Three prominent topics arose during a webinar hosted by consultancy Deloitte on April 29 around how emerging markets are responding to Covid-19 during the pandemic, as well as planning for the consequential aftermath of the virus, namely debt management, deglobalisation and digitisation.

Deloitte Africa emerging markets MD Dr Martyn Davies during the webinar pointed out that emerging economies’ debt could not be repaid unless there was growth, questioning how emerging markets should proceed to get through this year and lay structural reforms to ensure a positive growth trajectory going forward?

JSE CFO Aarti Takoordeen said local capital markets, at least in South Africa, were already coming off a struggling 2019 economy and that negative sentiment had shown in the capital market.

She pointed out that the JSE had experienced two of the biggest ever five-day drops in share prices, as well as the single greatest one-day gain, in the last few weeks, showing the unprecedented times that the world was in.

Takoordeen noted that while there had not been a time of certainty before Covid-19 and market volatility was a common theme at any point in time, Covid-19 was exacerbating volatility in South Africa’s capital markets, coupled with impacts from the low oil price and the downgrades by ratings agencies.

Nonetheless, she said innovation was often borne out of recessions and tough economic climates, so businesses ought to seek out those innovations by focusing on their strengths.

“A key feature of emerging markets is proposing high returns for investors. As soon as the risk affecting investor sentiment at the moment subsides, investment capital will return to our country, particularly if we focus on opportunities for growth.”

Takoordeen added that businesses and people in emerging markets in a post-Covid-19 world would certainly consider adopting a savings culture – consumers and business owners would analyse how they could avert future crises.

Siemens Southern and Eastern Africa CEO Sabine Dall’Omo said the recovery of emerging markets would largely depend on the stimulus packages implemented by countries.

“Considering South Africa and Morocco, there had been big impacts on their automotive industries. The economic recovery will depend on consumption and production restarts. In South Africa, there is opportunity for renewables to pick up the pace, which will help support technology and service providers,” she explained.

Dall’Omo added that Covid-19 had brought about an increased focus for emerging markets around how people live in the country.

“Governments and businesses often, in times of crisis, notice how, for example, people struggle in informal settlements with access to food and water. The pandemic has highlighted how necessary it is for businesses to make more of a socioeconomic impact and for collaboration with other businesses and government.”

While Covid-19 has brought about increased humanitarian focus, it has also highlighted the need for localisation, instead of globalisation.

For example, Dall’Omo said pharmaceuticals company Aspen had partnered with local manufacturers to enable them to produce certain personal protective equipment and testing kits to cater for increased demand, instead of trying to import more products.

Various manufacturing or laboratory facilities at universities have been repurposed for local manufacturing of healthcare supplies in South Africa.

Sanlam pan-Africa vice-chairperson Junior Ngulube, meanwhile, discussed how emerging economies are respectively impacted and responding accordingly.

For example, the likes of Nigeria and Angola, which are exporters of oil, have been largely impacted by the low oil price, while resource-dependent economies such as Zambia, Botswana and the Democratic Republic of Congo have noticed impacts related to their exposure to commodity markets.

He said emerging economies have had various approaches ranging from harsh lockdowns to economic activity remaining completely open.

New Development Bank (NDB) CFO and VP Leslie Maasdorp noted that the prospects of South Africa getting out of negative growth this year were zero.

“The key thing now is to ensure that we do not end up into deeper trouble. Innovation emerges out of crisis; South Africa has the opportunity to digitise at a faster rate and to allow e-commerce to flourish. We need to continue exploring scope for the silver lining in our local context.”

Further, Ngulube said the psyche of the post-Covid-19 emerging market consumer would change in ways that could not yet be understood. For example, in addition to probably becoming avid savers, they would have an increased need to be enabled digitally and businesses might need to rethink office-based work for the majority of their workforce.

THE ROLE OF FINANCIAL INSTITUTIONS

Maasdorp said the NDB’s core focus had been to expand its lending volumes to provide support to the Brics countries.

“The first part of our support is in the form of an emergency response, we have not seen the full impact of companies going into business rescue or closing down, so we are now focused on analysing our member countries to limit those types of stoppages in economic activity.

“There is also the issue of breaking global supply chains. Many countries cannot produce certain goods now because they cannot access the inputs. This will have a massive impact on the Brics economies and other emerging economies,” he added.

Maasdorp further mentioned that the pandemic could not be solved without a coordinated global effort.  

“The world that we are now looking at as NDB, will never be the same as before 2020 and we are still discovering what that world will look like.”

Maasdorp said debt relief was a critical issue. There is a natural impulse for countries right now to look at the medium term and to take a view on what they should do differently to protect business and people’s livelihoods.

Countries are looking at failed economic policies of the past, as well as relooking opposing capital controls.

“The first major risk right now is a retreat of policies experimented with in days gone by. At the heart of the concept of global solidarity is, you have to resolve the issue of countries that are unable to service their existing commitments. 

“Banks risk lower credit provider ratings if countries are unable to pay their debt, therefore it is in that sense also critical to provide assistance to better enable them to pay their debt later or at reduced rates over a longer period,” Maasdorp noted.

Developing economies have no other choice but to implement structural reforms, since many do not have a debt problem necessarily, but rather a growth problem. He said South Africa was able to service its debt and interest before deep and sustained recessions became prominent.

International Monetary Fund (IMF) South Africa senior resident representative Montfort Mlachila said the role of international cooperation was becoming more critical to limit the impact of pandemics and epidemics on emerging economies.

“How quickly South Africa will emerge from the current crisis is contingent on how well stimulus and recovery measures are implemented and how peoples’ and companies’ needs are catered to during this time, with help from international institutions, to avoid long-term economic disruption.”