Devil’s Advocate: Trying to put COVID-19 into some perspective with a “Misery Index”

By: Jolyon Irwin

As Danny de Vito famously said in the iconic divorce movie the War of the Roses: “in divorce there are no winners, only degrees of losers”, and so it is with COVID-19. It has become a global pandemic that will drive the global economy into the worst recession since the Great Depression of the 1930’s and all nations have been affected to a greater or lesser extent and will continue to suffer the consequences for the foreseeable future.

We have all been subjected to unprecedented changes to our lifestyles, including restrictions on freedom of movement, combined with massive social and economic costs including a sharp rise in job losses and business failures combined with an alarming rise in sovereign debt as governments around the world increase spending to stimulate economies. All of this has played out against a relentless media barrage, often of questionable quality and veracity, which has focused primarily on the mortalities caused by COVID-19. The intensity of the COVID-19 media barrage is such that even the US election campaign and Brexit stories, which dominated newswires prior to COVID-19, have faded into the background.

Against this background, we have attempted to make some sense of the COVID-19 data in a simple form in order to get some perspective on the situation. In the stagflation of the 1980’s, when inflation was high, and growth low, economists used to refer to a misery index which was simply the sum of a country’s inflation rate and its unemployment rate. We have adapted this concept for COVID-19 and combined growth rates (largely negative) with the COVID-19 mortality rate per 100,000 people in a sample of twenty countries to create a crude COVID-19 misery index. We have included major economies as well as less developed and have attempted to capture a wide range of policy responses from the good (Taiwan, Singapore, South Korea) through the bad to the downright ugly (USA, UK) in order to get some perspective on how policy responses have been able to mitigate the consequences of the pandemic from both a mortality and an economic perspective. Lastly, we have looked at COVID-19 relative to other global health issues such as air pollution, smoking, common flu, malaria and hepatitis.

Before we look at the numbers a couple of caveats and explanations. For the sake of consistency all GDP numbers are 2020 year on year estimates from the IMF (with the exception of a second take on Namibia using IJG forecasts) and all COVID-19 figures are from the Johns Hopkins University website effective 11th May. Clearly the COVID-19 mortality figures will go up from here and are not annualized so we should keep that in mind when looking at the non COVID-19 mortalities which are all annual figures. We should also note that the pandemic started in the Far East so China, Taiwan, Singapore, Vietnam and South Korea are further along the infection curve than Europe and Africa.

Looking at the index it is clear that early, decisive and coordinated responses have paid off and in terms of successful policy the one common theme appears to be the importance of testing, tracing and isolation/quarantine along with social distancing and appropriate PPE (“personal protective equipment”) equipment for relevant staff. 

Taiwan, South Korea and Singapore are widely viewed as some of the most successful in terms of policy action. All three managed to keep mortality rates very low without resorting to lockdowns by focusing successfully on testing, tracing and isolating and all three have embraced mobile phone-based tracing technology to support their efforts. All three countries gained experience from previous flu outbreaks (SARS/MERS) and applied the lessons early and decisively. These countries have the pandemic under control and are focusing on getting economic growth back on track. In spite of keeping their economies open with very low mortality rates during the pandemic these countries do not top the misery index because their small, open economies are highly integrated into global supply chains and have been adversely affected by shutdowns in other countries. However, they have managed to limit the economic damage by avoiding lockdowns and have managed the pandemic from both a health and economic perspective in a commendable fashion that other countries should learn from. In spite of their index rankings we view these countries as the top achievers as they are far along the curve, have controlled the pandemic successfully with very low levels of mortality, limited damage to their economies and the data from all three is transparent and believable. 

Vietnam, as a less developed country, with a relatively under resourced health service, is a surprise at the top of the misery index. It has successfully controlled the pandemic and is also removing restrictions and moving into the recovery phase. Vietnam is still run by an authoritarian regime with plenty of surveillance and controls over its population. It also moved fast and decisively to stop flights from China, quarantine areas with recorded cases, close schools and implement disciplined social distancing. Surprisingly Vietnam also mobilized the resources to carry out one of the most successful test, trace and isolate policies to date and has the highest number of tests to positive results (800:1) of any country at the moment. It appears to have achieved great success and has contained the virus with only a small number of cases (288) and no fatalities. It has also managed to contain the economic fallout. However, it is a strict authoritarian regime so there are some questions about the integrity of the data and it is a model that would be difficult to replicate in more democratic societies. Nevertheless Vietnam appears to have managed the pandemic commendably and has earned widespread praise and hence its inclusion in our index as an interesting case.

India also features well in our index but we expect that may change. India was slow to respond and has a relatively weak health service. On March 27th India imposed a strict lockdown which has been extended until May 17th. At our data point it had 67,724 cases and 2,215 deaths but India is relatively early in the cycle, and cases are rising fast. What makes India interesting is that it has made the use of a contact tracing app compulsory for all private and public sector workers. It will be interesting to see how successful this strategy proves to be as the pandemic evolves in India. The IMF is still forecasting positive growth for India and hence its good score on the misery index.

China is the third country that features well in our index and deserves special mention. It is the source of the outbreak and moved fast and decisively to isolate and quarantine Hubei Province which includes Wuhan, a city of similar size to New York City. It has also implemented aggressive testing and tracing policies (with some concerns about privacy and surveillance but that is another debate). Outside of Hubei the pandemic has been well contained without the need for lockdowns and China is also moving into the recovery phase and getting its economy back into gear with the IMF forecasting growth of close to 1% for the year ahead. There have been suggestions that the data from China is questionable but, on the assumption that the figures are accurate, China has done a commendable job of managing the pandemic with only 4,636 deaths and its economy back in gear.

The mid-tier countries in our index have broadly followed similar policies and achieved similar outcomes. Leaving SA and Namibia aside, as they are closer to home, let’s examine the rest ranked from Mauritius down to Germany. These countries have achieved low mortality rates through a combination of lockdowns and testing, tracing and isolating. Economic costs and mortality rates are higher than those achieved in our top countries but on balance these countries have managed the pandemic well and most of them are now coming out of lockdowns and moving into the recovery phase.

Within this group let’s look at SA and Namibia specifically. SA implemented one of the strictest lockdowns in the world on March 26th. Currently the SA lockdown has moved from the strictest level 5 to level 4 but conditions remain extremely harsh, including a curfew and the use of the military to police the lockdown, and movement and economic activity remain severely restricted. With only 194 mortalities in SA at our data point, the rather draconian lockdown measures have been widely questioned. More so in the light of the fragile state of the SA economy (in pre-COVID-19 recession with recent sovereign debt downgrades to junk status) combined with a large informal sector and very high levels of unemployment and poverty. The SA Treasury recently released a report which shows the devastating consequences of the current lockdown policies. The report warns of job losses of 3 million (high road) and up to 7 million (low road) with the unemployment rate rising above 50%; GDP is estimated to contract by 16% and tax revenue by 32%. Another recent survey of 19,000 people by the Human Sciences Research Council found 26% of respondents had no money to buy food and in informal settlements the number went up to 55%. Clearly this situation is unsustainable and the SA government will need to rethink its strategy fast if it is to avoid a complete socio-economic meltdown. As a final thought on SA, perhaps the money spent deploying 73,000 members of the army to enforce the lockdown (R4.5bn) could have been more sensibly spent on testing and tracing, PPE equipment and medical facilities.

Namibia, with only 16 cases and no deaths, followed a similar, but less onerous lockdown approach to SA. The lockdown commenced on March 27th and moved to Level 2 on May 5th with Namibia recording no fresh cases during the Level 1 lockdown period. Level 2 is planned to last for May and will allow Namibians to get back to work with the exception of specified sectors which are tourism and hospitality focused. Unlike SA, which has identified sectors that are allowed to return to work, Namibia has allowed all business to return to work with a few identified exceptions. Economically this appears to be a better approach than SA. Namibia has also announced dates and plans for Level 3 and 4 and is planning to be back to normal by the end of June allowing business to plan and thus removing much of the uncertainty. Again this is a welcome contrast to SA which has not announced any longer term plans and is leaving business in a state of great uncertainty.

Nevertheless Namibia will feel considerable pain and current IJG estimates suggest a 9.9% decline in GDP and at least 40,000 job losses. Tourism, hospitality, construction and the informal sector have been particularly hard hit.

If governments impose strict lockdowns to buy time, it is not unreasonable for their citizens to expect bold and effective action in terms of testing and tracing but this has been disappointing in both Namibia and SA. At our data point SA had conducted 356,067 tests which compares unfavorably with Germany (2.8m), South Korea (670,000) and the UK (1.5m), countries with similar size populations. In Namibia approximately 1,600 tests have been carried out. Comparing this with other countries with low populations, Iceland has tested over 52,000 and Mauritius over 60,000. 

The laggards on the index include Spain and Italy which were swamped by the rapid and early spread of the virus and had to impose strict lockdowns to try to get control. Both countries are seeing infection rates dropping fast and are taking steps to re-open their economies.

There has been a lot written about the responses of both the UK and the US to the pandemic. Both countries have populist leaders who squandered valuable time while disregarding advice from their scientists and the response in both countries has been slow, reluctant and chaotic and this is clearly illustrated in the index. At our data point 79,528 Americans had died from COVID-19, thirty million Americans have lost their jobs as a result of the pandemic and the cost of the stimulus package is currently around US$2 trillion. Taking a leaf out of the South Korean book and adopting an early test, trace, isolate approach would have saved many lives, avoided untold social misery for business owners who end up facing bankruptcy, workers who end up jobless and would have cost considerably less than the trillions of dollars now required for stimulus.

Lastly we should mention Sweden as it has taken a bold and unusual approach to the pandemic. While Europe and its Scandinavian neighbours locked down and closed borders Sweden took a more relaxed approach, limiting the size of gatherings and encouraging people to take responsibility for their own actions and practice social distancing while making an effort to protect the vulnerable and elderly people in particular. Schools, bars, restaurants and other businesses remained open as did borders. While Sweden is placed between the UK and US on our index, it has suffered less disruption to its economy and society and the government remains convinced that it has adopted the right policy mix. In particular the Swedes argue that their medical services have not come under pressure, mortality has been largely confined to elderly people with pre-existing conditions, non COVID-19 medical procedures have not been compromised and there is no risk of a second wave of infections in Sweden as the virus has been allowed to take a more natural course. The virus is now out there and, as other countries start to wrestle with the challenges of lifting lockdowns and opening borders, the benefits and wisdom of the Swedish approach become clearer. More so as there is increasing evidence to suggest that the virus is much more widespread than initially thought with a large proportion of people experiencing either no symptoms or mild symptoms and overall mortality rates similar to seasonal flu. As policy makers elsewhere grapple with the crippling economic and social costs of their policy choices, and the challenges of second waves of infection as countries try to open up, we believe the Swedes will be viewed with increasing envy. 

On a lighter note, readers may wonder why the names of some countries in the table are pink. These countries are all run by women and it is interesting to note that they have all acquitted themselves well. So far as we are aware, there have not been any countries run by women that have not done relatively well. Clearly the pool of countries run by women is much smaller than that run by men but it is an interesting point to note! 

Let’s now look at how the COVID-19 mortality figures compare with other global health challenges in order to get some perspective. We should also note that COVID-19 mortalities are heavily concentrated on older people with pre-existing conditions and younger, healthy people are affected much less by the virus unlike some of the other challenges that we will discuss.  A recent study in Italy of 21,550 deaths, for example, showed that 95% of Italian COVID-19 deaths occurred in those aged 60 and over. What’s more, of the deaths in individuals aged 40 years and below, 80% had serious pre-existing conditions.

At our data point the COVID-19 global mortality rate was 3.63/100,000. With the pandemic under control in the Far-East and much of Europe and the US perhaps peaking, let’s assume mortalities still roughly double from here to give us a round figure of 500,000 or 6.41/100,000 so that we can compare on a more like for like basis. Using WHO figures, the comparable numbers are 6 for common flu, 17 for hepatitis, 5 for malaria, 90 for air pollution, 102 for smoking and 15 for passive or “second hand” smoking. In SA (using SAPS figures for 2019) the murder rate was 37 and the rate for TB, another communicable disease, 111. In the light of these figures, perhaps there should be considerably more focus on discouraging smoking and improving air quality by decarbonizing economies if governments around the world are serious about saving lives.

While the media barrage continues to paint the pandemic as something akin to Ebola virus in terms of the danger, and we will obviously never know what the figures would have been with different policy choices, we hope the figures above will put the mortality rates in some perspective. Clearly policy makers face the unenviable choice of trading lives against the economic cost of various policy measures. However, what is clear is that good policy choices can mitigate both the loss of lives and the economic costs and the reverse is just as true.

Navigating These Trying Times

By: René Olivier

The world has seen many crises before, and while each crisis is different in its own right, history has a tendency to teach us patterns that we can use as templates to assist us in successfully navigating through the storm.

Covid-19 has caught the world by surprise, and although there are still many unknowns, one thing is sure for most individuals, businesses and governments: it has created holes in income statements and balance sheets.

An income statement is a summary of all income and expenses providing a net income after tax. The hole on income statements is mainly due to loss or uncertainty of future income. 

The balance sheet side is effectively the health of your total position (assets minus liabilities) at any given point.

Understanding these basic concepts provides a template on possible levers to pull:

  • Income statement:
    • Income
      • The total size of the pie in the world will most probably not change that much in the medium term, but the difference will be who owns what part of the pie. Human nature has great ability to adapt over time and the entrepreneurial spirit of some will prove to be profitable during these trying times.
    • Expenses
      • This is probably where the most can be done in the short term.
      • We are all being reminded again about what is critical and what is not, and we should all be determined to optimize where we can.
      • IJG Wealth is an independent long-term insurance broker that provide risk planning solutions, without adding an additional layer of cost to the client. This provides us with an overview of the market and the ability to identify the most cost-effective solutions. There are many next-generation solutions where clients can save on their premiums without comprising on quality.
  • Balance Sheets
    • The strength of your balance sheet will determine how long you can survive. In other words, do you have enough buffers to get you through these uncertain times. If you have a money market account for example, ensure that you try to maintain your buffers as long as possible, and rather cut unnecessary expenses first.
    • If you have more than sufficient buffers, current conditions provide fantastic opportunities for generating investment returns. IJG Wealth provides independent local and offshore solutions.

The journey will be difficult for some time still, but how you travel can make a big difference in whether your will reach your destination or not.

Contact IJG Wealth to see where we can assist you with financial planning in these trying times.

Namibian Private Equity and COVID-19

By: Herbert Maier

No need to make mention that private equity and venture capital is a rather new asset class in Namibia. It’s substantially been developed and brought to life in Namibia because of regulation promulgated that forces both pension funds and the long-term life insurance businesses to invest between 1.75% and 3.5% of their respective total assets into businesses that are not listed on any stock exchange – a great way of looking to the development of a strong mid-income entrepreneurial sector that has limited ways to access non-banking capital and an initiative that has a proven track records in a number of developed economies. It may be worth indicating that the GIPF has been a key initiator, but also key investor, in this asset class having applied significant amounts of its assets to this class for different purposes, including mandates for infrastructure build in the country.

The unlisted space is an exciting, yet also a potentially risk burdened space which is particularly true for a country like Namibia where, among others, the relatively small population certainly creates scaling challenges so dearly needed in most businesses. 

In line with the continued economic recession Namibia has been dealing with since the later part of 2016, the unlisted investment class has been taking strain in most industry sectors, most notably in construction and businesses linked and dependent on uranium mining. Investments would have in addition been made at values that would in fact be difficult to unlock considering not only the recession, but also the unprecedented pandemic that the globe has been facing during the last few months since the outbreak of and reactions to COVID-19. 

Namibia has, for understandable reasons, been subject to a lock down for an initial period of three weeks at a time when, as a consequence of a global lack of research, the outbreak in a country like Namibia has had devastating results, both economically and socially. This situation has been further exacerbated by the extension of the lock down for a further two weeks until the beginning of May 2020 for reasons that seem to be sentiment driven with less of a focus on the impact on the country’s economy. The potential economic damage done to Namibia’s business environment is hitherto not fully understood, except to say that GDP growth would plummet significantly – expectations are that negative GDP growth could substantially exceed 6.9% for the year and continue for some time to come. 

Where does this leave the unlisted investments? At a portfolio company level we have had to try and understand the implications and consequences – the regulatory involvement from Government, while having come forward with stimulus packages, is not really looking after the longer-term sustainability of businesses and employers as much as may be required and necessary. It is after all the SME sector of any economy that drives employment and new growth opportunities. That said, cash management in addition to finding new ways of doing business remain the key components within this sector and the portfolio companies we have invested in for and on behalf of our investors, substantially consisting of pension and retirement funds. Labour is at risk, and higher unemployment in a country with existing employment challenges, will likely not be avoidable. Understanding the detail of it all is something that private equity is now, more than ever, fully focused on to ensure that further short- to medium-term value erosion can be prevented and positive returns generated for investors and the country in the medium term.