South Africa Takes Major Steps To Deal With Coronavirus As Economy Teeters

In response to the global coronavirus epidemic, South Africa has declared a national state of disaster and imposed travel bans from countries most affected by the virus, including South Korea, Iran, China, France, Germany, the U.S. and U.K.

“No applications for visas by foreign travelers from high-risk countries will be approved,” the government’s International Relations & Cooperation Department said. “Visas already issued are revoked with immediate effect for travelers that have not yet entered South Africa.”

South Africa has had only 85 confirmed cases of the coronavirus, but that number is expected to climb in the coming weeks.

South Africa has also implemented school closures and a prohibition on large public gatherings. As a result more than 11 million school children will stay at home. South Africa also closed 35 of its 72 land border crossing points and two of its eight seaports.

“Never before in the history of our democracy have we been confronted by such a severe situation,” said President Cyril Ramaphosa.

The arrival of coronavirus may also further hurt South Africa’s weakening economy, already burdened by spiraling debt and an energy shortage crisis.

Jacques Nel, head of Africa macro at NKC African Economics, said South Africa’s real gross domestic product will contract by 0.8% this year, down from his previous estimate of 0.2% growth.

NKC also expects South African exports to shrink by 10% in 2020.

“This year will be another disappointment [for South Africa] from an economic perspective, but the recent escalation in the Covid-19 outbreak within the country implies there is a lot more at stake than foregone economic production,” Nel said.

Nel also contended that South Africa would not be able to implement the kind of lockdowns that wealthier nations in western Europe and northeast Asia have.

“The impracticality of implementing widespread self-quarantine in shanty towns or informal settlements mean that this will not be an option. Mismanagement of the situation could lead to human costs far exceeding economic losses,” Nel added.

The South African Reserve Bank is widely expected to cut interest rates on Thursday by 25 basis points from 6.25% to 6%. But Nel projected the central bank will cut its benchmark rate by 50 basis points to a five-year low of 5.75%.

“The South African economy was in crisis already because of debt, government incompetence and corruption. The Covid-19 pandemic is just adding insult to injury,” said Efficient Group economist Dawie Roodt. “It is a little harsh to refer to doomsday scenarios but we are certainly going to have a very tough time. Without a doubt it is going to impact on South Africa’s growth, possibly even driving us into a lengthy recession.”

Roodt added: “While I don’t think we will be going to the [International Monetary Fund with] hat in hand any time soon, the state is going to have to borrow more money from the capital markets. The downside of this is that the state’s debt will increase and we are already at dangerous debt levels.”

Mike Schussler, an economist based in Johannesburg, also thinks South Africa’s economy will shrink.

“The only question is by how much and that is difficult to say, but I suspect around a 5% decline is the best guess right now,” he said. “May even be deeper or a little less.”

Busi Mavuso, the CEO of Business Leadership South Africa, said: “This virus which has been rattling markets has also added more economic fears to the already struggling economy -- which is now in a technical recession and continues to be plagued by [power cuts].”

John Asbourne, senior emerging markets economist at Capital Economics, does not think South Africa can inject cash stimulus into the system to prop up the economy.

“South Africa’s already wide deficit and deteriorating debt position will prevent the government from announcing significant stimulus,” he said.

South Africa’s largest labor organization, the Congress of South African Trade Unions, or COSATU, and the country’s principal business lobby, Business Unity South Africa, or BUSA, have both asked the government to deploy an $11 billon fund, the Unemployment Insurance Fund, to combat the financial effects of the coronavirus outbreak.

“Much more needs to be done,” said Matthew Parks, COSATU’s parliamentary coordinator.

South African firms have already cut more than 10,000 jobs this year.

Parks suggested that the Public Investment Corp., the 2.13 trillion rand ($128 billion) fund manager that oversees the pensions of state workers and the Unemployment Insurance Fund, should be tapped.

While no one has yet died from the virus in South Africa, concerns have arisen over the ability of its overburdened health care system to deal with an epidemic.

Some 82% of people in South Africa have no health insurance and depend upon public clinics and hospitals, which are typically are overcrowded and understaffed.

"We cannot contain COVID-19 with our health system alone," said Professor Mosa Moshabela from the School of Nursing and Public Health of the University of Kwazulu Natal. "If we look at how Italy is coping with the virus -- we can't do it."

South Africa is already dealing with an HIV epidemic – at least 7 million people in the country are living with the disease. Scientists and doctors worry these people could be susceptible to the coronavirus.

The Academy of Science of South Africa has said that people with HIV are already eight times more likely to be admitted to hospital for influenza-linked pneumonia.

"We have seven million people that are HIV-positive, and two million are not on treatment," said Professor Susan Goldstein, a public health specialist and deputy director of the Wits Center for Health Economics and Decision Science. "That is very, very worrying."

In addition, there are worries about the virus reaching crowded townships.

"We also don't know how it plays out in very poor areas where there aren't places for quarantine -- and bed-sharing is not possible," added Goldstein.

Another factor to consider is poverty and unemployment, now running at 29.1%.

"Many people live under conditions of severe poverty," Moshabela said. "Asking those [people] to restrict movements and not go to work is not going to be an option."