First, the world worried about the impact of COVID-19 on China and its near neighbours. Then concerns spread to Italy, and the rest of Europe, before reaching the US. Now, the next focus of attention is the emerging world. Nigeria, India and South Africa among others have announced wide-ranging lockdowns. Investors are beginning to take fright. South Africa’s ten-year government bond yield spiked last week, prompting the central bank to start purchasing government bonds — a move that has helped to unwind only part of the previous jump.
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Emerging markets face a series of threats from COVID-19, among the most challenging of which is the issue of poor healthcare infrastructure. According to the World Economic Forum, South African health outcomes are ranked 125th worst out of countries in the world. And while a warmer climate and younger population may offer grounds for optimism, a significant proportion of its population has existing health problems. Indeed, 8 million people have HIV/AIDS, which makes them more vulnerable to COVID-19. The government’s severe response before any recorded COVID-19 deaths should be seen in this context. It has put the country into a three-week lockdown and imposed severe travel restrictions.
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South Africa’s response makes sense when you think about the consequences of a significant COVID-19 outbreak. Its most realistic hope of avoiding catastrophe is to isolate and stop the spread of the virus domestically via social distancing, and from abroad via travel restrictions. It has few other options. Unlike many advanced economies, it does not have the fiscal space to respond once a large outbreak has occurred. Moody’s downgraded its sovereign credit rating to junk recently, while a measure of sovereign risk, put together by Refinitiv, shows it to be among the least creditworthy borrowers among major emerging economies.
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The sad news, then, is that South Africa cannot afford a severe COVID-19 outbreak, nor can it afford an extended lockdown. The slightly better news is that South Africa’s case ‘curve’ as the jargon now goes appears to have flattened. South Africa reportedly has an effective testing programme, suggesting this slowdown in the growth rate of new cases is real. If that is the case, it would be a welcome bit of excellent news, and suggest grounds for optimism. Not only in South Africa, but further afield too.
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