In a Johannesburg supermarket earlier this week, I saw a man fill about half his trolley with small bottles of hand sanitizer. He was smiling at the check-out counter and evidently relieved. A nearby pharmacy has been out of hand sanitizer for the past week. This was textbook panic buying.
We are only nine weeks into the epidemic and deep uncertainty remains about its course and the fallout. It will wane, as is the pattern with epidemics, but the overriding unknowns are by when and what sort of economic damage will have been wreaked.
Italy is facing an unprecedented lockdown, with restrictions on travel and public meetings across the country under a month-long “I stay at home” decree. That has to mean considerable economic damage.
Markets have crashed on fears that the epidemic will have an uncertain but deep impact on economies. For South Africa, the global risk aversion is causing severe damage to the currency, and the real economy will take a hit, particularly from a drop in tourist arrivals and sharply lower commodity prices and exports, and, potentially, problems in sourcing key spare parts.
But the world has received an unexpected stimulus from the oil price war between Saudi Arabia and Russia that has taken the oil price way down. While the first half of the year will not see much global growth, there is likely to be a spring back later in the year.
The ‘cure’ to COVID-19 is really hurting.
No cost-benefit guide
Governments face trade-offs between the extent to which they are prepared to trash their economies and measures to curb the spread of infections. There is no clear cost-benefit calculation that can guide them. Lockdowns and quarantines lower the level of spikes in infections and curb or delay the cases with which hospitals must deal.
What governments fear are videos of people gasping for breath on stretchers in hospital corridors while waiting for treatment. It is the sort of calamity that can set off calls for regime change. The spread of the virus risks severely overburdening health systems, particularly the Intensive Care Units that must deal with pneumonia and other respiratory problems in the most severe cases.
A high death rate could easily lead to law and order problems, loss of electoral support, and a push for regime change in authoritarian countries. And lack of transparency and censorship risk triggering backlashes, and undermining governments’ credibility. There is some market distrust in Chinese statistics and claims.
The power to lock down and quarantine is an immensely powerful one that governments have. Unscrupulous governments might easily use this power to crack down on dissent.
According to the World Health Organisation (WHO) figures at the end of last week, two months into the crisis, 3 486 people have died so far out of the 101 927 confirmed cases, making for a Case Fatality Rate of 3.4 percent. This rate varies between countries and regions, clearly depending on differences in demography, the prevalence of existing medical conditions, and quality of healthcare.
To gain some perspective on this – given the SA murder rate of 58 people per day, the rate for the year to the end of March last year, a slightly larger number of 3 654 people would have been murdered in SA over the nine-week period. The toll from seasonal flu, while lower as a percentage of confirmed cases, is higher, although the death rate is about 0.1 percent in the US.
Most vulnerable
According to WHO, 80 percent of COVID-19 cases are considered mild and show no or only mild pneumonia. It is the remaining 20 percent that require some form of ventilation and oxygen. Deaths occur among the six percent of confirmed cases that are critically ill. The health system is likely to miss many of those with only mild symptoms.
Most at risk of death are elderly and people with compromised immune systems, and weak lungs such as smokers and TB sufferers, and patients with cardiovascular disease. COVID-19 related deaths rise sharply with age alone. Some 93 percent of fatalities are over 50, and 50 percent of deaths are among those who are over 70.
South Africa’s Department of Health says it has a plan to deal with COVID-19, but will it cope in winter and with a flood of patients requiring intensive care?
The country has factors which favour a low severe-case load, but others which could see a strong surge and a long battle.
COVID-19 cases will almost certainly rise in South Africa with the onset of winter, when people spend more time indoors in close proximity to one another, so raising infection rates. The country has a poorly managed public health system and large numbers of people with TB due to HIV infection, all of which could raise infection and death rates.
What could work in South Africa’s favour in reducing the caseload is the country’s young age structure. Only 5.3 percent of the population is over the age of 65 compared to 10.6 percent in China and 23 percent in Italy.
Global growth forecast lowered
A further factor favouring South Africa’s fight is that much of the early learning has been done by health systems that have faced an onslaught. Importantly, the rate of increase of new COVID-19 cases appears to be slowing in China and will slow in the rest of the world. Moreover, a large amount of talent has been set to work on developing vaccines and there has been some progress, although approval for use will take time.
It is the economic damage that could be really serious. Credit rating agency Moody’s has lowered its forecast for global growth by nearly one percentage point to 2.1 percent, and its SA forecast to almost no growth – 0.4 percent from 0.7 percent. The low oil price will give relief, as South Africa is an oil partner, but that is if it is maintained.
South Africa is hardly in a position to buffer this shock. It cannot, as does the Singaporean government, pay companies for every day that employees do not make it to work because they are in quarantine. Unless it takes resources away from other government departments, it cannot substantially increase health spending. The COVID-19 episode is a harsh lesson of the need to put resources aside in good times to deal with economic shocks.
It is also a lesson that business can continue online. Working at home and video conferencing from home are possible but become more effective if there is sufficient and cheap high-speed broadband. That is not the case in SA. Government could help this by taking its services for renewal of car registration licences and many other services online.
In every crisis there are opportunities.
In the wake of this crisis, large manufacturing companies will be accelerating efforts to diversify their sources of supply away from China and Asia. To mitigate the risk of further supply interruptions, companies will want to take supplies from across the world. But South Africa will not be able to benefit from this trend to any great extent. There is one big problem – we just do not know when the electricity problem will be solved.
The views of the writer are not necessarily the views of the Daily Friend or the IRR
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