Valdai Club

In Kazakhstan, and in other countries with smaller populations where quarantine is in effect due to coronavirus, the key issue is the quarantine’s duration. Of course, large countries like China can be quarantined for a couple of months or more, but they have sizable financial reserves; for Kazakhs this is really a matter of life and death for the economy. Well, you have to understand  pandemics like this are likely to happen more often, given the long-term increase in the number of tourists and international flights, so in any case, you need to know how to make a choice when quarantine is introduced.

The main question that the coronavirus infection poses for any state is what you have to sacrifice, the economy or people. This question is especially sensitive in light of the fact that coronavirus mainly kills people of pre-retirement and retirement age with pre-existing chronic diseases. Not without reason, people gloomily joke that the troubled pension funds invented this virus. But one must understand that there are deaths to which society is already accustomed, and there are deaths to which society is not accustomed.
For example, if we review the statistical data in “Natural movement of the population of the Republic of Kazakhstan” for 2019, we can see the mortality statistics there:
In total, 133,489 people died.

16,306 people died from respiratory diseases, and viral respiratory infections such as influenza and pneumonia claimed the lives of 4,164 people (45 and 11 per day).
796 people were murdered (2 people per day), and 2,381 people committed suicide (6 people per day).

At the same time, from March 12 to April 12, that is, for 32 days, in Kazakhstan 10 people died from the coronavirus, with 951 infected. Even if you accept the estimate provided by the Ministry of Health that 3,500 will be infected, mortality from this proportion will be 37 people. In general, so far it turns out that “the death of a person from a coronavirus is a tragedy, the death of thousands from respiratory diseases is statistics.”

So, in my opinion, the socially recognised danger of the virus is associated with the general increase in the value of human life, the considerable focus of the media and the old age of our elite, who fear for their lives. For example, of 12 deaths from coronavirus in Kazakhstan, 1 was 41 years old, 3 were 50-60 years old, 4 were 60-70 years old, 1 was 72 years old, 2 were over 80 and 1 was over 90; all had severe chronic diseases.

If we recall the previous crises, in 2007-2008 the price of oil fell, bank financing decreased, and GDP fell immediately by 14% – investors seeking easy money left the market. At the same time, the number of individual entrepreneurs fell (in 2011 their number grew, strongly), but the crisis did not affect the number of small businesses and legal entities with a private form of ownership in general. If you look at suicides and killings, their number was constantly falling, that is, the general trend towards humanisation had begun in the 2000s and continues to this day. So it’s like you have to choose life, rather than your wallet.
However, this option is true if the effect of the quarantine reflects that of the economic crisis. But what if it is not? If things happen as they did in 1999 rather than in 2008, because oil prices are nearly at the same level. Could this lead to a jump in poverty and suicides and killings?

In my opinion, everyone who thinks quarantine will have the same consequences as the economic crisis is wrong. In fact, the state of emergency and quarantine are similar in their consequences for the economy to a war. This is not even a natural or man-made emergency, which is always sufficiently localised.

During an economic crisis, the profitability of several sectors decreases, enterprises may be retooled, and even unemployed people can look for new jobs and earn extra money, cargo and people move freely. And under quarantine, as in war, only those industries work to which the country’s essential services and strategic sectors are tied; people cannot be moved, goods are prohibited, and many industries are simply closed without any alternatives; people who have lost their jobs can rely only on state assistance. The only difference from the war is that there are not bombs and instead of grocery ration cards there is a cash social allowance (groceries are also given out).

That is, the economic impact of quarantine is much broader and stronger, and therefore it must be perceived differently – it is being compared with military conflicts. Let us take two closely-related post-Soviet examples, both of which were in the growing economy:
The five days of the Russian-Georgian conflict indirectly led to a drop in Georgian GDP from $12.8 billion in 2008 to $10.77 billion in 2009, that is, 16% of GDP.
Nine months of intense civil war in eastern Ukraine led to a drop in the country’s GDP from $133.5 billion in 2014 to $91.03 billion, that is, 32% of GDP.

Our quarantine is further aggravated by the global drop in prices and most importantly by the demand for commodities. That is, GDP losses are feared to be at least in the double digits.
The best thing about the problems is the fact that on April 14, 4,701 million people or 51.1% of the workforce in Kazakhstan applied to collect social benefits. That is, it is clear that for the country’s economy, this is an unprecedented phenomenon, only similar in its consequences to the collapse of the USSR, but it has happened much more quickly.

Apparently, all the consequences of quarantine, especially given the role of applications for social benefits, were realised by the Kazakh government and there was an understanding that quarantine with its long period would lead to a collapse of the economy, so from April 20 there will be a gradual resumption of business-as-usual. The heads of the Russian regions also realised this – most of them, after about 10 days of quarantine, decided to soften its conditions, simply because there is no other alternative.

In my opinion, in the long run, the impact of this quarantine will be like this (in Kazakhstan, and perhaps also in other countries):

The current emergency will offer experience with the regulation of activity amid a quarantine – it will be necessary to work out all the procedures and give them legal justification. Because after this quarantine there will be a lot of proceedings and it seems that many of them will end in criminal cases.

The return of critical production chains will be localized and will be developed by state enterprises. The free market will not help here.

Improving the efficiency and transparency of statistics – in order to manage in a state of emergency, operational data are needed, that is, statistics should be made known daily and weekly. Otherwise, it will be like running through the forest with your eyes closed.

Changes will be made to planning, which will take into account the needs of various social support systems. If earlier, conventionally, when forecasters planned things they hoped to ensure 80-90% security, now it will be necessary to make a forecast based on the demand that things are safe for 90-97%, that is, to include very unlikely event scenarios and reserve corresponding capacities. If a website has 100 thousand visitors per day in regular conditions, it should be technically prepared for not 500 thousand, but 1 million visitors. 

The expansion of material reserves – the reserves of various medical devices, medicines and other necessary things should be expanded and verified much better. Kazakhstan is not the United States, which, if necessary, can intercept other people’s cargoes; Kazakhstan will have to do this with its reserves.

Changing the layout of cities – if earlier local urbanists proposed moving plants, warehouses and railways out of the city, now it’s clear how silly this is in a state of emergency or quarantine. Most of the business problems in Almaty were due to the fact that the production facilities were in different administrative and territorial units, and trains were much more convenient than dozens of trucks.

Next, urban agriculture. Not just factories and warehouses, but also agriculture facilities will be located inside the cities, delivering products directly to the townspeople. It exists now, but there will be more investment for it. There are many options, from mushroom farms to greenhouses with vegetables to fish factories.

The return of summer cottages – if in recent years, summer cottages had been abandoned, now their revival is possible both as future housing and as small agricultural facilities.
Separation of the precious metals market – most likely, the value of precious metals will increase, they will be accumulated, and there will also be a separate market for physical gold, the value of which will be different than on the stock exchange.

Maybe there will be something else, but these are the necessary systemic changes – as I wrote above, there will be more pandemic cases and we need to be ready for them. In fact, preparation for them is a partial preparation for war – simply without actual military operations, but with a similar situation on the “home front.”

Conclusions

The state of emergency and quarantine, in terms of their impact on the economy, should not be compared with the economic crisis, but with full-fledged military operations.

Accordingly, in order to get out of this, it is necessary to analyse the strategies of states that survived the war and restored their economy.

In general, the economies of countries that have survived the state of emergency and quarantine will, to one degree or another, be reorganised in the direction of a mobilisation economy in order to make repeated cases of pandemics easier to bear.

Most likely, in order to return to the level of the economy of 2019, Kazakhstan will have to spend at least 1-2 years, that is, it won’t happen earlier than in 2022-2023.

Not only the economy itself will change, but also the behaviour of people – massive unemployment will force us to reconsider our priorities