General COVID-19 lockdown will impede economic recovery

Jamaica, like most countries in the world, faces a time of deep uncertainty. Questions abound such as: how long will the spread of COVID-19 persist? How soon can normal business activity resume? Will there be a second wave of infection? As a small-island economy, there are other considerations: When will tourism restart? Will remittances return to former levels?

In the midst of this conundrum, the recent escalation in confirmed cases attributed to a call centre in Portmore has, not surprisingly, led to calls for a shutdown of the business process outsourcing (BPO) sector. In fact, many pundits go further and argue that the Government should lock down all business activity, outside of narrowly defined essential services, citing similar policy prescriptions in other countries.

I have been a businessman in Jamaica for many years and, as a result, have been through many down cycles from 9/11, our own domestic financial crisis and the sub-prime mortgage crash, all within the context of a fragile economy characterised by weighty sovereign indebtedness, substantial inflation and high unemployment. While our economy has been strengthening over the last several years, a testament to strong leadership and the resilience of our citizenry, it is clear we have never faced anything so profound as this current threat. As a result, the stakes are high and every decision carries outsized gravitas, placing tremendous pressure on our country’s leadership, both in the private and public sectors.

This said, and being cognisant of a government’s sacrosanct mission to protect its people, I posit that a general lockdown, or the shuttering of a specific sector (for example, BPO), is inimical to promoting a positive recovery in the medium term.

FIVE ARGUMENTS

To support this, I offer five arguments from business segments in which I am directly involved:

1. THE LOSS OF CRITICAL FOREIGN EXCHANGE: As an example, the BPO industry earns, by my estimate, net foreign exchange inflows of between US$400 million and US$500 million per annum; the fallout of tourism and remittances will result in chronic foreign exchange shortages for at least the next 12 months. While our minister of finance has taken the step to approach the International Monetary Fund (IMF) for balance of payments support, losing our now largest source of foreign currency earnings will have a devastating effect on our economy and, by extension, our people.

2. THE IMPACT ON EMPLOYMENT: The construction services sector employs over 100,000 people, mainly from the lowest social demographic in large urban centres such as St James and St Andrew/St Catherine. The restrictions in St Catherine have not only closed several large sites in that parish but severely impacted sites in Kingston, which draw the majority of their team members from that parish. This restriction gives a preview of the considerable job losses from this sector in the event of a general lockdown, among a demographic that has very little social cushion. It is instructive that Canada exempted this industry from closure for many of the reasons above.

3. VULNERABILITY TO GLOBAL COMPETITION:

Call centre contracts are ‘mobile’ by nature; a break in service in Jamaica will see the large multinationals moving capacity to other regions which remain open for business. Once Jamaica displays this fragility, bringing contracts back to our shores will likely be a long and arduous journey, a great tragedy after the national effort and investment that has been put into growing this sector.

4. IMPACT ON FINANCIAL SECTOR: Financial intermediaries are always challenged during economic downturns as investment and loan assets depreciate in value. A lockdown will likely catalyse further business closures, and in turn erode capital in the sector. With the global environment deteriorating, this additional pressure on a critical industry is cause for concern.

5. SOCIAL CONSEQUENCES: With very little in the way of available resources to meaningfully expand an already inadequate social safety net, remaining in lockdown mode, even for a relatively short period, will prove very challenging for citizens, many of whom live in difficult conditions that will only be compounded if they are deprived of the opportunity to earn an income.

Many developing countries have reported great difficulty in maintaining ‘stay at home’ orders in situations where people must earn daily in order to satisfy theirs and their family’s basic needs. As a policymaker, the question must be: it is known the pain will be great, are we sure the gain will be commensurate?

OPERATING IN A RESPONSIBLE MANNER

The arguments I have made above can only be sustained by companies operating in a responsible manner, such that the environment for employees is virtually as safe as remaining in their community. To that end, I applaud the recent addition to the safety requirements in the last government order and the intensive inspections now being carried out by the Ministry of Health and Wellness.

I also believe that bad actors must be punished, such that they serve as an example to others who may be tempted to bend the rules, ignorant (or worse) of the danger they pose to their employees, the wider community and, indeed, the country.

Public-health experts may take issue that the opinions expressed here are biased towards commercial pursuits, and as a businessman, I acknowledge my inherent conflict. I would counter by arguing that many of the prescriptions implemented in other countries are now being second-guessed as the social and economic costs inexorably accrue.

At the very least, I sincerely hope that the private sector has a seat at the table as these momentous decisions are being considered. At the very least, if a wider lockdown is in the making, the country needs to think very carefully about which industries it will allow to operate.

Good decisions in this regard will, in my view, avert social upheaval while enhancing the viability of the companies that we will rely on to provide much-needed jobs when the dust settles.

- Peter Melhado is the president and chief executive officer of ICD Group Holdings Ltd. Email feedback to columns@gleanerjm.com n NOTE: The chairman of the RJRGLEANER Communications Group, Joseph M. Matalon, is also chairman of ICD Group Holdings Ltd.