April 8, 2021

A Very Different COVID-19 Story in South Africa

After an interval of more than six months, we are looking again in our column at the prevalence and impact of COVID-19 in South Africa. It has been by far the worst affected country on the continent, with 52,660 deaths to date according to the latest data from Johns Hopkins University in the United States (and 2,080 in Nigeria). The comparable figures in mid-August were 10,600 and 950 respectively. It does not require a statistician to notice that the rate of acceleration between the two data points differs greatly but it does require one to scrutinize the methodology in both cases.

On the surface, there are a few reasons to look at the two countries together. The unemployment rates in Q4,2020 were comparable: 32.5 per cent in South Africa and 33.3 per cent in Nigeria. Organized labour is looking to block government efforts to lessen the fiscal costs of COVID-19: in South Africa this has been with several measures in the 2021/22 (April-March) national budget such as sub-inflation increases in social grants, and in Nigeria it has been evident in the debate around fuel subsidies. Labour is particularly powerful in South Africa because the trades union umbrella group is in informal alliance with the ruling African National Congress.

The damage to the economy has been far greater in South Africa because of its openness, which is evident in its large tourism sector and related international transport connections. It contracted by -7.0 per cent in 2020, compared with -1.9 per cent in Nigeria. At the same time, the recovery is stronger. In Q4 the economy grew by 1.5 per cent year-on-year and Nigeria’s by just 0.1 per cent.  Budget assumptions for growth for the current year would indicate a similar recovery (3.3 per cent for South Africa for 2021/22 and 3.0 per cent for Nigeria). However, we feel that the numbers are overly optimistic.

The monetary response in South Africa has been textbook, with rate cuts of 300bps since early 2020. Inflation has remained within its formal target range. The Reserve Bank opted for a ‘hold’ last week when some analysts called for tightening (like Turkey and Brazil) in the face of pressure on the exchange rate and rising yields on US Treasuries.

The monetary policy committee in Nigeria cut (by 100bps last year) but faced a different policy dilemma. It was also responding to the brutal impact of the virus and lockdowns on growth but against a backdrop of inflation rising far above its informal reference range. The Central Bank of Nigeria has its own ‘heterodox’ exchange-rate arrangements and the economy is less integrated in terms of international financial flows. The direction of Nigerian monetary policy is more difficult to call.

In one respect, Nigeria will not envy its South African counterpart, which fell into the trap (popular with European governments) of setting targets for its vaccination programme. The government pledged to achieve COVID-19 immunity, which it judges to be a 67 per cent vaccination rate in the full population, by end-2021. A new deadline of February 2022 is currently being questioned, and the media are pursuing other leads that are critical of the South African government. (the pace of the rollout for the country’s health workers and delivery on a vaccine supply agreement with a United State’s manufacturer).

Gregory Kronsten

Head, Macroeconomic and Fixed Income Research, FBNQuest