The Role of Law and Policies in Cushioning the Negative Economic Effect of Global Emergencies
*Winning Entry (3rd Place) for the 2020 Legal Pages Essay Competition for Law Undergraduates, sponsored by Primus Grace LP.
The world is interconnected in ways we cannot imagine. In December 2019, the world witnessed the outbreak of the novel coronavirus (COVID-19). In less than seven months, it has become a global pandemic infecting over 3 million people in 212 countries, causing the death of over 210,000 people. This global pandemic shows that we are all connected physically, not just technologically. Therefore, to think of countries as fundamentally separate from one another is fundamentally flawed.
It is times like these that push us to act; not just in the face of the COVID-19, but also in times of other global emergencies. These emergencies will often threaten the economic foundation of human societies, as has been done in the past. The laws and policies adopted by countries in such perilous times will determine the next years, or even decades, for such countries.
Impact Analysis of Global Emergencies on Economies
Economic downturns in one part of the world may quickly spread to other parts of the world. This was the case during the Great Recession, which was caused by a collapse in the American housing markets, and the effects spread to the rest of the world due to the interconnected nature of the world. In the most extreme circumstances where most countries are affected, the global supply chain shall be left in shambles.
Ease of doing business relies to an extent on certainty. There is a reasonable level of expectation that profits will be made. However, when there is a global emergency, it becomes much more difficult to predict the business environment. The difficulties involved in navigating an entirely new environment will cause businesses to close. Restrictions of movements will likely be in place during global emergencies. This would lead to a general decline in business activities, and the loss of jobs.
In a country like Nigeria with over 40 million small and medium sized enterprises, most are not equipped to handle a crisis. This is in addition to the fact that the management of crises is often expensive. According to UNCTAD, the COVID-19 pandemic has already cost over $2 trillion ; Ebola has cost Sierra-Leonne, Guinea and Liberia over $2.8 million; the second world war cost the US alone over $4 trillion . Therefore, states shall have to endure high expenditure and low revenue. This shall create a weak economy with high uncertainty, causing investors to pull back their resources and affecting Foreign Direct Investments (FDI).
It is against this backdrop that it becomes necessary to examine legal and policy measures which may be adopted to mitigate the negative effects of global emergencies.
The Role of Laws and Policies in Mitigating Economic Effects
The need to make laws in consideration of global emergencies is based on the fact that the effects of laws often vary depending on circumstances; laws which function adequately in normal circumstances may not be reasonable during emergency periods. Challenges which usually arise are loss of employment, inflation, insolvency, difficulty in doing business and general recession. Therefore, areas of law which may be of importance in the face of global emergencies include, but are not limited to, taxation, labour laws, insolvency and competition law.
Taxation laws have effects on trade, depending on how such laws are enacted. Sector specific reduction in taxes shall go a long way in improving business in certain emergency circumstances. This is even more important for small and medium sized enterprises, as they have less capital to handle emergencies. Amending the taxation laws shall also be important in encouraging investments, including FDI, in a period where people will typically tend to avoid spending. One example of such is the Finance Act 2019 which places no company income tax liability on small businesses and sets a reduced rate for medium-sized enterprises. Even more, some especially vulnerable and important sectors should be given tax holidays depending on the circumstances of the emergency. This should include areas such as agriculture and manufacturing; these sectors shall be important in a time where the global supply chain would be greatly affected. In China, in addition to not taxing the hospitality industry which was severely affected by the movement restrictions caused by the COVID-19 pandemic, the government went further to pump funds into such industries.
Additionally, the tax net should be widened to properly cover industries that profit from whatever global emergency may exist. Easy examples of such are telecommunication companies and online stores which have made more money during the COVID-19 pandemic. Therefore, the taxation of companies with a “significant economic presence” by the Finance Act 2019 is a positive step in such circumstances by the Nigerian government and more laws in that direction should be made.
During global emergencies, it is necessary to protect individuals who are more vulnerable. Of particular interest are employees, thus making labour laws important. The inequalities in bargaining power between employers and employees shall become even more glaring in global emergencies which shall be marked by the scarcity of jobs, reduction in salaries and rampant laying off of workers. Section 17 of the Labour Act of Nigeria should be taken into consideration. It provides that employees should not be denied renumeration due to the inability of the employer to provide work. In light of laws like this, employers shall lay off workers to avoid paying them. Such is present in every global emergency as businesses are affected. Job security in times of emergency is important. Some countries such as the US, in response to the spread of the COVID-19 pandemic, enacted laws to ensure that workers have access to paid leaves. In the case of self-employed individuals who are prevented from doing business, governments are sending stimulus packages to help citizens bear the economic hardships.
Furthermore, surviving a global emergency is an arduous task for businesses; up to 40% of businesses will fail to re-open after a disaster. Economies are highly reliant on the businesses that can stay open during and after global emergencies. Global supply chains shall be broken, and this shall make the circumstances even more dire. It is for this reason that laws should be enacted to mitigate the difficulty. When companies stop making profits and are unable to offset debts, insolvency shall happen. This is why there is a need for an adjustment of insolvency laws to allow companies which are still profit viable to fend off potential insolvency risks. Pursuant to section 409(a) of the Company and Allied Matters Act , companies may be wound up without any delay. The current demand period in Nigeria is 21 days. Considering the circumstances during global emergencies, more time should be given to companies to navigate the new economic environment which they shall find themselves in. In response to the COVID-19 pandemic, this was done in Germany and Spain.
The competition law sector is similarly important. This aspect of law protects both consumers and other businesses. While it is recognized that inflation shall most likely occur in every global emergency, laws should still be put in place to curb its extent. Unsavoury business practices which have the effect of exploiting the general populace should not be allowed. Even more, attempts by larger businesses to push smaller competing businesses out of market should be limited. Where the prices of goods are to naturally increase, larger businesses which can afford to reduce market prices in the short term to push smaller companies out of business should not be allowed to do so. Mergers and acquisitions for the purpose of business continuity should also be embraced without prejudice to competition laws.
In addition to laws, policies are also important. Encouraging spending and investments, low interest loans, sector specific investments to drive growth, all of these should be well-considered in whatever policies are to be adopted. The agriculture and manufacturing sectors are two sectors of high importance. Manufactured goods accounted for 70% of Nigeria’s total imports in 2019. With a global emergency which disrupts the supply chain, it will become essential for countries to be relatively self-dependent. Also, some sectors shall require policies to keep them afloat until the passing of whatever global emergency it is that exists.
Perhaps the most defining nature of global emergencies is how far reaching their impacts may be. The world wars, the Spanish Flu, the 2007 Great Recession, and even with the novel COVID-19, all of these global emergencies have had far reaching effects on the economies of nations around the world. It is precisely in these times that laws are important in mitigating such economic hardships.
Even more, the world has become a single global community. It is against this background that the government must step in. Economies may be resuscitated and brought back to life. However, the trigger for this phoenix-like attribute of economies is the laws and policies which are put in place by governments. These laws and policies should be focused on ensuring the survival of businesses and safeguard the earning abilities of the general populace.
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Fawaz Haroun is a 400-level student of the faculty of law, University of Lagos. He is the Online Managing Editor of the UNILAG Law Review. He was a member of the UNILAG team at the Philip C. Jessup Moot competition 2020, where his team won the National rounds and had the best Memorial submissions in the National rounds. He was also a finalist in the Space Governance Innovation Contest. He is an avid reader, writer and researcher.