I recently needed to purchase some hardware for a small project at home and I discovered a small store nearby. Naomi’s Hardware is run by an enterprising young lady. My initial purchases were made using the M-Pesa platform and Naomi was quite happy.
One day I turned up to make a small purchase, but I only had cash. Naomi was rather disappointed as these days most of her transactions are made through M-Pesa or direct bank transfers, especially since the outbreak of Covid-19. In the event, she was obliged to give me change by M-Pesa.
This experience made realise how convenient it is to use mobile payment platforms and that even small-scale traders have now embraced the technology.
Historically, periods of calamities have been followed by great economic recovery. For instance, by 1923, after the devastating effects of World War I and the Spanish Flu, the United States began an economic boom that produced the “Roaring 20s” which lasted for six years until the stock market crash of 1929.
In November 1920, Senator Warren G. Harding was elected president of the United States and his actions to repair the economy led to farm tariffs to support the agricultural sector and significant tax cuts.
However, it was the combination of technology and pent-up capital that produced an economic renaissance.
The use of electricity became widespread, sparking economic growth and higher productivity. Mass production of millions of cars that was dependent on other industries such as highway construction, rubber, steel and building which flourished while gas stations, hotels, restaurants became essential to accommodate the tourists made mobile by Henry Ford. Radio linked the nation and movies provided mass entertainment.
By 1923 unemployment was down to four percent. Along with organised crime making millions from bootlegging and prostitution, these dynamic forces generated the economic recovery of the 1920s.
World War II institutionalised the sharp decline in the standard of living caused by the Great Depression through.
The depression was ended by the sharp decline in government spending, taxes, and regulation at the end of the war, spurring private sector growth.
While government spending is necessary to create an enabling environment, we must remember that money is drained from the private sector either through taxes or increased borrowing. Increased government borrowing draws investment capital from productive activities in the private sector and reallocates it to non-productive government consumption (including, in our case, 30 percent to corruption).
George Gilder explains in his book Knowledge and Power; The Information Theory of Capitalism and How It Is Revolutionising Our World, “But a drop in government spending does not depress creativity; it unleashes it. Judging the public sector contribution by its cost is the great error of Keynesian economics.”
The age of consumerism in America in the 1950s was fueled by private sector creativity and a reduction in government expenditure after World War II. We have observed that when the government reduces taxation, private sector growth is accelerated, and the economy thrives as happened in the Kennedy era in the 1960s and during the Reagan era in the 1980s. The Reagan era of prosperity lasted until 2007.
In 2015, Yifat Mor predicted that by 2020, a majority of purchase decisions will be based on customer experience, not price. Customer experience is about showing up for the client, where and when they need you, with ease and consistency on their part. It is about making sure that every interaction is meaningful and memorable.
Covid-19 has already made that a reality because we have been forced to experience many novel ways of doing things, and it is clear we are going to see a new normal after the pandemic has been contained.
The digital platform has come of age suddenly since the pandemic began. Online payment settlements, meetings, court sessions, shopping, schooling, taxi-hailing, delivery services, and medical consultations are now the vogue.
The ques at the banks have disappeared, cash and the cheque book are all but obsolete.
Here is a great opportunity for unparalleled economic recovery riding on the new experience of the digital platform, which must be led by the private sector, not the government.
It is estimated that our GDP could shrink by five percent and that economic recovery may take up to two years.
Tax reliefs introduced to cushion individuals and businesses from the negative impact of Covid-19, such as lower VAT and 100 percent waiver for low income earners should remain in place for that period.
The government should reduce its appetite for borrowing. Businesses will need to focus on consumer-led growth creating a greater consumer experience.
I believe that, once again, the combination of technology and private capital can produce an economic renaissance within the right environment.