Countries’ most common response in addressing the Covid-19 outbreak has been the immediate adoption of the most extreme containment measures ever implemented. This in turn is accelerating an unprecedented need for coordinated action among all stakeholders, as the economic crisis is rapidly impacting large & small business, as well as people across every sector of the economy.
We believe it is now more important than ever for the OECD to provide the best policy advice, both on short-term collective response measures and on the longer-term recovery plans that will need to be implemented soon. Thanks to its extensive experience, from the implementation of the Marshall Plan to the 2008-2009 financial crisis, the OECD is a unique forum that can assist governments in achieving an effective balance between our society’s health and economic needs. Evidence-based analysis, together with enhanced best practice sharing and improved coordinated collective actions, will prove decisive.
Our respective business organisations are at the frontline of this crisis; with your help we can better overcome this and your contributions will ensure that the OECD becomes an even more visible force for effective, dynamic and positive policy measures.
We would like to thank the members and committee leadership that have already contributed to this process and many of the more detailed policy work in the annexes.
We are still in the process of reaching out to a wider group of our membership and as soon as we have sufficient consensus, the OECD plans to add a dedicated annex page for us and for TUAC. They will then also acknowledge the contributions and reaffirm that they will ensure the well-established in person cooperation with their two advisory bodies is replicated in our new on line cooperation processes.
TACKLING OUR JOINT HEALTH & ECONOMIC CRISIS VIA BETTER INTEGRATED POLICIES
Klaus Moosmayer, Business at OECD Executive Board Vice-Chair
Chief Ethics, Risk and Compliance Officer, and Member of the Executive Committee, Novartis
“As a global pharmaceutical company which is providing 800 million patients with medicines we have a crucial role in the fight against COVID-19 and to sustain global health during and after the crisis. All across Novartis, our teams are rallying to support each other, patients, health care professionals and communities as the pandemic continues. So many of our associates are working around the clock, looking at our medicines for possible treatment options, supporting each other to work safely on our manufacturing sites, laboratories or from home. Just a few weeks ago, we announced our COVID-19 response fund and already, over 50 donations have been approved for communities all over the world. In the midst of this fight against COVID-19, the collaboration between private and public sector is more important than ever – and the OECD has a central role to play. And we need to rethink already now the way how we better interact going forward as we see how important free flow of goods, international collaboration and innovation in research&development are for global health. We are in this together and we will win only together – private and public sector.”
OECD has an important role to play in gathering and analyzing the different responses of OECD member states to the Coronavirus crisis in order to provide inspiration to governments for appropriate and effective policy approaches to address it. The first aspect of immediate importance refers to the health systems response, the second one refers to the analysis of options for the immediate employment and social policy response to help people and companies to deal with Covid-19.
Renate Hornung-Draus, Chair of Business at OECD’s Employment, Labor, and Social Affairs Committee, stressed that “when the acute sanitary crisis will be behind us, the OECD will need to provide guidance to member states about improving their health care and social security systems and redesigning their economic policies in order to make them better prepared and more resilient for pandemics, so that future crises can be overcome without provoking deep economic shocks. By collecting and transmitting to the OECD the employers’ initiatives, assessments, and requests regarding policies to mitigate the economic and social effects of the Covid-19 outbreak, Business at OECD (BIAC) can provide added value to its membership by facilitating the exchange of experiences among its member organizations.”
OECD analysis: “Supporting People and Companies to Deal with the Covid-19 Virus” in PDF format is available here.
Across OECD countries and beyond, governments are taking ambitious initial responses to minimize the implications of the Covid-19 pandemic for their citizens, while limiting severe damages to our economies and societies. It is clear that the size of the economic shock will critically depend on the length, extent and coordination of containment and mitigation measures, amongst others. Each month of containment is expected to result in a 2 percentage point loss in annual GDP growth, and their implications for global value chains may last well after the crisis dominated headlines. Some sectors of the economy will see limited effects resulting from the pandemic, while others will face existential challenges.
In this context, we urge governments to ensure a coordinated, coherent and cooperative international response, which is the only way to meet the challenge of a global pandemic and maintain trust in our global trade and investment system. We encourage strong collaboration between governments and the trade community when developing and implementing policy responses. For the OECD, it is now more important than ever to deliver its best policy advice – on both, short-term collective response measures and the longer-term recovery plans that need to be implemented.
In this context, we urge the OECD Trade Committee to provide support to the Organization’s member and partner countries in establishing necessary, effective, and evidence-based measures to address the Covid-19 pandemic. Such support is critical in guiding member and partner countries to adopt measures that are designed in a targeted, risk-proportionate, transparent, WTO-compliant, and temporary manner – ideally with sunset clauses and a clear “exit strategy” – to ensure that emergency interventions do not restrict trade and investment more than necessary. Further, OECD work in this regard can and should safeguard that governments do not misuse these developments to adopt or keep arbitrary, discriminatory or protectionist policies that disrupt supply chains and put further strains on the economy. It can in part do so by highlighting the crucial role of open trade and global value chains as fundamental drivers to recover from this global crisis.
Specific OECD recommendations should help ensure continued cross-border trade flows and avoid global supply chain disruptions, including for (1) vital medical supplies and equipment, (2) critical agricultural products, (3) other essential goods and services, and (4) all goods and services. Moreover, OECD work should also contribute to combatting illicit trade across global supply chains including related to medicines, medical supplies, equipment, and other life science and healthcare technologies and product that undermine Covid-19 mitigation efforts.
“The OECD should support measures that are targeted, risk-proportionate, transparent, WTO-compliant, and temporary – ideally with sunset clauses and a clear exit strategy’’ – said Clifford Sosnow, Chair of the Business at OECD Trade Committee.
“Businesses face serious cash-flow constraints that threaten their sustainability and ability to exist in the short-term. Trade Ministers can design effective policies to stimulate the economy, and these should be a critical part of a holistic economic policy response.” said Marta Blanco, Vice Chair of the Business at OECD Trade Committee, and President of the Spanish CEOE International. Spain will chair the OECD Ministerial this year.
Our Statement on The Trade Policy Response to Covid-19: A Call for Urgent OECD Action in PDF format is available here and find our key Messages on the impact of Covid-19 international travel restrictions on services-trade costs here.
In the context of the ongoing Covid-19 pandemic, Business at OECD urges governments to ensure international agri-food supply and security through a coordinated international effort. We call on governments to suspend as quickly as possible interventions and protectionist policies that lead to arbitrary restrictions and disruptions in food and agriculture supply chains, learning from the experience of the 2007/08 and 2010 world food commodity price spikes. In particular the re-emergence of export restrictions needs to be swiftly reversed by domestic government action, potentially coordinated through the G20 or other international formats. In this context we refer to the G20 Extraordinary Agriculture Ministers declaration of 21 April on “working to ensure the continued flow of food, products, and inputs essential for agricultural and food production across borders” and the G20 Ministerial declaration of 19 March dealing with COVID-19.
For the OECD, it is now more important than ever to deliver best policy advice – on both, short-term collective response measures, as well as the longer-term recovery plans that will soon need to be implemented. In particular, we urge the OECD Agriculture Committee to support the Organization’s member and partner countries in ensuring the crisis does not bring substantial disruptions to world food and agriculture production and global value chains.
“The importance of ensuring availability and continued supply of quality and nutritious food has been reinforced around the world as supply chains have slowed down and focus on food security has been heightened. It is clear that food systems resilience must be improved as we emerge from the current situation, removing unnecessary barriers where they exist, for which, collective action, to ensure the best, sustainable results for food production and supply, access to food and affordability, environmental protection, biodiversity and climate change mitigation is critical.” said Mark Ball, Vice Chair of the Business at OECD Food and Agriculture Committee.
Our Statement on The Food and Agriculture Policy Response to Covid-19 in PDF format is available here.
By impinging on demand and supply, COVID-19 has affected the world economy to an extent that had not been witnessed since World War II. Although it is difficult to provide exact estimates of said impact at this stage, it is already clear that businesses of all sizes and sectors are suffering worldwide.
For instance, OECD estimates dating from 14 April show that the lockdown will directly affect sectors amounting to up to one third of GDP in the major economies. For each month of containment, the OECD predicts a decline in the level of output equivalent to a decline in annual GDP growth of up to 2 % points for each month that strict containment measures will continue to be in place.
In this situation, maintaining “our economic fabric” has to be a top policy priority. In practice, this means keeping workers, including the self-employed, in work. Examples of this are temporary work schemes, targeted subsidies and liquidity support for companies to avoid insolvency. Other examples of effective measures include new approaches to credit guarantees and deferring the payment of taxes or social security contributions. The key goal is to ensure a rapid resumption of operations, once containment measures will have been lifted. In this context, it is important to define the criteria for relaxing current measures, in order for companies to plan ahead. Without said criteria, there is a risk of economic collateral damage, which could seriously worsen the current situation.
Most importantly, the emerging global economic crisis can only be tackled with joint efforts. Previous OECD work has shown that if G20 economies implement stimulus measures collectively and in a coordinated manner, growth effects tend to be 1/3 higher after just two years.
Klaus Günter Deutsch, Chair of Business at OECD’s Economic Policy Committee, stressed that “while international cooperation on monetary policy is already well-advanced, reinforced coordination on fiscal measures is urgently needed. The OECD can serve as an important platform for the sharing of best practices and the promotion of coherent policy responses.”
Our 2020 Economic Policy Survey: views from the frontline is available here.
Balancing health driven isolation policies with the resulting collateral economic damage, (which will create its own health issues,) is both delicate and complex. The need for better evidence is therefore especially urgent and critical in this sector. Without sufficient testing capabilities, it is very difficult to judge the effectiveness of said measures. Evidence is evolving rapidly, however countries such as South Korea (where 20,000 tests are carried out on a daily basis) demonstrate the critical role of “testing evidence”, in their relatively effective containment policy.
Keeping relevant production facilities open and enhancing public private cooperation to meet demand is essential. Quarantine measures for travelling employees such as drivers, service engineers and clinical support staff remain a major obstacle. Likewise, meeting and anticipating the demand for personal protective equipment, particularly for healthcare workers, is an absolute priority.
The gaps that are surfacing in our pandemic preparedness and the challenges we already face with international coordination will be vital lessons to prepare both for second waves of infection and for the next foreseeable global health crisis, which could produce a similar or potentially worse impact than the current one.
Thomas Cueni, Chair of Business at OECD’s Health Committee, stressed that “the profound global impact of the COVID-19 pandemic on society and the economy is deeply concerning. If not contained, the impact of COVID-19 on people and the health systems that treat them, will be devastating. At this time, OECD guidance in support for the healthcare sector as it pulls out all the stops to fight coronavirus is paramount. OECD backing for emergency policies and decisions that support the safety of healthcare workers and infrastructure, avoid stockpiling and measures that hinder manufacturing capacity is crucial. The OECD leadership is needed now more than ever to lend its weight behind the unprecedented mobilization of the innovative pharmaceutical industry (and of course many others) to bring safe, effective diagnostics, treatments and vaccines to patients around the world as a matter of urgency.”
The OECD paper on “Flattening the COVID-19 peak: containment and mitigation policies” is available here.
Small and medium-sized enterprises (SMEs) are of crucial importance to the economy. They represent over 95% of registered firms, make up a large part of employment (over 60% in most OECD countries) and generate a significant share of the overall “value-added” (between 55 to 75% in most countries). The overarching need to keep as many people as possible engaged in paid work is especially pertinent for smaller businesses. They are typically the first to face liquidity and cash flow problems: evidence shows that half of all surveyed small businesses hold cash buffers of less than one month, a number that drops to solely 13 days for one quarter of small businesses.
Moreover, differentiated measures will be often required due to differences in sectors, employment types and countries. In all cases however, the speed of response and accessibility will be critical, as delayed programs will be both less effective and more costly.
The main policy measures proposed to date include direct payment programs, faster access to loans with flexible repayment options, deferred payment possibilities, including for existing loans, as well as an augmented flexibility for a range of payments, including taxes. Some forward-looking support for companies to strengthen resilience has also been implemented, in order to minimize further impacts on SMEs.
Business at OECD SMEs and Entrepreneurship Committee Vice Chair, Patrik Kovács added that “the implementation of digital solutions can be critical for SMEs in order to be able to stay connected with customers and markets in these times. On top of this, access to finance becomes yet again increasingly critical, with small companies typically struggling more than large enterprises to get finance at all stages of development. Policy-makers must thus ensure adequate credit access and financial support for SMEs and self-employed.”
Business at OECD SMEs and Entrepreneurship Committee Vice Chair, Lars Jagrén, highlighted that in our effort to support SMEs during this crisis we should not forget “the importance of reducing administrative burdens and red tape as this is both critical to facilitate access to support programmes and help small companies throughout the recovery phase.
The OECD analysis: “SME Policy Responses” is available here.
Tax policy measures must focus on the three top issues that companies have to very quickly address in a crisis; namely liquidity and cash flow, P&L (Profit and Loss) impacts and tax related technical issues arising from resource restrictions (for example addressing compliance deadlines and remote location challenges).
In order to avoid further exacerbating existing economic uncertainty for companies, tax policies should focus on tax certainty and demonstrate that the tax system is helping rather than hindering the critical commitment to encouraging cross-border trade and investment, especially in the recovery phase ensuing this crisis.
Our tax committee experts from around the globe have contributed to the OECD tax policy documents that have been recently published and include detailed information, including an overview of 190 individual country measures.
Business at OECD Tax Committee Chair Will Morris summed up progress by stating “In both the tax policy and tax administration areas, the OECD’s guidance is to be welcomed — as is the assistance they are offering to governments. We all have only one common interest at the moment — inside and outside of tax — and that is to cooperatively use all the tools at our disposal to stabilize the economy, safeguard jobs, and preserve the economic structures off which future growth can be built.”
Business at OECD Anti-Corruption Committee Vice-Chair Corinne Lagache stressed that “In the current crisis, it is more important than ever that we do not lose the momentum on responsible business conduct, including the fight against corruption. Supply chain disruptions and shortages of certain goods and services caused by Covid-19 risk providing ground for corruption, including in certain critical sectors, such as medical equipment and treatment. It is important to be aware, monitor and address such risks across sectors and ensure compliance and due diligence efforts are not compromised during the Covid-19 crisis and subsequent recovery phase. There is a clear need for international cooperation and the OECD and ensuring preparedness in case we face a future crisis.”
Business at OECD Investment and RBC Committee Chair Winand Quaedvlieg underlined that “the OECD work on investment, and the investment-related standards in particular, are now more relevant than ever. The focus of this work has always been to find the right balance between an open international trade and investment climate and responsible business conduct. The OECD can and should continue in this framework to play an important role in promoting investment, both foreign and domestic, as a solution for reinvigorating national economies, sustaining and creating jobs and strengthening their resilience going forward. To this end, the OECD should pay particular attention to monitoring restrictions on investments and cross-border flows which may be implemented in response to the current crisis in order to ensure that they are transparent and limited in time.”
The Business at OECD paper: “Investment, the key to recovery” in PDF format is available here.
The Business at OECD paper: “Responsible business conduct and the Covid-19 pandemic” in PDF format is also available here.
With less well-established health sectors and large deficiencies in the access to basic preventative measures such as soap and water, Covid-19 threatens to cause a severe health crisis in the developing world. Developing countries are also particularly vulnerable from an economic point of view, having fewer fiscal capacities and less room for monetary policy to mitigate the effects of crisis on their local economies. This is paired with low degrees of social protection, resulting from a high prevalence of informal work. Covid-19 may thus have large impacts on the economic opportunities and livelihoods of millions of people in the developing world – especially in Africa.
Development has always been an integral part of the OECD and its mission of ‘promoting better policies for better lives’ within and beyond OECD countries. While large international financial institutions, such as the World Bank, and the G20 are currently stepping up efforts in order to provide developing countries with financial relief, the OECD can also play an important role in supporting policy makers on the ground. The OECD should thus draw on its vast knowledge in the field of development, including a large body of statistics and analyses as well as a long-standing experience with regional engagements, and leverage its power to convene policy-makers from around the world to help the developing world find solutions to effectively address the socio-economic ramifications of the Covid-19 pandemic.
The Business at OECD report: “Development Committee response to Covid-19” in PDF format is available here.
Dan Konigsburg, Chair of Business at OECD’s Corporate Governance Committee, stressed that “In the midst of the unprecedented economic and health crisis caused by the COVID-19 pandemic, the G20/OECD Principles of Corporate Governance will not only be important to help business ride out the crisis, but also enhance maximization of enterprise value in the longer term. While some governments will increase interventions in the operation of state-owned enterprises during this crisis, maintaining good corporate governance is also essential for state-owned enterprises. The OECD Corporate Governance Committee has an important role to play in shedding light on measures taken in the area of corporate governance and market oversight related to the COVID-19 outbreak, and to ensure that such measures are transparent.
As a result of COVID-19, business calls on swift and effective policy measures from governments to ensure the efficiency and integrity of capital markets. We urge the OECD to assess the impact of temporary rules, for example, those affecting dividends and share repurchase programs. At the same time, it is of crucial importance to ensure proper and timely financial reporting. Business calls on the OECD to collect information on how countries are addressing emerging issues around the role of the board in the wake of the COVID-19 crisis and consider the complex interrelationships between financial reporting, auditing, and the fragility of our capital markets. The OECD has a critical role in ensuring transparency and advancing best practices.”
Our Covid-19 thought starter: “Corporate Governance in the Covid-19 response” in PDF format is available here.
For more details on the economic impacts, please visit the OECD website here.