South Africa

ANALYSIS

Coronavirus could exact a high toll in SA

A patient participating in TB Day at Khayelitsha's Site B clinic in Cape Town, South Africa on 24 March 2011. (Photo by Gallo Images/Foto24/Lulama Zenzile)

The economic and human impact of Covid-19 for South Africa is likely to be substantial, owing to factors such as a high prevalence of tuberculosis and HIV and a reliance on China as the largest trading partner for both imports and exports.

Covid-19, the disease caused by coronavirus, arrived in South Africa last week. Economic modelling by Warwick McKibbin and Roshen Fernando shows that in South Africa, the virus could lead to between 75,000 and 337,000 fatalities in the first year, higher than countries such as France, Canada, UK, South Korea, and even Italy, which has become the Covid-19 hotspot. 

In the mildest global scenario, in which a pandemic is a one-time event with low severity, the model suggests that South Africa will have 75,00 fatalities. As the scenarios worsen, mortality predictions rise up to 337,000.

The economic impact on South Africa is no less significant. If the epidemiological events were contained to China, it is forecast that South Africa’s GDP would contract by 0.2%-0.4%. But now that the virus has spread outside of China, reaching all corners of the world, forecasts have a GDP contraction forecast of 1.8%-7% for South Africa.  

The economic and human impact of Covid-19 for South Africa is likely to be substantial, owing to factors such as a high prevalence of tuberculosis and HIV, a reliance on China as the largest trading partner for both imports and exports, and its position as a upper-middle-income country, which restricts its ability to tap into zero-interest IMF support.

The mortality rate is likely to be high in South Africa. Covid-19 fatalities are highest among those who are over the age of 70 and those with comorbidities. In February, The World Health Organisation (WHO) released an update on Covid-19. It found that for patients who reported no comorbid conditions, there was a 1.4% crude fatality rate (CFR). Those with comorbid conditions had much higher rates: 13.2% for those with cardiovascular disease, 9.2% for diabetes, 8.4% for hypertension, 8.0% for chronic respiratory disease, and 7.6% for cancer. It is likely that those who have tuberculosis and/or HIV could be at a higher risk for more severe complications of Covid-19, given that they compromise the lungs and larger immune system. The 2015 Ebola outbreak showed that without strong intervention, deaths from diseases like malaria were at least as high, if not higher, than those from the Ebola outbreak itself.

Additionally, South Africa is exposed to medical supply chain disruptions, given its high demand for tuberculosis and HIV medications. McKibbin and Fernando point out that one of the key impacts of the disease beyond mortality (those who die) and morbidity (those who cannot work for a period of time) is the disruption of global supply chains. The closure of a number of China’s factories has affected global medical supply chains. China is a top producer of active pharmaceutical ingredients that are inputs for antibiotics, diabetes and HIV medications, and painkillers. 

Given the production halt of key ingredients in China, India, which is a key manufacturer, has announced that it will have to slow down its production and has imposed restrictions on the export of 26 common drugs. While South Africa has robust local production for pharmaceuticals, 60% of antiretrovirals for HIV treatment are imported, largely from India and China. While there is currently sufficient domestic stockpile, this does increase South Africa’s exposure to vulnerabilities as the future trajectory of Covid-19 remains uncharted.

International organisations are stepping in to aid in the response. Last week, the International Monetary Fund announced that it would make $50-billion available through its rapid-disbursing emergency financing facilities for low-income and emerging market countries to address Covid-19. Of this, one-fifth, or $10-billion, will be available at zero-interest for the poorest countries, through the Rapid Credit Facility.

Although South Africa does not qualify for zero-interest financing given its position as an upper-middle-income country, the challenges facing the country put it at a more disadvantageous position compared to some other low-income countries. Take Rwanda, for example. With a GNI per capita of $780, the country would receive free and/or the highest level of subsidisation for lending from the IMF to address a Covid-19 outbreak. However, the damage of Covid-19 in Rwanda would likely be far less than in South Africa. Rwanda has a TB prevalence of 59 per 100,000 people. South Africa’s prevalence is nearly 10 times higher, at 520 per 100,000 people. For HIV, the prevalence among adults aged 15-49, is 2.5% in Rwanda, compared with 20.4% in South Africa. Thus, South Africa may be in greater need of assistance, compared to some low-income countries. While concessional finance won’t keep people from contracting the virus or assuage fears and anxieties that are running rampant, it does assist governments with responding.

South Africa’s ineligibility for zero-interest support enhances the need for the government to focus its efforts on strengthening its contingency planning. Evidence from previous outbreaks, such as Ebola, suggests the critical importance of having credible action plans to respond to situations such as this, which are pre-financed with risk financing strategies. 

Financially, preparing ahead of time is better than trying to fiscally respond, given that Covid-19 will have a detrimental effect on an already-struggling economy. 

China is both South Africa’s largest supplier of imports and the biggest purchaser of exports, providing for 18.5% of imports and accounting for 10.7% of exports in 2019. Before the Covid-19 outbreak, Fitch Solutions expected the Chinese economy to grow by 5.9% in 2020 – the slowest in 30 years. Then Covid-19 hit. If the virus is contained around mid-2020, growth would be reduced to around 5%. PwC estimates that this would have a domino effect on the South African economy through three key mechanisms: reduced demand for minerals and mining products; negative impact on the balance of trade; and potential exchange rate impacts.

There’s no denying that South Africa is in a tight spot. It is home to some of the highest TB and HIV prevalences in the world, a GNI per capita that is too high to receive the zero-interest IMF support and an economy that is fiscally constrained. The government must step up to minimise the human and economic impact of Covid-19 in South Africa. DM

 

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