This article first appeared in Forum, The Edge Malaysia Weekly on April 27, 2020 - May 3, 2020

The coronavirus has proven to be indiscriminate in terms of who it infects and where and when that happens. Hence, it is a global pandemic whose very infectiousness is facilitated by a world that is physically interconnected like never before. In less than three months, it has become a global health issue that has translated into a global economic crisis not seen previously.

While the virus infects everyone everywhere, how people are affected by it differs quite significantly. Data shows that older people are more likely to be severely affected when infected, and the virus is quite merciless on those with chronic ailments as well. Everyone is equally prone to be infected but people react differently when infected. That is one dimension of inequality.

There is also the question of who is more likely to be exposed to the virus. Apart from healthcare workers who have to deal with patients, the question of who is more likely to be infected is very much economically determined. Who gets infected depends on whether one’s job involves being exposed to other people — those whose jobs are not amenable to “work from home” arrangements. These people are more likely to be exposed to the virus and therefore more likely to be infected.

While the virus does not choose, who it infects are economically determined. The frontline workers — apart from healthcare workers — are those who keep things going. They are from the services sector: the various utilities, transportation and distributive trades. Quite clearly, more lower-income workers are more likely to be infected by this indiscriminate virus.

In Malaysia, workers encompass not just citizens but a sizeable migrant population — legal and illegal — as well as the refugee population. On top of being more likely to be exposed to the virus, these groups also have less access to healthcare.

It is to the Ministry of Health’s (MoH) credit that it rightly, on both moral and medical grounds, took the position that all groups of people are to be treated equally. Everyone needs to be identified, tested for free and monitored. Thus, what has been the perennial problem of tracing and tracking down illegal populations by law enforcement officers is solved because of the virus. MoH has solved a problem so many have not been able to — tracking down legal and illegal immigrants and refugees.

Access to medical care is at the heart of this pandemic. While highly contagious, its fatality rate is lower than most other similar illness; therefore, those with serious presentations of the illness need early medical care, which depends on the capacity of the healthcare system, which, in turn, depends on the number of people infected. Hence, the Movement Control Order (MCO) or any other similar movement restrictions become necessary to ensure that the infection rate is managed to within the system’s capacity — flattening the curve, in Covid-era parlance.

Yet, this very measure of constraining the infection is economically destructive, and its effects on those affected differ quite considerably too. The imposition of the MCO severely affected those whose livelihood depends on “being out there” almost immediately — petty traders and those employed on daily wages, the lower and irregular income group. For these households, the MCO literally took away their livelihood and is a threat to their lives.

The packages introduced by the government to transfer cash to these affected households — if done properly — will help their cash flow situation in the short term, which is about two months. Any extension of the MCO or a slow pickup in economic activities post-MCO will again put these households at risk.

Beyond these petty traders — family-based sole proprietors mostly — are the small businesses, those that employ up to about 20 people, almost all of whom are in the services sector, from retail to small advisory businesses. These businesses too have been severely affected and they are a sizeable provider of employment.

So, the economic consequences of the MCO are staggered. The poor and subsistence population felt the effects immediately, but it quickly affected small businesses. These micro and small businesses are affected because the MCO took away their demand. The larger businesses suffer too; instead of a demand problem, theirs is on the production end because the MCO prevented their staff from coming to work. The consequences are the same: There are no revenues while costs remain largely unchanged. The small and medium enterprise (SME) package announced by the government helps on the cost side, lessening the pressure on cash flows for the period but revenues will still be negative. Businesses are sustained and grow on the revenue side.

Using a nominal gross domestic product value of RM1.6 trillion, and assuming a uniform distribution of economic activities throughout the year, each month of the year is worth RM133 billion in production, expenditure or income, depending on how GDP is looked at. Assuming the MCO stopped only half the economy from functioning, a two-month MCO is the equivalent of a loss of income of RM133 billion for households, firms and owners of capital and land. That is a contraction of 8.3% of total output, which clearly suggests that the full-year 2020 GDP will also shrink as a third of the year is almost done. It is only a question of magnitude, which depends on the ability of the economy to pick up again.

No matter how one slices this, the economic costs of containing this infection is staggering. The question is not just the extent of how businesses are being impacted by the MCO, which gets worse the longer the period is, and the interventions that are necessary to mitigate its negative effects, but more importantly, what should be done to ensure that businesses, the ones still standing, are in the position to rebound when the MCO ends.

Spending and investments will take time to normalise. Households with higher incomes but with relatively less propensity to consume would cut back spending the most, given these same households would have also suffered the most negative wealth effects from the fall in asset prices. So, consumption expenditures will have to depend on households with a higher propensity to consume — the ones below median household income — to prop up aggregate demand on the consumption side, but these are households that are vulnerable to losing their jobs. Unemployment in the post-MCO period will rise as there will be businesses that will fold and there will those that will be forced to scale down.

The challenge is to put in place incentives and resources that will induce a sharp recovery in the next 12 to 24 months. There are two considerations that can guide these initiatives.

The economics of this pandemic is global in nature, and given the interconnectedness as well as the breaking up of supply chains across the world, the pace of recovery, even if a vaccine were to be found, will take some time as businesses figure out the way forward. One consideration, given the disruption that arose from the interdependencies in the supply chains is some consolidation and localisation of parts of supply chains. Thus, a reversal of the past trend of fragmenting and globalising supply chains is a growth opportunity in the post-Covid world.

This is especially true for fresh produce and food products and presents an opportunity for the modernisation of local production, processing and distribution. There are major hindrances for the growth of these businesses ranging from state-federal issues around land tenure and access to water to the lack of compliance with food safety standards, which entails the adoption of technology and which must be resolved. The MCO experience also revealed weaknesses in the distribution channels for agricultural produce as local growers suffered from the inability to get their produce to consumers.

Technology adoption becomes a key enabler to fulfil standards as well as to broaden reach. As with other goods, agri-produce distribution and market reach have to be augmented by access to digital platforms. The digitisation agenda needs to be part of the Covid intervention — targeted to shape participation in the post-Covid environment. All micro and small businesses must be digitally equipped and have a presence on digital platforms. Any assistance should be predicated on fulfilling this requirement.

Finally, this business of delivery, that last mile — a ubiquitous presence during the MCO — must be properly formalised. This is not a “gig” done on a part-time basis. The workers have to be properly protected, fully insured via Socso and subscribe to EPF. In fact, it is about time to think of consolidating the two funds to fully address the significant number of workers who have neither protection nor adequate retirement benefits as the nature of work itself has changed.

Dr Nungsari A Radhi is an economist and the views expressed here are not related to any of his organisational affiliations

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