How To Put It Back Together Again

Humpty Dumpty sat on a wall,
Humpty Dumpty had a great fall.
Four-score Men and Four-score more,
Could not make Humpty Dumpty where he was before

Samuel Arnold Juveline Amusements, 1797[i]

BY LLEWELLYN VAN WYK, B. ARCH; MSC. (APPLIED), URBAN ANALYST

Humpty Dumpty is a character in an English nursery rhyme, probably originally a riddle and one of the best known in the English-speaking world. He is typically portrayed as an anthropomorphic egg, though he is not explicitly described as such. Its origins are obscure, and several theories have been advanced to suggest original meanings. I thought it particularly appropriate to describe the following article – what are the impacts on the global economy and how does it recover.

Impact and Response

Many commentators and economists are focusing on how governments go about rebuilding their national and city economies once the world has passed through what Christopher Joye calls the Global Virus Crisis (GVC).[ii] According to The Economist, policy response has generally been swift and decisive.[iii] Globally central banks have cut interest rates since January 2020 and have launched new and substantial quantitative-easing schemes (creating money to buy bonds) while politicians are opening the fiscal taps to support the economy.

In the US, America’s Congress passed a bill that boosts spending by twice as much as President Barack Obama’s package in 2009. Britain, France, and other countries have made credit guarantees worth as much as 15% of GDP, seeking to prevent a cascade of defaults. On the most conservative measure, the global stimulus from government spending this year will exceed 2% of global GDP, a much bigger push than was seen in 2007-09. Even Germany, whose fiscal rectitude is a cultural cliché, is spending more.[iv]

The analysts at The Economist caution though that to focus just on the quantitative changes misses something crucial, which is that there are important qualitative changes underway in how policymakers manage the economy—the responsibilities they have assumed for themselves, what is seen as a legitimate action, and what is not, and the criteria used to judge policy success or failure. On these measures, the analysts note, the world is in the early stages of a ‘revolution in economic policymaking’.

Central banks have in effect pledged to print as much money as necessary to keep down government-borrowing costs. The European Central Bank is promising to buy everything that governments might issue thereby reducing the gap in borrowing costs between weaker and stronger euro-zone members, which widened in the early days of the pandemic.

The analysts note that politicians, too, are ripping up the rulebook. In past recessions, enterprises could go bankrupt and people, too, become unemployed. Even in normal economic times, roughly 8% of businesses in OECD countries go under each year, while 10% or so of the workforce lose a job. Now governments hope to stop this from happening entirely. President Emmanuel Macron reflects the view of many when he vows that no firm will “face the risk of bankruptcy” because of the pandemic.

Boris Johnson, Britain’s prime minister, contrasts his government’s response with the one during the last financial crisis: “Everybody said we bailed out the banks and we didn’t look after the people who really suffered”. Larry Kudlow, the director of America’s National Economic Council, calls America’s fiscal stimulus “the single largest Main Street assistance programme in the history of the United States,” comparing it favourably with Wall Street bailouts a decade ago.

To that end the analysts note that governments across the rich world are channelling vast sums to firms, providing them with grants and cheap loans to preserve jobs and keep their doors open. In some cases, the government is paying the wages of people who cannot work safely: the EU has embraced this policy, while the British state will pay up to 80% of the wages of furloughed workers. The American package includes loans to small businesses that will be forgiven if workers are not laid off. Households across the rich world are being given temporary relief on mortgages, other debts, rent and utility bills. In America, people will also be sent cheques worth up to $1 200.

Most economists support these measures. Nominally they are temporary, designed to hold the economy in an induced coma until the pandemic passes, at which point the world is supposed to revert to the status quo ante. But history suggests that a return to pre-Covid-19 days is unlikely.

Two lessons stand out:

1. Governmental control over the economy takes a large step-up during periods of crisis.

2. The forces encouraging governments to retain and expand economic control are stronger than the forces encouraging them to relinquish it, meaning that a “temporary” expansion of state power tends to become permanent.5

Road to Recovery

The extent of the economic damage and the time it will take for the economy to recover is subject to a high degree of speculation, and new models have been created to project a recovery trajectory. For example, the recovery can be V-shaped (after the downward fall the recovery will follow a straight line back to the original growth trajectory); U-shaped recovery (like V-shaped but with a longer turnaround period); VU shaped recovery (an initial pop, or sugar hit (the V), which is then superseded by a second, much slower growth phase (the U) due to a huge increase in debt repayment burdens and big creative destruction-induced output gaps (or excess productive capacity) as the virus forces the global economy to effectively rewire itself); Z-shaped (recovery follows the V-shaped trajectory but overshoots the original trajectory due to pent-up demand before falling back to the original trajectory); W-shaped (recovery begins buts fall back before climbing back up again); and L-shaped (growth recovers but ends up lower than that of the pre-C-19 economic growth).

In a survey of 106 economists and real estate experts conducted by Pulsenomics and Zillow, 41% of panellists expect the US recovery to follow a “U” shape, with the recession lasting several quarters before returning to growth.[vi] This prediction is in line with how the experts expect the US economy to recover overall. Forty-one percent said they think the economic recovery will follow a “U” shape, and 33% say it will be a bumpy, multi-year return to trend growth. Both patterns are characterised first by a sharp decline and then match how experts see transaction volume recovering, with the consensus generally being a more gradual journey back to normal.

Whatever the final shape may turn out to be, Eswar Prasad and Ethan Wu, writing for the Brookings Institution, warns, “The world economy is on the precipice of its worst crisis since World War II. As the newly updated Brookings-FT TIGER (Tracking Indexes for the Global Economic Recovery) makes clear, economic activity, financial markets, and private-sector confidence are all cratering. And if international cooperation remains at its current level, a far more severe collapse is yet to come.”[vii]

A wide variety of economic and survey data suggest that the economy will recover slowly even after the government begins to ease limits on public gatherings and allow certain shuttered restaurants and shops to reopen. Many economists and business owners say there will be no rapid economic rebound until people feel confident that their risks of contracting the coronavirus have fallen, either through widespread testing or a vaccine.[viii]

Prasad and Wu argue that while the current extraordinarily sharp downturn could prove to be relatively brief, with economic activity snapping back to previous levels once the Covid-19 contagion curve is flattened, there is good reason to worry that the world economy is heading into a deep, protracted recession. In their view, much will depend on the pandemic’s trajectory and whether policymakers’ responses are sufficient to contain the damage while rebuilding consumer and business confidence. They do not believe that a rapid recovery is likely due to ravaged demand, extensive disruptions to manufacturing supply chains, and a financial crisis already underway.

They, like many other commentators, draw a distinction between the 2008-09 crash, and Covid-19. Unlike the 2008-09 crash, which was triggered by liquidity shortages in financial markets, they point out that the Covid-19 crisis involves fundamental solvency issues for firms and industries well beyond the financial sector. In addition, they note, the current shock is simultaneous and universal. During and immediately following the 2008 crisis, some emerging markets, not least China, and India, continued to register strong growth, pulling the rest of the world economy along. But this time, no economy is immune, and no country will be able to lead an export-driven recovery.

Today’s collapse has increased deflationary and financial risks in the advanced economies and struck a significant blow to commodity exporters.

On top of it all, oil prices are plunging even more than they otherwise would, due in large part to Saudi Arabia and Russia flooding the market. In their view all told, the economic and financial carnage wrought by the coronavirus could leave deep, lasting scars on the global economy. While they recognise that central banks are stepping up to the challenge, they point out that central banks cannot offset the fall in consumer demand or stimulate investment by themselves. With both conventional and unconventional monetary-policy tools already stretched to the limit, fiscal policymakers will have to do more.

They suggest that well-targeted fiscal measures can soften the blow to consumers and businesses—especially small and medium-sized enterprises, which typically have minimal financial buffers—thereby helping to sustain employment and demand. In these desperate times, such measures should be fully embraced by all governments that currently benefit from low borrowing costs, even if they already have high levels of public debt.

They also emphasise that low- and middle-income countries that have inadequate health systems will need substantial support from the international community, potentially including concessionary debt relief.

But there is an elephant in the room: unfortunately, the world’s inability so far to forge a common front attests to the erosion of international cooperation, which is further damaging business and consumer confidence. They too, like many other commentators, call for this to change.

The world urgently needs honest and transparent information-sharing by national leaders, coupled with aggressive steps to contain the pandemic, extensive stimulus to mitigate the economic fallout, and a carefully calibrated strategy to restart economic activity as soon as it is safe to do so.

Christopher Joye agrees with the sentiments expressed by Prasad and Wu. Joye sees the global economy being burdened by a great deal more public and private debt because of the enormous fiscal policy responses that will need to be serviced through tax revenue and corporate/household earnings. This he argues will drag on future global growth after the initial pop in activity as businesses restart and the working-age population gets back into their day jobs.

On the matter of whether this precipitates a sovereign debt crisis, he believes that ultimately the central banks can cauterise this problem by continuing to do what they are currently doing: i.e., funding their domestic treasuries by buying government bonds via quantitative easing (QE).

After all, he notes central banks were originally created to fund governments during times of war (that term again), and that is arguably where the world finds itself now in terms of response.

On the question of inflationary shock, he expects the deflationary impulse of the GVC via the huge sudden increase in labour supply to overwhelm the inflationary impulse of the crisis over the short-to-medium term (in the next year or two) noting that the near-term inflation pressures obviously come through supply-chain rigidities as labour is taken temporarily offline.

He foresees a key consequence of the GVC as compelling much greater internalisation of supply-chains, especially those that service critical infrastructure and security-sensitive goods and services. In terms of changes, it is suggested that the GVC will result in permanent economic damage akin to a form of creative destruction where the virus kills off weak companies as well as unproductive employees. This he suggests is because many businesses will come back looking different, shedding low-quality workers, and closing unprofitable activities/subsidiaries.

Some industries will be permanently changed in both positive and negative ways, for example, entire communities are being forced to get much more comfortable with online shopping and the associated delivery process, reducing at the margin the demand for traditional retailing.

The cinema industry will be irreversibly damaged as consumption shifts away from theatres to on-demand digital platforms like Apple and Netflix, which will, in turn, allow these distributors to capture more of the value-chain in the same way Amazon did with bricks and mortar retailing. The commercial property sector is also likely to feel this change as there is a possibility of a permanent decrease in the demand for both office and retail space. Many companies may conclude they can save overhead by remaining disaggregated (not renting office space). This will result in a decline in the value of commercial properties, and the risk associated with commercial property debt could increase sharply.

Commercial property lenders’ LVRs might suddenly jump because of this. Indeed, he argues that a lot of distress in commercial property debt portfolios can be expected over the next 12 months.

The embedding of Zoom, or cheap video conference technology may dissipate the value of face-to-face meetings and result in a permanent decrease in the demand for expensive business-related travel and accommodation, adversely impacting airlines and hotels, as companies seek to enhance their operating efficiencies.

Creative destruction

All this creative destruction could result in unemployment rates not returning any time soon to their pre-GVC levels which will, in turn, place downward pressure on wages. Ultimately, he concludes that this will result in a battle between the shock of the new – a virus that derails life as we knew it – and the opportunities presented by the gigantic stimulus afforded by fiscal and monetary policy.[ix]

Some commentators are not as pessimistic: Paul Krugman, one of the world’s most influential economists and 2008 Nobel prize winner, is pretty upbeat about the economy. In a Q&A session with Noah Smith from Bloomberg, he suggests that even though this crisis is different from anything seen before, there is a rather good handle on the economics. In particular, he argues, enough is known to understand why conventional responses like stimulus or tax cuts are inappropriate, and why we should be focusing on safety-net issues.

On the issue of duration, Krugman argues that data would suggest a fast recovery once the virus is contained. But he provides some big caveats. One is that the duration of the pandemic is not known: if countries open too soon, it will extend the period of economic weakness. The second is that even if there were not big imbalances before, the slump may be creating them now. Business closures will require time to reverse. He also wonders how much long-term change will be experienced because of the virus. If there is a permanent shift to more telecommuting and less in-person retail, then there will be a shift of workers to new sectors, which will take time. All that said, he does not see the case for a multi-year depression.[x]

Analysts at The Economist believe that some economies will suffer much more than others because economic crises expose and exacerbate underlying structural weaknesses.

They argue that three factors should help separate the bad economic outcomes from the dire ones:

1. a country’s industrial structure; the composition of its corporate sector; and the effectiveness of its fiscal stimulus. Regarding the first, those countries that depend on labour-intensive activities will be harder hit. This includes countries reliant on their construction and tourism sectors. Conversely, those industrial structures that enable more people to work from home should not be hit as hard.

2. Economies with a large share of small firms are likely to be hit harder because smaller enterprises tend to have few if any cash buffers, making it difficult for them to survive a drop in revenues.

3. The ability of the country to roll out large stimulus packages. Some countries have provided significant packages while others, especially those with high debt levels, are more constrained. The design of the stimulus also plays a part: some countries are providing support directly to households while others are subsidising wages.

Post-C19 Economic Structural Reforms

Analysts do not generally support government pledges to protect jobs as it prevents workers from moving from failing sectors to new emerging ones, thereby slowing the recovery. If the lockdown ends early some economies will be able to resume production quickly.[xi]

A huge question remains however: what will be the lasting effects of Covid-19? Every day, in ways small and large, the spread of the coronavirus is reshaping politics.

John Cassidy, in a piece in Bloomberg.

As the death toll rises and the economic fallout spreads, he argues that measures once considered unthinkable are being adopted, and not just in the public-health sphere.

Analysts from The Economist believe that the size of the state will alter. In the short term, they foresee government debt rising sharply as spending jumps and tax revenues collapse. Thereafter, government attention will turn to repaying the debt.

They also see central banks’ innovations having lasting consequences. They, as do many other economists, do not see inflation rising any time soon, but do have a concern about deflation especially as central banks are pressured into lowering interest rates to zero to support government borrowing.

Then they see the possibility that this novel idea that the government needs to preserve firms, jobs, and workers’ incomes at practically any cost may become embedded in government, especially if the intervention proves successful in narrow terms. Although the policy may formally end once the pandemic has passed, political pressure for similar support schemes—from the nationalisation of tottering firms to the provision of a universal basic income—may well be higher the next time a sharp downturn comes along. If politicians can preserve jobs and incomes during this crisis, many people will see little reason why they should not try again in the next one.

In the same vein, they see calls for a more activist fiscal-monetary government coming against a backdrop of structurally higher demand for state spending. The public sector tends to provide labour-intensive services in which productivity improvements are difficult, such as healthcare and education, yet it must match the salaries of workers in other sectors to retain its own, even as they become less productive relative to the overall economy—a phenomenon which raises the cost of provision. Governments focus on social support during C-19 might raise expectations that it is the new normal, especially in the health sector. In the US, net support for Medicare for All—those who support it minus those who oppose it—has risen by nine points.[xii]

In another significant development, the mass layoffs that have resulted from the pandemic have also laid bare the iniquities of the gig economy, in which Uber drivers and other online-platform workers, temp-agency workers, and a whole variety of freelancers do not have access to health insurance, sick leave, or unemployment insurance. During an appearance on CNBC, the investor James Chanos said he was selling short the stocks of gig-economy companies because their business model, which is based on classifying workers as self-employed to avoid giving them costly benefits, is likely to be challenged by both political parties.

The Economist’s analysts believe that the likely economic effects of the pandemic reach far beyond the role of the state. Countries could become even less welcoming to immigrants based on an argument that it will reduce any likelihood of infection from foreign arrivals.

Using the same logic, resistance to the development of dense urban centres could mount, thereby limiting the construction of new housing and rising costs. More countries may seek to become self-sufficient in the production of strategic commodities such as medicines, medical equipment, and even toilet paper, contributing to a further rollback of globalisation. However, they argue that the redefined role of the state could prove to be the most significant shift noting that the rules of the game have been moving in one direction for centuries.

Their conclusion: another radical change is looming.[xiii]

Trend transformation

Scholars from the Brookings Metropolitan Policy Program on the other hand believe that a major transformation is unlikely and point out instead that the Covid-19 crisis seems poised to accelerate or intensify many economic and metropolitan trends that were already underway, with huge implications of their own.[xiv]

One of those trends they foresee is automation. Mark Muro, one of the scholars, notes that while automation in the workplace has been spreading over the last decade, it will likely surge in the coming years because as firms’ revenues decline, workers become relatively more expensive. In this case, Covid-19 won’t so much change the automation trend as amplify it, increasing the vulnerability of young people, people of colour, and those with less education and further dislocating jobs in food service or cashiers as they become automated.

Another trend they ponder is whether the trauma of social distancing and the rise of telework will finally empty out the ‘superstar’ cities and lead to a decentralisation of the nation’s hyper centralised urban map. They believe this might happen.

Then there is the continuance of Big Tech itself: while it seems natural to assume that virtually every industry will be humbled by Covid-19, they think it is likely that the big tech titans—Amazon, Facebook, Google, Microsoft, Apple, Netflix, etc.—will emerge from the crisis stronger than ever.

These titans previously captured dominant market shares in the decade following the last recession and are likely to further capitalise as stay-at-home workers rely on their remote work tools, video calling, e-commerce, and video streaming. They point out that these giants are sitting on huge piles of cash and will be ready to snap up any choice tech or other properties that stumble.

Tracy Hadden Liu, another team member, argues that retailers, their landlords, and suppliers were already responding to multiple industry-wide trends before the coronavirus struck, including tariffs, a shift in consumer demand from products to experiences, e-commerce, and the sharing economy. The resulting strains that were already motivating these players to innovate or exit are simply accelerating the need to be creative and embrace new models to deal with the disruption arising from the pandemic.

In the property market, it is suggested that a 10-year commercial lease in a single-use building will no longer be standard: seasonal retailers were already experimenting outside of the big box, including markets and pop-ups in flexible spaces.

So were office tenants through WeWork and other co-working spaces. In addition to new formats and lease terms, profit-sharing leases will become an increasingly important tool to help new businesses get started, survive slowdowns, and provide a return to landlords who invest in their tenants’ success.

In the food sector, convergence and hybridisation will accelerate in food retail, which will return to be a revitalising force in urban life. Liu points out that IKEA was already a furniture showroom, warehouse, and restaurant. High-end grocers were encouraging shoppers to have a beer prior to the outbreak of the pandemic.

Restaurants were increasingly not just dine-in, but fast-casual or mobile food trucks. Whether through app-based delivery or prepared food from wholesalers’ people will return to eating much of their food prepared outside the home. In 2017, jobs in leisure and hospitality (which includes all bars and restaurants) grew to outnumber jobs in retail trade.

Liu believes that for commercial real estate and local governments, food retail will continue to grow in importance. Restaurants, in whatever format, will continue to be a growing share of tenants and sales tax generators as other storefronts are impacted by tariffs and e-commerce oligopolies. And the more people eat out, the more proximity to food retail will shape office and residential tenant demand, as well as home sales. Her summation: the pandemic is a setback, but not a reset.

Another pre-Covid trend raised is the housing crisis. Martha Ross and Jenny Schuetz, two members of the team, note that in the best of times—for example, when unemployment is below 4%— tens of millions of workers still earn barely enough to live on, meaning that basic costs like housing were already a stretch for these and other workers. More than 75% of low-wage workers are ‘housing-cost burdened,’ i.e., they spend more than 30% of their income on rent. The typical low-income renter household spends more than half of its income on rent.

In the Covid-19 era—with mass layoffs in hospitality, retail, and entertainment—earnings have simply disappeared for millions of workers and many households that previously strained to pay rent will now find it impossible.

People commonly reduce housing costs by “doubling-up” with family or moving into lower-quality housing. Given the thin financial reserves held by renter households, many people will be forced into one of these options. Notwithstanding a halt on evictions in some countries, stronger and more direct financial assistance will be required for households. While the housing affordability crisis predates the current health crisis, it will worsen in the short run if governments are slow to respond.

Inequality increases among older Americans is another trend identified by Annelies Goger and Nicole Bateman. They note that 40% of workers over age 62 earn low wages. Covid-19 is likely to have eroded savings across the board which means that many older workers may have to stay in their job out of necessity. It is possible that labour outcomes could worsen for older workers who lose their jobs in the sense that it will take much longer for them to find another job, and generally that will come with a pay cut too.

Covid-19 will accelerate yet another trend namely the declines in microbusiness employment. Microbusinesses with under four employees are only half as likely to add jobs as larger businesses already. Recent statistics demonstrate how microbusinesses have been on the losing end of long-run structural shifts in the US. The team estimates that about 2.9-million microbusinesses are in industries at immediate or near-term risk from Covid-19. How many of those microbusinesses survive will depend, they think, on the duration of social distancing measures and the success of countervailing policies. They do stress that without a robust policy response to not only mitigate small business damage in the immediate term but also support entrepreneurship more robustly in the recovery, the pandemic will accelerate the structural decline in microbusiness employment.

Humpty Dumpty Economies

At a more fundamental level, Kallis G., Paulson, S., D’Alisa, G., and Demaria, F. argue that the pandemic has laid bare the fragility of existing economic systems, and what will be required to become more resilient to crises – pandemic, climatic, financial, or political – is to build systems capable of scaling back production in ways that do not cause loss of livelihood or life: “We need degrowth” they suggest. Their argument is based on the observation that current economic systems are organised around the constant circulation, where any decline in market activity threatens systemic collapse, provoking generalised unemployment and impoverishment.

While they point to commentaries made by publications such as Forbes, the Financial Times and the Spectator who have been quick to claim that the pandemic has revealed the ‘misery of degrowth’, they argue that what is happening is not degrowth, but purposefully slowing things down in order to minimise harm to humans and earth systems and to reduce exploitation. In their view, degrowth is a project of living meaningfully, enjoying simple pleasures, communing, sharing, and relating more with others, and working less, in more equal societies.[xv] 

New Green Deal

There is widespread support for the recovery spend to be used to simultaneously address the other elephant in the room – climate change. Many argue that the pandemic must not be a reason to weaken the commitments to net-zero emissions. In fact, the argument is made that climate action is vital protection against further global shocks, especially as governments plan their post-pandemic stimulus packages.

It will be tempting for some governments to overlook the climate change challenge in the rush to restart the economy. Anna Skarbek cautions that some governments are already eyeing the fossil fuel sector as a beneficiary of any post-Covid-19 stimulus. Not all governments have responded to a rising chorus of voices demanding a green economic recovery.

The International Monetary Fund has been tracking national stimulus and economic recovery plans. So far, only a handful of them directly targets climate change, the IMF reports. On the contrary, some spending is headed in the opposite direction through government fuel subsidies and other fossil fuel-friendly measures. The IMF’s Covid-19 recovery tracker notes a lot of global spending on electricity cost relief. Other measures the IMF has noted include fuel price discounts for aviation. Some governments are buying fuel for their fishing fleets, while others are extending economywide fuel subsidies instead of eliminating them as the United Nations’ top leadership has called for.[xvi] The energy minister in Australia is flagging gas-fired power to stimulate the economy.[xvii]

There is particular concern over how China will design an overall economic recovery plan. Following the global financial crisis of a decade ago, Beijing launched a massive round of infrastructure spending that saw its greenhouse gas emissions soar to new heights. China is now by far the world’s largest producer of heat-trapping emissions. In a recent study published in the journal Nature Sustainability, scholars in Malaysia and Australia expressed concern over China’s vaunted Belt and Road Initiative, noting that Beijing has already directed nearly $575-billion overseas in efforts often aligned against sustainability objectives. They see more to come and are urging receiving nations and financing arms to put restrictions on the funding to ensure greater protections for biodiversity and other “indicators of environmental governance,” according to the research team, led by University of Queensland professor Divya Narain.[xviii]

For many countries, the lockdown response to Covid-19 has presented a horrific binary choice: economy at the expense of climate change, or climate change at the expense of the economy.

The socio-economic devastation the virus has inflicted is a reminder of our systemic vulnerability, and the importance of prevention and mitigation. As Anna Skarbek stresses, Covid-19 provides fresh evidence of the scale of economic shock the world faces if it fails to meet the targets of the Paris Agreement.

In a major study published in Nature Communications last month the dollar value put on the cost of climate inaction was between US$150-trillion and US$792-rillion by 2100 making the global shock even more financially catastrophic than coronavirus.[xix]

Fortunately, there is a third way out of this binary choice: Don Hall posts that one of the most hopeful things he has stumbled across since this crisis began is A Green Stimulus to Rebuild Our Economy: An Open Letter and Call to Action for Members of Congress which was published by a team of 11 prominent academics, scientists, policy experts, and non-profit advocates. More than 1 800 individuals and organisations signed on within the first nine days of its release.

The overall approach of the Green Stimulus Letter is based on five main principles namely:

1) health as the top priority for everyone

2) providing economic relief to directly to people

3) rescue workers and communities, not corporate executives

4) make a down payment on a regenerative economy while preventing future crisis

5) protect the democratic process while protecting each other

These five principles are supported by four key strategies:

1) create millions of new family sustaining, career-track green jobs

2) deliver strategic investments like green housing retrofits, rooftop solar installation, electric bus deployment, rural broadband development, and other forms of economic diversification to lift up and collaborate with frontline communities

3) expand public and employee ownership

4) make rapid cuts to carbon pollution[xx]

The research published in Nature Communications also points out that limiting global warming to 1.5°C would deliver a corresponding boost, with the global economy growing by US$616 trillion compared to inaction. Skarbek notes that research undertaken at Oxford University by Nobel-prize winner Joseph Stiglitz and climate economist Nicholas Stern concluded that climate mitigation actions deliver maximum economic growth multiplier benefits from a stimulus perspective.

The study catalogues more than 700 stimulus policies and makes comparisons with the global financial crisis of 2008. In the study they compared green stimulus projects with traditional stimuli, such as measures taken after the 2008 global financial crisis, and found green projects created more jobs, delivered higher short-term returns per pound spent by the government, and lead to increased long-term cost savings. Clean energy infrastructure construction is one example, generating twice as many jobs per pound of government expenditure as fossil fuel projects around the world. Others include expanding broadband so more people can work from home.[xxi] Stern also warned that stimulating new jobs in heavily emitting sectors was short-sighted. “The jobs of the past are insecure jobs,” he said. “[To create future jobs] we need the right kind of finance in the right place at the right scale at the right price.”

Net-Zero Zero-Net future

The strategic targeting of stimulus funds is therefore critical: the greatest risk to a systemic change in consumption and production patterns is for governments to occur increasing debt through spending trillions of dollars on propping up business, as usual, leaving no economic capacity to invest in building resilient local communities and moving toward a low-carbon future.

Researchers from the University of Oxford, the London School of Economics and Political Science, Columbia University, and the University of Cambridge, undertook a survey of 231 central bank officials, finance ministry officials, and other economic experts from G20 countries on the relative performance of 25 major fiscal recovery archetypes across four dimensions: speed of implementation, economic multiplier, climate impact potential, and overall desirability. Their study identified five policies with high potential on both economic multiplier and climate metrics: clean physical infrastructure, building efficiency retrofits, investment in education and training, natural capital investment, and clean R&D.

To monitor the stimulus spend, a team of researchers from Johns Hopkins University has set out to measure what percentage of the billions of dollars that world governments are spending on the recovery might result in lasting reductions of greenhouse gas emissions. They note that studies of the impacts of past economic downturns, such as the recession of 2007 to 2009, provide scant information on what percentage of the recovery money spent delivered long-term benefits to the climate. Estimates of the 2009 recession show that somewhere between 5% and 16% had impacts on climate change-related issues.

They caution that information from the aftermath of earlier recessions shows that typically rebounds have more than offset greenhouse gas reductions from the recessions themselves and quickly surpass what might have been saved if it is not done well.[xxii]

There is precedent from targeted directing of public funds that have worked in the past: President Obama was able to introduce a stimulus package stacked with incentives for green investment and tougher environmental regulation after the economic crash of 2008.

A post-pandemic economic reconstruction based on restructuring the energy map makes sense.

Enrique Dans

But for the Covid-19 event, signs thus far are mixed. The $2.2-trillion stimulus package agreed by the US Congress may have avoided sinking taxpayers’ dollars into a rescue plan for the country’s struggling coal industry, but it also failed to make any environmental requirements on those industries, such as the aviation industry, that were bailed out. Congress members have argued that in this case the holding up a desperately needed economic-rescue package in the name of climate action was an untenable proposition. However, care must be taken to avoid using that argument again.

The renewable energy sector is one of the sectors favoured by many commentators as a prime vehicle for stimulating the economic recovery while also mitigating climate change.

One of the concerns about RE in the past was its ability to carry the electricity mix, but as Tom Andrews, a senior analyst at Cornwall Insight notes, while the generation balance is likely to return to normal as countries come off lockdown, this has demonstrated that managing a grid with high renewable penetration is feasible. This may therefore become the new normal as more renewable generation is deployed across Europe.

Renewable energy is also supported by the International Energy Agency (IEA) who, in their Global Energy Review report, supported the view that renewables are the only power generation source that is experiencing rising demand and penetration amid the slump in energy demand brought on by Covid-19 industrial shutdowns. Due to priority dispatch for renewables and lower operating costs, the IEA expects solar, wind, and hydropower to experience uplift during the public health crisis and subsequent economic recovery.[xxiii]

In a policy brief for policymakers, the IEA presents four strategic considerations:

  1. Energy efficiency actions can support the goals of economic stimulus programmes by supporting existing workforces and creating new jobs, boosting economic activity in key labour-intensive sectors, and delivering longer-term benefits such as increased competitiveness, reduced greenhouse gas emissions, improved energy affordability and lower bills.

2. Governments can deliver stimulus at scale and speed by leveraging existing programmes and standardising designs, eligibility criteria and contracts; choosing shovel-ready options for retrofits and technology upgrades, and considering how energy efficiency can be built into all government stimulus programmes.

3. Important market considerations include aiming for high energy efficiency without constraining programme delivery; setting sufficiently attractive incentives to deliver high uptake without significantly increasing program costs and risks; considering the capacity of suppliers to scale up rapidly while maintaining quality and safety of products and services; and considering the consumer motivations and demand for products and services.

4. Government can facilitate better outcomes from large-scale investment programmes by addressing unnecessary regulatory barriers; turning short-term impacts into long-term transformations by raising energy efficiency standards; and considering the resource efficiency impacts and recycling sector opportunities as part of programme design.[xxiv] It is argued that apart from the climate change benefits, solar and energy storage in particular offer swift, job-intensive opportunities for growth, with average ground-mount sites able to be built in a few months and rooftop installations often taking only a day or two.

The EU’s C-19 recovery plan aims to do just that: their €750 billion ($825 billion) recovery package for the coronavirus pandemic includes plans to address the other global crisis, climate change. European Commission President Ursula von der Leyen views the proposal as a vehicle to steer the continent toward carbon neutrality by 2050, a critical deadline if the world is to avoid the worst effects of global warming. The EU plan calls for investments in clean technologies and value chains and for increasing investments in renewable energy, energy storage, hydrogen, and carbon capture as well as storage technologies. Funds under the plan would be directed toward installing 1-million EV chargers. It also proposes a renovation wave of basic infrastructure investments to create millions of jobs in construction, renovation, and other labour-intensive industries.

Most of the EU’s plan would be paid for via debt raised in capital markets, loans with very long-term maturities, by new taxes, including taxes on carbon emissions, a new carbon border adjustment mechanism, and taxes on big companies that benefit most from the single market. [xxv]

France also announced an €8 billion bailout of its automotive industry. However, the French plan is to boost domestic production of electric vehicles and see France emerge, as President Emmanuel Macron put it, “As the leading producer of clean vehicles in Europe.” The subsidy plans include exceptional support measures to help consumers purchase battery hybrid and all-electric vehicles.[xxvi]

South Korea ― the world’s seventh-largest source of planet-heating carbon dioxide ― too has set course to become the first East Asian country to reach net-zero emissions by 2050. The ruling party named its official climate manifesto the Green New Deal, becoming the biggest emitter yet to endorse moving toward the kind of industrial planning and social safety net expansion rarely seen outside of wartime. South Korea’s proposal includes ending public institutions’ financing of domestic and overseas coal projects, establishing a new program to retrain workers for green jobs, and making large-scale investments in wind and solar energy. The plan also pledges to research and consider a carbon tax.[xxvii]

As Enrique Dans put it, a post-pandemic economic reconstruction based on restructuring the energy map makes sense. We know we must do it, and we know the reason we haven’t done it so far is because it challenges the interests of a powerful few. The time has come to abandon outdated concepts, to change our mindset, and to put the use of renewables at the top of our list of priorities.[xxviii]

Some concern has however been expressed that a lack of a gender lens when designing the stimulus packages generally has favoured sectors dominated by men. In New Zealand, the Ministry for Women warned its minister that the stimulus package risked further exacerbating gender inequalities, particularly for wahine Maori, Pasifika, disabled and rural women. This is a likely unintended consequence of favouring infrastructure projects, a sector traditionally dominated by the male workforce. The ministry noted that women were just 14.4% of the construction workforce, and 24.5% of the electricity, gas, water, and waste services.[xxix]

Other industries such as retail, tourism and hospitality – also hard hit by the shutdown – employ high numbers of women. Johnston makes the argument that investing in social infrastructure such as health, caring, and education would create more jobs than the same investment in construction. It is argued that the absence of a gender lens is reflective of budgets being prepared without investigating ‘who” would benefit from the investment.

Cities are also responding to the opportunity. Amsterdam is pursuing a unique approach by adopting the so-called ‘doughnut approach’ developed by British economist Kate Raworth from Oxford University’s Environmental Change Institute. This model forgoes the global attachment to economic growth and laws of supply and demand in favour of a set of minimum needs required to lead a good life as encapsulated in the UN’s sustainable development goals which include food and clean water to a certain level of housing, sanitation, energy, education, healthcare, gender equality, income, and political voice.

The model defines an outer boundary that represents the boundaries across which humanity should not go to avoid damaging the climate, soils, oceans, the ozone layer, freshwater and abundant biodiversity. What is critical about the approach Amsterdam is following is the desire to “not fall back on easy mechanisms” as Marieke van Doorninck, the deputy mayor of Amsterdam, put it.[xxx]

Raworth puts it more succinctly’ “The central premise is simple: the goal of economic activity should be about meeting the core needs of all but within the means of the planet. The “doughnut” is a device to show what this means in practice.”[xxxi]She explains, “The world is experiencing a series of shocks and surprise impacts which are enabling us to shift away from the idea of growth to ‘thriving’.” This approach, she argues, recognises that our wellbeing lies in balance, and this is the moment we are going to connect bodily health to planetary health.

In the private sector, Covid-19 appears likely to reshape sustainable investing in part, because in the aftermath of the pandemic more focus will be placed on social factors, such as health and safety, and the treatment of staff. Some asset managers think that the pandemic will become an environmental, social, and governance (ESG) litmus test. They envision interrogating firms about their actions during the crisis to gauge the businesses’ sustainability credentials.

The pandemic may also help to focus the minds of private sector investors on other threats such as the impact of climate change. Few investors or companies took the risk of a pandemic seriously at the start of the year, and the threat of devastating floods or once-a-century storms often get a similar treatment, but C-19 may just change that.

Our wellbeing lies in balance, and this is the moment we are going to connect bodily health to planetary health.

And encouragingly a remarkable list of business leaders is adding their names to a call for stimulus funding to be invested in what they refer to as “the economy of the future.”[xxxii] Chief executives, chairs and senior executives from major organisations are urging for massive investments in renewable power systems, a boost for green infrastructure and buildings, targeted support for low-carbon activities, and other similar measures.

In Europe, this call is aimed at making the European Union the ‘world’s first climate-neutral continent’ by 2050. In Australia, a leading business group is calling for the two biggest economic challenges in memory – recovery from the Covid-19 pandemic and cutting greenhouse gas emissions – to be addressed together, saying it would boost growth and put the country on a firm long-term footing. This group is among a band of community leaders and industry groups urging governments to back climate solutions in the pandemic recovery rather than projects that entrench or increase emissions. The Investor Agenda, a global group of institutional investors and managers in a statement said governments should avoid prioritising “risky, short-term emissions-intensive projects”, and that accelerating the shift to net-zero emissions could create significant employment and economic growth while improving energy security and clean air. As they put it, “The path we choose in the coming months will have significant ramifications for our global economy and generations to come.”[xxxiii]

The Australian business group has identified a number of opportunities including improving energy management in homes and buildings by plugging drafts, modernising equipment and backing local electricity generation and storage; boosting electricity networks by rolling out smart meters and moving edge-of-grid customers onto mini-grids; helping shift heavy industry to run on clean electricity and hydrogen, and supporting large and small energy storage. On transport, the group said it was an excellent time to prepare cities and major corridors for mass take-up of electric vehicles by installing or preparing charging points at service stations, in public and government car parks, and at apartment blocks. They suggest governments would have different preferences on whether to use regulatory reform, tax incentives, grants, or other approaches but, using the example of electricity, urged government to settle on a sound long-term design for market rules and climate policy could do as much to boost investment as direct public financial support.

The public too is wanting to use this moment to recalibrate the structure of the economy. Polls taken in the United Kingdom finds that most Britons want quality of life indicators to take priority over the economy. As reported by Fiona Harvey, a YouGov poll has found eight out of 10 people would prefer the government to prioritise health and wellbeing over economic growth during the coronavirus crisis, and six in 10 would still want the government to pursue health and wellbeing ahead of growth after the pandemic has subsided, though nearly a third would prioritise the economy instead at that point.

The finding comes as millions of people face economic hardship because of coronavirus and the lockdown, while some measures of the quality of life – such as air pollution and the natural environment – are showing signs of improvement.[xxxiv]

Perhaps Kallis et al (2020) summed it up best in their study when they noted: “As we move from the rescue to the recovery phase of the Covid-19 response, policy-makers have an opportunity to invest in productive assets for the long-term. Such investments can make the most of shifts in human habits and behaviour already underway.”[xxxv]

Build, Build, Build: Investing in Infrastructure

Not surprisingly, most governments are including infrastructure development as part of their recovery plans: it makes economic sense to invest in asset formation rather than encourage consumer spending. However, there are debates about what type and scale of infrastructure to invest in. Some commentators are arguing for investment in housing, while others are looking for large-scale infrastructure investments.

As the US Congress and the White House contemplate the next phase of the government response to the coronavirus pandemic and its economic toll, legislators are increasingly raising the prospect of enacting a multitrillion-dollar infrastructure plan that, they claim, could create thousands of jobs. As the novel coronavirus ravages the economy, parties appear to be coalescing behind the idea of something akin to a New Deal-style jobs program to help the nation cope with what is expected to be a deep recession.

Speaker Nancy Pelosi of California outlined the contours of their proposal, building off a five-year, $760-billion framework. Among the new provisions are an extra $10-billion for community health centres fighting the spread of the pandemic and a programme that would provide federal grants to pay for drinking water and wastewater utility bills in low-income households during public health crises. Democrats’ infrastructure plan includes billions of dollars to expand the country’s passenger rail network, improve Amtrak stations and services, maintain ports and harbours, increase climate resiliency and further address greenhouse gas pollution. It would also dedicate funds to expand broadband access, a response in part to the extent that millions of Americans have depended on internet connectivity while staying at home to slow the spread of the virus.[xxxvi]

It has long been argued that construction has a significant multiplier effect in terms of upstream and downstream job creation. At the same time, providing affordable housing appears to be a serious challenge for most governments. Paul Emrath marries these two issues together when he makes the case for investment in homebuilding based on the economic impact that residential construction has on the economy. The most obvious impacts of new construction, he notes, are the jobs generated for construction workers.

But, at the national level, the impact is broad-based, as jobs are generated in the industries that produce timber, concrete, lighting fixtures, heating equipment, and other products that go into a home or remodelling project. Other jobs are generated in the process of transporting, storing, and selling these products. Still, others are generated for professionals such as architects, engineers, real estate agents, lawyers, and accountants who provide services to home builders, home buyers, and remodelers. He found that in the US construction sector building an average single-family home created 2.9 jobs; an average rental apartment 1.25 jobs; and for every $100 000 spent on remodelling 0.75 jobs. The above numbers are for full-time equivalents, i.e., enough work to keep one worker employed for a full year based on average hours worked per week in the relevant industry.[xxxvii]

The British Prime Minister, Boris Johnson, seems to favour a “dig yourself out of the hole” approach as well, according to The Economist. In a speech on June 30, he announced a plan to increase capital spending to 3% of GDP, the highest consistent level since the 1970s, and will speed up £5bn of repairs to roads, schools, and hospitals. But Colin Talbot of the Centre for Business Research at the University of Cambridge makes the point that calling for more infrastructure without answering the questions of why and for what makes no sense. For example, will ailing towns be best served by becoming attractive commuter hubs for neighbouring cities, or by trying to revive their industries? Henry Overman of the London School of Economics argues that what ultimately makes places prosperous is a high density of skilled workers, which means thinking hard about education, welfare, and public health.[xxxviii]

There are however concerns about the quantum of funds needed to adequately fund infrastructure backlogs, notwithstanding the impressive numbers being quoted in government budgets. The findings of National League of Cities (NLC) new Covid-19 Local Impacts Survey of 1 100 US municipalities found that critical infrastructure is a key at-risk area as 65% of surveyed cities look to delay or cancel their infrastructure projects, which could create an “economic ripple effect” if actions aren’t taken to support capital expenditures and projects. As the vice-president of NLC put it, “I hate to say it, but the latest Covid-19 financial impact data we’re sharing with you today is painting a dire picture for our infrastructure future.”[xxxix]

Conclusion

As the world tries to deal with the ongoing challenges of Covid-19, it is worth reminding ourselves that infrastructure investment and climate action are both urgently need and that with the right approach, both goals can be achieved simultaneously. This article provides some indications of what the right approach may be.

READ THE ARTICLE IN GREEN ECONOMY JOURNAL ISSUE 48

References

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[ii] Joye, C. 2020. “Calling a ‘VU’ shaped recovery: and creative destruction induced by GVC.” Coolabah Capital Investments, 7 April 2020. Available from: https://www.livewiremarkets.com/wires/calling-a-vu-shaped-recovery-and-virus-induced-creative-destruction-from-gvc?utm_campaign=8493&utm_medium=wire-page-share&utm_source=linkedin&utm_content=calling-a-vu-shaped-recovery-and-virus-induced-creative-destruction-from-gvc. Downloaded: Tuesday, 07 April 2020.

[iii] Briefing, 2020. “Rich countries try radical economic policies to counter covid-19.” The Economist, Mar 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.

[iv] Briefing, 2020. “Rich countries try radical economic policies to counter covid-19.” The Economist, May 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.

[v] Briefing, 2020. “Rich countries try radical economic policies to counter COVID-19.” The Economist, March 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.

[vi] Olsen, S. 2020. “Experts: Spring’s missing home sales will be added in coming years. Zillow, June 3, 2020. Available from: https://www.zillow.com/research/zhpe-missing-home-sales-27209/. Downloaded: June 5, 2020.

[vii] Prasad, E. and Wu, E., 2020. “Anatomy of the coronavirus collapse.” The Brookings Institution, Monday, April 13, 2020. Available from: https://www.brookings.edu/opinions/anatomy-of-the-coronavirus-collapse/?utm_campaign=Brookings%20Brief&utm_source=hs_email&utm_medium=email&utm_content=86296128. Downloaded: Thursday, 16 April 2020.

[viii] Tankersley, J. 2020. “Economic pain will persist long after lockdowns end.” The New York Times, 13 April 2020. Available from: https://www.nytimes.com/2020/04/13/business/coronavirus-economy.html?campaign_id=9&emc=edit_NN_p_20200414&instance_id=17621&nl=morning-briefing&regi_id=73055978&section=topNews&segment_id=25091&te=1&user_id=4c2641b64be4fbc96d3272bb1a96ae71. Downloaded: Wednesday, 15 April 2020

[ix] Joye, C. 2020. “Calling a ‘VU’ shaped recovery and creative destruction induced by GVC.” Coolabah Capital Investments, 7 April 2020. Available from: https://www.livewiremarkets.com/wires/calling-a-vu-shaped-recovery-and-virus-induced-creative-destruction-from-gvc?utm_campaign=8493&utm_medium=wire-page-share&utm_source=linkedin&utm_content=calling-a-vu-shaped-recovery-and-virus-induced-creative-destruction-from-gvc. Downloaded: Tuesday, 07 April 2020.

[x] Smith, N. 2020. “Paul Krugman is pretty upbeat about the economy.” Bloomberg, May 27, 2020. Available from: https://www.bloomberg.com/opinion/articles/2020-05-27/paul-krugman-is-pretty-upbeat-about-coronavirus-economic-recovery. Downloaded: Thursday, 28 May 2020

[xi] Finance and Economics, 2020. “How deep will downturns in rich countries be?” The Economist, April 16, 2020. Available from: https://www.economist.com/finance-and-economics/2020/04/16/how-deep-will-downturns-in-rich-countries-be?cid1=cust/ednew/n/bl/n/2020/04/16n/owned/n/n/nwl/n/n/A/452381/n. Downloaded: Friday, 17 April 2020

[xii] Cassidy, J. 2020. “The coronavirus is transforming politics and economics.“ The New Yorker, April, 6, 2020. Available from: https://www.newyorker.com/news/our-columnists/the-coronavirus-is-transforming-politics-and-economics?utm_source=nl&utm_brand=tny&utm_mailing=TNY_Daily_040420&utm_campaign=aud-dev&utm_medium=email&bxid=5be9f5bd2ddf9c72dc879e86&cndid=48809828&hasha=4c2641b64be4fbc96d3272bb1a96ae71&hashb=c9c1dba6c170b93151f4dd39d2d298d2cb950fd6&hashc=122c6030809ad6616af10d52091c32b56f95b8f727c69a827fdfdd7af1aa3c83&esrc=right_rail_magazine&utm_term=TNY_Daily. Downloaded: Sunday, 05 April 2020

[xiii] Briefing, 2020. “Rich countries try radical economic policies to counter COVID-19.” The Economist, March 26, 2020. Available from: https://www.economist.com/search?q=rich%20countries%20try%20radical. Downloaded: March 26, 2020.

[xiv] Muro, M., Loh, T., Ross, M., Schuets, J., Goger, A., Bateman, N., Frey, W., Parilla, J., Liu, S. and Tomer, A. 2020. “How COVID-19 will change the nation’s long-term economic trends, according to Brookings Metro scholars.” Available from: https://www.brookings.edu/research/how-covid-19-will-change-the-nations-long-term-economic-trends-brookings-metro/?utm_campaign=Brookings%20Brief&utm_source=hs_email&utm_medium=email&utm_content=86370408. Downloaded: Friday, 17 April 2020

[xv] Kallis, G., Paulson, S., D’Alisa, G., and Demaria, F. 2020. “The case for degrowth in a time of pandemic.” The Ecologist, May 18, 2020. Available from: https://theecologist.org/2020/may/18/case-degrowth-time-pandemic. Downloaded: May 31, 2020.

[xvi] Gronewold, N. 2020. “E.U.’s coronavirus recovery plan also aims to fight climate change.” E&E News, May 28, 2020. Available from: https://www.scientificamerican.com/article/e-u-s-coronavirus-recovery-plan-also-aims-to-fight-climate-change/?utm_s

[xvii] Skarbek, A. 2020. “Why it doesn’t make economic sense to ignore climate change in our recovery from the pandemic.” Available from: https://theconversation.com/why-it-doesnt-make-economic-sense-to-ignore-climate-change-in-our-recovery-from-the-pandemic-137282?onomic%20sense%20to%20ignore%20climate%20change%20in%20our%20recovery%20from%20the%20pandemic. Downloaded: Friday, 08 May 2020

[xviii] Gronewold, N. 2020. “E.U.’s coronavirus recovery plan also aims to fight climate change.” E&E News, May 28, 2020. Available from: https://www.scientificamerican.com/article/e-u-s-coronavirus-recovery-plan-also-aims-to-fight-climate-change/?

Downloaded: May 30, 2020.

[xix] Skarbek, A. 2020. “Why it doesn’t make economic sense to ignore climate change in our recovery from the pandemic.” Available from: https://theconversation.com/why-it-doesnt-make-economic-sense-to-ignore-climate-change-in-our-recovery-from-the-pandemic-137282? Downloaded: Friday, 08 May 2020.

[xx] Hall, D. 2020. “From what is to what if: A green stimulus and the importance envisioning the ‘impossible’”. Resilience, 22 April 2020. Available from: https://www.resilience.org/stories/2020-04-22/from-what-is-to-what-if-a-green-stimulus-and-the-importance-envisioning-the-impossible/. Downloaded: Saturday, 25 April 2020

[xxi] Harvey, F. 2020. “Green stimulus can repair global economy and climate, study says.” The Guardian, May 5, 2020. Available from: https://www.theguardian.com/environment/2020/may/05/green-stimulus-can-repair-global-economy-and-climate-study-says. Downloaded: Thursday, 28 May 2020.

[xxii] Fialka, J. 2020. “Researchers will track whether coronavirus recovery spending benefits climate.” E&E News, May 13, 2020. Available from: https://www.scientificamerican.com/article/researchers-will-track-whether-coronavirus-recovery-spending-benefits-climate/?Downloaded: Thursday, 14 May 2020

[xxiii] Hall, M. 2020. “COVID-19 weekly briefing: Evidence abounds of renewable energy gains at the expense of fossil fuels as the clamor for a green recovery rises.” PV-Magazine, 6 May 2020. Available from: https://www.pv-magazine.com/2020/05/06/covid-19-weekly-briefing-evidence-abounds-of-renewable-energy-gains-at-the-expense-of-fossil-fuels-as-the-clamor-for-a-green-recovery-rises/. Downloaded: Saturday, 09 May 2020.

[xxiv] IEA 2020. “Energy efficiency and economic stimulus.” International Energy Agency, 8 April 2020. Available from: https://www.iea.org/articles/energy-efficiency-and-economic-stimulus?utm_campaign=IEA%20newsletters&utm_source=SendGrid&utm_medium=Email. Downloaded: Monday, 20 April 2020

[xxv] Gronewold, N. 2020. “E.U.’s coronavirus recovery plan also aims to fight climate change.” E&E News, May 28, 2020. Available from: https://www.scientificamerican.com/article/e-u-s-coronavirus-recovery-plan-also-aims-to-fight-climate-change/?Downloaded: May 30, 2020.

[xxvi] Ibid.

[xxvii] Kaufman, A. 2020. “South Korea tackled the coronavirus. Now it’s taking on the climate crisis.” Huffington Post, May 8, 2020. Available from: https://www.huffpost.com/entry/south-korea-coronavirus-climate-crisis_n_5ea9e0d5c5b633a85444940b. Downloaded: Saturday, 09 May 2020

[xxviii] Dans, E. 2020. “In a post-pandemic world, renewable energy is the only way forward.” Forbes, May 5, 2020. Available from: https://www.forbes.com/sites/enriquedans/2020/05/03/in-a-post-pandemic-world-renewable-energy-is-the-only-wayforward/#55d0f9b517b6. Downloaded: May 6, 2020.

[xxix] Johnston, K. 2020. “Govt’s COVID-19 response slammed for ‘favouring men’.” The New Zealand Herald, 22 May 2020, A8.

[xxx] Boffey, D. 2020. “Amsterdam to embrace ‘doughnut’ model to mend post-coronavirus economy.” The Guardian, 8 April 2020. Available from: https://www.theguardian.com/world/2020/apr/08/amsterdam-doughnut-model-mend-post-coronavirus-economy. Downloaded: Thursday, 09 April 2020

[xxxi] Ibid.

[xxxii] Ibid.

[xxxiii] Morton, A. 2020. “Australian businesses call for climate crisis and virus economic recovery to be tackled together.” The Guardian, 4 May 2020. Available from: https://www.theguardian.com/environment/2020/may/05/australian-businesses-call-for-climate-crisis-and-virus-economic-recovery-to-be-tackled-together. Downloaded: Wednesday, 06 May 2020

[xxxiv] Harvey, F. 2020. “Britons want quality of life indicators to take priority over the economy.” The Guardian, 10 May 2020. Available from: https://www.theguardian.com/society/2020/may/10/britons-want-quality-of-life-indicators-priority-over-economy-coronavirus. Downloaded: Wednesday, 13 May 2020

[xxxv] Hepburn, C., O’Callaghan, B., Stern, N., Stiglitz, J., and Zenghelis, D. 2020. “Will COVID-19 fiscal recovery packages accelerate or retard progress on climate change?” Smith School Working Paper 20-02.

[xxxvi] Cochrane, E. 2020. “Infrastructure week returns as Trump and Democrats eye post-virus jobs plan. “ New York Times, April 1, 2020. Available from: https://www.nytimes.com/2020/04/01/us/politics/infrastructure-week-coronavirus.html?campaign_id=9&emc=edit_NN_p_20200402&instance_id=17271&nl=morning-briefing&regi_id=73055978&section=topNews&segment_id=23606&te=1&user_id=4c2641b64be4fbc96d3272bb1a96ae71. Downloaded: April 3, 2020.

[xxxvii] Emrath, P. “National impact of home building and remodeling: Update estimates.” NAHB, April 1, 2020. Available from: https://www.nahbclassic.org/fileUpload_details.aspx?contentTypeID=3&contentID=272642&subContentID=738975&channelID=311. Downloaded: June 16, 2020.

[xxxviii] The Economist, 2020. “Boris’s infrastructure plans.” The Economist, July 1, 2020. Available from: https://www.economist.com/britain/2020/07/01/boriss-infrastructure-plans?utm_campaign=the-economist-today&utm_medium=newsletter&utm_source=salesforce-marketing-cloud&utm_term=2020-07-01&utm_content=article-link-5. Downloaded: July 2, 2020

[xxxix] Musulin, K. 2020. “NLC: Financial impact data paints ‘dire picture’ of cities futures.” Smart Cities Dive, June 24, 2020. Available from: https://www.smartcitiesdive.com/news/nlc-financial-impact-data-paints-dire-picture-of-cities-futures/580383/. Downloaded: June 29, 2020.

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Infocus International Announces New Online Training on Renewable Energy Power Purchase Agreements

Infocus International Group has announced a brand new online training – Renewable Energy Power Purchase Agreements (RE PPAs) and it will be commencing live on 3 August 2021. The practical models and techniques for analyzing & structuring, drafting, and negotiating Renewable Energy Power Purchase Agreements for bankable green investments in today’s competitive energy markets.

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Western Cape government calls for information on renewable projects to beat load shedding

11 Jun 2021


We are pleased to announce the publishing of a Request for Information (RFI) for our Municipal Energy Resilience (MER) Project, calling on all potential private and public sector organisations, including Western Cape municipalities, to provide information on renewable energy projects that would develop into new generation capacity in the Western Cape.

This is an important step forward in our MER Project which was launched last year to support municipalities to take advantage of the new energy regulations to generate, procure and sell their own power so that we can become more energy secure in the Western Cape.

Information submitted through the RFI will enable the Department of Economic Development and Tourism to consider options and develop the strategic approach to assist municipalities in the Western Cape to develop and/or procure new electricity generation capacity from all types of renewable energy generation and supply systems and technologies, including self-generation, battery energy storage systems, as well as hybrid generation and storage solutions.

The MER Project is just one of the many ways to build energy resilience and buffer businesses and households from the impact of load shedding in the Western Cape.

The announcement by President Cyril Ramaphosa yesterday (10 June 2021) that Schedule 2 of the Electricity Regulation Act will be amended to increase the licensing threshold for embedded generation projects from 1 MW to 100 MW is a welcome move that will boost our initiatives to build energy resilience in the Western Cape.

To ensure we maintain momentum and move forward as quickly as possible, we need the Department of Mineral Resources and Energy to finalise Schedule 2 of the Electricity Regulation Act to provide further clarity and certainty to the market.

We remain in an energy crisis and large-scale private sector participation in energy generation, in partnership with the government, will be key to addressing the current shortfall in the Western Cape.

Courtesy: www.gov.za

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What digitalisation acceleration means for sustainability

By Jaco du Plooy, product manager for Eaton Africa

Last year took a truth which people working in the technology sector were well aware of and threw it into sharp relief for society as a whole. While the global Covid-19 pandemic has caused a level of disruption to daily life, at a level not seen for a generation or more, it’s clear that that disruption could have been significantly more challenging were it not for the digitalised nature of much of daily life. Data has now moved beyond being the bedrock of industry and is now – like water and power – an embedded and indispensable factor for modern life.

Our networked era means that colleagues have continued to collaborate through cloud productivity tools, that vulnerable customers have continued to shop through online grocery services, that vital medical information has continued to be shared with those who need it, and that friends and family have continued to see one another’s faces even under the strictest of lockdowns.

Many businesses – and especially those involved in professional services – have reaped the benefits of digitalisation by continuing to operate virtually as though their offices are still open. This is not to say, however, that every business was well prepared for this unforeseen event. Many had to rapidly bring forward plans that were on the horizon, moving services to the cloud and creating ways for staff to access vital data, and achieving virtually overnight what was road-mapped for the coming years.

In a global survey by law firm Baker McKenzie, 78% of Technology, Media & Telecoms businesses, along with 74% of Financial Institutions and 65% of Consumer Goods & Retail businesses, accelerated their digital transformation plans as a result of Covid-19. As Microsoft CEO Satya Nadella put it in April, we saw ‘two years’ worth of digital transformation in two months.

The confluence of trends around data and power

While this pace of change is worth remarking on in itself, it’s possible that we haven’t yet begun to truly reckon with the consequences of this digitalisation acceleration. While it might seem grandiose to say, it seems likely that digitalisation is just one of an interconnected set of trends that will truly change how our world operates – and the pandemic has brought the timeline for that change markedly forward.

To understand why, we need to consider the fact that, as well as replacing or reworking existing systems with data centre-based technology, digitalisation is always also a transfer of energy from one system to another. The rise in home working is a perfect example of this: while the energy demands of cloud computing likely rose as a result of home working, and those powering videoconferencing services certainly did, this replaced commuting, which was to a large extent directly powered by burning oil.

Likewise, online grocery shopping enables more efficient delivery routes rather than many individual trips, on-demand retail eliminates the energy expenditure of over-production and warehousing, and online banking reduces the need to power and maintain financial real estate.

Digitalisation of systems, then, is also an electrification of systems. A stable supply of electricity is critical for digitalisation to flourish in South Africa. With the population estimated to continue growing until 2082, and reaching just over 80-million people, this will result in a steep increase in electricity demand.

While this may, on the face of it, sound like bad news for our climate goals, the truth is that shifting demand towards electrified systems will stimulate the need for adopting renewable energy, which is now generally cheaper per watt than fossil fuel alternatives. As well as being inherently more power efficient, thanks to the hyper-efficient nature of modern silicon, digitalisation opens avenues for carbon reduction as its emissions are directly related to the emissions of the grid as a whole.

From digitalisation, to electrification, to renewable energy: this cycle closes back on itself in the fact that renewable energy requires digitalised systems for its effective generation, transmission, storage, and usage. While wind and solar are now highly efficient and economical ways of generating electricity, they are by their nature less predictable and consistent than fossil fuel-based generation.

Digital systems will be required to rapidly react to fluctuations in production, and the power held in those systems will also play a role in managing the grid’s performance. Already, stores of power like data centre backup systems and electric vehicle batteries are being used to help support the grid’s frequency and performance.

As digitalisation, electrification, and renewable adoption accelerate, these interconnections will become deeper and more dynamic: this confluence of trends is a virtuous cycle that speeds itself up.

Digitalisation and sustainability at once

As this cycle continues, I would predict that we will see the distinction between these trends start to fade away. In its earliest days, when digitalising a system meant building on-premise data centre infrastructure, decisions around digitalisation were taken largely independently of power considerations.

Over time, data centre applications became mission-critical, such that those decisions became dependent on the quality, availability, and reliability of power to ensure continued operation. Today, data and power have become co-dependent considerations: governments make policy decisions around power with data centre rollouts in mind, and data centre operators in turn plan construction in accordance with grid capacity.

Tracing that shift into the future, we may see digitalisation and sustainability become, in many regards, synonymous terms. The share of overall power needs going into data centres and networking is growing rapidly, and this will drive and support the acceleration of renewable adoption. Far from being competing concerns, the cloud will be the route to decarbonisation, and vice versa.

At the beginning of 2020, much of the digital transformation that occurred existed only in the form of medium-to-long term planning – an ideal business goal that was still subject to capacity and favourable conditions. The pandemic brought all that forward and made it an immediate necessity in ways that nobody could have predicted.

Today, electrification and renewable adoption similarly exist on a planning horizon, subject to checks and milestones as they are patiently brought into reality. Over the coming years, we will see how the ripple effect of accelerated digitalisation cascades through all our essential systems, leaving us with a very different, much greener approach to the world.

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REN21’s new report shows that cities across Africa demonstrate progressive leadership to deploy renewables

The 2021 edition of REN21’s Renewables in Cities Global Status Report, shows that one billion people live in cities with a renewable energy target or policy.

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Op-ed by Yusuff Wale, Managing Director, Wärtsilä Marine & Power Services Nigeria Ltd

“Without flexibility, Nigeria will face difficulties integrating large amounts of renewable energy into the grid”

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New fund focusing on renewable energy answers a need in South Africa

FUND FOCUSING ON RENEWABLE ENERGY, A SOUTH AFRICAN FIRST

With the saving and retirement industry recognising the important role it can play in bringing about social change by supporting South Africa’s infrastructure needs, there is a dearth of viable options available. As listed companies with a pure or major focus on the South African economy struggle to deliver returns to investors, the managers of retirement funds and other savings are now looking for alternative asset classes to obtain sufficient returns.

Says Dr Hendrik Snyman, chief investment officer at Gaia Fund Managers: “With the local stock exchange having underperformed over the past number of years and with limited options available, it is necessary for asset managers to be innovative in obtaining returns for their investors. Globally, there has been a trend whereby asset managers are looking to alternative assets to provide resilience to negative market movements, price irrationality or a lack of returns.”

“We are proud to offer a novel investment opportunity that combines assured, solid returns with sustainable energy, infrastructure and community ownership.”

Hein Kruger, managing director of Kruger International

Through the Kruger Ci Prudential, Balanced and Equity funds, clients can now invest in the operational wind farm in a safe, regulated and tax-effective way where the impressive returns inherently adjust by inflation each year.

“Kruger’s co-investors in the wind farm near Humansdorp in the Eastern Cape include the Tsitsikamma Development Trust (9%) and Cennergi (75%), a wholly-owned subsidiary of listed company Exxaro Resources. This is a true ESG (environmental, social and governance) investment. The community trust receives investor returns for their shares. The construction has already benefitted the local community through infrastructure upgrades, a new community centre, cattle fencing and bush clearing. Since then, the wind farm contributes 2.1% of its revenue quarterly to enterprise and socio-economic development in the surrounding communities.”

The wind farm is a renewable energy project with an installed capacity of 95 MW, situated near Humansdorp in the Eastern Cape’s Koukamma Local Municipality. It became operational on 17 August 2016, offering a measurable track record in output performance. This project and its various service providers have met and exceeded expectations with the power produced since operations started, surpassing the P50 (base case) forecast. The performance of the project to date reflects the quality of the wind resource, equipment and service providers, according to Snyman.

The listing of the Company’s preference shares, with its focus on clean energy, takes place as the South African Government ramps up the supply of renewable energy to the national electricity grid. On 25 September 2020, the Minister of Mineral Resources and Energy, Gwede Mantashe, gazetted a key determination under national legislation to procure a total of 11 800 MW of electricity, of which 6 800 MW will be from renewable sources.

“This investment contributes to much-needed infrastructure in South Africa and investment diversification in an alternative asset class for us as the investors. We are proud to include Gaia Fund 1, with the wind farm as its first asset, in the Kruger funds,” says Kruger.

Collective Investment Schemes and retail investors have struggled to directly access infrastructure investments for several reasons. First, they are not readily available. Second, they are not usually listed on stock exchanges. Lastly, those options which are listed are subject to deflated prices owing to the lack of a readily traded market that understands the underlying principles of the asset class.

Snyman explains: “Infrastructure as an asset class can provide investors with stable inflation-linked cash returns while preserving their capital. However, the current means of gaining access to these projects includes a daunting and protracted process requiring, among other things, negotiating lengthy contracts. This process is far removed from investors’ ordinary means of acquiring shares on a trading platform and, therefore, acts as a significant investment barrier to entry and exit. In addition to the process, the unlisted equity available in the projects precludes certain Collective Investment Scheme portfolios from acquiring interests in the projects. A listed security removes many of the entry and exit barriers for investors and allows infrastructure to take up its rightful place as an asset class in many investor portfolios.”

As a listed entity, the Fund will enable collective investment scheme portfolios to increase their allocation to infrastructure from an unlisted instrument threshold of 5% to 10%, yet retain the benefits of being unlisted through price stability. The ability to do this will open a unique market opportunity for future collective investment scheme-compliant portfolios to invest in 4AX-listed infrastructure projects through new issuances of preference shares in the Gaia Fund 1.

“Kruger International as an innovative fund manager collaborated with Gaia Fund Managers as a pioneer in the infrastructure investment space in South Africa to come up with a solution to access infrastructure investments for their investors,” adds Snyman. “Kruger International’s funds will hold all of the preference shares, allowing them to accurately mark their value on a daily basis; meaning that as an asset manager, they are less exposed to market irrationality and/or information asymmetry.”

Gaia Fund 1’s A preference shares will be 4AX’s seventh equity listing. 4AX, as a new low-cost, fully licensed equity and debt exchange, took up the challenge with Kruger International and Gaia Fund Managers to list these industry-first preference shares. 4AX provides security for investors, giving the required financial transparency and regulatory oversight without the obstructive burden and costs associated with legacy exchanges. As such, the cost and admin associated with listing are no longer prohibitive.

According to Eugene Booysen, CEO of 4AX: “4AX brings to the market an efficient and alternative regulatory model which reduces regulatory costs and inefficiencies but promotes and adheres to the highly regarded financial regulatory standards in South Africa. 4AX focuses on being a safe and simple digital marketplace redesigning finance and access to capital and thereby enabling inclusive growth.”

Gaia Fund Managers and Kruger International Asset and Wealth Management are pleased to announce the listing of South Africa’s first preference shares with an infrastructure focus on 4 Africa Exchange (4AX).

Gaia Fund Managers, together with Kruger International, plan to list Gaia Fund 1 (the Fund), which complies with Collective Investment Scheme regulations next week Thursday (22 October). The Fund’s A preference shares will trade under the ticker 4AGF1A (ISIN: ISIN ZAE400000101) on 4AX.

The preference shares will be bought by Kruger International’s various funds. The proceeds of the listing will be used by the Company to buy a 16% indirect shareholding in the Tsitsikamma Community Wind Farm.

For more information, visit http://www.gaia.group.

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Women in power: the energy sector is lighting the way

A decade into South Africa’s renewable energy sector’s existence, it has become apparent the sector is still lagging in sufficient gender diversity. Hence the industry is actively giving attention to adjust and improve the levels of gender representation, at all levels, with the launch of its Gender Diversity Working Group.

“Gender diversity means a fair gender representation across all spheres of our industry. A 2020 report by IRENA and the Women in Wind Global Leadership Program shows that women represent only 21% of the global wind energy workforce and only 8% of its senior management. Recognising that the challenge of underrepresentation of women in the wind energy sector is as much a South African challenge as it is a global challenge, we launched a Commitment Statement in 2018, which commits members of the Association to address, amongst other things, issues of gender equality in the sector,”

Ntombifuthi Ntuli, CEO of the South African Wind Energy Association (SAWEA)

This sector Working Group will mainstream gender issues within the renewable energy industry by creating a platform and framework that will actively address gender diversity matters within the energy sector and to hold dialogues around areas of inadequate representation.

This new renewable energy industry Working Group is a collaboration between SAWEA and the solar PV counterpart association, SAPVIA, as both organisations recognise the need to address gender diversity issues from a broader renewable energy industry perspective. Additionally, the collaboration includes WE Connect, an NPO focusing on women empowerment within the renewable energy sector, with the intention of maximising capacity and increasing the programme’s impact by incorporating gender coaching and mentorship. 

“Diversity in the workplace is vital for the future success of every organisation. Countless studies have shown the positive effects gender diversity can have in every industry and we must work together to ensure that South Africa’s renewables sector is truly reflective of the society in which we operate.”

SAPVIA COO, Niveshen Govender

“As a sector our ambition is to deliver a just transition and this must include the upliftment and inclusion of all genders. This is not just because it is the right thing to do – it also makes commercial sense. From widening the talent pool to enhancing collaboration, improving retention, recruitment and reputation, the payback of an inclusive workplace has never been clearer.”

“There could not be a more fitting time than International Women’s Day to bring together this Working Group. The onus is of course on each of us as individuals to challenge the status quo, however with this group we can collectively take proactive steps to drive the change that is so needed in our sector to create a more balanced workforce across the renewables industry.” 

Looking inwards, the wind sector’s governing association is in fact operated under female leadership, and has done so for a number of years. SAWEA has been led by both a female CEO and Chairperson for the past two years and is supported by a women-dominated team.

“Our team is demonstrative of how women display emotional intelligence and innovative thinking that brings a different perspective, as women are naturally visionary forces. Our shared vision has created cohesion and has meant that we have been able to achieve the association’s goals, whilst contributing to a positive culture,” adds Ntuli.

The Gender Diversity Working Group Programme is expected to include a Leadership Acceleration Programme (LAP), which will identify women with leadership potential and place them on an accelerator programme to help bridge the female leadership gap in the sector. This is in addition to the coaching and mentorship programme, led by WE connect, which will pair mentors and mentees and assist them to meet certain objectives.

“Diversity in thought will contribute positively to the thriving and growing renewable energy industry.  Through mentorship, the industry can empower women, bridge the gap between male and female perspectives on equality and promote the concept of giving back,” said Karen de Bruyn, Founder of WE Connect.

Looking beyond the professional space, the programme will also include a ‘Business Opportunities for Women’ initiative, to provide access for women in entrepreneurship activities in the sector and to support women who are establishing themselves as entrepreneurs.

The Working Group also aims to achieve the following: Gender Diversity Performance Reporting, which will include a scoring matrix; Dialogues and Events, as discussion platforms to address common challenges and shared solutions on gender issues; and the launch of a Renewable Energy Industry Gender Diversity Charter – in line with the Industry Commitment Statement.

“Simply put, the ultimate target is to see women in the sector having access to and being considered for all opportunities,” concludes Ntuli.

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VIDEO | How we can turn the cold of outer space into a renewable resource

Aaswath Raman| Ted2018

What if we could use the cold darkness of outer space to cool buildings on earth? In this mind-blowing talk, physicist Aaswath Raman details the technology he’s developing to harness “night-sky cooling” — a natural phenomenon where infrared light escapes earth and heads to space, carrying heat along with it — which could dramatically reduce the energy used by our cooling systems (and the pollution they cause).

Learn more about how this approach could lead us towards a future where we intelligently tap into the energy of the universe.

Aaswath Raman is a scientist passionate about harnessing new sources of energy, mitigating climate change and more intelligently understanding the world around us — by better manipulating light and heat using nanoscale materials.

Why you should listen

Aaswath Raman is an assistant professor of electrical and systems engineering at the University of Pennsylvania. He is also co-founder of a clean energy startup, SkyCool Systems, where he is its chief scientific officer. He initiated and led the development of radiative sky cooling, a technology that he originated as a research associate at Stanford University, beginning in 2012. 

Raman is deeply interested in the intersection of science, technology and development work, and he has previously collaborated on projects to redesign refugee camps with UNHCR and to rethink governance in rural Sierra Leone. In recognition of his breakthroughs in developing radiative sky cooling, in 2015 he was named one of MIT Technology Review’s “Innovators Under 35.”

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Bouncing back in 2021

There is little doubt that 2020 has been the year that has severely tested our mettle and has left many an industry imperilled and in urgent need of a reboot. But experts believe that the economic slump and consequent expected government investment into infrastructure is one of few positive spinoffs of the catastrophic outbreak and can be a silver lining for rebooting failing industries and organisations.

According to Igor Hulak, partner at global management consultancy, Kearney, these investments could present massive opportunities in digital transformation; transitioning to renewable and cleaner energy; and, an outcome-based ecosystem of collaboration between operators and suppliers.

Energy

A re-imagined energy supply is among the key shifts that will shape our new resilient, future-proof business mindsets.  Internationally, the pandemic has seen several European countries taking advantage of the slump in demand for energy to wean themselves off coal and into renewables.  Nationally, an accelerated implementation of a mixed energy supply, in which renewables and liquid natural gas (LNG) will play a much greater role is on the cards.

“The dearth in demand for oil, and the reduced cost of solar and wind technologies has resulted in a favourable investment landscape for renewables. Government has come on board to facilitate these transitions, and Eskom is poised to purchase power from independent renewable energy producers for use in the national grid.”

Hulak adds that, in the renewables sector as well as other industries, we’re seeing an emergence of novel restructuring of projects so that they become scalable, executable modules. “This flexible, iterative approach obviates the need for lump-sum upfront investments and is congruent with innovative modern business paradigms.”

In South Africa, the fifth round of bidding for independent energy supply is currently underway and government and corporates alike are investigating the recent innovations in battery technology and how to best procure these for greater storage capacity of energy gleaned from non-traditional sources.

Digitisation

For forward-thinking organisations, the Covid-19 pandemic might well be the watershed moment that drove broad-based digitisation and spearheaded the Fourth Industrial Revolution (4IR). Hulak urges businesses that have not yet embraced digital transformation to do so swiftly or risk obsolescence in the face of agile disruptors.

According to Hulak, the promised future of digitisation and 4IR is already upon us and is expressed through the greatly increased carrying capacity of the cloud, the ubiquity of reliable connectivity and greater numbers of people going online and becoming digitally active. 

“The customer of tomorrow fully expects automated, instantaneous access to a wide variety of basic, and more nuanced services and transactions.” 

Igor Hulak, partner at global management consultancy, Kearney

This recognition will drive innovation and expansion and will enable companies to emerge stronger, nimbler and more resilient to future disruptions.

Collaborative partnerships

It is widely acknowledged that strategic partnerships, when done right, add mutual value through a less-siloed approach and enhanced efficiencies of operations. Hulak explains that the constrained business climate brought on by the pandemic has necessitated a radical shift toward tactical alliances based on the outcome, rather than adversarial competition focused narrowly on cost and position.

“Rather than the traditional contracting methods of the past, which saw lump-sum risk being pushed onto suppliers, the risk is now shared proportionally, incentivising outcomes and driving towards a common goal”.  Hulak adds that in the new reality, data will enable an aligned view of what ‘best’ looks like thereby building trust, as well as prompting realistic, auditable costs and timelines.

Rishad Khan, the South African operations manager for engineering, procurement, construction, and maintenance company, Fluor, believes that early and effective resource-loaded portfolio planning and identification – and engaging strategic alliances upfront – will help mitigate and manage risks associated with key performance drivers of safety, cost, schedule, and quality.

“An example of this early engagement is applying a construction-driven execution approach to enable better-build techniques that drive the engineering and design process, instead of following the traditional engineering and design sequence, and then finding a construction solution and developing an execution strategy. The same methodology can be applied to suppliers. Significant cost savings have been achieved with this approach,” says Khan.

“These shifts toward holistic leadership reflect the increasing sophistication of governance globally and enable the management of often finite resources in a more responsible way with greater oversight. This stands in stark contrast to the adversarial, myopic paradigms of yesteryear,” concludes Hulak.

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