HomeOpinionImpact of Covid-19, implications for Sadc

Impact of Covid-19, implications for Sadc

This is an abridged version of a special report titled Impact of Covid-19 Pandemic on Sadc Economy (Volume 1 April 2020) by the bloc’s Macro-economic Subcommittee which was tasked to “monitor the impact of the Covid-19 on the Sadc economy and provide policy recommendations on a continuous basis to member states”.

Sadc Secretariat

As of December 2019, prospects in terms of fiscal deficit and public debt were mixed. While some member states had made commendable improvements in their fiscal positions, a majority were already grappling to manage their increasing public debt, which was on the brink of breaching the regional threshold of 60% of GDP.

The Fiscal Monitor released by the International Monetary Fund (IMF) in April 2020 highlighted that Covid-19 outbreak and its financial and economic consequences will cause a major increase in fiscal deficits and public debt load in 2020.

Fiscal policy measures that are implemented include government-funded paid sick and family leave, transfers, unemployment benefits, wage subsidies and deferral of tax payments. The increasing public debt levels will put additional burden to the member states resources as debt service costs increase.

Funding Covid-19

International and regional institutions are stepping up to complement national efforts, including to help the most vulnerable developing countries which are already grappling with debt pressures. These include the IMF Catastrophe Containment and Relief Trust (CRRT), decision by G20 Ministers of Finance to suspend debt service payments for the world’s poorest countries through the end of 2020.

The African Development Bank recently issued a US$3 billion “Fight Covid-19” social bond, while the African Export-Import Bank has set up a US$3 billion credit facility. Combined, official creditors have mobilised up to US$57 billion for Africa in 2020 alone. This includes the recent US$18 billion the IMF and the World Bank made available to enhance front-line health services, support the poor and vulnerable and keep economies afloat in the face of the worst global economic downturn.

As at 24 April 2020, the IMF financing support in respect of regional allocation amounted to US$1 031,468 for Europe, US$2 406,465 for the Middle East and Central Asia, US$1 620,083 Western Hemisphere and US$4 160,872 for Sub-Saharan Africa.

The economics of Covid-19

The impact of Covid-19 is changing the economic landscape around the pressure mounts, industries are moving swiftly to build resilience, while governments are mobilising to safeguard citizens and manage the social and economic fallout.

Combining these factors with the ongoing lockdowns around the globe, the platform to trade fairly is slowly being skewed with some players losing while others winning.

Sectors that have been severely impacted by Covid-19 include the tourism and leisure, aviation and maritime, automotive, construction and real estate, manufacturing, finance services, education and the oil industry.

On a positive, despite strong global misconceptions about the transmission of Covid-19 pandemic, the global functioning of the food processing and retail business have remained stable. The food processing and retail business largely benefited from the recent announcement by WHO and World Food Organisation that, it is highly unlikely that people can contract Covid-19 from food or food packaging. As such, companies in food processing and retail have witnessed a rise in demand.

However, this demand is only in the short run and has the potential to fuel inflation.The global lockdown has also presented opportunities in the ICT industry. Many companies have benefited from the pandemic, in particular, Zoom Video Communications has seen a surge in online meetings, while Netflix has seen a rise in home streaming during the lockdown. There is also a surge in using Skype for communicating and meetings.

Chat app Slack has also seen a surge in users, while workplace chat platform Microsoft teams saw daily active users rocketing to 2,7 billion meeting minutes in April 2020, a 200% surge from 900 million recorded in March 2020.

While these platforms are crucial in the transition to digital economy and during Covid-19, security is not guaranteed. The e-commerce platform has also experienced a surge in users.

Experts have established that the likelihood of contaminating during shipping commercial goods is low and the risk of catching the virus that causes Covid-19 from a package that has been moved, travelled and exposed to different conditions and temperatures is also low. There are also notable behavioural changes around the way people are buying groceries. In an effort to avoid crowds at supermarkets, many people are opting for buy-online-pickup-in-store delivery options.

Downloads of apps like Instacart and Shipt that allow people to engage personal shoppers to prepare and, in some cases, deliver their grocery orders have increased.

The benefits associated with Covid-19 to the ICT industry maybe short-lived as the auxiliary industries are weighed down by the pandemic. The negatively impacted industries that include tourism, aviation and sport have seen a dip in visits/traffic volumes and business on websites for airlines, travel agents, hotels and tourist destinations.

Additionally, uncertainty has changed consumer spending behaviours and patterns skewed towards essential products and services which can adversely affect the business and revenues for e-commerce industry that include Amazon, Alibaba, Walmart, JD.com and Rakuten in the long run. The adverse impact of the changing consumer spending behaviour can be depicted by the month on month decline in retail sales of 8,4% in March 2020. The United States Department of Commerce reported sales decline as the largest since 1992.

On the other hand, the Covid-19, which has disrupted operations of companies is likely to squeeze the advertisement revenues for the media and entertainment industry as companies reprioritise expenditures to preserve resources in the face of uncertainty. In the same vain, the negative impact of Covid-19 may lead to a significant reduction or drying up of corporate sponsorship if the pandemic persists.

Additionally, the suspension of live sports affected programming, advertising and sponsorship deals to the media and entertainment industry. The postponement of flagship global events has significant financial ramifications not only to the media and entertainment industry, but also to the participating athletes and the host country.

For instance, the New York Times estimated that NBC broadcaster lost US$34 million when the US boycotted the 1980 Moscow Olympics. The financial implication for the postponement of the Tokyo Olympics to 2021 is an estimated additional cost of US$2,7 billion for Japan with widespread impact to the media and entertainment industry.

In addition, the suspension of live sport has resulted in a upward demand in alternative content as the media and entertainment industry is faced with programming adjustments and drying of revenues from advertisements and sponsorship deals related to live sport.

Consequently, the short-term gains may be outweighed by the long-term effects of the pandemic in light of uncertainty of future revenues and content supply due to production shutdown and suspension of live sport.

Macro-economic policies, measures

A majority of governments around the world have resorted to unprecedented monetary and fiscal policy measures to curtail the adverse impact of Covid-19. The International Monetary Fund (IMF) has launched a policy tracker to help member countries to be informed about the experience of others in fighting the pandemic and the discretionary policies taken to help them combat the pandemic more effectively (IMF, 2020).

Despite the efforts to curtail the impact of Covid-19, prices for basic items have started to increase in some countries throughout the region, which could lead to an increase in tensions and refugees. The reduction or suspension of activities due to movement restrictions has been leading to job loss (particularly for those working in the informal sector), poor sales and bankruptcy.

Sadc member states have instituted a number of socio-economic policies and measures to minimise the impact of Covid-19 to the economy. These policies and measures include suspension of non-essential economic activities; increased spending in health sector and in social safety nets; accommodative tax measures; economic stimulus packages, accommodative monetary policies and establishment of emergency/solidarity funds. These policies and measures have far-reaching implications on member states fiscal positions and debt sustainability.

Evolution of exchange rates

Against the backdrop of the international oil prices the rand against the US dollar plunged from R16,45 recorded a month ago to R18,45 on April 28, with daily peaks in excess of R19 to the US dollar. The decline of the rand was largely due to the impact of Covid-19 and Moody’s downgrade; and likely possible fuel price drop.

Global and regional prospects

Global economic growth prospects remain gloomy. Global growth is projected at negative 3% in 2020, an outcome far worse than during the 2009 global financial crisis.

The growth forecast is marked down by more than six percentage points relative to the October 2019 WEO and January 2020. Uncertainties about the length and depth of the health crisis-related economic effects are curling perceptions of risk and volatility in financial markets and corporate decision-making.

In addition, uncertainties concerning Covid-19 and the effectiveness of public policies intended to curtail its spread are fuelling market volatility.
l To be continued next week.

Recent Posts

Stories you will enjoy

Recommended reading