The Coronavirus’ negative impact on the world economy is self-evident, in that it has a cascading effect that will affect every country in the world and every sector of the world’s economy. Once unthinkable in 2020, it is now abundantly clear that the world is in a long global recession. In an attempt to slow the process of the world economy from going into a depression central banks and governments are now scrambling to prescribe gauntlets of economic fixes like quantitative easing, interest rate cuts, loan guarantees and stimulus packages.
The United State Senate is working to finalizing a trillion dollar stimulus bill as the Coronavirus’s economic calamity grows; in a sharp contrast with the bickering that characterized Europe’s response to the financial crises a decade ago. This time around, Europe has shown a sense of urgency and unity of purpose by announcing billions of euros in economic aid.
We live in a global village with multi-national companies in all parts of the globe; dependent economies, expatriates who live and work in foreign countries. As such, no single country will be immune to the looming depression. Advance economies are far more likely to absorb the shock and managed debilitating effects of an economic depression. Weaker economies in regions like sub-Saharan countries will unfortunately not fare well. The weaker economies in regions like Sub-Sharan countries.
The immediate direct negative effect of the Coronavirus’ financial crisis on regions in Sub Saharan Africa will be a reduction of aggregate remittances. Case in point, remittances account for approximately 25 percent of the Gross Domestics Product of The Gambia. These remittances help families cater for their daily bread. If migrants reduce remittances, families back home who are dependent on these remittance will be unable to afford necessities
Economic crises are a constant in life, therefore using remittances to create well to ensure crises in the West do not have a debilitating effect on weaker economies should be a topic of interest. While the effect of remittances on poverty is evident, there is no agreement on the effect on the broader concept of development and wealth creation.
There is no doubt that remittances reduce poverty, but the effect on wealth creation depends on how remittances are used by the receivers. For example, if the remittances are untouched under the mattress, then they produce no effect whatsoever. If used for expenses in relation to health, education or are invested, or refurbish a home, then net effect will be positive.
Based on the analysis above, the effect of remittances on development in sub-Saharan Africa is very limited.
Remittances alone cannot pull sub-Sahara Africa from poverty. A radical new wave of thinking is required today more than ever. What sub-Saharan Africa needs during this global financial crisis is credit based system to create wealth; developed countries with mature economies depend on credit to create wealth. If credit is available, wealth can be easily generated through entrepreneurial ventures, these ventures will eventually lead to job creation and better living for everyone.
Credit is a Wealth Multiplier
In Adam Smith’s book An Inquiry into the nature and Causes of the Wealth of Nations, he imagined a system for creating wealth and a better livelihood for everyone. Poor nations especially sub Sahara Africa should take this ideas further by encouraging the Diaspora to begin saving some portion of the remittances they send in local banks. If the Sub Saharan Diaspora saves in local banks, those savings have the potential to create more wealth, create more jobs and hence a better living for all.
Entrepreneurs in developed nations with mature economies use credit to expand business,poor nations should to do the same.
As long as market women, farmers, laborers, and businesspeople see an economic reward for their efforts the whole economy will prosper. According to Adam Smith as people try to improve their own situation in life, their efforts serve as an invisible hand that helps the economy grow and prosper through production of needed good, services, and ideas.
If given loans and empowered; farmers, market women, builders, laborers and business people working in their own self-interest will produce goods, services, and wealth. To become wealthier, these entrepreneurs would have to expand their businesses to produce more goods. As businesses expand, more people will have job opportunities.
As a result of saving in local banks, entrepreneurs will have access to capital crate more wealth and grow the economy. The premise of my theory is, if managed effectively the impact of remittances from Sub Saharan Migrants have a greater dimension and can be used as a powerful force to reduce poverty because the invisible hand will turn self directed gain into social and economic benefit for all.
By Ebrima Conteh, Lamin Village