic instability and poor health.
In addition, we found that 39 percent of all jobs held by black Americans—compared with 34 percent held by white Americans—are now threatened by reductions in hours or pay, temporary furloughs, or permanent layoffs, totaling 7 million jobs.
Indeed, the pandemic underscores the consequences of the structural disparities that have persisted in this country for centuries while presenting an opportunity to invest in building more equitable systems that will benefit society overall. In this article, we outline some of the key findings from our report on COVID-19 and black America.
Places at highest risk
Because the situation continues to evolve, projections are necessarily, at best, probabilistic. Even so, our analysis suggests that black Americans are 1.4–1.8 times as likely to live in counties at highest risk of disruption from the pandemic (exhibit). Thirty percent of the country’s population lives in these high-risk counties, compared with 43 percent (17.6 million) of black Americans. The counties in the highest-risk decile are home to only 10 percent of the US population as a whole—but to 18 percent of the black population.
Risks to health and lives
Nationally, black Americans are not only more likely to be at higher risk for contracting COVID-19 but also have lower access to testing. In addition, they are likely to experience more severe complications from the infection; black Americans are on average about 30 percent likelier to have health conditions that exacerbate the effects of COVID-19.
Unfortunately, black Americans are overrepresented in nine of the ten lowest-paid, high-contact essential services, which elevates their risk of contracting the virus. Thirty-three percent of nursing assistants, 39 percent of orderlies, and 39 percent of psychiatric aides,4 are black. Black workers are putting their lives and health on the line to provide goods and services that matter to our society.
Although little testing data are available, as of April 4, ten of the 16 states where 65 percent of black Americans live were below the median testing rate for the country as a whole.5 Black Americans were already twice as likely as their white peers to die from diabetes, hypertension, and asthma—all risk factors that exacerbate COVID-19 symptoms.6 Even black Americans who do not need care for COVID-19 are likelier than white Americans to suffer from the pandemic’s secondary effects on our overloaded medical system, including delayed—but necessary—medical procedures.
Risks to livelihoods and economic futures
As the impact of the pandemic moves from health to economic consequences, black Americans will likely sustain more damage across every stage of the wealth-building journey.8 Crucially, 39 percent of jobs held by black workers (seven million jobs in all) are vulnerable as a result of the COVID-19 crisis compared with 34 percent for white workers.9 Forty percent of the revenues of black-owned businesses are located in the five most vulnerable sectors—including leisure, hospitality, and retail—compared with 25 percent of the revenues of all US businesses.10 Forty-eight percent of black survey respondents11 report regularly using food-assistance programs, compared with 31 percent of white respondents. Such services are likely to come under significant strain and interruptions as a result of the pandemic.
There is an immediate opportunity to protect black Americans and their communities from the worst effects of the COVID-19 crisis. These interventions should target the places where black people live, work, and do business.
To identify and mitigate disparities, it will be critical to track the damage and the recovery from the pandemic along racial lines. Relevant information includes (but is not limited to) rates of infection, access to healthcare providers and testing, jobs lost, and small business loans allocated. In addition, stakeholders could also identify and patch gaps in services normally provided by the public education system and increase resources for the most affected students and families.
Training and deploying community health workers, which are common in places where the need for healthcare significantly outstrips supply, could increase access to health services.13 Community health workers help connect patients to both health and social services, build trust in healthcare systems, and reserve capacity for licensed healthcare workers to treat the most critical cases. Community and faith-based organizations can use their roles as hubs to organize the workers, share information about the virus, encourage preventive measures such as environmental and personal hygiene and physical distancing, and distribute personal protective equipment (PPE) and sanitary equipment to the homes of essential workers. These organizations can also provide targeted, wraparound support to people with high-risk comorbidities.
Black workers are putting their lives and health on the line to provide goods and services that matter to our society.
Stakeholders could deliberately support the most vulnerable workers, including black Americans. Some employers are finding creative solutions that keep people employed, and this could be supplemented with job-matching and reskilling programs that can efficiently redeploy talent even during a macroeconomic contraction. Employers could also maintain a commitment to equity when they downsize. Support programs that provide direct and in-kind forms of liquidity (such as straightforward cash assistance, short-term extensions for financial obligations, and loan and interest forgiveness) could help sustain families in financial distress.
Community development financial institutions (CDFIs), churches, and nonprofits could help black-owned businesses and residents to access recovery funds. Similarly, new financial products and programs such as community rainy-day funds could fortify the resilience of communities. Corporations could make a point to work with black-owned businesses.
Recovery, rebuilding, and reimagination
COVID-19’s outsized impact on the black community reflects public health and socioeconomic disparities that have long been intertwined. The pandemic is an opportunity to invest in addressing structural challenges to help black Americans recover and to build and sustain more equitable communities.
Investments in public health, digital infrastructure, institutions of public education, and economic development planning should continue long after the COVID-19 pandemic subsides. In particular, stakeholders could consider setting national goals to improve health equity and create plans to meet those goals.
Support for black homeowners and businesses could be a priority to ensure that black families do not lose their assets and resources. That kind of support could include protection from bankruptcy, insolvency, and eviction, all of which will disproportionately affect black Americans as part of the pandemic’s fallout. Institutions could also support equity in compensation and career progression. These types of assistance speak less to protection and more to providing the opportunities and stability required to help black families build a resilient economic foundation.
The COVID-19 pandemic is already a generation-defining crisis. Because it affects all social systems, it heightens preexisting structural challenges that black Americans face. But a trial can also be an opportunity. Our society can consider how we can respond to the COVID-19 crisis and fallout to fortify black communities and help them do more than simply recover. We can use the urgency of the pandemic to build more equitable systems that increase the long-term resilience of black Americans, communities, and institutions. As we progress toward this goal, the US economy could benefit to the tune of $1.5 trillion.14
The COVID-19 pandemic is primarily a health crisis and a human tragedy, but it also has far-reaching economic ramifications. In Africa, it is already disrupting millions of people’s livelihoods, with disproportionate impact on poor households and small and informal businesses—and the pace of this disruption is likely to accelerate in the weeks ahead. No country or community is exempt; in oil-exporting countries, COVID-related challenges are compounded by the collapse of the oil price.
Across the continent, leaders in the public, private, and development sectors are already taking decisive action—both to save lives and to protect households, businesses, and national economies from the fallout of the pandemic. But several leaders have told us that they need a clearer picture of the potential economic impact of the crisis. At the same time, many African countries are still in the early stages of organizing their responses into focused, prioritized efforts that make the most of the limited time and resources available.
To address these needs and help inform the response of leaders across the continent, this paper presents:
An initial analysis of COVID-19’s economic impact, which finds that Africa’s GDP growth in 2020 could be cut by three to eight percentage points. We find that the pandemic and the oil-price shock are likely to tip Africa into an economic contraction in 2020, in the absence of major fiscal stimulus.
A framework for near-term action by governments, the private sector, and development institutions to mitigate this impact. These actions are drawn from a global scan of economic interventions already being implemented or considered, plus our recent discussions with public- and private-sector leaders across Africa.
Our message is clear. Governments, the private sector, and development institutions need to double down on their already proven resolve—and significantly expand existing efforts to safeguard economies and livelihoods across Africa.
In many countries, there is an opportunity to take bolder, more creative steps to secure supply chains of essential products, contain the health crisis, maintain the stability of financial systems, help businesses survive the crisis, and support households’ economic welfare. They also need to consider an extensive stimulus package to reverse the economic damage of the crisis.
Governments, the private sector, and development institutions need to double down on their already proven resolve—and expand existing efforts to safeguard economies and livelihoods across Africa.
This paper is the first in a series of rapid analyses by The Jeeranont, intended to provide decision makers with data and tools to strengthen their response to the COVID-19 crisis in Africa. In subsequent papers we will extend our focus beyond the immediate need for resolve to four other imperatives highlighted in our global analysis of how institutions can address the crisis—namely, resilience, return, reimagination, and reform.
COVID-19 will greatly reduce Africa’s GDP growth in 2020
As of March 31, more than 720,000 cases of COVID-19 had been recorded worldwide, with nearly 40,000 deaths. The number of cases, and deaths, has been growing exponentially. Compared to other regions, the number of recorded cases in Africa is still relatively small, totaling about 5,300 cases across 47 African countries as of March 31 (Exhibit 1). Even though the rate of transmission in Africa to date appears to be slower than that in Europe, the pandemic could take a heavy toll across the continent if containment measures do not prove effective.
Against the backdrop of this worrying public-health situation, African countries will have to address three major economic challenges in the coming weeks and months:
The impact of the global pandemic on African economies. This includes disruption in global supply chains exposed to inputs from Asia, Europe, and the Middle East, as well as lower demand in global markets for a wide range of African exports. Moreover, Africa is likely to experience delayed or reduced foreign direct investment (FDI) as partners from other continents redirect capital locally.
The economic impact of the spread of the virus within Africa, and of the measures that governments are taking to stem the pandemic. Travel bans and lockdowns are not only limiting the movement of people across borders and within countries, but also disrupting ways of working for many individuals, businesses, and government agencies.
The collapse of the oil price, driven by geopolitics as well as reduced demand in light of the pandemic. In the month of March 2020, oil prices fell by approximately 50 percent. For net oil-exporting countries, this will result in increased liquidity issues, lost tax revenues, and currency pressure. (We should note, however, that lower oil prices will potentially have a positive economic impact for oil-importing countries and consumers.)
For Africa’s economies, the implications of these challenges are far-reaching. A slowdown in overall economic growth is already being felt, and this is acute in hard-hit sectors such as tourism. Many businesses, particularly SMEs, are under significant cost pressure and face potential closure and bankruptcy. That is likely to lead to widespread job losses. At the same time, the pandemic will impact productivity across many sectors. Closures of schools and universities could create longer-term human capital issues for African economies—and could disproportionately affect girls, many of whom may not return to school. Not least, the crisis is likely to reduce household expenditure and consumption significantly.
The knock-on effects for the African public sector could be severe, in terms of reduced tax revenues and limitations on access to hard currency. African governments will face rising deficits and increased pressure on currencies. In the absence of significant fiscal stimulus packages, the combined impact of these economic, fiscal, and monetary challenges could greatly reduce Africa’s GDP growth in 2020.
Four scenarios of economic impact: Africa’s GDP growth reduced by three to eight percentage points
To gauge the possible extent of this impact, we modeled four scenarios for how differing rates of COVID-19 transmission—both globally and within Africa—would affect Africa’s economic growth. Even in the most optimistic scenario, we project that Africa’s GDP growth would be cut to just 0.4 percent in 2020—and this scenario is looking less and less likely by the day. In all other scenarios, we project that Africa will experience an economic contraction in 2020, with its GDP growth rate falling by between five and eight percentage points (Exhibits 2 and 3).
The four scenarios are as follows:
Scenario 1: Contained global and Africa outbreak. In this least-worst case, Africa’s average GDP growth in 2020 would be cut from 3.9 percent (the forecast prior to the crisis) to 0.4 percent. This scenario assumes that Asia experiences a continued recovery from the pandemic, and a gradual economic restart. In Africa, we assume that most countries experience isolated cases or small cluster outbreaks—but with carefully managed restrictions and a strong response, there is no widespread outbreak.
Scenario 2: Resurgent global outbreak, Africa contained. Under this scenario, Africa’s average GDP growth in 2020 would be cut by about five percentage points, resulting in a negative growth rate of −1.4 percent. Here we assume that Europe and the United States continue to face significant outbreaks, while Asian countries face a surge of re-infection as they attempt to restart economic activity. In Africa, we assume that most countries experience small cluster outbreaks that are carefully managed.
Scenario 3: Contained global outbreak, Africa widespread. In this scenario, Africa’s average GDP growth in 2020 would be cut by about six percentage points, resulting in a negative growth rate of −2.1 percent. This assumes that significant outbreaks occur in most major African economies, leading to a substantial economic downturn. Globally, we assume that Asia experiences a continued recovery and a gradual economic restart, while large-scale quarantines and disruptions continue in Europe and the United States.
Scenario 4: Resurgent global outbreak, Africa widespread. In this case, Africa’s average GDP growth in 2020 would be cut by about eight percentage points, resulting in a negative growth rate of −3.9 percent. Globally, we assume that Europe and the United States continue to face significant outbreaks as China and East Asian countries face a surge of re-infection. In addition, significant outbreaks occur in most major African economies, leading to a serious economic downturn.
These scenarios do not take into account the potential effects of any fiscal stimulus packages that may be announced by African governments; these should improve the economic outlook. However, we should also note that the scenarios do not take into account currency devaluations, inflationary pressure, or recent credit ratings from Moody’s and similar bodies—which could worsen the outlook. There is no room for complacency. (For a full explanation of the methodology underlying our analysis, see the note at the end of this paper.)
Depending on the scenario, Africa’s economies could experience a loss of between $90 billion and $200 billion in 2020. Each of the three economic challenges outlined above is likely to cause large-scale disruption. The pandemic’s spread within Africa could account for just over half of this loss, driven by reduced household and business spending and travel bans. The global pandemic could account for about one-third of the total loss, driven by supply-chain disruptions, a fall-off in demand for Africa’s non-oil exports, and delay or cancellation of investments from Africa’s FDI partners. Finally, oil-price effects could account for about 15 percent of the losses.
Differing impact on major African economies
While the pandemic’s economic impact—alongside the oil-price shock—will be serious right across the continent, it will be felt differently in different countries. For example, our analysis suggests that the following impacts would occur in Nigeria, South Africa, and Kenya:
Nigeria. Across all scenarios, Nigeria is facing a likely economic contraction. In the least worst-case scenario (contained outbreak), Nigeria’s GDP growth could decline from 2.5 percent to −3.4 percent in 2020—in other words, a decline of nearly six percentage points. That would represent a reduction in GDP of approximately $20 billion, with more than two-thirds of the direct impact coming from oil-price effects, given Nigeria’s status as a major oil exporter. In scenarios in which the outbreak is not contained, Nigeria’s GDP growth rate could fall to −8.8 percent, representing a reduction in GDP of some $40 billion. The biggest driver of this loss would be a reduction in consumer spending in food and beverages, clothing, and transport.
South Africa. Across all scenarios, South Africa is facing a likely economic contraction. Under the contained-outbreak scenario, GDP growth could decline from 0.8 percent to −2.1 percent. This would represent a reduction in GDP of some $10 billion, with about 40 percent of that stemming from supply-chain import disruptions, which will impact manufacturing, metals and mining in particular. There will also be major impact on tourism and consumption. However, as South Africa is an oil importer, this impact will be cushioned by lower oil prices. In scenarios in which the outbreak is not contained, South Africa’s GDP growth could fall to −8.3 percent, representing a loss to GDP of some $35 billion. This impact would be driven by disruptions in household and business spending on transport, food and beverages, and entertainment, as well as prolonged pressure on exports. South Africa’s recent sovereign-credit downgrade is likely to exacerbate this outlook.
Kenya. In two out of four scenarios, Kenya is facing a likely economic contraction. Under the contained-outbreak scenario, GDP growth could decline from 5.2 percent (after accounting for the 2020 locust invasion) to 1.9 percent—representing a reduction in GDP of $3 billion. The biggest impacts in terms of loss to GDP are reductions in household and business spending (about 50 percent), disruption to supply chain for key inputs in machinery and chemicals (about 30 percent), and tourism (about 20 percent). In scenarios in which the outbreak is not contained, Kenya’s GDP growth rate could fall to −5 percent, representing a loss to GDP of $10 billion. As in Nigeria, disruption of consumer spend would be the biggest driver of this loss.
Near-term steps for governments, business, and development institutions
Leaders in the public, private, and development sectors have been quick to act—both to limit the spread of the pandemic and to safeguard economies and livelihoods in Africa. Several African countries have already acted to inject liquidity into their economies, reduce interest rates, help businesses survive the crisis, and support households’ economic welfare—in many cases with the active involvement and support of the private sector.
At the same time, African and international development institutions have announced multi-billion-dollar packages and facilities to alleviate the economic and social impact of the pandemic in Africa and other developing regions. Meanwhile, philanthropic institutions and business leaders have announced major support both for countries’ efforts to contain the pandemic, and for solidarity initiatives to protect households from the economic fallout of the crisis.
Nonetheless, many African countries are still in the early stages of organizing their responses into focused, prioritized efforts that make the most of the limited time and resources available. The private sector and development institutions also have opportunities to target their efforts more effectively and coordinate them more closely with those of government. Citizens also have a key role to play in helping to slow the spread of the disease (“flatten the curve”).
If leaders across sectors translate their already proven resolve into more targeted, collaborative action in the coming weeks, we believe they can make significant progress in mitigating the economic impact of the pandemic—and safeguarding economies and livelihoods. To help them do so, we suggest an organizing framework for action.
An action framework for African governments
The COVID-19 crisis is stretching the capacity of governments across the world, but African governments face greater challenges than most. In particular, they must grapple with the following:
Limited fiscal capacity. The ratio of public revenues to GDP in African countries averages just 19 percent, compared to 30 percent in Brazil and 37 percent in the United Kingdom—while debt servicing already absorbs 22 percent of revenues in Africa. That gives African governments limited scope for stimulus packages compared to their peers in other regions. Such packages will need to be carefully targeted, and supported by development partners and philanthropic organizations.
Highly informal economies with many small and micro businesses. Small and medium enterprises create 80 percent of the continent’s employment, compared to 50 percent in the European Union and 60 percent in the United States. African small businesses have limited ability for their staff to work from home, compounded by issues such as power outages and high costs of data. During this crisis, governments will need to extend support to small and medium enterprises, given their role in the economy and the difficulties they face. Additionally, the informal sector is estimated to make up 55 percent of the economy in sub-Saharan Africa, so efforts at economic revitalization will need to extend to informal parts of the economy.
Young populations, widespread poverty. Africa is the most rapidly urbanizing region in the world, with 50 to 70 percent of urban dwellers living in slums. This has huge implications for the effectiveness and implementation of quarantine methods in these poor sanitary conditions. Africa also has a young population—the median age is 19—and there are an estimated 80 million young people in vulnerable employment and a further 110 million who do not contribute to the economy. School closures will have severe impact on young Africans, with long-term consequences. Female students in particular are at risk: for many of them, a few months’ absence from school could mean the end of their education.
Constrained health systems. There are 0.25 doctors for every 1,000 people in Africa, compared to 1.6 in Latin America and 3 in member countries of the Organisation for Economic Cooperation and Development. There is also a low number of hospital beds—1.4 beds per 1,000 people versus 2 in Latin America and 4 in China. These factors, combined with limited testing and treatment capability, point to an urgent need to expand healthcare capacity.
Given these constraints, African governments will need to be both targeted and creative in their response to the crisis. They will also need to foster intense and closely aligned collaboration with the private sector and development partners.
We suggest the following as an organizing framework for targeted action by governments. The framework is structured around five priorities (Exhibit 4):
Set up national nerve centers. Governments, with the close involvement of the private sector and other key stakeholders, need to take rapid action to set up or build out national nerve centers to coordinate and accelerate their response to the crisis. These nerve centers should bring together crucial leadership skills, organizational capabilities, and digital tools—giving leaders the best chance of getting ahead of events rather than reacting to them.2
Anticipate and manage the health crisis. Governments will need to take even stronger measures to delay and reduce the peak of the epidemic—including more intensive social distancing through mobility restrictions and lockdowns as well as larger-scale surveillance to test and isolate identified cases. In parallel, governments must immediately prepare for a potentially rapid surge of cases, which will demand significant numbers of testing facilities, hospital beds, ventilators and other medical equipment, as well as additional health professionals. Given the limited existing resources in most African healthcare systems, bold and locally tailored measures will be required to create surge capacity and prevent mortality among the most vulnerable population.
Secure food supply and essential services. Governments need to secure food supply chains, particularly the supply of priority products—and ensure the appropriate pricing of these products. They will also need to ensure that access to essential services such as telecoms and utilities is maintained.
Ensure support for most vulnerable populations. This includes taking measures to protect jobs and to support affected communities, particularly the most vulnerable populations, through social safety-net mechanisms—including cash transfers.
Anticipate and manage the impact on the economy. Governments need to anticipate what the impact on their economy is likely to be through scenario analysis and offer a short-term stimulus package to maintain financial stability and help businesses survive the crisis—particularly those in strategic industries. Given the expected loss of tax revenue, governments will also to need to identify opportunities to urgently reduce non-essential spending. Additionally, governments will need to anticipate and prepare for what the post-crisis “next normal” will look like.
While most African countries have already announced specific initiatives across all five areas, they will need to build on these early efforts with great boldness and commitment to collaboration.
Actions for the private sector
The first responsibility of private-sector firms is to ensure business continuity in the ongoing crisis. Based on our discussions with risk and health professionals in more than 200 companies across sectors, we suggest several critical steps for firms—starting with establishing their own central nerve centers. These nerve centers can coordinate company responses on four key dimensions, as follows:
Protect workforces. The focus here is to guarantee continuation of employment in a safe working environment; adjust to shift or remote work with the required tools; and preserve the employees’ health through safe working facilities and strict isolation of suspected cases.
Stabilize supply chains. Companies need to guarantee business continuity through transparent supplier engagement, demand assessment, and adjustments of production and operations.
Engage customers. Companies can hone their crisis communication and identify changes in key policies, ranging from guidelines to guarantee social distancing, to waivers of cancellation and rebooking fees.
Stress-test financials. Companies need to develop and assess relevant epidemiological and economic impact scenarios to address and plan for working capital requirements. They will also need to identify areas for cost containment across the business.
Beyond their own businesses, private-sector firms also have a critical role to play in supporting governments to tackle the pandemic and its economic fallout. This is especially true of large business and business associations, which will need to work hand-in-hand with governments to manage and mitigate the crisis.
Across the continent, there are many encouraging examples of business stepping up. An example is the Nigerian Private Sector Coalition Against COVID-19, formed by the Central Bank of Nigeria in partnership with private-sector and philanthropic organizations including the Aliko Dangote Foundation and Access Bank. The Coalition is mobilizing private-sector resources to support government’s response to the crisis, and raising public awareness. South Africa’s largest business association, Business Unity South Africa, is coordinating large-scale private-sector involvement in addressing both the health and economic aspects of the crisis.
Individual companies across sectors also have a critical role to play. Examples include beverage producers switching production lines to hand sanitizer; apparel manufacturers producing face masks and hospital robes; telecommunication companies adjusting their data offering; and banks adjusting tariffs. Many companies have also made monetary contributions to solidarity funds for the most vulnerable. More such commitment will be needed.
African governments will need to foster intense and closely aligned collaboration with the private sector and development partners.
Actions for development institutions
Development partners have already begun to step up to support African governments in their response to the crisis—including making major financial commitments. As just two examples, the African Development Bank has created a new $3 billion Fight Covid-19 Social Bond to alleviate the economic and social impact of the pandemic; while Jack Ma and the Alibaba Foundations have shipped over 1.5 million laboratory diagnostic test kits and over 100 tons of commodities for infection prevention and control to African countries, via Ethiopia.
Development institutions are also examining their existing initiatives and funding to see how they can best support African countries, businesses, and households. Given the magnitude of the problem, however, they will need to build on these steps with bigger and bolder initiatives. Examples of the actions they could take include the following:
Repurpose existing 2020–21 funding towards COVID-19 response and recovery efforts. Institutions need to find creative ways to rethink existing funding programs, introducing new flexibility to meet current needs.
Help governments make smart investments to address the crisis. In repurposing their existing programs, development partners can incentivize and help governments to make smart investments—both to address the immediate needs of the pandemic response, and to shore up the resilience of healthcare and economic systems for the future. For example, they can help ensure that, as governments ramp up surge capacity for COVID-19 lab testing, this has a permanent impact in improving the availability of diagnostics for the population.
Help governments design effective fiscal and business stimulus packages. Given the unprecedented nature of this crisis, high levels of joint thinking and sophisticated problem solving will be required to design and target effective stimulus packages. Development institutions can provide valuable thought partnership to finance ministries across Africa, as well as much-needed financial support.
Design new financial instruments to support businesses and countries. These could include solutions spanning liquidity, re-insurance, conditional cash transfers, and more. A critical need will be to develop creative financial-support models for small and informal businesses, as well as for households. This will require real creativity and true partnership between development institutions and commercial financial institutions.
Support countries to rapidly expand their healthcare systems. Development institutions can help boost access to critical healthcare supplies (such as testing kits and masks); the capacity of the healthcare system (including increasing the number of hospital beds); and the availability of healthcare professionals.
Help design and launch bold new pan-African or regional initiatives. We set out several ideas for such initiatives—including an Africa Recovery Plan that encompasses an extensive stimulus package—in the final section of this paper.
Bold action needed now
African governments, their partners in the private sector and development institutions are already responding decisively to the COVID-19 crisis. But we believe that most African countries need to expand those efforts considerably, increase the urgency of action, and identify big, bold solutions on both the health and economic fronts. Given the potentially devastating impact of the pandemic on health and livelihoods, nothing less will do.
African governments and development partners could explore several far-reaching solutions, including the following:
Africa Recovery Plan. This would entail an extensive stimulus package or economic development plan, modelled on the Marshall Plan that provided aid to Europe following World War II.
Africa Solidarity Fund. Businesses and individuals could contribute to a fund earmarked for immediate relief for the most vulnerable households and businesses.
Private-sector liquidity fund. This could offer grants, loans, or debt for equity swaps to support businesses and limit job losses.
African procurement platform. A common platform to procure medical supplies and equipment to combat the pandemic could provide an Africa-wide solution to challenges that each individual country is trying to address.
Africa Green Program. A get-to-work program that plants billions of trees across the continent, using the currently out-of-work labor force, could provide employment and help solve global and local climate-change issues.
In designing bold solutions, we would encourage African governments and their private-sector and development partners to consider a series of critical questions:
How big do broad fiscal stimulus packages need to be to have meaningful impact?
What trade-offs do governments need to make to ensure their countries’ future economic strength while adequately addressing the near-term crisis? For example, these might include making difficult strategic decisions around which companies or sectors to support.
What conditions can and ought to be imposed on businesses in exchange for financial support? For example, what measures can be taken to ensure that support is used to pay salaries and maintain jobs? Additionally, should entire sectors be restructured and reformed as part of any intervention package?
How do governments manage the trade-off between protecting the health of vulnerable populations and protecting the economy? When, and how, is the decision on returning to work going to be made?
What are the best ways to provide targeted support to the most vulnerable populations, rather than offering broad-based support via tax, sector or cash transfer incentives?
What would be the long-term human-capital implications of these measures, and how could we mitigate those? For example, school closures are necessary now but may negatively impact quality of education and drop-out rates.
We will explore these and other questions in a series of perspectives in the coming weeks.
Note on methodology
The figures and outcomes reported represent a revenue approach to estimating the impact of COVID-19 on GDP growth rates in Africa, for 2020 only. We used African Development Bank (AfDB) projections as the baseline. It is worth noting that our model makes no conclusion about trajectories towards long-term recovery. The model incorporates the following assumptions and methodologies:
We recognize that there are a vast number of potential outcomes. Scenario-based modelling is provided as a guide across a range of non-exhaustive situations which may materialize. These numbers should not be used as a tool to support budgetary activities for governments or private sector actors.
The document assumes no economic stimulus from governments. Some African governments have already made commitments which could soften the full economic effect of the virus—for example through fiscal and monetary levers—which will not be reflected here. While we made some assumptions about reduced government spend on business, and reduced government revenues—from oil, in particular—both these elements are changing rapidly. As we continue to update our analysis each week, we will include an assessment of the stimulus gap that exists and indicate how much is being bridged through announced commitments.
We use AfDB’s GDP growth estimates with 2018 prices fixed to determine real growth impacts and do not account for devaluations, inflationary pressure, or recent credit ratings from Moody’s and similar bodies. These differ significantly by country. Future versions of the model will be more sensitive to these elements.
We modelled economic impacts for five countries—Angola, Kenya, Morocco, Nigeria, and South Africa—that represent approximately 50 percent of Africa’s GDP. We then extrapolated the impact assessment for the rest of Africa, assuming a lower intensity of impact in other countries as they are less susceptible to some modelling factors such as impact on tourism and oil prices. Additional countries will be modelled in future, and this scaling factor will be adjusted accordingly.
We translated revenue impacts to GDP through output-to-GDP multipliers that incorporate initial, direct, and indirect impacts to the economy.
Our modelling approach isolates the potential impact of COVID-19. The inputs that drive the model incorporate both publicly available and proprietary data sources, affording the best available perspective appropriate to the scenario. For example, we adopt different oil price outlooks (ranging from $25 to $35 per bbl) and make granular assumptions regarding changes in household consumption at country level—such as spending on food, utilities, transport, and retail at the product category level. These assumptions are based on input from The Jeeranont experts across the relevant functions and industries.
After weeks of concerted public-health efforts, Europe appears to have bought itself a much-needed moment of relief in the fight against COVID-19. Even in heavily affected countries such as Italy and Spain, infection rates have started to slow down, mostly because of the stringent lockdown measures enacted by governments. However, with the absolute numbers of infections and deaths still on the rise, and the grim economic consequences of lockdown and physical-distancing regulations slowly materializing, leaders still face the dual imperative of safeguarding lives and livelihoods.
The 2008–09 financial crisis provides a sobering analogy: it began as a financial shock but soon spilled over into the real economy. The COVID-19 pandemic, in turn, is a public-health crisis that is now beginning to take its toll on the real economy—primarily because the lockdown measures that were taken to protect lives have severe consequences for businesses and their employees. With economic activity in many sectors having ground to a near standstill, many businesses are struggling to uphold their financial obligations. And with uncertainty looming large, many companies are considering adjustments in their workforce. This could potentially put millions of jobs at risk through reductions in hours or pay, temporary furloughs, or permanent layoffs.
Our analysis, based on occupation-level data, estimates that the COVID-19 crisis could leave up to 59 million jobs at risk1 in Europe—a staggering 26 percent of total employment in the 27 member countries of the European Union (EU-27), plus the United Kingdom (EU-28). Naturally, the level of risk will vary greatly among occupations and industries, depending on whether they are system relevant or not, how closely they are performed in physical proximity to others, how much of the work can be done remotely through technology, and potential changes in demand as the crisis evolves.
Safeguarding jobs at risk in otherwise healthy, productive enterprises is imperative; losing those jobs would not only be a tragedy on an individual level but would also be very painful from an economic perspective. Every job has tangible economy-wide benefits as it supports consumption, saves on welfare spending, and avoids the adverse health effects that unemployment frequently brings. Europe must avoid the significant rise in unemployment witnessed during the 2008–09 financial crisis: the unemployment rate rose by 27 percent from 2008 to 2009 across the EU-28, and youth unemployment reached staggering heights, especially in some Southern European economies.2 Overall it took almost ten years for EU-28 labor markets to recover, with great variance among European countries, and countries such as Greece, Portugal, and Spain have not reached precrisis employment levels.3 As estimates of the expected economic shock created by the pandemic far outstrip that of the financial crisis, mastering this challenge will be even more important in the current context.
We hope that our analysis will help build the case for swift and forceful action, improve the understanding of which jobs and groups are particularly vulnerable, and provide new insights on what can be done to mitigate the potential negative fallout.
European business leaders and governments, as well as the European Commission, have already begun to take decisive action to respond to the employment challenge—but much remains to be done. We therefore also identify a set of potential steps that business leaders and governments can take now to minimize the number of jobs at risk and to sketch a path forward once lockdown regulations start lifting.
COVID-19 is having far-reaching impact on European labor markets
The EU-27 countries have introduced varying degrees of stay-at-home mandates or advisories owing to COVID-19, as has the United Kingdom. As of April 7, almost all of the 230 million employees across the EU-27 and the United Kingdom are affected—through the closing of nonessential shops, implementation of remote working and physical-distancing guidelines, cancellation of events, institution of travel bans (including internal travel, in the case of Italy), and in some cases, even full-on production stops.4 This has had a significant impact on the economy, with reduced discretionary spending and consumer confidence, putting many companies in a precarious position.
During the financial crisis of 2008–09, employment in the United States fell faster and deeper than that in the EU-28—likely a result of more flexible labor regulation—but it returned to precrisis levels by the end of 2014. The European economy, in contrast, only started to turn around in 2013 and did not return to precrisis employment levels until the fourth quarter of 2016.
Some changes in employment during a crisis might be necessary owing to operational inefficiencies that become pronounced by the crisis but that are not caused by it. However, the COVID-19 crisis has the potential to dramatically accelerate structural adjustments and disruptions that were already underway in many important industries in Europe, such as the manufacturing and automotive sector, robbing business leaders and policy makers of much-needed time. Hence, there is an urgent need to avoid short-term employment decisions that could harm companies and their respective economies in the long run. There is an equally urgent need to find solutions to soften the social impact of the rapid acceleration of structural adjustments brought about by the current crisis.
The need to find a solution because of the economic impacts of unemployment—which can be significant and far reaching—is urgent. Less employment means less income for people, which in turn slows down consumption. As a result of lower demand for goods and services, companies will experience lower revenues. Government financial burden will increase significantly, as revenues from employment and consumption taxes will decline at the same time as costs to the welfare system increase, potentially leading to higher taxes.
The need to find a solution because of the social consequences of unemployment—which, although difficult to quantify, can also be significant—is equally urgent. Inequality in society is exacerbated by higher unemployment rates, as social-welfare systems cannot fully alleviate the negative effects of a loss in employment. Increases in crime rates and social unrest are also potential consequences of an increase in unemployment.6 Moreover, unemployed people are twice as likely as employed people to experience mental illness (the rate can be even higher for lower-wage workers), and they receive inpatient treatment more often.7 Unemployed people also suffer from stigma and lower life satisfaction.
While there is great uncertainty about the depth and duration of the downturn, The Jeeranont Global Institute (THE JEERANONT) estimates that the COVID-19 pandemic could almost double Europe’s unemployment rate in the coming months. Two dimensions will drive how bad the economic fallout of the current crisis will be: the economic impact of the virus spread, will depend on the effectiveness of the public-health response, and the economic impacts of the knock-on effects, which will depend on the public-policy responses to mitigate these effects.
In the two most likely scenarios modeled by THE JEERANONT, the spread of COVID-19 is eventually controlled, and catastrophic structural economic damage is avoided.8 The more optimistic of the two scenarios assumes that the virus would be controlled within two to three months of economic shutdown, resulting in unemployment peaking at 7.6 percent in 2020 before returning to the precrisis level of 6.3 percent by the fourth quarter of 2021.
The more pessimistic scenario assumes that Europe fails to contain the virus within one quarter and is forced to implement ongoing physical-distancing and quarantine measures throughout the summer, making the impact more severe. The unemployment rate for the EU-27 in this scenario is projected to peak in 2021—at 11.2 percent—and is unlikely to recover to 2019 levels by 2024.
While it should be noted that most government unemployment statistics are lagging, meaningful indicators released for three large European economies are telling. In Germany, company applications for Kurzarbeit (the German program for short-time work allowance) rose from 1,900 in February to more than 725,000 between March 1 and April 13.10 For comparison, during 2019, 1,300 companies, on average, applied for short-time working arrangements each month.
Kurzarbeit was used almost exclusively by metals, high-tech, and other manufacturing industries during the 2009 financial crisis, accounting for approximately 80 percent of all the employees in the program. In the current crisis, applications come from almost all sectors but mainly from transport and logistics, accommodation, and food and tourism.12 In the United Kingdom, applications for “universal credit” increased nearly tenfold between the last two weeks of January and the last two weeks of March—to 950,000.13 Meanwhile, the number of reported unemployed people in Spain rose by more than 300,000 between February and March, an increase of 9.3 percent.
Nearly 60 million European jobs are at risk
The sharp rise in benefit filings might just be the tip of the iceberg. We estimate that up to nearly 59 million jobs (26 percent of total employment) across Europe are potentially at risk of reductions in hours or pay, temporary furloughs, or permanent layoffs.
To arrive at this figure using a granular approach, we first used occupation-level data to identify professions that are likely to be prevented from a quick return to business as usual, based on the necessary physical proximity to coworkers and exposure to the general public. We sorted occupations into three categories:
Low-risk occupations include 160.5 million workers who either do not work in close proximity to others (such as accountants, architects, and journalists) or whose work provides essential health services (such as physicians, ambulance drivers, and health-service managers) or other essential services (such as those in police work, food production, education, public transit, water, and utilities).
Medium-risk occupations include 14.7 million workers who perform their work in close proximity to others but do not interact with the general public; this includes machine operators, construction workers, and psychologists.
High-risk occupations include 54.8 million workers, most of whom work in close proximity to others and have significant exposure to the general public; they include retail cashiers, cooks, and actors.
Second, after determining the occupation-level risk, we used the model to estimate an additional, industry-specific risk factor for each job, based on short-term changes in demand because of the COVID-19 outbreak.
The breakdown of jobs at risk by job cluster in Exhibit 1 shows that 50 percent of all jobs at risk in Europe come from customer service and sales (25 percent), food services (13 percent), and building occupations (12 percent); production work (9 percent), office support (8 percent), and community services (8 percent) make up another 25 percent. Less affected are workers in the health, science, technology, engineering, mathematics, business, and legal professions; educators; and trainers.
Looking at results by industry sector, we find that certain ones are particularly at risk (Exhibit 2). Jobs at risk represent 74 percent of total sector employment in the accommodation and food sector, 50 percent in the arts and entertainment sector, and 44 percent in the wholesale and retail sector. Wholesale and retail represent around 14.6 million jobs at risk (25 percent of total jobs at risk) and accommodation and food around 8.4 million (14 percent); manufacturing and construction also see substantial numbers of jobs at risk. Other sectors are much less affected, such as professional services (1.6 million), finance and insurance (1.2 million), information and communication (0.6 million), agriculture (0.4 million), and real estate (0.3 million).
While the industry-level analysis presented in Exhibit 2 provides an economy-wide view of the jobs at risk from the pandemic, some workers and business types are much more vulnerable than others. Our analysis shows that the risk of reduced hours and pay, temporary furloughs, and permanent layoffs varies significantly by education, age, and business type.
Short-term job risk is highly correlated with level of education, potentially exacerbating existing social inequalities. About 80 percent of jobs at risk (46 million) are held by people who do not hold a tertiary degree (bachelor, master, or doctoral degree). Employees without a tertiary qualification are almost twice as likely as those with a university (or equivalent) degree to have their jobs at risk.
Not surprisingly, the sectors most affected by the economic shutdown have a significantly lower share of employees with a university degree (Exhibit 3). The wholesale and retail and the accommodation and food sectors have a total of 14.6 million and 8.4 million jobs at risk, respectively, with only 17 percent and 14 percent of employees holding a tertiary qualification. Meanwhile, 52 percent of employees in the professional-service sector hold a degree, and the sector has fewer jobs at risk (1.6 million).
But short-term job risk also varies significantly by age. Employees aged 15–24 years are almost twice as likely as those aged 25–54 years to have jobs at risk (41 percent versus 25 percent, respectively); they account, however, for five times fewer of the total jobs at risk because of their small share in the total workforce. Employees aged 25–54 years hold 42 million jobs at risk (71 percent of the total), whereas younger employees hold only 7 million (just under 12 percent) (Exhibit 4).
Comparing age profiles against sectors, this higher risk for young employees is consistent with the relatively younger age profiles of the most affected sectors. Employees aged 15–24 years account for 16 and 20 percent of the wholesale and retail and the accommodation and food sectors, respectively, whereas they account for 10 percent or less in most other sectors.
Crucially, employment in small and medium-size enterprises (SMEs), or those with fewer than 250 employees, which accounted for more than €4.3 trillion in value added in the EU-27 plus the United Kingdom in 2019, is particularly at risk. At least two of three jobs at risk are in an SME, and more than 30 percent of all jobs at risk are found within microenterprises consisting of nine employees or fewer.16 This includes 70 percent of SME jobs at risk in the accommodation and food sector, 56 percent in the wholesale and retail sector, 75 percent in the real-estate sector, 76 percent in the construction sector, and 68 percent in the professional-service sector.
The high share of SME jobs at risk is particularly worrisome, given that these jobs may be harder to recover in the long term should they not be protected through the crisis. The risk to jobs in small enterprises is further increased by the fact that in 2016, only 56 percent of all companies with 50 or fewer employees provided remote access to email, applications, and documents for their employees, compared with 93 percent of all companies with more than 250 employees.
Companies and governments should act now to protect jobs at risk
Reducing the number of jobs at risk because of the short-term impacts of the COVID-19 pandemic in otherwise healthy, productive enterprises is crucial—both for economic reasons and because employment is important to life satisfaction. Every job protected has a potential positive spillover effect—retention of productivity and consumption, reduced dependence on welfare, and positive health and mental well-being.
Considered together with the disproportionate risk to jobs in small businesses and their lower recovery prospects, there is a strong business case to invest heavily now in minimizing the risk to employment to ensure a faster recovery and reduced long-term costs to the economy and to European governments.
In order to respond to the driving factors that will put jobs at risk in the coming months—not being able to return quickly to business as usual owing to the nonessential character of the tasks performed, high physical proximity, and the short-term drops in demand, for instance—companies and governments alike need to take a set of measures to address the driving factors.
Potential steps companies can consider
Regarding physical proximity, companies need to apply effective protocols, such as separating work shifts and segmenting the workforce based on vulnerability. These measures should allow some occupations to continue, even if the physical proximity that they require is high. Also, companies should invest in enabling remote work wherever possible. Much has already changed in the past few weeks, but further investments in remote-working possibilities (for example, in access and hardware) are required and are likely to pay off, as remote working will probably remain as part of the routine for a significant amount of time.
Companies will also need to redeploy their nonutilized workforce to staff crisis activities adequately. This could include introducing temporary secondments between departments and between companies (as far as possible, given current labor-law restrictions). Hiring processes should also be expedited to hire people at scale in critical occupations and industry sectors, such as in grocery stores and logistics.
Furthermore, companies should protect the jobs that are at risk owing to a sudden drop in demand. Companies could shift employees to respond to these changes; for example, they could move them from precrisis business activities to new ones that have seen an uptick in demand (for example, to apparel companies that produce masks and other protective gear, to distilleries that make hand sanitizer, and to companies that are leveraging their logistics networks to move essential goods to where they are needed).
Enabling short-term transfers of employees to companies with increased demand would cover some of the temporary needs using existing employees. In the United States, for example, FMI (food-industry association) and Eightfold AI have collaborated to create an online marketplace, called Talent Exchange, that matches workers who have been recently furloughed or laid off with critical open jobs, based on their individual skill profiles.
In addition to shifting employees, companies should alleviate the costs that are caused by the drop in demand until the economy rebounds. This could include offering unpaid or partially paid leave with a right of return (such as sabbaticals, seasonal or monthly leave, reduced overtime allocation, or the use of worktime accounts) and reducing compensation costs without any impact on base pay (for example, by deferring bonus payments or implementing a shorter workweek).
Companies should also expand remote learning and reskilling initiatives for all nonutilized employees to lay the ground for their strategic ambitions in a postcrisis world. In particular, targeted reskilling initiatives could focus on technological as well as social and emotional skills, which are predicted to have an increase in demand over the next decade. This could help build the requisite human capital to close the digital gap that currently exists in businesses, especially in critical emerging fields such as artificial intelligence, blockchain innovation, and platform models.
Potential steps governments can consider
Governments need to respond as well. They could provide incentives for the temporary redeployment of workers to critical sectors, industries, and regions. For example, construction workers could be deployed to build and extend hospitals, and textile workers could be deployed to produce masks. This could include giving companies incentives to cooperate with the transfer of employees. For instance, food retailers could employ restaurant staff. In addition, unemployed workers could be encouraged to apply for positions where there is a staffing shortage, such as in healthcare or grocery retail.
Digital platforms powered by artificial intelligence, such as Talent Exchange, could provide a quick and readily implementable solution for national labor agencies to match people with jobs depending on supply and demand.
Governments could also support broad up- and reskilling initiatives. Labor agencies and ministries could cooperate with adult-education providers and with innovative edtech start-ups to provide programs free of charge, particularly to SMEs that might not otherwise be able to afford them or to develop them in house. Additionally, employers could receive absentee payroll subsidies for employees undergoing training, a practice already in place in Singapore as a response to COVID-19.19 Up- and reskilling to fill critical roles—for example, facilitating and financing training in health and safety protocols—would be beneficial for the remaining workforce. This would not only ease the financial burden for companies but would also lay the necessary groundwork for a return to “normal” business.
Governments should consider two sets of measures.First, ensure the liquidity and solvency of companies and employees. This could be achieved by providing financial, tax, and other relief for enterprises to ensure their short-term liquidity, such as through postponement of payments of social or tax installments, loan guarantees for SMEs or start-ups, or suspended rent for SMEs in distress. In addition, governments could guarantee pay for employees and the self-employed—for example, by introducing short-term work allowances and income support for freelancers.
Second, governments could consider adapting the regulations that might encumber the dual imperative of protecting lives and livelihoods. For example, they could create simplified and expedited application processes for unemployment benefits and SME support, and they could modify the associated criteria. Governments could also eliminate the requirement that people apply for unemployment benefits in person, and they could renew or extend residence permits for seasonal workers. They could also (temporarily) relax regulations with respect to critical professions. For example, they could allow trucks to drive seven days a week, extend supermarket shopping hours, or allow faster foreign medical accreditation.
Planning for the lockdown exit now
As the economy gradually reopens, governments and businesses will need to plan ahead for the review and gradual adaptation of measures that were taken during lockdown.
Additionally, companies should start to consider changes to and innovation in their business model—and the model should include remote learning programs for nonutilized workers. Companies should also carefully review any structural inefficiencies and vulnerabilities that the current crisis has made visible in their operating model—and decide on what can be done to address them. While some companies may need to enter a long and difficult period of slow rebuilding, others might be able to find near-term opportunities, such as strategic moves, partnerships, innovation, and new ways of working and collaborating.
Most important, both governments and business leaders should monitor the likelihood of the economic shock developing into a drawn-out “U”-shaped recession. While sizable economic-stimulus packages are already launched and underway, they need to be continually reviewed to adjust for size and content (such as leveraging public procurement, stimulating private consumption, and implementing public-work programs) so that they support economic recovery.
The COVID-19 pandemic has put tens of millions of jobs at risk across Europe, with potentially far-reaching economic and social consequences. Business leaders and policy makers across the continent have already begun to take decisive action to mitigate this risk—but much remains to be done. Paying close attention to the industries, occupations, and demographics most at risk can help Europe’s decision makers shape responses that are targeted and rapid. Armed with a keen understanding of the challenge, they can take bold, innovative action to safeguard jobs—now and in the future.