Friday, April 3, 2020

How big a risk is Coronavirus to Botswana economy?

As the COVID-19, also known as Coronavirus spreads and the patient count and death toll grow, economists across the globe are slashing their once-rosy expectations for global growth in 2020. Indications are that once COVID-19, like its predecessor – SARS becomes history, Economics students will have a study case on how governments should act when public health concerns are economic ones, too.

As it stands, it’s quite clear that at global level, while medical advances put the world in a better position than in the past to limit the health consequences of a global pandemic like coronavirus, globalisation and a bigger services sector mean that, other things equal, the pandemics are likely to cause greater economic costs. For countries like Botswana which is yet to register a single case of coronavirus the worry is not only on when the first case could be but largely also on the likely impact on the growth of the already fragile economy. In short, from economic perspective of policy makers in Botswana, the key issue is not just the number of cases of COVID -19 that could be registered, but the level of disruption to the domestic economy. 

Even before the emergence of Coronavirus the ability of the health care system in Botswana to absorb a shock — what experts usually call surge capacity — had proven to be much weaker than many would have thought. As a result, while local medical experts and health policymakers are nervously tracking signs that the coronavirus is spreading widely beyond its origins – China, local economists on the other hand are also are watching for much the same thing when it comes to the economic damage. Early indications are that for the four months since its first case the coronavirus have had an acute impact on a relatively narrow set of industries in Botswana. Boat cruise operators in tourism of Kasane are reeling. The Hospitality and Tourism Association of Botswana (HATAB) whose membership include hotels, lodges, tour operators amongst others says it has already started to record decline in arrivals of international tourists. 

Lilly Rakorong – HATAB Chief Executive however has expressed hope that it wont as ugly. “We are hopeful that doors won’t shut on us”. During the 2003 SARS outbreak, rates of travel fell just 0.3 percent.

Botswana’s national Airline – Air Botswana on the other hand says it anticipates adverse impact on its business operations, given its feeder status and reliance on other international Airlines. Globally, the airline industry is set to lose $29 billion, according to the International Air Transportation Association (IATA). 

In view of the depressed passenger travel patterns, Air Botswana says its schedule has been modified to reflect the impact of the coronavirus pandemic, “…in line with the low business activity that is currently being observed”.

The highly infectious coronavirus, which causes a potentially deadly respiratory disease called Covid-19, has rapidly spread around the world, disrupting global trade and travel, and battering stock markets. By Thursday it had sickened more than 126,000 people and killed more than 4,640 in 116 countries and territories. On Wednesday the World Health Organisation (WHO) declared Covid-19 a pandemic, and US President Donald Trump announced sweeping travel restrictions on Europe in an attempt to slow the spread of the virus.

As it stands, the surest way to limit the economic damage is to limit the spread of the disease itself. But how about the offshore investments? Kgori Capital – a local asset management firm based in the capital Gaborone says despite the current wave of global monetary and fiscal support, this is a time to remain relatively cautious on risk assets and focus on liquidity and capital preservation.

“As painful as major downward market moves may seem in the short run, there will be opportunities to add exposure to risk assets such as equities at very attractive valuation levels. So, investors should try stay calm and seek out the opportunities that market turbulence creates and mitigate potential risks as and when they are presented”, says Kgori’s Chief Investment Officer – Alphonse Ndzinge.

Ndzinge however cautions that the mix of shocks will probably result in a technical global recession (two consecutive quarters of negative GDP growth) in mid-2020. 

He notes that the intensification of Coronavirus containment measures such as rising social distancing, the rising health and economic uncertainty, the continued financial market turmoil and the unprecedented oil price collapse could leave global growth close to zero or even slightly negative in 2020. 

Ndzinge’s projection of a possible recession in 2020 is centred around the fact that since 1980, annual global growth has only been negative in 2009 and only below 1.0 percent in 1982. The last global recession was registered in 2008/09. 

The capital markets guru says the short-term returns of offshore investments have varied greatly during the past couple of weeks, dependent on asset type, asset mix and exposure level to different investments markets. 

“For instance, global equity indices are down significantly at nearly 20% whereas global bonds and the USD have fared significantly better”. 

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