Covid-19 and Zimbabwe’s economic outlook for 2021

Respect  Gwenzi : ANALYST

ZIMBABWE is a low income country with a per capita GDP of below US$500. National income for the country has been coming off at double digit rates over the last two years while in turn revenue collections have shrunk by more than 50% over the last three years.

Inflation has returned and is one of the highest in the world. Against this background, the emergence of the Covid-19 pandemic has caught the country off guard, just like many other African countries. The country has a recurring health crisis which is reflected through ill equipped hospitals.

A few of the medical facilities rolled out in 2019 and dedicated to Covid-19 are not sufficiently capitalised and can cover only a very tiny fraction of the 16 million population. The odds have, to date, been largely tilted in disfavour of the country’s ability to effectively fight Covid-19, thus prolonging economic recovery, due to reduced economic activity under lockdowns.

Recent data on Zimbabwe, over the first few days of 2021, shows new cases of Covid-19 spiking to record levels that were not seen during the first wave of the pandemic earlier in 2019. This trend is consistent with what is being observed in the region, particularly in neighbouring South Africa, a key trading partner as well as a country hosting the highest number of Zimbabweans abroad.

On the day the 2021 lockdown was announced (January 2, 2021), the number of new Covid-19 cases almost doubled inter day from 217 to 407. At 407 new cases Zimbabwe’s Covid-19 cases had effectively entered unchartered territory. A day later the number of new Covid-19 cases spiked further to 774, another record high level.

The 774 daily new contractions outturn compares 600% worse off, compared to the December 2019 daily average of 110.

The emerging trend is not only consistent with the region, but with the broader world where new cases of Covid-19 are trending at record high levels, since the break out in January 2019. Notably, the UK recorded a total of 57 725 daily new cases as at January 2 alone, a record high. This marked a 5th consecutive day of reporting daily infections above the 50 000 mark. Up to November 2019, UK averaged less than 10 000 new cases per day. In the US, the country with the highest number of Covid-19 infections and deaths, a record high of 291 384 new daily cases were reported as at January 2, 2021. The US averaged less than 60 000 new daily infections between January and November 2020. Other key economies such as India are also seeing rising new infection numbers. These worrying trends have been made worse by the discovery of a new Covid-19 variant in the UK and South Africa. The new variant is more contagious, which is to say it spreads more rapidly than the one previously noticed. The variant has already spread to other countries such as the US.

All these worrying dynamics are coming at a critical juncture when a vaccine for Covid-19 had been identified. Among tens of vaccine candidates that are undergoing large-scale clinical trials, several have already been approved for emergency use in countries including China, Russia, the United Kingdom, and the United States. There are more than 150 other potential vaccines in preclinical development. Notably, Pfizer and Biontech’s drug is reported to be 95% effective, while that of Moderna falls within the same range in terms of effectiveness. This is a breakthrough for the world but not so early for Zimbabwe and the rest of Africa, a factor which may prolong economic declines due to prolonged lockdowns.

What we see in 2021, for Zimbabwe, is a prolonged lockdown period, which may stretch beyond January. It is likely that the numbers of new cases will remain above the 2020 daily averages up to April, even under tight lockdown measures. The impact of holidays, where diasporan-based Zimbabweans came back enmasse has been a huge factor in stimulating the numbers and contraction rates. Moreso merrymaking and gatherings during the festive period has also driven the rates up.
The impact of these developments is that the national averages for daily infections will remain high at least over the next three months, forcing government to maintain tight controls and effective lockdowns. Zimbabwe and most African countries will not have access to the Covid-19 vaccine until 2022 at best, except for frontline workers.

Drugs such as those being manufactured by Moderna, which requires less stringent temperatures, have already been fully purchased for the US and European markets. The company has announced that it has no supplies for Africa in 2021. The drug while more effective and requiring less infrastructure adjustments compared to Pfizer’s, is priced at a steeper point of between US$30 to US$40, in the countries it is being distributed, a price point which most African countries will not afford. For Pfizer, supplies to Africa are there at a more favourable price point of US$10, but in limited quantities.

The key challenge with Pfizer’s drug is that it requires ultra-low temperatures of around -75 degrees for storage, thus requiring further investment in storage facilities, which may gobble millions of dollars.

We expect most of the drug allocation to Africa to come through COVAX, a non-profit organisation with ties to the Bill and Melinda Gates Foundation, which has been pivotal in funding development of the vaccine. About 200 million doses are expected to be manufactured and delivered to low and middle income countries by the end of the 2021 as part of the Gavi COVAX AMC, a mechanism within the COVAX Facility. This facility will however target front line workers in the first instance.

The levels of vaccination necessary for effective combating of the pandemic are in the region of 40% to 80%, which implies that for a population of 16 million, circa nine million people will have to be vaccinated to achieve herd immunity. In monetary terms, these jabs if sourced directly from COVAX will cost Zimbabwe circa US$30 million in procurement alone before transportation and storage. However since COVAX is a special discounted facility and with limited supply and higher demand, it means Zimbabwe cannot exclusively secure all its supplies from the former.

Much of the supply will have to come from for profit organisations such as Pfizer, whose price point is three times higher. Through Pfizer, assuming Zimbabwe is offered the same rates as South Africa, Zimbabwe will require US$90 million, for supplies sufficient enough to achieve herd immunity. With the Pfizer option, further costs upwards of US$50 million will be incurred on investments in necessary infrastructure and transport. The net cost is higher than the country’s annual net import bill for diesel and petrol.

Based on these observations, it is highly likely that Zimbabwe will pursue a strategy for holding longer, with the hope that the cost of the vaccine will subside once demand comes off. It would also be hoped for that the richer nations would donate the vaccine once they have fully utilised it.

So the strategy for Zimbabwe and the rest of Africa on the short-term is most likely very different. For the First world, the strategy is to speed up production and vaccinations within the next few months.

This would effectively scale down the rate of new infections, currently on the rise. For Zimbabwe the best strategy given the background will be investing in PPEs such as ventilators and protective gear as well increasing awareness of the virus.

This approach will not be enough without enforcing effective lockdowns of varying magnitudes, hence our projected sustained lockdown. We thus see the economy recovering at a much slower pace than initially anticipated although key sectors such as Agriculture and mining may outperform.

Demand across the economy will maintain recovery trajectory, but at a weaker rate than previously experienced in the final months of 2020.

Companies will have to take advantage of the tilting environment (asset lite) to realign operations on a sustainable basis so as to bring down their operating costs structure.

Gwenzi is a financial analyst and MD of Equity Axis, a financial media firm offering business intelligence, economic and equity research. — respect@equityaxis.net.

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