- Coronavirus is likely to have a major economic impact, with initial estimates suggesting it will cost the global economy up to $360 billion.
- Sub-Saharan Africa stands to lose $4 billion in export revenue, even without contracting a single case of Coronavirus.
- A new report from the Overseas Development Institute highlights countries at greatest economic risk from Coronavirus.
The human impact of the Coronavirus is widely reported but new research from the Overseas Development Institute highlights the outbreak will have a significant economic impact on the world’s poorest economies – even if they have no confirmed cases. The Overseas Development Institute have developed a Vulnerability Index, which shows Sri Lanka, Vietnam and the Philippines, followed by Kazakhstan, Cambodia, Kenya, Malaysia and Nepal are at greatest economic risk.
The Vulnerability Index
Researchers at the Overseas Development Institute have developed a Vulnerability Index, highlighting which low and middle-income countries are most vulnerable based on three factors:
i) Health and connectivity
The immediate impact on the health of the population and connectivity are visible through confirmed coronavirus cases, direct flight cancellations and travel bans. These include the Philippines and Vietnam, as well as a range of mainly Asian countries. Some African countries are also included, as six out of eight airlines have cancelled their flights to China.
ii) Economic links with China and global integration
The economic impact of the coronavirus outbreak will be felt most fiercely by countries with close links to China through trade, investment, or the movement of people. Mongolia, Cambodia and Laos are the most exposed Asian countries, followed by Myanmar, the Philippines, and Vietnam.
Researchers predict Sub-Saharan Africa could lose up to $4 billion in export revenue as the outbreak dampens Chinese and global demand. The most exposed African countries include Angola, Congo, Sierra Leone, Lesotho, and Zambia.
Countries with constrained fiscal resources and weak health systems are less resilient and more vulnerable. Whilst Ethiopia is distant from the centre of the outbreak, the government’s deficit equivalent to -3% of GDP and low levels of reserves leave less policy space for fiscal and monetary interventions should the outbreak reach the country.
Ethiopia also spends less than 5% of its GDP on health and has low quality and access to health care services. This is a common picture for sub-Saharan African countries, which occupy 15 of the top 20 least resilient countries in ODI’s sample.
Sherillyn Raga, Senior Research Officer at the Overseas Development Institute, says:“The potential economic impact of a protracted Corona virus outbreak will be different among countries. For example, almost 100% of Angola and Mongolia’s exports to China are oil and crude materials, about 65% of Philippines’ exports to China are machineries and transport equipment, and Chinese visitors comprise 30% of total tourist arrivals in Thailand. Governments need to look at how these different sectors will be affected - who are employed in these sectors, how much government revenues are coming from these industries, and how much do they contribute to overall country growth. We hope that by highlighting individual countries’ exposure to China, we can flag governments to prepare and respond to a worst case scenario of the outbreak.”
Dr Dirk Willem te Velde, Principal Research Fellow at the Overseas Development Institute, says:“As of now, Africa has no confirmed cases of the Coronavirus, but our analysis suggests it stands to lose much through the growing economic links with China. Whilst Asian countries will be affected more through tourism and manufacturing supply chains, African countries may see reduced exports revenues of £4bn - even if reductions of 10-20% in global oil, copper and coffee prices only last a few months.”
In comparison to the SARS virus of 2003, which dragged the world’s output down by $50 billion, ODI’s research predicts that the coronavirus outbreak is estimated to cost the global economy up to $360 billion. This comes from China’s GDP share globally being four times higher in 2019 than in 2003 and from confirmed cases of Coronavirus already more than double the total of SARS.
ODI’s report recommends that countries must:
1) Implement a range of health-related policies and information campaigns to contain the spread of the virus.
2) Examine the potential economic fall-out and spill-over effects based on direct exposure to the virus through trade, investment, and movement of people. A protracted and wider coronavirus outbreak will eventually affect global value chains, financial markets, flow of capital, and price levels, affecting both firms and households, and economic transformation as a whole. These effects need to be examined in more detail.
3) Diversify and transform the economy into activities less affected by the crisis and increase resilience to the outbreak moving forward. The current economic vulnerability to external shocks stems from heavy concentration into one country or sectoral activity. While China is a major trading partner and creditor to many low-income countries, it is important for countries to diversify export partners and investment sources.
You can read the full report online here.