At the beginning of this pandemic we offered predictions about potential industrial and financial effects, while questioning how effective Canada’s new safety nets would be for everyday people. We re-visit both these issues now.
Diversifying Supply and Producing Local
Supply chains are being re-evaluated, with some governments taking concrete steps to bring more production home. China has been the world’s largest exporter of goods since 2009, and after the severe lockdowns in that country earlier this year, foreign companies relying on Chinese production have been sent scrambling for alternative supplies.
Even before the crisis, there had been rumblings to domesticate production. The US government was seeking to bring more manufacturing home through tariffs; now this pandemic will motivate other countries to explore securer and more diversified supply chains. Japan has outright stated it would provide incentives for companies that bring Chinese production back home or diversify production across SE Asia. Here in Canada, the first domestically manufactured N95’s were delivered last week. Concerns about a lack of PPE incited a Canadian rallying cry to bring production home.
Another important note about this unprecedented market shock, is that companies now have metrics quantifying the vulnerablity of supply chains concentrated overseas. Before Covid-19, there were no real numbers quantifying the modern risk of foreign supply in a global shutdown. Now, this fresh data will certainly be used to re-asses decisions in the future, influencing where companies host their means of production.
A way we Canadians can mitigate exposure to overseas risks, as we mentioned before, is by appreciating the value in buying goods and services produced in our country. Ensuring domestic business continues to thrive will strengthen our national resilience; the extra price tags re-cast as small premiums for Canadian solidarity.
Bank of Canada Steps In
The Bank of Canada (BOC) has introduced a wide range of measures to help our country remain financially buoyant. Quantitative Easing (QE) measures are providing cash and liquidity to the economy, and the Canada Emergency Response Benefit (CERB) will help citizens financially impacted by Covid-19. QE supplies money, ensuring companies have cash on hand to make bill and debt payments, while keeping interest rates low for those who need to borrow. An excellent, bare bones synopsis of all these QE measures is available on the BOC site here. The details are worth looking at, to further understand why the government is spending the sums of money it is.
For individual citizens who have lost income due to Cove-19, Canada has promised $500 a week for 16 weeks. With such ground-breaking benefits created in extremely short time frames, speculation roused about how long it would take to deliver, and if the government’s administrative infrastructure would be overwhelmed. Instead, the initial feedback has been very positive, which is fantastic news for everyone who needs the support now, and for those who will need it in the future. Canadians should feel extremely proud about the quick rollout of all these financial programs amidst a generation-defining global shock.
A major underpinning to all these moves is the inability for many companies, and individuals, to weather a sudden shock to the system. The lack of liquid reserves means challenges paying bills when revenue unexpectedly drops. It is important to note that companies today are historically over-leveraged, largely due to “low post-2008 low interest rates”. Hopefully these behaviours will be tempered and corporations will consider maintaining a minimum of liquid assets in the future.
In a similar way, Canadian consumer debt had been rising to near record levels, coupled with low personal savings. We mentioned in a previous article about the dangers of risky financial bubbles, which have now compromised many investments. Canadians need to reconsider how they leverage themselves with low interest rates. Emergency funds should be re-visited, bigger purchases paused, until people know they have cash reserves to weather future crises. This will be especially paramount in the near term if Covid-19 re-surges after this initial spike.
All segments of our society need to re-evaluate money and credit status quos. A way to address these money-management issues would be a mandatory personal finance course for high school students. The government could take initiatives to deliver information campaigns which better explain fundamental financing to every-day Canadians. A government-funded online platform could educate citizens who want the knowledge without having to see a financial advisor. We could make the course mandatory for anyone looking to buy a house, finance a vehicle, or get a credit card.
After Covid-19 settles and we return to a semblance of normal life, strengthening our personal and corporate balance sheets will make us more resilient in the future. CanadNow will follow up with these ideas in future articles.