Poor countries avert worst of pandemic, but not its economic fallout
Why We Wrote This
Many developing countries have weathered COVID-19 better than expected, health-wise. But they have not escaped the economic sting in the pandemic’s tail.
Nigerians heading to work as authorities ease the lockdown following the coronavirus outbreak in Abuja, Nigeria, May 4, 2020.
December 23, 2020
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By Simon Montlake
When COVID-19 began spreading worldwide back in March, experts warned that poor countries in Africa and Asia would bear the brunt of the pandemic. In fact, while the coronavirus has scoured Europe and North America, death rates in the developing countries have generally been low.
But they have not escaped the economic fallout, as the global economy has shrunk by nearly 5% this year. The economic slowdown and pandemic-induced lockdowns have thrown millions of the most vulnerable out of work; the World Bank estimates that as many as 115 million people have fallen into absolute poverty because of COVID-19.
And the problem is compounded by a slump in remittances from migrant workers who had gone to the Persian Gulf, to America, or to Europe, where the pandemic has reduced the demand for labor. Remittances totaled $550 billion in 2019, three times as much as official foreign aid budgets. For many families this year, those monthly checks wired by distant relatives have dried up.
Boston; Amman, Jordan; Lagos, Nigeria; and London
When his furlough notice came in March, Kingsley Chukwuemeka Udeoji wasn’t too surprised. Nigeria had announced a partial COVID-19 lockdown, and the private high school in north-central Niger state where he taught math was sending students home.
The timing was awkward: Mr. Udeoji’s wife had quit her marketing job and just given birth to their first child, a daughter named Tiffany. But he thought the shutdown would be short-lived, like the one during the 2014 Ebola outbreak in West Africa that Nigeria managed to keep at bay.
It was not to be. As Nigeria braced for a pandemic that many feared could sink its patchy health care system, the government kept prolonging the lockdown and Mr. Udeoji grew desperate as he spent down his savings. “The baby had to eat. Mother had to eat. I had to eat. It got too much,” he says.
Some 2,000 miles away, Hassan Ais, a factory owner in Mansoura, Egypt, was also flailing.
Sales of his beauty products had collapsed, and he had laid off all but one of his seven workers. Nobody had much money to spare for nonessentials like shampoo. But the economic hardship in the Nile delta wasn’t simply the result of Egypt’s lockdown. The source of the trouble lay farther away in the oil-rich Persian Gulf, where millions of Egyptian migrants ply their trades.
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“There are entire villages here that rely on citizens working the Gulf to send money home,” says Mr. Ais. “With their salaries cut or them being let go, purchasing power suddenly is extremely limited.”
Nigeria and Egypt are examples of developing countries that averted runaway pandemics in 2020, to the relief of health officials, only to face economic crises due to social restrictions at home and an unprecedented global collapse in trade, travel, and capital flows. This includes remittances from migrants who funnel money from better-off nations to some of the poorest.
A shrinking economy
This year the IMF says the global economy is expected to have shrunk by 4.4%, nearly three times as much as in 2009, the height of the last financial crisis. And the proportion of countries simultaneously in recession is the highest in over a century; among major economies only China, where the virus was first detected, will post economic growth.
Back in March, when COVID-19 began spreading widely, experts warned that poor countries in Asia and Africa would bear the brunt of the disease. Instead, the pandemic has scoured rich countries in Europe and North America, while many in the developing world have recorded far fewer deaths per capita. In Nigeria, a nation of 200 million, the official death toll is 1,200. Vietnam has 96 million people; only 35 of them are reported to have died of COVID-19.
But that hasn’t spared developing countries from the economic shock of COVID-19. Far from it: The number of people living in extreme poverty – on less than $1.90 a day – is thought to have risen by as many as 115 million in 2020 after declining every year for more than two decades.
Not all developing countries have dodged the health bullet: India has recorded the second highest number of confirmed cases, behind the United States. And in Latin America, rampant COVID-19 outbreaks and haphazard governance have left a trail of death and economic ruin; the region’s economy is expected to shrink nearly twice as much as the world average.
“The places that are feeling the worst pain are seeing the worst of both worlds,” says Michael Wolf, a U.S.-based global economist at Deloitte, a business consultancy.
Even countries like Thailand and Vietnam that swiftly contained the pandemic suffered from a slump in tourism, a mainstay of their economies. “It wasn’t just about how well you were doing in terms of health outcomes, but what industries were concentrated within your borders,” says Mr. Wolf.
Rebounding in Nigeria
For Nigeria, that industry is oil, which accounts for nearly two-thirds of government income. In April, oil cargoes sat in Nigerian ports as China and other buyers suspended imports during the downturn.
By July, Mr. Udeoji was at his wits’ end. Local lockdowns had eased, but schools remained closed and the price of food had soared. Fitful government efforts to distribute food aid fell short amid accusations of corruption and hoarding.
One morning, his savings exhausted and his rent due, he turned to Twitter. “Survival has been difficult since school closure,” he tweeted, posting a photo of his family. “I need online private coaching opportunities or any job … please help.”
Strangers responded, offering to make donations. Soon he had money to help pay the rent and buy supplies for his baby daughter.
In October, Nigeria reopened schools and Mr. Udeoji went back to work; he has started to save again. His wife is looking for a job. What worries him now is that the new uptick in coronavirus cases in Nigeria might lead the authorities to impose another lockdown.
“We have tested [lockdown] and it did not work,” he complains. “Look at the market, things are like three times what it used to be. They shouldn’t even think about it because Nigeria is not ready.”
Nigeria isn’t the only African country facing a second COVID-19 wave. In recent weeks, Kenya and South Africa have tightened social controls to curb the pandemic, and South Africa is confronting a new variant of the virus thought to be more highly transmissible.
Still, the overall trend in Africa has defied the doomsayers. The continent has 17% of the world’s population but roughly 3% of reported pandemic deaths.
Experts point to demographics – Nigeria’s median age is 18 – and climate and lifestyles as possible factors in the disease’s trajectory. Life-and-death experience with diseases like Ebola also prepared public health officials in West Africa better than health workers in many Western countries. COVID-19 data is limited by testing capacity, and some countries may be undercounting, but early and aggressive government interventions appear to have largely worked.
Migrant workers hit hard
The Middle East has not escaped so lightly; Iran has been particularly hard-hit, while wars in Syria and Yemen have decimated health systems. But just as catastrophic for the region was the crash in the price of oil at the same time that lockdowns choked local commerce. “The magnitude of these combined shocks has been quite severe,” says Daniel Lederman, deputy chief economist for the Middle East and North Africa at the World Bank.
These shocks have slashed job opportunities for the estimated 30 million migrants working in Gulf countries who send home at least $70 billion a year, according to the Gulf Research Center in Jeddah, Saudi Arabia. A many as 1.2 million migrants could leave Saudi Arabia this year.
All told, global remittances from migrants were worth roughly $548 billion in 2019, three times the combined size of official foreign aid budgets. “These are private transfers that support domestic consumption, particularly for the poorest and most vulnerable families,” says Mr. Lederman.
Cash transfers from Somali expatriates make up more than a third of Somalia’s economy. Wages paid in Russia flow back home to families across Central Asia. Central Americans rely on remittances from the U.S. The Philippines dispatches workers to every corner of the globe.
Dilip Ratha, the World Bank’s lead economist on migration and remittances, points to studies showing that in Sri Lanka, babies born to families receiving remittances weigh more because their mothers eat better. Migrant wages pay school fees, housing, and medical bills. “They’re a great vehicle for sharing prosperity between places,” he says. But now that vehicle’s engine is sputtering: Mr. Ratha’s research suggests that remittances to low- and middle-income countries have fallen by 7% this year, and that “the worst is not over yet,” in his words. “There is no scope for complacency.”
Football defender Mahrous Mahmoud (right) makes Ramadan sweets at a souq, in Manfalut, Egypt, a town south of Cairo, May 9, 2020. Mr. Mahmoud should have been on the field for Beni Suef, a club in Egypt’s second division. But like millions in the Arab world’s most populous country, he was hit hard by the pandemic.
In countries like Egypt, where remittances normally account for nearly 7% of GDP, the COVID-19 effect is already reverberating. Mr. Ais shut his shampoo factory this month after waiting for a pickup in remittances to his customers that has not happened. The country expects as many as a million migrants, one-fifth of its overseas workforce, to return home from the Gulf this year.
Others too have lost their jobs abroad. Reba Abdul Halim worked for 15 years in a dairy factory in Amman, sending back at least $600 a month to his wife and four children in Egypt. After the factory closed this summer, he moved back to his home village. Money is tight, and his children no longer attend private schools. He complains that his life is on hold.
“You can’t climb your way out of economic hardship in a rural village in Egypt. There are no opportunities,” he says.
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Opportunity is what drew Marjorie Chong, a Filipina, to the United Kingdom in 2004. In April, she was furloughed by her employer in London, and when government wage support ran out in October she took a part-time job at a migrant-rights nonprofit. She has been sending less money back this year.
She is hopeful that she can find a full-time job and start remitting more to her mother-in-law and to charities again. But for now, Ms. Chong is clinging on in London, not sure how much she can spare. “We’re all thinking about what we send,” she says. “I don’t have much here. I have to eat first.”