Since the COVID-19 plague was first diagnosed, it has spread to over 190 countries, all U.S. states and over 90 percent of the states in Nigeria. The pandemic is having a perceptible impact on global economic growth. The outlook appears quite grim, even though all hope is not lost.
Whatever its medical trajectory, the fear and anxiety it has engendered is unprecedented and will most likely mean the end of globalization as we know it today. It will very likely also accelerate the isolationist trends in the USA and Europe
Reliable estimates, so far, signpost that the virus could sleek global economic growth by as much as 2.0% per month if current conditions persist. Global trade could also fall by 13% to 32%, depending on the depth and extent of the global economic downturn. The full impact will not be known until the effects of the pandemic peak.
Preliminary data for the first quarter of 2020 indicate that U.S. GDP fell by 4.8% at an annual rate, the largest quarterly decline in GDP since the fourth quarter of 2008 during the global financial crisis when the U.S. economy tapered by 8.4%.
Foreign investors have pulled an estimated $26 billion out of developing Asian economies and more than $16 billion out of India, increasing concerns of a major economic recession in Asia.
Some reliable estimates signpost that 29 million people in Latin America could fall into poverty, reversing a decade of efforts to narrow income inequality.
In Europe, over 30 million people in Germany, France, the UK, Spain, and Italy have applied for state support of their wages, while first quarter 2020 data indicate that the Eurozone economy contracted by 3.8% at an annual rate, the largest quarterly decline since the series started in 1995.
The economic situation remains highly fluid. Uncertainty about the length and depth of the health crisis-related economic effects are fueling perceptions of risk and volatility in financial markets and corporate decision-making. In addition, worries concerning the global pandemic and the effectiveness of public policies intended to curtail its spread are adding to market volatility.
Compounding the economic situation is a historic drop in the price of crude oil that reflects the global decline in economic activity, prospects for disinflation, and contributes to the decline of the global economy through various channels. Overall, the global economy is forecast to fall into a deep recession in 2020 and output of developing economies is expected to contract by roughly 2 percent.
The World Bank Group has stated that many developing economies are likely to tumble into outright recessions in 2020 before growth resumes in 2021. The UNDP has also stated that the crisis threatens to disproportionately hit developing countries–Income losses are expected to exceed $220 billion, and nearly half of all jobs in Africa could be lost.
Summarizing the economic impact of COVID 19, the World Bank Group in its Policy Research Working Paper 9211 dated April 2020 had this to say: Global GDP is expected to decline by 2.1%, while developing countries’ GDP is expected to decline by 2.5% and high-income countries by 1.9%. The biggest GDP losses under the global pandemic scenario are expected in East Asia and Pacific (EAP) countries due to their relatively deep integration through trade and direct impact on tourism, e.g. Cambodia (3.2 %), Singapore (2.1 %), Hong Kong SAR, China (2.3 %), Thailand (3 %), Vietnam (2.7 %), and Malaysia (2.1 %).
But how will all of these developments play out for regulatory compliance and what is the road ahead?
Regulatory compliance describes the goal that organizations aspire to achieve in their efforts to ensure that they are aware of and take steps to comply with relevant laws, policies, and regulations
Due to the increasing number of regulations and need for operational transparency, organizations are increasingly adopting the use of consolidated and harmonized sets of compliance controls. This approach is used to ensure that all necessary governance requirements can be met without the unnecessary duplication of effort and activity from resources.
Regulators across industries have recognized the significant impacts that the spread of COVID-19 may have on the markets, organizations, and consumers. Concurrently, organizations are navigating new compliance challenges resulting from COVID-19
100+ countries have issued 350+ regulatory notifications to deal with COVID-19. 150+ compliance obligations may arise because of COVID-19. Key industries impacted hard hit include Travel, logistics, technology, banking, insurance, hospitality, pharma, essential goods manufacturers and distributors, retailers and entertainment.
Key compliance areas impacted include corporate governance and disclosures, workplace health and safety, employment, data privacy, supply chain and working capital.
Let us now examine the implications for both Financial Institutions [FIs] and the energy sector even though Nigeria is yet to issue fresh regulatory guidelines in respect of the Covid-19 pandemic.
• The capital and liquidity buffers that banks now have in place were designed to be available sources of capital and liquidity to support the economy during adverse situations such as the impacts of COVID-19 and to enable banks to continue lending. Banks may be required to use their capital and liquidity buffers as they make loans available to households and businesses affected by the COVID-19 restrictions;
• The impact on regulatory reporting is commonly from operational challenges and changes to regulatory requirements to implement near-term policy changes. The report changes are either to provide temporary relief from regulatory constraints to encourage lending and lessen the economic impact on consumers and businesses or to provide accommodations to challenges in providing data under the current circumstances;
• FIs have the technology fairly well solved for working remotely and carrying out transactions during the pandemic, but the remote set-ups make it harder for their compliance officers to locate workers who want to stay off the grid or who wish to work without oversight. FIs need to find them when questions arise about their behavior or decisions are made that pose potential risks in the midst of the crisis. Compliance officers casual style of drop-ins can no longer work, and more assertiveness may be required to reach across firms whose workplace has sprawled to homes and remote work sites;
• To be sure, regulators are likely to be more lenient in letting FIs improvise in the crisis. However, the lack of rules requires a heightened, not lessened, focus on top risks. What is more, compliance professionals’ guidance on how to stay inside legal and ethical boundaries in seizing the out-sized risk and reward in the crisis will prove their value more than ever before;
• For the energy sector, organizations may be looking to mitigate the potential impact of Covid-19 and work toward recovery, relying on compliance officers to create a new response playbook to help their companies combat volatility and adapt with agility. There are immediate concerns related to risk and compliance that professionals across the sector should consider with attention to three main areas: connectivity, assessing and evaluating, and proactively monitoring with integrity.
The road ahead of Covid 19 may be smooth or rough depending on how prepared an organization is in responding to the crisis. According to Eckhart Tolle, “When faced with a radical crisis, when the old way of being in the world, of interacting with each other and with the realm of nature doesn’t work anymore, when survival is threatened by seemingly insurmountable problems, an individual life-form — or a species — will either die or become extinct or rise above the limitations of its condition through an evolutionary leap.”
• Dr Abolo is the Director General, The Economic Thinktank Centre, and also GMD/CEO, The Risk Management Academy Limited. He can be reached on 08021003297; and email@example.com; firstname.lastname@example.org
Frontpage February 11, 2020