The COVID-19 Question and Answer 2022

QUESTION 1
1.1 The COVID-19 had a massive health and economic impact on the African continent and
has created high socio-economic costs. while health impacts can directly be attributed to
the virus, the economic impacts are a result of the preventive measures adopted to prevent
the spread of the virus. Key measures to curtail the spread by African countries included
the closing of borders and complete lockdowns of economies, regularly washing of hands
, the temporary closure of businesses, schools and social services.
these measures although they saved lives and relieved pressures on the health care
facilities, they hinged a setback on African economies due to lost productivity and trade
both within and among countries and losses of tax revenues. these measures have
significantly affected key growth sectors in African economies, and affected business
incomes, household’s income and impacted government revenues and may generally
results economic losses that will take a long time to recover. COVID-19 disruptions in
global value chains affected the continent, the continent most rely on the export of raw
material and imports of finished goods from countries such as US and China.
While the impacts are the same as the other continents African countries will take time to
recover from the pandemic, due to the continents lack of economic resilience and over
dependence on Foreign Direct Investments. Most of African countries are indebted to
their foreign counterparts and the pandemic will push most of African further into debt.
Most of the economies in the continents are resource based and there is not enough
diversification. Africa faces greater economic risks of negative impacts from COVID-19.
First, being that the region did not produce any vaccine and due to their financial position
most African countries mostly depends on vaccine donations. Secondly, over dependence
of international markets such European union (EU), United States of America (USA) and
China to export its raw material and imports final goods, lockdowns result in dwindling
markets for African exports. Thirds, in efficient and almost non-existent of public health
care and where majority of the public don’t have access to water to regularly wash their
hands, majority don’t have access to health care services. Lastly, most of African
countries are poor and won’t afford the economic consequences coming lockdowns. while
the infection rates in these regions have started to flatten out with economic stimulus and
investment recovery plans underway, the opposite holds for Africa.
Although businesses are slowly opening and work at reduced capacity as we emerge
from the pandemic, there is high possibility that African economies may enter recession
as production and trade related constraints if the rate of infection continues to rise. The
lockdowns and closure of border policies adopted by EU, US and China, entailed low
productivity and disruptions to key value chains to African economies. these lockdowns
caused reduced demand for African exports with the greatest impact on countries with
substantial participation in global value chains. Due to lockdowns in African countries,
there were reductions Africa’s foreign direct investment (FDI) inflows, tourism and to
some extent, overseas development assistance (ODA) inflows. There was also direct
impact on health sector and related expenditure of government resulting with inflation.

IMF and World Bank Debt Sustainability Assessments
Calculated by Jubilee Debt Campaign
The effects of the pandemic will be exacerbated by African countries appetite for debt
from foreign nations taken before the pandemic and the pandemic will push them further
into debts while GDPs of African countries are decreasing. Some of the African countries
held more debts in pre-pandemic times and the COVID–19 pandemic has caused a surge
in public financing needs as governments spend more to mitigate the socioeconomic
consequences of the pandemic. African governments borrowed about $125 to $154 billion
in 2020 to respond to the Covid-19. the average debt-to-GDP ratio in Africa is expected
to increase significantly to over 70 percent, from 60 percent in 2019. countries will have
significant increases in their debt-to-GDP ratios for 2020 and 2021 financial years.
Debt increases shows that the debt is driving many factors such as, cumulative
depreciation in exchange rates, growing interest expenses, and high primary deficits.
Strong growth recorded over the years has helped to dampen the rate of growth of the
debt-to-GDP ratio. Other major drivers of debt dynamics are high inflation, weak
governance, security spending, and weaknesses in revenue generation. Between 2000 and
2019, 18 African sovereigns have made debuts into international capital markets and

issued more than 125 Eurobond instruments valued at more than $155 billion. Local
currency debt has increased since 2019 to close to 40 percent of the total debt stock. The
outlook for Africa’s debt sustainability is challenged by emerging risks and
vulnerabilities. Six countries were in debt distress and 14 others were at high risk of debt
distress as of December 2020. Other emerging risk factors include fast-growing interest
expenses as a share of revenue, rollover risks due to shorter debt maturities, a narrowing
of the differential between real interest rate and growth, expanding contingent liabilities,
and debt collateralization with limited transparency.
Africa should strengthen the links between debt financing and growth returns to ensure
debt sustainability on the continent. Should improve efficiency of debt-financed
investments to ensure that debt is used to finance productive assets that generate
sufficient growth and revenue to pay off the debt in future. low global interest rates
during the crises presented an opportunity for African countries to use cheap capital to
accelerate growth on the continent.
1.2 Fiscal policies and monetary policy
Fiscal policy strives to help businesses to protect companies and their workers in industries
that were affected. In the COVID-19 period, fiscal recovery strategies should enable
companies to mitigate circumstances from pandemic limitations. These methods facilitate
dealing with healthcare issues and providing economic support for SMEs during the
economic shock. For instance, in Europe, there was a range of fiscal recovery instruments
implemented during 2020. These were budgetary help measures taken from the governmental
fund and liquidity measures that helped companies support the budget. These preventives and
supporting measures helped many companies to stay alive and compensate for pandemic
losses during the coronavirus limitations period.
Strong and sustained support continues to evolve even during the economic recovery. The
after effect is that debt payments for Covid 19 debts will lead to reduced consumption and
investment in the future. By covid relief grants to the unemployed government maintains
expansionary fiscal policy for the recovery period to stimulate household consumption and
investments in businesses.
Expansionary fiscal policy needs to be carefully timed to provide maximum economic
benefits during the recovery times and not cause inflation. South African government exerted
the required efforts to support mode where support the economy when needed, while
continuing to improve business liquidity through tax incentives and income support to those

who lost their incomes. Covid 19 grants provided money to the unemployed to spend to keep
people well fed while providing income to the business sectors.
Government should formulate and implement strategies to help companies and employees
deals with financial and operational difficulties because of the COVID-19 situation. Through
different measures, nations are assisting organizations with remaining above water,
supporting families and aiding protect work. Legislators have taken decisive action to stop
the virus from spreading and to limit the negative consequences for their citizens as well as
their economies, according to the study. Nations help organisations stay afloat, support
families, and safeguard jobs by using a variety of actions. Having the ability to act
contributes to maintaining stability and confidence. Whatever the case may be, greater action
is necessary, including more comprehensive and well-grounded measures. Plans should be
modified to account for changing financial and well-being circumstances. Regulations may
only be phased off gradually, resulting in an uneven recovery. When recovery is in jeopardy,
monetary activity can help. Nations have also taken extensive efforts to help companies in
retaining their workers for short-term work plans or remuneration allocations.
There's evidence from plans put in place after the global financial crisis that keeping people
in work is an effective approach to provide income support and limit job losses while
avoiding excessive pursuit and coordinating with measures as recovery progresses. In terms
of both market interest and the economy, the Covid pandemic has several distinct effects,
with a special focus on SMEs. When schools are closed and people's developments are
limited, organisations' stockpiles of work shrink. This is because workers are sick or must
care for children or other wards. As a result of lockdowns and isolations designed to contain
the disease, limit usage has fallen even lower. Furthermore, supply affixes intrude, resulting
in part shortages and half-finished products. In terms of interest, a shocking and unexpected
drop in SMEs' interest and revenue has a significant impact on their ability to work and
generates acute liquidity shortages. In addition, customers face reduced income, fear of
sickness, and increased susceptibility, all of which lead to decreased expenditure and use.
Furthermore, these consequences are exacerbated when professionals are laid off and
companies are unable to pay compensations. Certain industries, such as travel and

transportation, are particularly hard hit, which reduces both corporate confidence and
customer confidence.
SMEs, on the other hand, are likely to be more vulnerable to social distancing' than larger
firms. Organizations, particularly small and medium-sized enterprises (SMEs), will be worst
hit by a decline in international interest in their products and services. However, this effect
may also be seen among SMEs serving neighbourhood markets where regulating measures
have been offered, such as the tourism sector.
In addition, United Nations Global Compact launched a promotion to help small companies
to survive during harsh times. This appeal encourages corporations to act together in
solidarity and collective action to handle the impact of the pandemic. Moreover, SMEs can
take loans from commercial banks with a provided guarantee scheme. The COVID-19 Loan
Guarantee Scheme offers an opportunity for small companies to take loans guaranteed
governmentally (‘Answering your questions’, 2020). This method also works with medium
enterprises and helps them not to close during the pandemic.
QUESTION 2
QUESTION 3
3.1
Harberger's Triangle for the US-China Trade War

When one country retaliates against another by raising import taxes or imposing other
limitations on the latter's imports, it is known as a trade war. US and China are the world first
largest and second economies, trade wars between US and China had an both negative and
positive impacts to the emerging economies. The positive impact was while this trading
partners were engaging in trade wars both countries those countries imported more products
from emerging markets. The negative impact was caused by uncertainty in the markets
resulting in sell-off of bonds of emerging economies, this created a barrier to access to
necessary capital required by emerging markets to increase production of goods and services
required by both china and US. China is also world manufacturing hub of the world due to
cheap labour. In fact, china imports raw material and exports finished goods. The trade war
between US and China had disrupted international supply chains.
Implications to emerging markets and developing economies
When these two economic powerhouses fight emerging economies will be the hardest to
suffer, on average, tariffs applied to their exports would rise steeply. A trade war will be a
severe blow to the world’s emerging countries, as it would compromise the fragile global
economic recovery, thus undermining growth.
Emerging markets sell-off
The trade tensions between the largest economies (China and US) have far-reaching
implications to other economies especially the emerging market and developing economies.
The collateral damage has been evident in emerging markets as investors pull out their assets
and move to the safe havens. This puts pressure on emerging markets currencies, increasing
inflation and thus leads to interest rate hikes. Another important factor that contributes to the
risk to emerging markets has been the strong dollar, which raises the cost of the foreign
currency denominated debt in developing countries, making less money available for
government spending. In addition, the stronger dollar encourages emerging market sell-off by
investors for better returns in the US. The decline in the emerging markets is reflected in the
emerging market index above which represents 24 countries . The emerging market index
performed well in 2017 as reflected in the figure above. Since February 2018 it started to
show a downward trend and realised negative growth.
Exchange rate volatility and capital outflows
EMDEs, the domestic currency (Rand) is highly responsive to domestic and global economic
and political developments. It has depreciated markedly following the ongoing trade conflicts
involving the two largest economies. The major reason being that investors fear high risks in
EMDEs and thus sell-off their investments. The rand depreciated to the highest level of
R15.69 against the dollar in September 2018 as the trade tensions intensified and the Turkish
Lira crisis become evident. This was a substantial depreciation of the domestic currency
when compared to R11.53 observed earlier this year when the optimism was high among the
investors over political transitions20 . There are numerous risks associated with a
depreciating currency such as high import prices and second round effects to consumers in
terms of inflation. Over and above, the domestic economy loses significantly with capital
outflows.

When large economies in terms of GDP are engaged in a trade war, there is a high probability
that the global economy, more especially the EMDEs are going to be affected. The
restrictions on global trade might be an opportunity for developing countries to support their
domestic markets and develop the necessary industries to trade amongst each other. This can
facilitate protection for domestic entrepreneurs and investors and expand local production.
This can provide domestic firms with the chance to grow and become internationally
competitive. As firms grow, they may invest in physical and human capital and develop new
capabilities and skills thus providing employment to people in developing economies. Once
these capabilities are developed, domestic firms can compete internationally without state
protection.
3.2
The quota must be lower than the imports that would exist without a quota.
The shaded area represents the dead weight loss (the welfare loss) that results from a quota.
The size of the quota is the distance between the two red lines.

The shaded area represents the deadweight loss from an equivalent tariff. The dark area
represents tariff revenue. Notice that, in these diagrams, the deadweight loss from the
equivalent tariff is lower than the deadweight loss from the quota because part of it becomes
tax revenue. This will always be the case if the demand and supply are not perfectly elastic. If
demand is perfectly elastic, then any amount of tariff such that WP + t is above the demand
curve will result in no imports and, therefore, no tax revenue. If supply is perfectly elastic,
then a tariff such that WP + t is above the supply curve will result in no imports and,
therefore, no tax revenue. In both cases, the equivalent quota to an effective tariff is zero and
the quota results in the same amount of deadweight loss as the tariff.
QUESTION 4
Critically discuss some of the factors affecting the performance of currencies in emerging
markets and the impact on their economies.
Emerging markets economies are economies of the developing nation. they normally
outperform and grow with the engagement with the global economies. Such economies due to
their characteristics and attributes display high levels of inherent risks. Such markets attract
foreign direct investments from several global economies to boost trade volumes and enhance
liquidity position across the global markets. The emerging market economies can provide
rapid growth to its investors.
Characteristics of emerging market economies
1. Lower-Than-Average Per Capita Income
Emerging markets have lower-than-average per capita income.1 Low income is the first
important criterion because this provides an incentive for the second characteristic, which is
rapid growth. Leaders of emerging markets are willing to undertake the rapid change to a
more industrialized economy to remain in power and to help their people.
The World Bank defines developing countries as those with per capita income of $3,995 or
less.
2. Brisk Economic Growth
In 2019, the economic growth of most developed countries, such as the United States,
Germany, Mexico, and Japan, was less than 3%. Growth in Egypt, Poland, India, and
Malaysia was 4% or more. China and Vietnam saw their economies grow by around 6% to
7%.
3. High Volatility

Rapid social change leads to the third characteristic, which is high volatility. That can come
from three factors: natural disasters, external price shocks, and domestic policy instability.
Traditional economies traditionally reliant on agriculture are especially vulnerable to
disasters, such as earthquakes in Haiti, tsunamis in Thailand, or droughts in Sudan. But these
disasters can lay the groundwork for additional commercial development as it did in
Thailand.
4. Currency Swings
Emerging markets are more susceptible to volatile currency swings, such as those involving
the U.S. dollar. They are also vulnerable to commodities swings, such as those of oil or food.
That's because they don't have enough power to influence these movements. For example,
when the United States subsidized corn ethanol production in 2008, it caused oil and food
prices to skyrocket. That caused food riots in many emerging market countries.
When leaders of emerging markets undertake the changes needed for industrialization, many
population sectors suffer, such as farmers who lose their land. Over time, this could lead to
social unrest, rebellion, and regime change. Investors could lose all if industries become
nationalized or the government defaults on its debt.
5. Potential For Growth
This growth requires a lot of investment capital. However, the capital markets are less mature
in these countries than what is seen in developed markets. That's the fourth characteristic.
They don't have a solid track record of foreign direct investment. It's often difficult to get
information on companies listed on their stock markets. It may not be easy to sell debt, such
as corporate bonds, on the secondary market. All these components raise the risk. That also
means there's a greater reward for investors willing to do the ground-level research.
If successful, rapid growth can also lead to the fifth characteristic, which is the higher-than-
average return for investors. That's because many of these countries focus on an export-
driven strategy. They don't have the demand at home, so they produce lower-cost consumer
goods and commodities for export to developed markets. The companies that fuel this growth
will realize a profit. This interaction translates into higher stock prices for investors. It also
means a higher return on bonds, which costs more to cover the additional risk of emerging
market companies.
factors affecting the performance of currencies in emerging markets and the impact on their
economies
1. Interest Rates
Interest rates contribute to the strength or weakness of a country currency. The interest rate
level is moved higher or lower by a country’s central bank to either stimulate or slow down
an economy. interest is the amount it costs a borrower to borrow money and higher interest
rates make it costly to borrow money while lower interest rates make it affordable and is
encourages more borrowing.
higher the interest rate encourages demand for that currency. Lower interest rates decrease
the demand of that currency. The reason investors look to buy currencies with higher interest
rates is it creates an additional rate of return on their currency exchange. A trader is

compensated by the interest rate differential when the trader buys the currency with the
higher interest rate compared to the lower interest rate currency.
The mechanics behind this can take some time and effort to fully comprehend, but the general
take away is: Higher interest rates make a currency more attractive.
2. Inflation
Inflation is the general increase in prices of goods and services. Prices of product rises when
there is more demand for it. increasing prices are not good to the customer, but prices need to
increase in line with the inflation.
3. Economic Growth
An economic growth rate helps with employment creation and facilitates the demand for
products and services.
4. Current Account Balance
this is the total amount of goods, services, income and current transfers of a country against
all its trading partners. A positive current account balance shows that the country borrows
less than it lends, and a deficit current account balance means that the country borrows more
than it lends.
5. Government Debt
Government debt is public debt or national debt owned by the central government. A country
that borrows more debt will likely not acquire foreign capital. Foreign investors will sell
their bonds in the open market if the market predicts government debt within a certain
country. As a result, a decrease in the value of its exchange rate will follow.
6. Terms of Trade
Linked to the current accounts and balance of payments(BOP), the trade terms are the ratio of
export to import prices. A country's terms of trade improves if its exports prices rise at a
greater rate than its imports prices. This results in higher revenue, which causes a higher
demand for the country's currency and an increase in its currency's value. This results in an
appreciation of the currency.
7. Political Stability and Performance
Nature politic and economic performance of the country affect its currency. A country with
less political risk will attract foreign investors, as a result, drawing investment from other
countries with more political and economic stability. Increase in foreign capital, in turn, leads
to an appreciation in the value of its domestic currency. sound financial and trade policy will
provide certainty for the value of its currency. But a country with high political risk will have
depreciation of its currency.
8. Recession
When a country experiences a recession, its interest rates are likely to fall, decreasing its
chances to acquire foreign capital. As a result, its currency weakens in comparison to that of

other countries, therefore lowering the exchange rate.
9. Speculation
If a country's currency value is expected to rise, investors will demand more of that currency
to make a profit soon. As a result, the value of the currency will rise due to the increase in
demand. With this increase in currency value comes a rise in the exchange rate as well.
The emerging economies cannot issue external debt and they have too much foreign debt that
need to settle with foreign currency.

Question 5
5.1
The global price of crude oil has been affected due to the below mentioned factors :
• Attack by drones on Saudi Aramco oil processing facilities at Saudi Arabia.
Saudi Arabia being the largest oil producing country, the supply of oil got
affected by this attack.
• Delay in sanctions of crude oil exports of two major OPEC countries : US has
delayed the sanctions of crude oil exports from two major countries, Iran and
Saudi Arabia, thus affecting the supply.
• US supply of crude oil has increased to a large extent. US plans to become a
large exporter of Crude oil by increasing the supply further, thus reducing the
price.
• Worldwide demand of crude oil has reduced as consumers started switching to
alternate fuels like electric driven cars.
• United States introduced sanctions on Venezuela and Iran, thus creating oil
crisis.
• Production of oil is continued to grow in US, Brazil, Guyana and Norway,
thus increasing the supply.
• Trade war between US and China, has increased the supply of oil as China is
not buying crude.
• US production of oil would further increase in 2020.
• Rising inventories of oil in 2020 would increase the supply, thus reducing the
prices.
Factors affecting supply :
• Attack by Drones on Saudi Aramco oil processing facilities
• Delay in sanctions of crude oil exports of two major countries, Iran and Saudi
Arabia.
• Supply of crude oil exports by US has increased.

• US introduced sanctions on Venezuela and Iran
• Rising inventories of oil in US, Brazil, Guyana and Norway.
Factors affecting Demand
• People switching to alternate fuel like electric driven cars
• Trade war between US and China.
5.2
A cartel is a group of competing firms’ collusion to attain higher profits. Cartels occur in an
oligopolistic industry, where there are less sellers and the products supplied are homogenous.
Cartel members agree to price fixing, total industry output, market share, allocation of
customers, allocation of territories, bid rigging, establishment of common bodies, and profit
sharing.
cartels are inherently unstable hence the name cartel, because of the inherit behaviour of
cartel members. members of the cartel can make higher profit for the short run, by breaking
the agreement.
Oligopoly is a market structure in which there are a few firms producing a product. When
there are few firms in the market, they may collude to set a price or output level for the
market to maximize industry profits. As a result, price will be higher than the market-clearing
price, and output is likely to be lower. At the extreme, the colluding firms may act as a

monopoly, reducing their individual output so that their collective output would equal that of
a monopolist, allowing them to earn higher profits.
OPEC member country can agree to cut or increase oil output to control the price of oil and
they have more influence on global oil prices. The cartel mostly set the control the supply to
control the price and maximise profits. The cartel is not satisfied with the profit it generates
from oil it cut the supply of oil for the prices rise.
Cartels implement policy of production restraints and is greedy because of its economic self-
interest. oil producers manipulate prices because they benefit from the higher oil price
through production cut. The problem is that if all members in the cartel cut production, they
end up with surplus production capacity. The higher the surplus capacity, the more difficult
it is to agree on production cuts and the higher is the temptation to cheat. the lower the
surplus capacity of OPEC, the stronger is the cartel’s ability through production cuts to
impose its target price on the market.
The extent to which cartel members utilize their available production capacity is often used as
an indicator of the tightness of global oil markets, as well as an indicator of the extent to
which the cartel is exerting upward influence on prices. Firms in an oligopoly may collude to
set a price or output level for a market to maximize industry profits.
oligopolists individually pursue their own self-interest, then they would produce a total
quantity greater than the monopoly quantity, and charge a lower price than the monopoly
price, thus earning a smaller profit. The bigger profits give oligopolists an incentive to
cooperate.

Reference List
‘Answering your questions about the COVID-19 Loan Guarantee Scheme’ (2020). National
Treasury, South African Reserve Bank, Banking Association of South Africa, pp. 1-4.
Available at: http://www.treasury.gov.za/comm_media/press/2020/COVID-
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2021).
Al Jazeera English (2020) Which businesses are benefitting from COVID-19 pandemic?
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2021).
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