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Saturday, August 15, 08:24
PM / by FBNQuest Research/ Header Image Credit: Quartz
For
this week's column we are looking at the prevalence of COVID-19 in another
African country and the policy response of its government. The country is South
Africa, which, according to the database maintained by Johns Hopkins University
in the US, has seen about 10,600 deaths to date. The comparable figure for
Nigeria is 950. The number of new cases in South Africa peaked in late July and
has since eased sharply.
As
to why the incidence is comfortably the highest on the continent, about twice
that of Egypt in the same database, we add a layman's view to the (differing)
opinions of the experts. A large tourism industry that attracts visitors from
across the world is surely a leading factor. Additionally, we can point to the
large population of migrant workers from the sub-region in industries such as
mining. The country is also in mid-winter.
The
economy was in poor shape pre-COVID, growing at less than one per cent in both
2018 and 2019. The public finances have been stretched by mismanagement and
huge losses at state-owned enterprises such as Eskom (electricity) and South African
Airways. The country lost its last investment-grade sovereign credit rating in
March from Moody's. After demurring at the outset, the government last month
secured US$4.3bn from the IMF within its rapid financing instrument to tackle
the impact of the virus. This is the first borrowing from the Fund under
majority rule.
The
government (like the FGN) can, of course, legitimately say that the funds come
without any formal conditionality attached.
Alongside
a relatively short full national lockdown, the authorities have responded with
both monetary and fiscal stimuli. The Reserve Bank has cut the benchmark (repo)
rate by 300 basis points to 3.50 per cent since mid-January and may have a
little more easing to come. As an orthodox central bank offering textbook
policies, in contrast to the CBN, it has been criticized by radical elements
within the ruling African National Congress and the trades union movement. It
did buy government bonds at the height of the turbulence but not enough for
critics calling for direct funding. Others have pushed for policies to add to
inflation and erode the value of public debt, which is heading for 100 per cent
of shrinking GDP.
On
the fiscal side, the government of President Cyril Ramaphosa launched a US$30bn
package of support to fight the virus in mid-April. The funds are concentrated
on the healthcare system, on stretched municipalities and on an extension of
social grant payments.
Looking
on from Nigeria, we will note that the incidence of the virus has been far
higher in South Africa and that the official response has also been higher,
both in nominal US dollar terms and as a percentage of GDP. The damage to the
economy has been greater. The IMF forecasts GDP contraction of -8.0 per cent
this year, and other commentators still worse. The emergency 2020/21 budget,
adjusted in June, has a budget deficit equivalent to 15 per cent of GDP.
Expectations
for Nigeria are less brutal but not, we must point out, as a result of superior
policy or planning. Nigeria is less integrated within the world economy than
South Africa, has a miniscule tourism industry by comparison and enjoys some
insulation from imported headwinds due to its large subsistence economy. On the
flipside, just as Nigeria will see a smaller contraction this year, it is
likely to have a more subdued rebound.
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