As Machiavelli Said Don't Waste a Good Crisis! This crisis will continue to cause hardship for people, but it will also create opportunities for innovation across many industries, particularly technology and finance
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With a risk of financial collapse looming on the horizon, and the US with over 13 per cent unemployment rate (June 2020), we all need to be preparing for a different future. At least 12 million people have been affected by COVID-19, and 3.2 billion global workers stopped working due to full or partial closures of their works (this according to May 2020 data).
The global economy has reportedly contracted by 12 per cent in Q1 of 2020, and the downturn seems to be the one of the worst economic shocks since the Great Depression of the 1930s. COVID-19 is weakening the global economy. To help absorb the shock, governments are implementing emergency policies to directly transfer money to households and businesses. Government to people (G2P) transactions have increased dramatically. The US has committed the largest rescue package at approximately $3 trillion. While the US response is the largest in financial terms, it is not the most aggressive bailout in relation to economic size, equating to approximately 13 per cent of the US GDP. Japan's rescue package which is estimated to be just over 21 per cent of GDP is by far the largest in GDP terms.
COVID-19's impacts will undoubtedly be felt even more for the 2.5 billion low-income people worldwide who remain unbanked or underbanked. Just so we are clear, countries like the US and Italy (my home country) have about 15-20 per cent of their population defined as underbanked or lacking financial inclusion, so this is not only a lower income countries problem.
This economic collapse looks different from other types of natural, financial and man-made disasters we have experienced over the last 50 years. People will be facing increased financial distress as pandemics shocks cause long-lasting psychological damage. We have been bombarded with reports of COVID-19 by news reports, social media, health organizations and general talk.
We have been absorbing a massive amount of information and statistics which has influenced negatively our general outlook on the future. And we are catapulted into making distressed decisions about what to do next and what to tell our families, friends and colleagues. In spite of all the suffering, COVID-19 represents an important opportunity to remove inefficiencies, bureaucracy, and outdated business practices. A crisis is an "innovation accelerator', as It gives us the space that, under normal circumstances, is impossible to replicate by removing long-standing boundaries and limits. This is of course much more challenging for the unbanked and underbanked, millions of which are fighting for survival every day.
What is happening in the digital payment space?
The COVID-19 crisis has increased people's fears about disease transmission via cash. While this is not backed by any scientific data, fear and greater restrictions in movement being implemented, makes access to one's digital finance essential. Digital payment adoption and general interest on fintech platforms are surging, having an overall positive impact reducing people's financial vulnerabilities. This presents an incredible opportunity for digital disruptors to leverage technology and provide suitable financial solutions in order to bridge that gap. For instance, in Africa, in 2017 at least 50 per cent of over 280 cell payment services available globally were in the Sub-Saharan Africa (GSMA 2017), which is where massive opportunities for adoption exist. The most significant crisis breakthrough, however, is the application of blockchain's fundamental technology to sovereign currencies.
China might well attempt an experiment in a model city like Shenzhen this year, and Sweden is another country interested in this possibility. There will be greater consolidation in the blockchain space. Many companies weren't prepared for the crisis, whether in terms of infrastructure or their financial arrangements. Well-prepared startups will be accelerated as a result and will become the essential "go-to place' for governments.
What have I learned from the crisis?
The crisis I have lived through and help managed over the last 15 years (at the World Bank and as part of Global Foundations) include the flood disaster in Yemen in 2008, the 2011 water emergency in the Horn of Africa and Flood In Saudi Arabia, the 2013 storm in Palestine, and conflict crisis in the Middle East in 2014-2015. All of these events had devastating impacts on the lives of the most vulnerable, causing deaths and long-term economic pain. These crises also provided life changing new partnership structure and collaborative investment opportunities. Through these crises I was able to bring decision makers together, convince them to share information and data to help assess the physical damage and economic loss, while outlining long term needs.
In all the above cases, the crisis became an accelerator for growth, investment promotion and a better culture for risk management and financial inclusion. These crises and shocks represented a snapshot of a moment in time, and one we'd prefer to avoid. But to achieve long term resilience and self-empowerment objectives, we had to look beyond that snapshot and envision the new opportunities that have just opened for us. Ultimately the question is whether we choose to worry about the unfamiliar or we seek to embrace the new opportunity that's unfolding for us. The former presents anxiety and retreat, the latter evokes acceleration, innovation and growth.
This crisis will continue to cause hardship for people, but it will also create opportunities for innovation across many industries, particularly technology and finance. This is the time for us all to take more risks, focus on what really matters, and embrace the opportunity to lead and push forward a common goal where failure is not an option. From Machiavelli to Churchill, and conventional wisdom tells us we should never "waste a good crisis". Let's use the pressure and opportunity created by the COVID-19 to press for change to create a solid culture of innovation, prevention in both the private and public sectors.