#02 Foreign Ground – part two

Read last week’s article? Here are a few accounts from my previous post that sets the stage for today’s thoughts.

Everything was fine until they cut our salaries by 30%. They, then, begun delaying transfers by 10 days, 20 days, 30 days, 60 days. Yes, 60 days! I had a loan and as soon as the funds hit my account, the bank took everything. Well almost everything… Musili, 30s, Compliance Expert

The government really stepped in to cushion businesses in the affected industries. At federal level, distressed companies were eligible for a loan of at least US$ 100,000 at 1% annual interest rate. At state level, a rent relief of US$ 25,000 was available to businesspersons; no one was to suffer eviction. Banks were also required to give forbearance to mortgagees who applied for it; 12 months is the period they’ve enjoyed so far. Austin, 50 this year, Vice President – Internal Audit

I left the country to seek greener pastures and after months of waiting, I finally got a job. Day 2 and the government announces a hard lockdown. “No one is permitted to leave their residences except under strict and controlled circumstances which is one – to buy food, two – to purchase supplies, and three – to seek medical attention.” I am someone who easily make contacts but imagine trying to network in a socially distanced world. I WAS STUCK AND IN FOREIGN GROUND. Nyamari, 30s, Techpreneur

FOREIGN GROUND. Unprecedented times, uncharted territory, unimaginable turmoil. Volatility. Uncertainty. Complexity. Ambiguity. GROUND ZERO.

These 3 stories reveal a stark contrast between the liquidity of 2 economies. On one hand is the developing economy where we see a lack of cash; the inability to meet obligations as and when they fall due; the difficulty in converting assets into ready cash without affecting its market price. As a result, its people begin to face untold hardships. In fact, the United Nations through its 2021 Sustainable Development Goals Report states that COVID19 has pushed back over 119 million people to extreme poverty. The UN continues to advocate for governments to implement appropriate social protection measures geared to reducing lifelong poverty and vulnerability of populations.

On the other hand, is the developed economies, that seem to have primed themselves to tackle any financial crisis head on. The rising unemployment, the alarming suicide rates, the growing mistrust in financial institutions from the 2008 Global Financial Crisis compelled many Western nations to enact laws that would cushion their economies from possible systemic risks. Financial institutions across the world also subscribed to minimum capital and liquidity requirements.

I believe economists world over are working round the clock to develop solutions that continue to assist governments and businesses in responding appropriately to the economic situation brought about by the coronavirus. One such solution, though not new, is the Joseph Effect. Coined by French-American mathematician, Benoit Mandelbrot, the Joseph Effect or seven-year cycle (signifying 7 years of abundance and 7 years of famine) and is used by Modern Economists in predicting the timing of recessions. I haven’t attempted to look into the formula but I have examined Genesis 41 from which this theory is drawn from and here is an excerpt from it…

⁴⁷ During the seven years of abundance the land produced plentifully. ⁴⁸ Joseph collected all the food produced in those seven years of abundance in Egypt and stored it in the cities. In each city he put the food grown in the fields surrounding it. ⁴⁹ Joseph stored up huge quantities of grain, like the sand of the sea; it was so much that he stopped keeping records because it was beyond measure.

⁵³ The seven years of abundance in Egypt came to an end, ⁵⁴ and the seven years of famine began, just as Joseph had said. There was famine in all the other lands, but in the whole land of Egypt there was food. ⁵⁵ When all Egypt began to feel the famine, the people cried to Pharaoh for food. Then Pharaoh told all the Egyptians, “Go to Joseph and do what he tells you.” ⁵⁶ When the famine had spread over the whole country, Joseph opened all the storehouses and sold grain to the Egyptians, for the famine was severe throughout Egypt. ⁵⁷ And all the world came to Egypt to buy grain from Joseph, because the famine was severe everywhere.

Considering this, I think companies need to reevaluate their reserves. Yes, those figures included in the Capital and Equity section of their Balance Sheets. Do they really make sense and can they translate into real cash? The liquidity dilemma that some organizations have found themselves in during this pandemic has been meeting rising employee costs during compulsory leave, at the point of termination and possibly retirement. Body corporates that have survived the economic scourge of the pandemic also need to check their provisions for employee benefits and ensure they are adequate, fully funded, and available the next time crisis calls.

For individuals, I believe Monsieur Benoit – if he was still alive – would have wanted us to move our focus from piggy banks and concentrate on building war chests. Yes, funds that are earmarked for battle, for combat, for war. And for him, that would probably have looked like a minimum of 7 years of a disciplined saving regimen. The rule of thumb for individuals has always been to maintain savings equivalent of at least 3 – 6 months of expenditure. COVID19 has made experts revise this period upwards to 12 – 24 months. It all sounds like an impossible undertaking but I believe the forthcoming stories in the next couple of weeks will give us more insight on how we can manage money during and beyond the pandemic.

Thoughts? Feel free to leave a comment in the section below and / or share this article with a friend. Thank you for reading and have a wonderful weekend 🌻 🌻 🌻