In the last month, vaccine-related positivity across the globe spilt into the continent, raising hopes that economic recovery in SSA economies could be faster than first thought. However, this optimism has come under threat in recent days as Covid-19 caseloads in major economies like Nigeria and South Africa (SA) garners pace.
As restrictions were lifted, which supported restoring economic activities in phases, South Africa’s economy showed some improvement. For example, the rand has appreciated 15.9% against the dollar so far in H2 -2020 after a downturn in H1-2020.
South African bond yields have rebounded after an initial sell-off at the start of the pandemic while the Johannesburg Stock exchange (JSE) has performed well, returning 12.6% so far in H2-2020 alone, after it dipped -4.8% in H1-2020.
A similar story can be said in Nigeria which saw its economy contract at a slower pace in Q3 2020 with notable improvements across major sectors as the economy gradually reopened.
However, with caseloads surging, the South African government has introduced widespread restrictions to combat the rising caseloads while fears of a new nationwide lockdown remains prominent in Nigeria where new cases are now at record levels.
The hope of a vaccine to help contain infections and restore health remains dampened given the financial inability of many SSA governments. Various studies have shown about 70% of the total population would have to be vaccinated for full economic activity to return.
In other economies, funding for vaccines remains uncertain with poorer SSA countries expected to rely on donations. Factoring the rising second wave and weak funding capacity for vaccines, we think SSA recovery may be more prolonged than recent optimism suggests.