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Expert opinion on the economic consequences of the coronavirus crisis on emerging and developing countries

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University of Bayreuth, Press release No. 045/2020, 26 March 2020

Prof. Dr. David Stadelmann is chair of the Institute of Development Economics and is a member of the "Africa Multiple" Cluster of Excellence at the University of Bayreuth. He is particularly concerned with questions of economic growth, economic development, and political economics. In his view, the coronavirus pandemic is impacting the highly developed industrial nations harder than the developing countries, but could distract people there from pressing problems and even exacerbate some of them.

Prof. Dr. David Stadel-mann hat den Lehrstuhl für Entwicklungsökonomie der Universität Bayreuth inne.

What impact is the coronavirus pandemic having on developing and emerging countries in your view?

Because the economic output per inhabitant of many developing countries is a fraction of that of industrialized countries, there are much fewer financial and technical resources available for the health care system. That represents a major problem. Economic performance is a key factor in a country's level of health, as we have recently demonstrated. However, while the coronavirus pandemic may affect poorer countries severely, I suspect that it will be less severely than rich ones.

Why is that?

Older people seem to be particularly at risk from COVID-19. Due to an unfortunately still significantly lower life expectancy, a significantly higher fertility rate and a resulting smaller proportion of older people in the population, the pandemic could negatively affect fewer people in the global South, relatively speaking, than in e.g. Europe. Of course, there has been a massive lack of resources in the health care system for years and people can therefore only be hospitalised to a limited extent. Precisely because financial resources are very scarce, it is essential to ensure that conflicts of interest are resolved as far as possible when using them. In other words: The fight against coronavirus, which is a matter of necessity there, too, should not lead to the neglect of other problems and other diseases.

So, you fear that coronavirus will displace other problems, for example on the African continent? Which ones?

Many citizens in Africa suffer from diseases that cause numerous deaths and lead to other serious social and economic dislocations, but which are less relevant to us. Malaria alone kills many hundreds of thousands of people every year and mainly affects children. Potential curfews could well hit the poor especially hard, because they already have to work hard every day to survive. The secondary effects of the pandemic due to the measures taken could therefore play a more central role in Africa than the direct health consequences of COVID-19. At the same time, many citizens in Africa live under unacceptable political conditions, in part caused by colonization. In other words, governments do not put the interests and needs of citizens at the centre of their actions. It could well be that some rulers will now even be tempted to permanently reverse the scant progress in democratization achieved since 1990, in the course of necessary restrictions to combat coronavirus. If that were to happen, the consequences for society as a whole would be very serious.

If production in the industrialized countries is cut back, this will certainly have economic effects on the countries at the beginning of the production chain. What do you expect the results will be for the global South in this respect?

This applies in particular to emerging countries, which have been systematically and comprehensively integrated into our industrial production. Naturally, restrictions in production here will also mean production there is cut back for some time. Nevertheless, it appears that production in China is already being ramped up again. This means, at least, that we won’t have to worry so much about supply bottlenecks. For many African countries all this is not so relevant. They are not as strongly integrated into global production chains as Asian countries.

Do you expect the economic impact of the coronavirus pandemic to be similar to 2008 or worse?

The highly developed country of South Korea seems to show that a functional polity can deal with crises like these without having to impose the massive restrictions that have in part applied in China. Most European countries and the USA also have very good and robust basic structures. Of course, economic activity is currently collapsing, because restrictive measures have been implemented. But I still trust that this will be a temporary phenomenon. The transition phase must now be managed. People who are already immune to coronavirus will play a central role in overcoming the pandemic and its consequences. Nevertheless, the economic consequences are likely to be more severe than in 2008. What gives me hope is that the structure of our economy and the basic framework conditions such as property rights and the rule of law will continue to be upheld for the time being.

Many are now using this pandemic as an opportunity to question the principles of globalization and worldwide trade? Is this justified?

No. The contrary is more the case. Globalization and trade have systematically contributed to our great prosperity. That is why we can afford much better health care than the countries of the global South, which are far less integrated into the world market. It should also not matter to us in exactly which country the first functional treatments against COVID-19 are identified, because we will want, and be able to afford, these treatments thanks to our economic strength. Looking forward, neither does it make any real difference whether a vaccine is produced in the USA, Great Britain, or France. Thanks to our openness, we benefit from the innovations of others and can import their inventions and healthcare products. Conversely, everyone else will benefit when drugs for COVID-19 are developed by the German pharmaceutical industry. If you really want to be social, you should forego income from royalties and the like after their development. Moreover, it would even be conceivable that in the event of a serious health emergency in Germany, we might deploy care workers who are immune and, at least in part, sourced from China or even Italy, not least because we have good economic relations with these countries.

Drawing lessons from these effects, should markets currently be more strongly regulated or become freer?

Infectious diseases have always required problem-solving strategies for society as a whole. Companies can support these solutions. The more economic resources we have at our disposal, the better we can tackle future crises. This is precisely why it was so important to keep government spending under control in the past, despite the good economic times - that money is now available in the midst of this crisis and can be put to use. A flexible and free social market economy is a very reliable generator of prosperity and of the progress in the health sector and other areas that goes hand in hand with it. For example, the enormous technical developments over recent decades have made life easier for us, even during quarantine, as a society, community, and economy.  

In what ways?

For the time being, we should reduce direct social contacts to a bare minimum, but thanks to the enormous development of telecommunications technologies and digital social networks, many people can simply work from home. As a result, parts of the private and public sectors can continue to work while the infection curve flattens out. And we can continue to hear and even see our loved ones and elderly people digitally, and in so doing provide psychological support. Going back just 20 years, this would have been unthinkable.

Contact:

Prof. Dr. David Stadelmann
Chair of the Institute of Development Economics
Universitätsstraße 30
95447 Bayreuth (Germany)
Phone: +49 (0) 921/ 55- 6077
E-mail: david.stadelmann@uni-bayreuth.de
Web: https://www.entwicklung.uni-bayreuth.de/en/team/david-stadelmann/

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Translation:

Ralph Reindler​

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