Assessment Of The Impact Of COVID-19 On Employment In Malawi

1.2. ObjectivesThe main objective of the assignment is to assess the effects of Covid-19 on theeconomy and the labour market in Malawi. Specifically, the study aims to:1) assess the effects of Covid-19 on the overall economy and social fall out, onbusinesses, and on individuals/employees.2) identify sectors hardest hit by the pandemic and those with growth potential,and propose measures for those sectors to achieve good growth;3) recommend short-term support aimed at stimulating investment in the growthsectors by among other things reviewing legislation that may hinder recovery;4) assess how the crisis impacts on ECAM in terms of revenue (subscription andservices) and its policy work.2. METHODOLOGY2.1. Study ApproachIn this study, we base our analysis on different scenarios (assumptions regarding thetrajectory of the pandemic) to examine potential impacts of the pandemic on theeconomy and the labour market. We use growth estimates by the government ofMalawi and the IMF, and survey data to inform our projections of economic growthand labour market outcomes. The following are the scenarios assumed in the study:i.Baseline scenario: This is the scenario that would have been if it were not forCovid-19. For this, we adopt the government’s growth projections before theoutbreak where aggregate GDP was projected to grow by 5.5 percent.ii.Scenario 1: This scenario assumes that the pandemic is subdued in the thirdquarter of 2020 (2020Q3). Here we adopted the government’s projection ofa 1.9 percent growth which was based on the same assumption.iii.Scenario 2: This scenario assumes that the pandemic would fade away bythe fourth quarter of 2020 (2020Q4). For this we used our own projections byextrapolating the Governments projections up to Scenario 1.iv. Scenario 3: assumes the pandemic would be over by the first quarter of 2021(2021Q1). For this we also extrapolate from the government’s projections.2

In general, it is assumed that the pandemic will have peaked by 2020Q3 after whichseverity of the disease and the restrictions imposed locally and internationally willbegin to diminish. Given the Covid-19 developments in Malawi thus far, our analysisdoes not consider a scenario where a complete lockdown is imposed in the country.For detailed explanation on the computations, refer to technical annexes 1 and 2.2.2. Data Collection MethodsThe following data collection methods were employed:1. Desk review: Our study mainly relied on data from secondary sources. Theseinclude Malawi government economic reports, IMF economic reports, 2013Malawi labour force survey, ILO monitors, and other studies. We also reviewedrelevant legal documents in order to identify labour laws that need reform. Areview of the national response which is well documented as press releasesand official government documents is also done.2. Questionnaires: In order to understand the impacts of the crisis from theperspective of businesses, we also issue questionnaires to business enterprises.Information collected through this survey focusses on business performance,employee retention, and wage decisions during the crisis. We also obtaininformation on the challenges faced and recommendations for government.3. Key Informant Interviews (KIIs): For in depth understanding of the impacts onbusinesses we conduct key informant interviews with selected stakeholders.3. KEY FINDINGS3.1. The Covid-19 global and regional contextBy now it is evident that the Covid-19 pandemic has directly or indirectly affectedevery single economy throughout the world. It is estimated that this crisis will bemuch worse than the 2008 global financial crisis whose contagiousness and impactdepended on countries’ level of integration in the global financial system. Incontrast, the economic crisis of the Covid-19 pandemic has mainly been driven bydeliberate efforts to minimize certain social and economic activities and this hasmade its impact on economic growth and employment swifter and more robust.Figure 1 shows the growth trends for the global and selected regional economies3

spanning over the last three decades. Here we see that the Covid-19 crisis isexpected to cause more damage than the 2008/09 global financial crisis which itselfwas the biggest economic crisis since the great depression.Figure 1: Evolution of global and regional outlookTrends in global and regional 4.0-6.0-8.0GlobalAdvanced economiesSub-Saharan AfricaEmerging market & developing economiesSource: IMF World Economic Outlook3.1.1. Impact on global and regional growthThe COVID-19 crisis has affected the world economy on a scale not seen since theGreat Depression of the 1930s. It has come at a time when world economic growthwas set to pick up from a relatively weak growth experienced in 2019. The IMF hadbefore the crisis (in October 2019) projected a 3.4 percent global economic growthfor 2020. This is 0.5 percentage points higher than the 2.9 percent growth estimatefor 2019. However, following the emergence and escalation of Covid-19 outbreakand the subsequent reduction in economic activities throughout the world, growthprojections for the global economy have substantially been revised downwards asprospects of a great recession become more and more likely.The global economy is set to contract by up to 3.0 percent in 2020 (IMF WEO, April2020). This recession will mainly be driven by severe contraction of advancedeconomies including the United States, the Euro area, the United Kingdom, andJapan, all of whom are projected to contract by more than 5 percent (Figure 2b).Consequently, aggregate growth for the advanced economies is expected to godown to -6.1 percent if the pandemic persists to 2020Q4. China and India, the other4

major economies are also facing significant economic slowdown although bothcountries are not expected to enter a recession. Substantial reduction in industrialactivity, investment, and retail sales in the first quarter of 2020 suggests that evenwith a major rebound in the second half of the year, the Chinese economy is set fora significant slowdown. According to the IMF, China's economy will grow by 1.2percent against a pre-crisis projection of 5.8 percent. India on the other hand isexpected to grow by 1.9 percent against a pre-crisis projection of 7.0 percent.As noted by the IMF, there remains great uncertainty regarding global and regionalgrowth as these depend on factors that interact in ways that are hard to predict.Such factors include shifts in spending patterns, changes in consumer behaviourand investors’ confidence, supply disruptions, volatility of commodity prices, and therepercussions of the dramatic tightening in global financial market conditions. TheUnited Nations (UN) notes that the Covid-19 pandemic has rattled the financialmarkets, tightened liquidity conditions in many countries, created unprecedentedoutflows of capital from developing countries and put pressure on the foreignexchange markets. The UN further notes that weak local currencies will constraingovernments’ ability for fiscal stimulus at the scale needed to stabilize theeconomies and tackle the health human crises brought by the pandemic.Figure 2: Global and regional growth projections(a) Global growth outlook(b) Regional growth outlook88643.43.223.83.62.93.33.40-264205.82015 2016 2017 2018 2019 4Source: IMF World Economic Outlook50.51.21.9-3-6.1 -5.9-7.7Pre-Covid projectionCurrent projection1.47-6.5-5.2Covid projection

The Covid-19 crisis has also devastated the Sub-Saharan region which is poised torecord a negative growth of 1.6 percent, the worst reading on record. This is againstthe pre-crisis growth projection of 3.6 percent which implies that up to 5.2 percentof output will be lost to the Covid-19 crisis. The recession in the region will be mainlydriven by Nigeria and South Africa, the two biggest economies in the region.Nigeria’s economy is expected to contract by 3.4 percent, South Africa’s by up to5.8 percent while the rest of the region is actually projected to have positive growthalbeit by only 0.7 percent. Nigeria and South Africa have both suffered from theCovid-19 containment measures, particularly the lockdowns imposed by theirrespective governments. Being the main economic hubs in the region, the effectsof the crisis on the two economies and the imposed lockdowns have had somenegative spill over effects to other countries near them.Figure 3: Growth outlook for the sub-Saharan Africa region(a) SSA growth outlookOutlook for SSA's main 1.6-2-6-8Pre-CovidCurrent projectionPre-Covid projectionCovid projectionSource: IMF World Economic OutlookMassive drop in commodity prices, particularly oil, is also a major factor in theeconomic downturn for the region. According to the World Bank’s World IntegratedTrade Solutions, oil constitutes more than 41.0 percent of total exports of the subSaharan region. For Nigeria it accounts for more than 90.0 percent of its exportrevenues. With world oil prices plunging by more than 66 percent between6

December 2019 and April 2020 (Figure 4), the region loses up to 27.0 percent (morethan USD 76.0 billion) of its export revenues. For oil dependent countries (countrieswhose net oil exports make up 30 percent or more of total exports), growth isexpected to decline from 1.8 percent in 2019 to 2.8 percent in 2020 (IMF WEO). Thisis mainly on account of the 3.4 percent contraction in Nigeria as the rest of the oilexporting block in the region is expected to contract by only 1.2 percent.Figure 4: Impact of Covid-19 on commodity pricesFigure 5: SSA's export productsImpact on Commodity PricesExport Product Share .08.8460.013.4540.0Mar 2020Jan 2020Nov 2019Sep 2019Jul 2019May 2019Mar 2019Jan 2019Agr. Raw P crude oil( /bbl)Precious MetalsSource: IMF and World Integrated Trade SolutionsStone and GlassFood ProductsVegetableOthersSource: World Integrated Trade Solutions3.1.2. Covid-19 effects on the global and regional employmentWith the Covid-19 pandemic heavily affecting the global economy, the world ofwork will also suffer greatly. Loss of business through reduced demand coupled withgovernments’ mandatory partial or full business closures will affect availability ofemployment, reduction in work hours, as well as a reduced quality of work in termsof wages and other benefits. Furthermore, some groups of people such as informalworkers could be more affected than others.The Covid-19 crisis will see global and regional unemployment rise in a mannercomparable to the 2008 global financial crisis. The International Labour Organization(ILO) estimates that in a scenario where global GDP declines by only 2 percent, the7

Covid-19 crisis will cause a rise in global unemployment of between 3.5 million and7 million. However, if the decline in global GDP is up to 4 percent, globalunemployment could increase by as much as 18.3 million. The trends in globalemployment will mainly be driven by high income countries who could lose as muchas 14.6 million jobs, compared to 2.8 million potential job losses in lower incomecountries. This disparity is mainly due to high-income countries having relatively moreformal employment which is where most job losses during crises take place.In addition to rising unemployment, global underemployment has also seen asubstantial increase as businesses are forced to reduce work for their employees inorder to minimize costs or losses as well as to observe government directives.Consequently, working hours for employees have declined significantly across theglobe in the months after the discovery of the virus. Estimates by the ILO show thatglobal working hours in the second quarter of 2020 will be 10.5 per cent lower thanin the last pre-crisis quarter. At the regional level, the estimates indicate that America& Europe and Central Asia will experience the biggest losses in working hours withthe former losing 12.4 percent and the latter losing 11.8 percent. As for Africa, theestimates indicate that by quarter two of 2020, the continent will be 9.6 percent shyof its pre-crisis working hours.The rise in unemployment and underemployment will cause significant loss ofincomes for many workers. ILO estimated that overall losses in labour income couldbe in the range of 860 to 3,440.0 billion US dollars. Furthermore, the informal sectorworkers will be more impacted compared to their formal sector counterparts. This isdue to the higher vulnerability of informal businesses and the fact that most informalworkers cannot work from home.Specifically, informal sector earnings wereestimated to have declined in the first month of the crisis by 60.0 percent globally,and up to 82.0 per cent in lower middle and low-income countries that characterizethe sub-Sahara and other regions.3.1.3. Global Covid-19 ResponsesIn response to the COVID-19 pandemic, countries all over the world have adoptedmeasures designed to minimize physical contact between people in order to8

minimize the spread of the pandemic. However, the extent of the responses hasvaried across the countries based on exposure to the virus, how much economicpain governments are willing to allow, and the ability of governments to cushionagainst the economic devastation resulting from the policy responses. Nevertheless,most developed countries imposed total or partial lockdowns in which movementof people across borders and locally within countries or cities were very limited.China where the virus originated was the first country to lockdown some of its citiesand provinces in late January 2020 and by end march, most other countries hadfollowed suit with their own versions or lockdowns.In addition to lockdowns, other less strict measures have also been used as solutionsto preventing further spread of the virus. These include limiting movements andgatherings of people and closing some businesses that attract bigger crowds.According to the ILO, around 68 percent of the world’s total workforce, including 81percent of employers and 66 percent of own-account workers, were living incountries with recommended or required workplace closures as of end April 2020.These responses, while seemingly beneficial from a public health perspective, havecaused serious economic problems for people and countries around the world.In response to the devastating effects of the pandemic, countries have put in placevarious strategies and policies to lessen its impact on people, businesses as well asthe entire economy. In the USA, the government responded by coming up with bothfiscal stimulus and deliberate monetary policy to galvanize the resilience of theeconomy and manage the social fall out. The fiscal stimulus measures adoptedinclude:US hancement Act, US 2.3 trillion (around 11% of GDP) Coronavirus Aid, Relief andEconomy Security Act, US 8.3 billion Coronavirus Preparedness and ResponseSupplemental Appropriations Act, and US 192 billion Families First CoronavirusResponse Act. And in order to support macro-financial stability, the US FederalReserve in March lowered the Federal funds rate by 150 basis points to 0-0.25 basispoints and introduced facilities to support the flow of credit.9

In sub-Saharan Africa, countries like South Africa, Nigeria and Angola have adoptedseveral accommodative monetary policies and fiscal stimulus packages to respondto the Covid-19. In the case of South Africa, the fiscal measures taken includeassisting companies and workers in distress through the Unemployment InsuranceFund (UIF). In addition, special programs from the Industrial DevelopmentCorporation offering four-months tax subsidies to low income workers, temporarilyincreasing social grant amounts for most vulnerable families for six months, creatinga new 6-month Covid-19 grant to cover unemployed workers that do not receivegrants, and making available funds to assist SMEs under stress. Regarding monetarypolicy response, the South African Reserve Bank reduced the policy rate by 100 basispoints to 5.25 percent in March 2020 followed by another 100 basis points to 4.25percent in April 2020. A unified initiative was also introduced that enabled banks toprovide debt relief to borrowers, provided temporary relief on bank capitalrequirements, and reduced the liquidity coverage ratio from 100 to 80 percent.3.2. Impact of the Covid-19 on the Malawi economy.3.2.1. Impact on the overall economyMalawi’s economy was on a high growth path before the COVID-19 crisis and mostof the sectors were expected to maintain good performances. As reported in the2019 annual economic report, the economy was projected to grow by 5.5 percentin 2020 and this growth would be driven by agriculture, manufacturing, mining andquarrying, electricity and water supply, information and communication, andfinancial and insurance services. The projected growth appeared stout given thatagriculture, which is the biggest driver of the economy, was set for a good harvestfollowing favourable weather conditions in the 2019/2020 agriculture season.Aside from the sizable growth in real output, the overall macroecon

3.1. The Covid-19 global and regional context 3 3.1.1. Impact on global and regional growth 4 3.1.2. Covid-19 effects on the global and regional employment 7 3.1.3. Global Covid-19 Responses 8 3.2. Impact of the Covid-19 on the Malawi economy. 10 3.2.1. Impact on the overall economy 10 3.2.2. Sectoral analysis of the effects of Covid-19 12