Assessing the economic impact of coronavirus

The outbreak of the novel coronavirus (Covid-19) poses a significant threat to the world economy and to Zimbabwe’s fragile economy too. So far the virus has infected about 390 000 people from 192 countries in the world, while claiming over 21 000 lives according to the World Health Organisation (WHO).

The worst-affected countries being China (where the virus is thought to have originated in Wuhan in China), Italy, Spain and Iran. On the African continent where infections and mortality rates have been lower relative to other continents, over 1500 cases across 45 countries have been confirmed to date.

The worst affected countries in Africa being Egypt, South Africa, Morocco, Algeria, Tunisia and Burkina Faso which account for 75% of the confirmed cases on the continent. Zimbabwe declared a state of emergency on the deadly pandemic on 18 March 2020 and so far 4 infections and 1 death have been confirmed.

The world economic forecast has deteriorated immensely since the WHO declared the disease a pandemic on March 11 2020. Financial markets across the world have been rattled with worst affected counters being hotels and airlines, freight, gaming and leisure, retailing, manufacturing and energy companies. Investors are worried that the pandemic will lead to massive liquidations (company closures), job cuts, financial losses, high defaults rates and credit rating downgrades.

The International Monetary Fund (IMF) expects the 2020 global economic output to be the lowest since the 2008-2009 financial crisis, lower than 2.9% (Down 0.4% from the initial forecast of 3.3%). Global stocks continue to plunge deeper despite the announcements of various rescue packages worth trillions of US Dollars by IMF, The World Bank, United States, The European Union (EU), United Kingdom (UK), Japan and others.

The decline in global economic activity will hit Zimbabwe as the country relies on the global village for tourists, raw materials, remittances and exports of its commodities. Here is the likely impact to Zimbabwe’s economy:

Impact on trade

Zimbabwe imported commodities worth US$4,8 billion in 2019, with 75% of the imports coming from South Africa, China and Singapore. With recession hit South Africa confirming a surge in Corona infection cases of over 405, an industrial shutdown for the regional power house will negatively impact Zimbabwe and the rest of Sadc.

A drop in trade with South Africa may curtail imports of critical commodities such as electricity (imported from South African power utility-Eskom), industrial raw materials and chemicals. The local industry was beginning to feel the pinch from the drop in imports of auto spares, electronics and other consumer goods from China which experienced a 17,2% slump in merchandise exports in January and February.

On exports, China consumes approximately 50% of the World’s metals and mining resources. A prolonged disruption to production in China results in a fall for commodity prices especially Platinum, Chrome and Nickel which account for millions in export earnings for Zimbabwe. However a rally in gold prices (Above the current US$1 525 per ounce) as a result of investor rush to safe havens may offset losses in other metals.

Another key export commodity for Zimbabwe is raw tobacco which raked in US$523 million of foreign currency in 2019.

Over 66 countries in the world consume Zimbabwe’s highly regarded flue cured tobacco with China, South Africa, Belgium, UAE and Russia being the biggest buyers.

The tobacco auction season is set to begin in April and it’s inevitable that there will be disruption to the marketing season which relies on physical interaction between farmers and buyers (merchants) at the various auction floors. The price for the golden leaf may slump this season further from the average US$2,03/kg for 2019 season due to a decline in global consumption. This will have dire consequences to the whole economy, to over 150 000 registered farmers and various industries that depend on competitive tobacco prices for their business.

The interbank market will also be affected by the dip in tobacco export earnings as they are a key source of foreign currency for the formal sector.

Tourism and hospitality

Zimbabwe received over 2,29 million tourists in 2019 with most of the arrivals coming from Africa, Europe and America. The arrivals brought just under US$1 billion in foreign currency while supporting thousands of livelihoods in tourism hotspots such as Victoria Falls, Kariba and beyond. The tourism and hospitality sector contributes 6,3% of output to Zimbabwe’s GDP, while supporting fresh produce farmers and skin care products manufacturers.

The cancellation of flights by Fly Emirates and South African Airways has compound the dire situation where 80% of hotel bookings and functions have been cancelled already. The impact of corona virus induced travel restrictions and lockdowns may last for the whole 2020 thereby denting any recovery chances for the local tourism and hospitality sector.

Already hoteliers, travel agents and tour operators have started operating on week in week out shifts and suspending temporary staffers to manage costs.

Diaspora remittances

Close to four million Zimbabweans live in the diaspora, in countries such as South Africa, United Kingdom, US, Australia and New Zealand among others. The country received over US$620 million in remittances in 2019 (Down from US$699 recorded in 2018).

The remittances play a key role in supporting millions of dependents back home who are feeling the heat of the economic meltdown. Income for Zimbabwean expatriates will be severely affected by travel restrictions and lockdown in their host countries. This will negatively impact aggregate demand on the local market especially in real estate, home construction, hardware and fast moving consumer goods retailing.

The impact will also be felt on the parallel market where diaspora cash trade hands and provides jobs for hoards of foreign currency traders.

Transport sector

As coronavirus cases continue to increase locally and in Southern Africa region, several countries will undergo lockdown and close their borders with Zimbabwe. This will impact cross border transport operators who ply lucrative routes such as Harare to South Africa, to Botswana and to Zambia.

Cross-border trade in merchandise supports thousands of livelihoods for cross border traders, while brining business for various border towns such as Beitbridge, Chirundu, Mutare and Plumtree. The same can also be said for smaller towns and growth points along the country’s main highways.

Already, clearing and freight forwarding businesses are experiencing a decline in business due to disruptions in production in the Far East, especially China. A prolonged disruption will likely cost them millions in lost revenues.

Production in Zimbabwe seemed undeterred by the outbreak of corona virus at the beginning of March 2020, but the confirmation of a number of infections locally now pose serious risks to economic production. It may be ideal for the government to consider tax breaks for the worst affected industries such as tourism and hospitality so as to save thousands of jobs that are now on the line because of the deadly pandemic.

The imminent lockdown in the local market will also put pressure on various producers and the small to medium enterprises (SMEs) who are mainly operating on thin budgets or in survival mode due to economic decline. Informal traders at various home markets such as Makokoba (Bulawayo), Glen View furniture market, Mbare (Harare), and others will be severely affected by the increasingly possible lockdown.

The impact of the pandemic will reach every household and business directly or indirectly, while denting economic recovery hopes for Zimbabwe which had anticipated a 3% growth rate in 2020.

Victor Bhoroma is a marketer by profession, freelance economic analyst and holds an MBA from the University of Zimbabwe. — vbhoroma@gmail.com or Twitter: @VictorBhoroma1.

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