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Impacts of the COVID-19 Pandemic in SADC

Impacts of the COVID-19 Pandemic in SADC

The coronavirus disease 2019 (COVID-19) was declared a Public Health Emergency of International Concern by the World Health Organisation (WHO) on 30 January 2020, 17 days after the first case of COVID-19 outside China[1]. The virus has spread quickly, infecting at least 13,119,239 people, and killing 573,752[2]. Everyone is justifiably concerned about the impact of the pandemic. Almost six months have passed, COVID-19 continues to spread, and its consequences are still unfolding. Even the best models have understated the economic impact of COVID-19, making it impossible to find a correct response to the pandemic. Moreover, policy-makers have had to grapple with limiting the spread of the virus while supporting the livelihoods of their citizens. This article aims to take stock of the effects of COVID-19 in the Southern African Development Community (SADC) as of the end of June 2020 and draw on the little-hindsight we have regarding what we should expect going forward by evaluating:

  • The present state of national economies throughout SADC;
  • Government finances and institutional capacity available to fight the pandemic;
  • How COVID-19 will impact SADC countries balance of payments; and
  • The impact the COVID-19 is having on public health.

 

National Economies

Due to the global lockdown, economies in SADC are in a virtual standstill. At the end of 2019, it was projected that the global economy would grow by 3.3%[3]. Real GDP growth has been brought to a sudden halt, and the global economy is expected to decline by -4.9% in 2020 (April: -3.0%)[4]. Consequently, growth in the Sub-Saharan Africa region is currently projected to decrease by -3.2% in 2020 (April: -1.6%)[5]. As the economic and humanitarian consequences of the pandemic continue to unfold with greater severity than expected, projections continue to get worse. Although there is the possibility of a speedy recovery from 2021 onwards, this is not guaranteed. A quick recovery will depend on how soon a vaccine or anti-viral is discovered and distributed. Moreover, given the divergent ways countries are dealing with the pandemic and the fact that the United States has become a global epicentre suggests that a V-shaped recovery is unlikely.

Table 1: Impact of COVID-19 on SADC Real GDP Growth, Annual % Change (2017-2021)

Source: IMF 2020a, World Economic Outlook Database: April 2020¸ ibid.

In SADC, the economic consequences of COVID-19 have varied between nations. Due to the global lockdown, which only permitted the production of essential products and exports, countries whose economies rely on their tourism and mining sectors have been the hardest hit. The top-five most-severely affected SADC countries are the Seychelles, Mauritius, Botswana, DRC, and Lesotho. Despite the easing of restrictions as countries manage to flatten the rate of COVID-19 infections, international travel and tourism will remain limited for some time after the pandemic. Therefore, countries heavily dependent on international tourism will have a glass ceiling on their economic recovery. Conversely, export markets will likely normalise over the coming months if the virus is brought under control.

There seems to be a group of countries that have not been severely affected by COVID-19 like Mozambique, Angola, and Zimbabwe. Zimbabwe is expected to see a slight recovery in real GDP from -8.3% in 2019 to -7.4% in 2020[6]. Similarly, Angola’s real GDP growth is projected to recover slightly from -1.5% to -1.4% and the real GDP growth in Mozambique is expected to remain stable at 2.2% However, these economies all underperformed in 2019. Zimbabwe’s economy has been weak and had liquidity challenges for years, so a small uptick is neither unexpected nor an indicator of economic resilience in the face of COVID-19. Angola’s economy was weakened by volatile oil prices and a slowdown in oil production in 2019[7]. Mozambique has struggled with political and climate crises throughout 2019, but their economy has been stabilised by their growing energy sector. Ongoing mega-projects in natural gas extraction, which commenced construction in 2020, have helped to preserve economic growth[8]. The revised growth rates are also much lower than projections made in October 2019, as the real GDP growth in Zimbabwe, Angola, and Mozambique were expected to recover strongly to 2.7%, 1.2%, and 6.0% respectively[9]. Consumer inflation rates are also likely to increase in Zimbabwean (255.3%-319.0%) and Angolan (17.1%-20.7%), indicating that their economies remain weak, despite seeing a small recovery in real GDP[10].

Table 2: Impact of COVID-19 on SADC Inflation, Annual % Change (2017-2021)

Source: IMF 2020a, World Economic Outlook Database: April 2020¸ ibid.

At a regional level consumer inflation is projected to increase to 26.2% in 2020 (2019: 20.8%)[11]. Production and exports have been brought to a standstill, reducing overall economic output and export earnings. Lower supply of goods has increase demand, causing domestic prices to rise, and the lower exports earnings will cause pass-through inflation as currency values depreciate. However, because the inflationary impact has been mixed and related to COVID-19, it is projected to decrease substantially in 2021 – provided the virus is brought under control and economies can recover. Therefore, countries can take measures to ease the economic pressure on their citizens. In response to the COVID-19 pandemic, SADC governments have attempted to alleviate the stress placed on their citizen livelihoods and businesses through direct financial support or tax waivers and deferrals.

Government Finances

The support provided by SADC governments has differed across nations depending on the government’s fiscal or financial capacity and availability of resources. The support ranges from additional public health spending, provision or expansion of social welfare support, tax breaks and deferrals to businesses and individual taxpayers, loans and direct liquidity support for businesses, and additional government spending to improve the public health and policies to COVID-19[12]. Although SADC governments have provided financial guarantee, on-, and off-budget responses to COVID-19, this article only examines the on-budget commitments in terms of additional public expenditure.

Table 3: Government Responses to COVID-19 in SADC, USD millions/% of GDP (2020)

Sources: IMF 2020a, World Economic Outlook Database: April 2020¸ ibid.; IMF 2020d, Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID-19 Pandemic, ibid.; IMF 2020e, Policy Responses to COVID-19, ibid. Note(s): (*) USD equivalent for SADC and South Africa's fiscal policy measures is reported in USD billions.

The decrease in economic growth and government tax revenues caused by the lockdown, as well as unplanned for expenses related to COVID-19 has caused fiscal deficits to widen. The extent of deficit-growth has varied across countries depending on the cost of government support and the severity of the government revenue losses due to COVID-19.

Table 4: Impact of COVID-19 on SADC Government Finances (2017-2021), USD billion/% of GDP

Source: IMF 2020a, World Economic Outlook Database: April 2020¸ ibid. Note(s): (*) USD equivalent for the Comoros, DRC, Eswatini, Lesotho, Madagascar, Malawi, Seychelles and Zimbabwe's government finances is reported in USD millions.

The top five countries with the widest deficits (as a share of GDP) in 2020 are Seychelles (-14.1% of GDP; approx. USD 206.5 million), South Africa (-13.3% of GDP; approx. USD 44.8 billion), Mauritius (-10.6% of GDP; approx. USD 1.4 billion), Eswatini (-8.9% of GDP; approx. USD 412.0 million) and Mozambique (-7.7% of GDP; approx. USD 1.2 billion)[13]. Again, the worst-affected countries in SADC are either major travel and tourism destinations or commodity exporters. However, due to the global lockdown response, all economic sectors have been affected, including domestic capital markets which have had a severe impact on government revenues. As a result, most governments have had to coordinate with central bank authorities to ensure domestic capital markets continue to function. Moreover, governments have had to increase borrowing while requesting debt-servicing moratoria from various creditors.

Table 5: IMF Assistance to SADC Countries, USD millions/% of GDP (2020)

Source: IMF 2020a, World Economic Outlook Database: April 2020¸ ibid.; IMF 2020f, COVID-19 Financial Assistance and Debt Service Relief¸ on the International Monetary Fund Website, viewed on 28 June 2020, from https://www.imf.org/.

An initiative led by the International Monetary Fund (IMF), World Bank and other international financing institutions resulted in a commitment by the G-20 creditors to provide debt-servicing suspension[14]. Some G-20 countries have made contributions to the IMF Poverty Reduction and Growth Trust (PRGT) which are utilised under the IMF Rapid Credit Facility (RCF) to provide concessional financial assistance with limited conditionality to low-income countries (LICs) facing an urgent balance of payments need[15]. In addition to the RCF, the IMF has assisted states facing a critical balance of payments need with the Rapid Financing Instrument (RFI)[16]. As at the end of June 2020, the IMF had approved a total of USD 972.6 million in financial assistance to SADC countries under the RCF and RFI instruments[17].

Nevertheless, the pandemic will cause fiscal deficits to widen and divert funds from developmental projects. Ultimately, regional growth will be slowed as the global economy enters a recession. The longer COVID-19 continues to spread uncontrolled, the worse the impact that it will have on nation’s economies will be. Governments will have to ensure that their balance of payments remain under control to prevent them from sliding into a depression as the pandemic continues and to hasten their recovery when it ends.

Balance of Payments

The financial assistance from the IMF is geared at helping countries deal with the balance of payment challenges. Nevertheless, reduced export earnings caused by the cessation of non-essential exports due to COVID-19 has weakened currencies across the globe, resulting in new and widening currency account balance deficits.

Table 6: Impact of COVID-19 on SADC Current Account Balances (2017-2021)

Source: IMF 2020. World Economic Outlook Database: April 2020¸ ibid.

All SADC countries will see a decrease in their balance of payments, with commodity exporters such as Angola, Mozambique, Zambia, the DRC and Zimbabwe being the worst-affected. The temporary decline in demand for commodities such as oil, gold, and copper created by the lockdown has caused the prices for these commodities to crash. As a result, countries with currencies closely tied to commodity prices will likely continue to see a negative balance of payments until the market stabilises. However, market recovery may be slow as post-pandemic capital flows are likely to be significantly reduced due to the expected global recession.

Oil-producing countries have been particularly hard hit and face a less certain post-COVID future. Global oil prices collapsed after the Organisation of the Petroleum Exporting Countries (OPEC) and Russia failed to reach an agreement on proposed oil production cuts. On 5 March 2020, OPEC Heads of Delegation recommended extension of additional production cuts of 1.5 million barrels per day to the end of 2020 instead of June 2020[18]. Negotiations between Russia and OPEC members over oil production cuts in response to the coronavirus outbreak collapsed without a deal which resulted in an outright oil price war and pushed future oil prices[19]. Consequently, since 9 March 2020, Brent Crude and West Texas Intermediate (WTI) futures prices collapsed to USD 36.3 per barrel and USD 33.3 per barrel respectively[20].

Russia and OPEC finally agreed to reduce production by 9.7 million barrels per day from 1 May 2020, cutting by an additional 7.7 million barrels per day from July to December 2020, and a further 5.8 million barrels per day from January 2021 until April 2022[21]. However, as storage reached maximum capacity in the United States on 20 April 2020, the futures price of WTI oil declined to a low of -USD 37.6 per barrel due to traders pricing in the lower oil demand caused by the COVID-19 pandemic[22]. Brent Crude prices also dropped below USD 20.0 per barrel for the first time in 18 years[23]. Brent Crude and WTI prices have since recovered to USD 40.4 and USD 38.0 per barrel, respectively[24]. Nevertheless, the double shock of the oil price collapse during a time when the global economy faces an almost total shutdown created a balance of payment challenge for oil-producing countries.

There seems to be a group of countries whose current account balances have improved or less-affect by COVID-19 like South Africa, Botswana, Lesotho and Namibia. South Africa is projected to recover to a current account surplus of USD 534.1 million (2019: -USD 10.8 billion), Botswana is expected to improve to a deficit of -USD 436.1 million (2019: -USD 981.0 million), Lesotho may recover to a surplus of USD 179.0 million (2019: -USD 227.7 million), and Namibia could improve to a deficit of -USD 61.2 million (2019: -USD -328.7 million)[25]. The reduction in import demand due to the global lockdown and the negative impact of COVID-19 on real GDP growth across the world means these states are at a lower risk of developing a balance of payments problem. Nevertheless, these countries are still facing the devasting impact of COVID-19 on national economies and government finances. Therefore, governments have faced the significant challenge of making trade-offs between easing lockdown restriction to enable economic resumption while avoiding an uncontrollable rise in COVID-19 infections.

Public Health

The rise in COVID-19 infections has been the slowest in Africa. Nevertheless, the epicentre of the outbreak is in Southern Africa, and South Africa has recorded the 8th highest number of infections in the world (287,796). The public health response to COVID-19 has lagged, even though most SADC governments were swift in ordering national lockdowns to slow the spread. Rates of public testing have been sluggish, and there is a concern that countries have not prepared enough beds to deal with the inevitable rise in infections when states ease restrictions. Prolonged national lockdowns are also not viable as they would destroy livelihoods, firms and national economies. Hence, the pressures to re-open economies, undermining the public health response to reduce economic devastation, has resulted in a sharp rise in infections, particularly in South Africa.

Table 7: Impact of COVID-19 on SADC Public Health (2020)

Source: WHO 2020b, WHO COVID-19 Global Data¸ World Health Organisation: Geneva. Available At:  https://covid19.who.int/ [Last Accessed: 15 July 2020].

The SADC region had a total of 312,604 infections and 4,636 deaths as of 14 July 2020[26]. These numbers constitute 66.1%% of 472,971 cases in Sub-Saharan Africa and 62.5% of the 7,412 deaths. Across the entire continent, there have been 614,028 infections and 13,595 deaths, with another epicentre in Egypt (83,930 cases and 4,008 deaths)[27]. Globally, SADC only constitutes 2.4% of total cases and 0.8% of deaths. However, infections are currently spiking, and these numbers may change drastically by the end of July/August. The five worst-affected SADC countries are South Africa, the DRC, Madagascar, Zambia and Malawi[28].

Figure 1: South Africa COVID-19 Infections and Deaths

Source: WHO 2020b, WHO COVID-19 Global Data¸ ibid.

As the worst affected country in SADC, South Africa went into a hard lockdown when it declared a national state of disaster on 15 March 2020[29]. The first phase of the lockdown lasted until 1 May 2020 when the government introduced a five-level plan to reopen the country slowly and eased restrictions form Level 5 (hard lockdown) to Level 4 which saw most industries return to operations under 50.0% less capacity[30]. However, most businesses decided not to reopen as the capacity restrictions made it economically unviable for some to operate[31]. Consequently, the government eased restrictions to Level 3 from 1 June 2020[32]. Under Level 3, most of the operational restrictions on firms were lifted except for requirements such as wearing of masks in public and social distancing. All the while South African cases and deaths have been on the rise. Under Levels 4 and 3, new cases by 440.0% and 745.0% respectively; meanwhile, deaths grew by 536.6% and 497.0% respectively[33]. However, the mortality rate in the country is low, at 1.5% as opposed to the global death rate of 3.8%. Therefore, while South Africa has the 8th highest number of infections in the world, it is 22nd in total death, and 138th in mortality rate[34]. However, the fight against COVID-19 is far from over and South Africa is still navigating unprecedentedly uncertain terrain.

While the mortality rate in South Africa has been low, the socio-economic impact of the COVID-19 has taken a toll on the country. South Africa entered a technical recession in December 2019, which has been worsened by the COVID-19 pandemic[35]. As a result, South Africa began its third quarter of negative growth in 1Q2020 with a -2.0% decline[36]. The most recent data on unemployment shows a significant rise in the South African narrow unemployment rate for 1Q2020to 30.1%, the highest rate since Statistics South Africa started publishing the data in 2008[37]. This data shows the trajectory that South Africa was on before the lockdown. Therefore, it is likely that job losses caused by the lockdown will continue to drive up unemployment.

One potential result of a spike in unemployment and one of the most challenging data points to analyse is the impact COVID-19 has had on public mental health. Gender-based violence and the impact of the new paradigm on inequality have worsened since the lockdown started. When South Africa entered Level 3 and ended its prohibition on the sale of alcohol, trauma admissions to hospital related to alcohol consumption surged. The spike in alcohol-related hospitalisations prompted the government to reinstate the liquor ban on 12 July 2020[38]. However, with no end to lockdown in sight, the pandemic is taking a heavy mental toll on the South African people.

While South Africa is the SADC nation which has been most directly impacted by COVID-19, other countries are likely to see more indirect effects of the pandemic. Economic stress created by the decrease in exports and tourism will have an impact on public health, even if the number of infect individuals remains small. Moreover, with the world transfixed on COVID-19, funding often available for disaster relief will become harder to come by. An Ebola outbreak in the DRC in late June has been contained, but fears of an epidemic breaking out during the pandemic are still high[39]. It is essential to understand that COVID-19 is only the start of the challenges that will face global and regional economies and until it passes it is impossible to predict the full extent of damage the pandemic will do to the SADC region.

Despite the challenges with providing an account of the impact of ongoing COVID-19 pandemic, this article provides an overview of the effects on national economies, government finance, the balance of payments and public health in SADC. The COVID-19 pandemic also takes place when inequalities are at their height, which has also undermined the response of all countries. The global economy is widely connected, making it impossible for one country to make improvements without the cooperation of others. Overall, two things about the impact of COVID-19 in SADC and the rest of the world are true: COVID-19 shines a light on all the problems of modern society such as inequality, the importance of universal healthcare access, and raised the urgency to deal with such issues. Moreover, the impact of COVID-19 is much worse than most people anticipated and a post-COVID-19 world will be nothing like the “normalcy” that most people desire.

By Siyaduma Biniza and Ross Oliver Douglas


[1] WHO 2020a. Rolling Updates on Coronavirus Disease (COVID-19), on the World Health Organisation Website, viewed on 20 June 2020, from https://www.who.int/.
[2] WHO 2020b. WHO COVID-19 Global Data¸ World Health Organisation: Geneva. Available At: https://covid19.who.int/ [Last Accessed: 29 June 2020].
[3] IMF 2020a. World Economic Outlook, January 2020, on the International Monetary Fund Website, viewed on 15 July 2020.
[4] IMF 2020b. World Economic Outlook Database: April 2020¸ International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 22 June 2020]; IMF 2020c. World Economic Outlook Database: June 2020¸ International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 22 June 2020].
[5] IMF 2020b. World Economic Outlook Database: April 2020¸ ibid. IMF 2020c. World Economic Outlook Database: June 2020¸ ibid.
[6] IMF 2020b. World Economic Outlook Database: April 2020¸ ibid.
[7] IMF 2020b. World Economic Outlook Database: April 2020¸ ibid.; IMF 2019a. Angola Second Review of the Extended Arrangement Under the Extended Fund Facility, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 26 June 2020].
[8] IMF 2020b. World Economic Outlook Database: April 2020¸ ibid.
[9] IMF 2019b. World Economic Outlook Database: October 2019¸ International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 22 June 2020].
[10] IMF 2020b. World Economic Outlook Database: April 2020¸ ibid.
[11] IMF 2020b. World Economic Outlook Database: April 2020¸ ibid.
[12] IMF 2020d, Fiscal Monitor Database of Country Fiscal Measures in Response to the COVID-19 Pandemic, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 28 June 2020].; IMF 2020e, Policy Responses to COVID-19, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 28 June 2020].
[13] IMF 2020b. World Economic Outlook Database: April 2020¸ ibid.
[14] G20 2020. Communiqué: G20 Finance Ministers and Central Bank Governors Meeting, 15 April 2020 [Virtual], Group of Twenty: Cancún. Available At: https://g20.org/ [Last Accessed: 28 June 2020].
[15] IMF 2020g. IMF Rapid Credit Facility (RCF), on the International Monetary Fund Website, viewed on 28 June 2020, from https://www.imf.org/.
[16] IMF 2020h. The IMF’s Rapid Financing Instrument (RFI), on the International Monetary Fund Website, viewed on 28 June 2020, from https://www.imf.org/.
[17] IMF 2020f, COVID-19 Financial Assistance and Debt Service Relief¸ ibid.
[18] OPEC 2020a. OPEC Heads of Delegation Hold Further Consultations, on the Organisation of the Petroleum Exporting Countries Website, viewed on 3 April 2020, from https://www.opec.org/.
[19] Sheppard, D., Raval, A. and Brower, D. 2020. Oil Plunges as OPEC Output Cut Talks with Russia Collapse, on the Financial Times Website, viewed on 3 April 2020, from https://www.ft.com/.
[20] Bloomberg 2020. Energy, on the Bloomberg Website, viewed on 3 April 2020, from https://www.bloomberg.com/. As at 3 April 2020, the price of Brent crude oil had decreased further to USD 29.1 per barrel and WTI crude oil had decreased to USD 24.4 per barrel.
[21] OPEC 2020b. The 10th (Extraordinary) OPEC and non-OPEC Ministerial Meeting Concludes, on the Organisation of the Petroleum Exporting Countries Website, viewed on 29 April 2020, from https://www.opec.org/.
[22] Ngai, C., Raimonde, O. and Longley, A. 2020. Oil Plunges Below Zero for First Time in Unprecedented Wipeout, on the Bloomberg Website, viewed on 29 April 2020, from https://www.bloomberg.com/.
[23] McCormick, M., Raval, A., Foy, H., Sevastopulo, D., and Rocco, M. 2020. US Oil Price Takes New Dive as Market Turmoil Widens, on the Financial Times Website, viewed on 29 April 2020, from https://www.ft.com/.
[24] Bloomberg 2020. Energy, ibid.
[25] IMF 2020b. World Economic Outlook Database: April 2020¸ ibid.
[26] WHO 2020b. WHO COVID-19 Global Data¸ ibid.
[27] WHO 2020b. WHO COVID-19 Global Data¸ ibid.
[28] WHO 2020b. WHO COVID-19 Global Data¸ ibid.
[29] GoZA 2020a. Declaration of a National State of Disaster, Government of South Africa: Pretoria. Available At: https://www.gov.za/ [Last Accessed: 29 June 2020].
[30] GoZA 2020b. Disaster Management Act: Regulations: Alert Level 4 During Coronavirus COVID-19 Lockdown, on the Government of South Africa Website, viewed on 29 June 2020, from https://www.gov.za/.
[31] PESA 2020. Evaluating Calls to Relax South Africa’s Lockdown, on the PESA Website, viewed on 29 June 2020, from https://politicaleconomy.org.za/.
[32] GoZA 2020c. Disaster Management Act: Regulations: Alert Level 3 During Coronavirus COVID-19 Lockdown, on the Government of South Africa Website, viewed on 29 June 2020, from https://www.gov.za/.
[33] WHO 2020b. WHO COVID-19 Global Data¸ ibid.
[34] WHO 2020b. WHO COVID-19 Global Data¸ ibid.
[35] StatsSA 2020a. Gross Domestic Product: Fourth Quarter 2019, Statistics South Africa: Pretoria. Available At: http://www.statssa.gov.za/ [Last Accessed: 29 June 2020].
[36] StatsSA 2020b. Gross Domestic Product: First Quarter 2020, Statistics South Africa: Pretoria. Available At: http://www.statssa.gov.za/ [Last Accessed: 29 June 2020].
[37] StatsSA 2020c. QLFS Trends 2008-2020Q1, Statistics South Africa: Pretoria. Available At: http://www.statssa.gov.za/ [Last Accessed: 29 June 2020].
[38] GoZA 2020d. From the Desk of the President, on the Government of South Africa Website, viewed on 29 June 2020, from https://www.gov.za/.
[39] WHO 2020c. 10th Ebola Outbreak in the Democratic Republic of Congo Declare Over; Vigilance Against Flare-Ups and Support for Survivors Must Continue¸ World Health Organisation: Geneva. Available At: https://who.int/ [Last Accessed: 13 July 2020].

Siyaduma Biniza

Siya is the Executive Director at PESA.

Ross Oliver Douglas

Ross is an Editor at PESA.

Siyaduma Biniza

Ross Oliver Douglas

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