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The recently passed CARES Act included a number of provisions providing tax and student loan relief. And free money. On today’s column, I look at a few pieces of the new legislation that can be used to maximize tax savings and minimize student loan payments for those on IBR and PSLF payment plans.

For 2020 Only: Student Loans Can Be Paid With Pre-Tax Money

For 2020, employers can pay up to $5,250 of an employee’s student loans and it will be tax-free to the employee. Since this is only effective for one year, take advantage of this if you can. The employer must pay the student loan lender directly. It can be paid in a lump sum or can be spread out monthly.

This provision will greatly benefit employees with multiple part-time employers, each of whom can pay up to $5,250 toward their student loans tax free. It will also benefit high-income taxpayers who will not only get a bigger tax break but are also in a better position to pay the full $5,250.

Solo practitioners who have set up a corporation for their practice should have the corporation pay the student loan lender to take advantage of the tax savings. The corporation can take a business deduction for the payment while the solo-shareholder does not have to recognize the payment as W-2 income.

On the other hand, those with lower incomes are likely to be disadvantaged. Because they are in a lower tax bracket, their tax savings will not be as big. Also, most probably work for small firms and their employers may not want to make their payroll more complicated by paying someone other than the employee. And if the employee has no discretionary income after paying for food, shelter, and transportation, they cannot take advantage of this provision at all. Lastly, even if they could, if they have six-figure loans, paying $5,250 spread out over the remaining months of 2020 will barely put a dent on the principal.

I suggest that this provision be integrated with the existing student loan interest deduction and allow a combined maximum student loan (principal and interest) deduction of $7,750.

Should Married Couples File Jointly Or Separately? It’s Even More Complicated

One of the highlights of the bill is that each person will be eligible for a stimulus payment of $1,200. But this payment amount will start to decrease if their adjusted gross income (AGI) as shown on their 2019 tax return (or 2018 tax return if 2019 is not filed yet) is greater than $75,000. The payment will decrease by $5 for every additional $100 of income. If the taxpayer’s AGI exceeds $99,000, they will not be eligible for any payment.

Married couples filing jointly can qualify for the full $2,400 payment if their combined AGI is under $150,000. If their AGI is above $150,000, the payment amount will decrease. And if their AGI is above $198,000, they will not be eligible for any payment. Those filing separately will be treated with the same eligibility rules as single people.

Married couples should file jointly if their combined AGI would qualify them for the full refund as opposed to filing separately. For example, suppose one spouse has an AGI of $90,000 and the other’s AGI is $60,000. If filing separately, the spouse with $90,000 would get a stimulus payment of $450 while the spouse with $60,000 will get the full $1,200 for a total stimulus payment of $1,650. But if filing jointly, they would be eligible for the full $2,400 since their joint income is within the $150,000 limit.

But some couples don’t file jointly even if it results in lower taxes and a larger stimulus payment. This is because doing so will increase their IBR student loan payments and the increase can offset any savings they receive by filing jointly.

Federal Student Loan Payment And Interest Accrual Are Suspended

The CARES Act suspends monthly payments and interest accrual of federal student loans until September 30, 2020. For those on IBR and PSLF repayment plans, even though the payment requirements have been suspended, they will still be treated as if they made timely payments during those months. So those on PSLF should take this blessing and stop making payments immediately until the suspension period is over.

Even for those on other types of payment plans, this gives no incentive to continue making monthly payments. Instead, the money should be saved until the end of the suspension period which could be extended beyond September 30. The saved payments could be used for emergencies. Or they can be used to pay down the loan which includes additional principal.

The suspension of payment and interest accrual does not apply to private loans.

Tax Return Filing Deadline Extensions Can Result In Avoiding Higher IBR Payments for 2019

Lastly, the IRS has extended the tax return filing and payment deadlines until July 15, 2020. An extension to the filing deadline (not payment) is also allowed, which will push the extended due date to January 15, 2021. Most states have followed the IRS’s lead.

This deadline extension is useful for those on IBR or PAYE plans who face higher monthly payments because they will report a higher AGI on their 2019 returns. Since the monthly IBR payment amounts is determined in part by a borrower’s AGI, if the borrower’s 2019 AGI is higher than his or her 2018 AGI, they will be better off filing an extension to push the filing due date to January 15, 2021.

In conjunction with the federal loan payment suspension mentioned above, the borrower will continue to pay the monthly payment based on the lower 2018 income after the suspension period ends so long as the extension is filed. The payments can be lowered after the suspension period if they can prove financial hardship to the lender.

Assuming that the taxpayer will report a lower AGI for 2020, the taxpayer should file an extension and later file the 2019 return on the new January 15, 2021, deadline. The 2020 tax return should then be filed soon thereafter. If done correctly, the borrower could avoid paying the higher 2019 monthly payments or only pay them for a few months before the payments are converted to the lower payments based on the 2020 AGI.

The CARES Act provides some tax and student loan relief to mitigate the economic downturn. With the proper planning, some people who had a very good year in 2019 can save a significant amount of money if they are seeking loan forgiveness through an income-based repayment plan. If possible, it might be best to wait before filing since there is already talk of Phase Four of the CARES Act. Feel free to reach out to me if you have any questions. I’m pretty much quarantined anyway.

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Steven Chung is a tax attorney in Los Angeles, California. He helps people with basic tax planning and resolve tax disputes. He is also sympathetic to people with large student loans. He can be reached via email at sachimalbe@excite.com. Or you can connect with him on Twitter (@stevenchung) and connect with him on LinkedIn.

A lot of bad ish is happening in the legal industry right now. Austerity is the name of the game, and nothing is off the tables. We’re barely into the crisis and we’ve already seen layoffs, furloughs, salary cuts, hiring freezes, benefit cuts … pretty much anything firms can think of to cut costs. But one firm is going in the opposite direction.

Enter litigation boutique Hueston Hennigan. The elite firm is known for its generosity — they are at the top of the pay scale and regularly beat the market in terms of bonuses. And that spirit of taking care of their employees has continued through the global pandemic.

According to a tipster, the firm has been handing out money to make the realities of COVID-19 life a little easier. Staff has received a special $1,000 bonus to assist them or their families with any unexpected expenses during this time. And attorneys haven’t been left out of the largess. All lawyers got an additional $500 at-home technology budget (which supplements their existing technology) to make the transition to remote working just a little bit easier.

Kudos to the firm for trying to make the pandemic less awful for employees.

What’s your firm doing to deal with the global pandemic? If your firm or organization is giving special bonuses on the one hand or slashing salaries, closing its doors, or reducing the ranks of its lawyers or staff, whether through open layoffs, stealth layoffs, or voluntary buyouts, please don’t hesitate to let us know. Our vast network of tipsters is part of what makes Above the Law thrive. You can email us or text us (646-820-8477).

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Kathryn Rubino is a Senior Editor at Above the Law, and host of The Jabot podcast. AtL tipsters are the best, so please connect with her. Feel free to email her with any tips, questions, or comments and follow her on Twitter (@Kathryn1).

How are law firms dealing with the economic upheaval that’s come about thanks to the coronavirus? Not especially well. Thus far, we’ve seen layoffs, furloughs, salary cuts of all kinds (ranging from 10 percent, to 20 percent, to 25 percent, and some partners have even slowed or eliminated their distributions), and some reductions in benefits.

Now we’ve got a firm that’s going for the trifecta: furloughs, layoffs, and salary cuts.

Thanks to COVID-19’s impact on the economy, Cullen & Dykman, a midsize New York law firm, has laid off or furloughed at least 30 people and cut compensation for lawyers and staff by up to 20 percent or more. According to Christopher Palmer, the firm’s managing partner, “certain limited terminations and furloughs” were necessary due to the pandemic. The New York Law Journal has the details:

Two sources familiar with the events said at least 30 people, both staff and attorneys, were let go through a combination of layoffs and furloughs. It’s not clear how many of them were laid off and how many were furloughed with the expectation they would be rehired.

The sources also said staff and lawyers at the firm, both partners and associates, were having their pay cut by varying amounts, up to 20% or more.

“The firm must take a proactive, fiscally cautious approach,” Palmer said in the firm email Tuesday. “Like most other firms and businesses, we must set forth a clear plan. … [I]t will involve all of us making certain sacrifices.”

Best of luck to everyone who fell victim to these three horribles at the firm. Facing financial insecurity on top of a health crisis is a scary place to be. Please stay well.

If your firm or organization is slashing salaries, closing its doors, or reducing the ranks of its lawyers or staff, whether through open layoffs, stealth layoffs, or voluntary buyouts, please don’t hesitate to let us know. Our vast network of tipsters is part of what makes Above the Law thrive. You can email us or text us (646-820-8477).

If you’d like to sign up for ATL’s Layoff Alerts, please scroll down and enter your email address in the box below this post. If you previously signed up for the layoff alerts, you don’t need to do anything. You’ll receive an email notification within minutes of each layoff, salary cut, or furlough announcement that we publish.

Cullen & Dykman Lays Off and Furloughs, While Cutting Lawyer and Staff Pay [New York Law Journal]

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Staci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.

Everyone within the legal industry has been profoundly affected by the COVID-19 pandemic. Indeed, many law firm offices have been shut down due to public health concerns, and numerous courthouses are also closed for business. This situation is dramatically affecting the way that many lawyers provide legal services and how courts administer justice. Although it is easy to think primarily of all the negative impacts of COVID-19 on the legal profession, it is possible that the legal industry may improve because it had to change for the COVID-19 pandemic.

Greater Flexibility With Working From Home

As mentioned in a few prior articles, allowing employees to work from home is advisable in a number of circumstances. Giving workers the flexibility to work from home can make it easier for employees to deal with childcare issues, car problems, healthcare appointments, or any number of matters all of us need to contend with in our daily lives. In addition, working from home can save time on commuting and might be much more enjoyable to people than trekking to an office where they have to see their bosses every workday. In addition, working from home can help law firms reduce real estate costs, often one of the biggest and most rigid expense law firms face.

Despite these benefits, before COVID-19, many old-school attorneys were unwilling to promote working from home. Indeed, prior to starting my own shop, I worked at a firm that spent a considerable amount of resources to build what they deemed to be the “office of the future.” On my way out the door, I told firm management that the office of the future was not to have an office, and the firm should look to expand work-from-home programs and cut real estate costs. However, I was told that in-person collaboration was best, and the firm needed to have a strong physical presence to operate.

Nevertheless, a variety of law firms are now required by regulations to have their employees work from home, and many firms have not missed a beat. Attorneys and staff have been collaborating over the phone, WhatsApp, Gchat, and through other methods, and many meetings are being held through videoconferencing apps. It is altogether possible that even after the COVID-19 pandemic subsides, law firm managers may be convinced that people can collaborate and complete tasks remotely, such that work-from-home programs will be expanded. In this way, employees might finally realize greater flexibility while law firms see significant savings on real estate costs.

Remote Court Appearances

As mentioned in a prior article, many smaller law firms make a significant amount of money on court appearances. Indeed, attorneys usually bill not only for the time they spend in court, but the time they spend traveling to and from court. However, some court appearances are not worth the travel time it takes to make it to court. For instance, prior to starting my own firm, I worked at a shop that regularly made my colleagues and myself travel hundreds of miles to attend some court conferences. Oftentimes, we would have to fly to these conferences and spend almost an entire day just to write notes on what happened during a five-minute court appearance. Some days, because of travel delays and infrequent flights, I would bill 14 hours or more and spend nearly a thousand dollars of the client’s money on travel costs for a pretty unnecessary court appearance. I always wondered why such appearances couldn’t be done through the telephone or other remote means to save time and out-of-pocket expenses.

Now because of COVID-19, many judges are holding conferences through telephone, Skype, and other methods. The results have been mixed, but as people get more experienced with operating this way, the conferences have been running much smoother. Of course, sometimes there is no substitute to getting parties together so that they can talk about a case and work out issues. However, for some minor court appearances when substantial traveling is not worth the benefits, courts will hopefully learn from their experiences holding conferences remotely and be more open to teleconferences under normal circumstances.

Courtesy In The Profession

It is also worth mentioning that COVID-19 is requiring attorneys to cooperate with one another and be courteous in ways that I have never before seen while practicing law. Pretty much all of the attorneys I am working with have been sending courtesy copies through email because they know that few people are in offices to receive mail. In addition, attorneys are freely sharing information about adjournments, updated procedures, and other news related to the current situation. Furthermore, attorneys are coming to agreements and making deals in ways never before seen, since it is difficult to obtain any kind of judicial relief right now. It can only be hoped that such a cooperative and courteous sentiment in the legal profession continues after the COVID-19 pandemic has passed.

In the end, COVID-19 has negatively impacted the legal profession. Indeed, the pandemic has interrupted the operations of many firms and has already led to numerous layoffs and pay cuts within the legal industry. However, it is also worth mentioning that COVID-19 can have a lasting and positive impact on the way many law firms and courts operate.

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Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at jordan@rothmanlawyer.com.

Guess I struck a nerve with my last column. I think I set a new personal record for hate mail (and fan mail too, thanks very much for that). At any rate, I figured I’d slow it down a bit this week with the totally noncontroversial subject of suggesting that several sitting senators may have committed a capital offense.

Federal and state governments have only ever brought about 40 treason cases since our Constitution was ratified in 1789. That’s not a lot, but it still averages out to about one every six years, more than you might expect for a crime that is a national event every time it is committed.

The last person convicted of treason in the United States was Tomoya Kawakita, who was sentenced to death in 1952 for his abuse of American prisoners of war in Japan during World War II (he was later deported by the Kennedy administration). Before that, Americans convicted of treason ran the gamut, from devoted abolitionist John Brown, who was convicted of treason against the Commonwealth of Virginia and hanged in 1859 for leading an armed rebellion (he was, actually sort of heroically, trying to start a slave revolt), to William Bruce Mumford, who was hanged for treason in 1862 after removing an American flag from a mint building in New Orleans (harsh, right?). Both Missouri and Illinois charged founder of Mormonism Joseph Smith with treason, but it was a rougher form of justice that ultimately got him: an angry mob stormed the jail Smith was being held at in 1844 and killed him.

Today, treason isn’t thought of as much as a serious crime as it is as an insult to hurl liberally at political opponents. Yet, treason is in the U.S. Constitution, and is similarly defined in most state constitutions:

Treason against the United States, shall consist only in levying War against them, or in adhering to their Enemies, giving them Aid and Comfort. No Person shall be convicted of Treason unless on the Testimony of two Witnesses to the same overt Act, or on Confession in open Court.

U.S. Const. art. III, § 3, cl. 1.

Under federal statutes, whoever is guilty of treason “shall suffer death, or shall be imprisoned not less than five years and fined under this title but not less than $10,000; and shall be incapable of holding any office under the United States.” (18 U.S.C. § 2381). So, in addition to a wide range of behavior being considered treasonous over the years, there’s a wide range of potential penalties, although it’s that last one that really interests me in the present context.

On February 4, Republican Senator Richard Burr, chairman of the Senate Intelligence Committee, gathered with several other lawmakers to hear reports from intelligence officials about how foreign nations were responding to the budding coronavirus health crisis. In the following days, Burr sat through a number of additional committee sessions focused on coronavirus, including an update on February 12, the same day the Dow hit its last record high. On February 13, when President Donald Trump and Burr himself were still publicly downplaying the coronavirus threat, Burr sold off 33 stock holdings worth between $628,000 and $1.7 million, including significant positions in businesses like hotel companies whose stocks were particularly ravaged just a few days later. Four other senators (three Republicans and one Democrat) mirrored Burr’s timing with significant stock sell-offs, although unlike Burr, these other senators said they do not personally manage their own portfolios and were unaware of the sales. However, in pretty much the definition of “suspicious,” GOP Senator Kelly Loeffler, whose husband Jeffrey Sprecher is chairman of the New York Stock Exchange, took some of the proceeds of her pre-crash stock dump and put them into shares of telework company Citrix. Citrix shares have since increased by about 15 percent now that everyone is on coronavirus lockdown working from home.

Burr is now facing an investor lawsuit, and he and the others are reportedly the subject of a joint probe from the Justice Department and the SEC. Burr has denied wrongdoing, and also asked for a Senate Ethics Committee investigation. New legislation has even been introduced to ban members of Congress from trading individual stocks entirely. But maybe that’s not enough.

Our president, among others, has been quite explicit about his view on the nature of the struggle we’re in against COVID-19. “It’s a war,” Trump said at a recent White House press conference. And perhaps it is. It seems Burr used the information afforded by his position to take resources out of the hands of hard-hit American businesses at a time when they needed investment the most, so he could profit at the expense of those businesses and other American investors. He adhered to the enemy we currently face. Coronavirus, and the economic collapse associated with it, aren’t conventional national threats. But conventional or not, they’re very real, and are more dire than anything we have faced in recent memory. What Burr and the others did, in a small way, made these threats worse. It was disloyal to the national spirit we all owe our society during this fight. We need to demand better from our lawmakers. And an official censure isn’t going to cut it.

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Jonathan Wolf is a litigation associate at a midsize, full-service Minnesota firm. He also teaches as an adjunct writing professor at Mitchell Hamline School of Law, has written for a wide variety of publications, and makes it both his business and his pleasure to be financially and scientifically literate. Any views he expresses are probably pure gold, but are nonetheless solely his own and should not be attributed to any organization with which he is affiliated. He wouldn’t want to share the credit anyway. He can be reached at jon_wolf@hotmail.com.

If you thought a little pandemic would stop 87-year-old Justice Ruth Bader Ginsburg from going to the gym, then you’d be wrong. Although her personal trainer attempted to stop her from working out, the justice apparently “ain’t having it.”

According to Bryant Johnson, Ginsburg’s longtime trainer, the pair go to the Supreme Court’s private gym twice a week. Here’s more from Law360 (sub. req.):

The two are taking extra precautions to wipe down equipment and keep their distance. Johnson, a federal judiciary employee, has canceled appointments with his other clients and now is only working with Justice Ginsburg.

“Everybody’s been shut down. The only reason why I didn’t shut the justice down is because, hey, she ain’t having it,” said Johnson, who spent over 30 years in the U.S. Army and now works in D.C.’s federal district court. “She has that grandfather status to me and if she wants to train, that‘s the least that I can do.”

“Her choice is, she doesn’t make excuses not to do it,” Johnson said. “So we find ways to do it.”

Now, you may be worried about how Johnson is keeping our national treasure safe during a public health crisis. Don’t worry, because he says he’s taking very good care of her. “Well it’s like this: Before I go in, I wipe down every piece of equipment that I think she is going to touch and come in contact with,” he said. “Then I go back in and wash my hands.” Ginsburg knows her workouts so well that all Johnson has to do is set up the room. “It doesn’t require me to grab her, hold her, get up close and personal.”

The Supreme Court is currently on hiatus from oral arguments for the first time since the 1918 Spanish flu outbreak, but COVID-19 won’t keep Ginsburg from working out, which is the most Supreme flex of them all.

Coronavirus Isn’t Stopping RBG From Working Out [Law360 (sub. req.)]

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Staci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.

Wouldn’t it be nice if the recession 2.0 were a big April Fools’ joke? Unfortunately, it’s not, and Biglaw is trying to figure out how to deal with the economic consequences of the COVID-19 outbreak that’s left many firms reeling. Some have opted for layoffs and furloughs, while others have chosen to cut salaries (some by 10 percent, some by 20 percent, some by 25 percent, and some partners have slowed or eliminated their distributions). Even benefits have taken a hit in this new normal.

The latest firm to make a move is Allen & Overy, and they’re pulling out all the stops. To make sure the Magic Circle firm remains financially secure, partners are holding a capital call and reducing their profit distributions at the same time. The firm has also frozen pay for associates and support staff, and upcoming bonuses people were expecting to receive this summer will now be split into two payments (one in July and one in October). The firm will also be delaying and canceling some recruitment and other events.

“The COVID-19 global crisis is an unprecedented situation for us and our clients,” a firm representative said in a statement. Law.com International has more:

“The firm is in a very strong financial position but given the unknown nature of the evolving challenges, and their long term impact on our markets, it is sensible to introduce some prudent management measures as part of our ongoing scenario planning.

“A&O retains good diversification across practices and one of the broadest international offerings among the global elite firms, so we are confident in our resilience if economic conditions worsen.”

Allen & Overy has no debt and yet the firm is still trying to avoid prospective catastrophe by going through with all of these financial maneuvers. Just imagine what would have happened if A&O had completed its merger with O’Melveny & Myers.

Best of luck to everyone at Allen & Overy as the firm attempts to pull off the greatest magic trick of all by beating a floundering economy.

If your firm or organization is slashing salaries, closing its doors, or reducing the ranks of its lawyers or staff, whether through open layoffs, stealth layoffs, or voluntary buyouts, please don’t hesitate to let us know. Our vast network of tipsters is part of what makes Above the Law thrive. You can email us or text us (646-820-8477).

If you’d like to sign up for ATL’s Layoff Alerts, please scroll down and enter your email address in the box below this post. If you previously signed up for the layoff alerts, you don’t need to do anything. You’ll receive an email notification within minutes of each layoff, salary cut, or furlough announcement that we publish.

Allen & Overy Holds Capital Call, Cuts Partner Payouts and Freezes Associate Pay [Law.com International]

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Staci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.

It was just one week ago that many a Biglaw firm seemed confident that their summer associate programs would go forward as originally planned, despite the ongoing COVID-19 crisis. Perhaps there would be fewer festive outings and extravagant meals due to social distancing guidance, but some truly believed that things would be “just fine.” Others were more realistic, embracing the possibility of remote work and even givng credence to delayed start dates. Now that firms have started announcing salary reductions, furloughs, and layoffs, the game has changed.

Which firms have decided to start their summer programs late — and pay their law student employees less?

First up is Cooley, which according to sources recently decided to cut its 10-week summer associate program back by four weeks. Law students will begin their work at the firm on June 15, and end their summers on July 24, as previously scheduled. We’re told that in addition to the firm’s deferred start date, law students’ paychecks will also come up a little short. Instead of receiving pay for the 10 weeks they were supposed to be working as detailed in their offer letters, Cooley summers will only receive pay for the length of their shortened programs.

Compare this to what’s going on at Sidley, where tipsters say summers will be starting their programs later than expected, on June 1, although the firm isn’t quite clear yet on how the program will operate (i.e., whether it will all remote or whether modifications will be made so in-person meetings can occur). Regardless of any possible abbreviated program length, we’ve heard that Sidley summers will be paid for the number of weeks indicated in their offer letters.

As more firms make strategic financial moves in the weeks to come, we suspect we’ll hear more about the fate of their summer associate programs. We sincerely hope that law students will receive the experiences — and pay — they were expecting to receive, but please bear in mind that the unexpected circumstances brought about the coronavirus outbreak could very well put an end to summer associate programs at some firms, so be thankful your job is still waiting for you.

Is your firm planning to hold its summer associate program as planned, despite coronavirus concerns? Please text us (646-820-8477) or email us (subject line: “Coronavirus Summer Associate Program”) and let us know. Stay safe.

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Staci Zaretsky is a senior editor at Above the Law, where she’s worked since 2011. She’d love to hear from you, so please feel free to email her with any tips, questions, comments, or critiques. You can follow her on Twitter or connect with her on LinkedIn.

In addition to the health challenges posed by COVID-19, Africa is already feeling the effect on its economies. With industries shutting down in Asia, America and Europe demand for raw materials and commodities is declining, but it is also hampering Africa’s access to industrial components and manufactured goods (including medical equipment).

Initial actions in Africa have focused on slowing viral contagion with measures, including the closing of borders. These actions come as the continent has been making bold moves to increase economic integration, with African Union officials recently swearing in the first-ever Secretary-General of the newly created Secretariat of the African Free Continental Free Trade Agreement. The coronavirus could represent a risk for the continental project but leaders could also turn it into an opportunity for stronger collaboration if certain policies are fast-tracked. Quick gains could be achieved by consolidating the regional integration initiatives they are already implementing.

The closing of borders, for instance, can send a very different signal depending on how governments do it. Where leaders of neighbouring nations close borders together, as those of Portugal and Spain have done, it is a symbol of partnership in the fight against a pandemic. Reducing flows of people while keeping borders open for goods signals continued faith in the importance of economic activities and trade in providing the goods people need to continue their daily lives. In Africa, such collaboration will be crucial, especially for the continent’s sixteen landlocked countries

The crisis may also provide African leaders with an opportunity to look at regional value chains differently. Reliable regional supply chains characterize North America, Asia and Europe. In Africa, however, integration in international markets mostly entails integration in global, not regional, value chains – with Africa providing the raw products for processing elsewhere around the world.

Opportunities for creating regional value chains exist, notably for making motor vehicles or in aerospace activities in Northern Africa. But designing regional strategies may mean agreeing on which component of the value chain is produced where, and can involve trade-offs that policymakers do not always find it easy to make.

But the exceptional nature of the pandemic could provide fertile ground for regional collaboration by policymakers in the fields of pharmaceuticals, disinfectants, diagnostic testing equipment or protective garments. Such decisions will have to be taken and implemented very rapidly.

African leaders can also act in unison in the fight against the economic consequences of the pandemic. Nobody knows how much the pandemic will affect global GDP, but any impact is sure to be significant. Estimated losses in GDP growth for the world as a whole – but also for Africa as a region – currently hover around between 1.5 and 2 percentage points. Those figures are most likely to be revised to include even greater losses.

The travel industry has been the first to be impacted. Airlines around the world are struggling, and tourism has been hit hard. The blow will not go unnoticed in African countries like Tunisia, Egypt and Kenya – where tourism represents around 14%, 11% and 10% of GDP respectively. For underperforming regional airlines, this could spell disaster.

Shutdowns in China and Europe, notably in the apparel, machinery and footwear subsectors, will significantly hit global supply chains – with consequences for Africa. Traditionally reliable sectors in Africa – like the cut flower industry – could also take a pummeling.

In countries that impose lockdowns, large parts of the services sectors are likely to suffer dire outcomes. The hospitality, sports and recreation sectors, and large parts of retailing, are among those most affected by partial or full lockdowns.

The drastic drop in oil prices – triggered by events independent of the coronavirus pandemic but now reinforced by the negative demand resulting from it – is set to compound these economic shocks. Oil exporters like Nigeria will see their revenues shrink.

Faced with this outlook, African policymakers may want to ask themselves how long businesses in their countries can survive in the absence of or with significantly reduced revenues and what the scale of job losses may be. For many micro, small and medium-sized enterprises (MSMEs), with fewer assets to ride out the storm, the survival rate may only be counted in weeks. That is why small businesses, more than larger businesses, will tend to go out of business or cripple their capacity to be competitive.

Yet, because MSMEs employ around 70% of the workforce in most countries, shedding workers will only aggravate the economic downturn brought on by the pandemic.

Knowing how small businesses act as a lynchpin connecting the pandemic to a broader economic recession, governments around the world have scrambled to reduce the operational stresses on them. They have introduced policies meant to help MSMEs cope with short-term financial risks and long-term business implications. This will, it is hoped, reduce layoffs, prevent bankruptcy, encourage investment and help economies get back on their feet as soon as possible. These measures include concessional financing; tax reductions and grants; employment incentives; technical assistance; and indirect measures.

Low-interest loans and other concessional financing, aimed at easing short-term liquidity issues, have been among the most popular policy measures announced to date. But the experience of the 1970s oil price shock shows that this can have a limited impact in the supply-shock, low-interest rate environments that exist today. Instead, the most effective way to prevent bankruptcies may be measures aimed at reducing costs for MSMEs – such as tax breaks. Investment in digital trade and investment facilitation must also continue – countries with such facilitating policies will be first off the mark in the post-crisis period.

All of these measures require funding. Countries with fiscal space will find it easier to introduce them than those without it. Unfortunately, global debt levels have continued to increase after the financial crisis over a decade ago. Though the bulk of global debt is held by the industrialized world, its increase has been more important in the developing world over the past decade. Concerted action among leaders may therefore be necessary in order for efforts to support small and medium sized businesses not to have negative repercussions on financial markets.

History shows us that cross-border collaborations often arise during or after significant crises. The First World War prompted the creation of the International Labour Office; the United Nations was formed in the aftermath of the Second World War. The construction of the European Union was also a reaction to that conflagration.

The African Union has already recognized that Africa will be stronger if countries are more integrated and unified with the birth of the African Continental Free Trade Area. A similarly strong commitment to joint action by leaders on the continent would undoubtedly benefit the fight against the coronavirus pandemic and its economic consequences for Africa.

These actions should include a recommitment to the Sustainable Development Goals, to multilateralism and a pledge to help those that will be most affected by the economic downturn: small businesses, women, young people and vulnerable communities. The International Trade Centre (ITC) with its mandate to build the competitiveness of small businesses in developing countries, emphasizing women-owned businesses and people at the base of the economic pyramid, stands ready to support these efforts.

Dorothy Tembo is the Acting Executive Director of the International Trade Centre, a joint agency of the United Nations and the World Trade Organization

 

This article originally appeared in Capital Ethiopia Newspaper.

Post published in: Featured