New Covid variant puts South Africa at risk of global shut out

South Africa’s recovery from its deepest economic contraction in almost three decades risks being derailed by the identification of a new coronavirus variant that prompted several European nations to ban travel to and from the country right before its summer holiday season.   
 

The restrictions deal another blow to South Africa’s battered tourism industry, which buckled under the weight of border shutdowns and stop-start domestic lockdowns over the past year and a half.

“This will be a significant setback to South Africa’s already vulnerable tourism sector, which was preparing to see an influx of offshore visitors, armed with hard currency, over the festive season,” said Siobhan Redford, an economist at FirstRand Group Ltd.’s Rand Merchant bank. 

The U.K., which accounts for the largest share of overseas tourists to South Africa, has already announced a temporary ban on flights to the country and five of its neighbors over concerns about the new discovery, called B.1.1.529 until a Greek letter is assigned to it by the World Health Organization. 

The move drew ire from South African officials as scientists are still trying to determine whether the new variant is more transmissible or more lethal than previous ones. Foreign Minister Naledi Pandor said the decision was rushed, while Tourism Minister Lindiwe Sisulu said she plans to discuss the flight bans with officials attending the World Tourism Organization’s general assembly in Madrid next week. 

“We need to see this as a global issue, pretty much like climate change itself, and that these variants are going to spread,” Public Enterprise Minister Pravin Gordhan said in an interview with Bloomberg Television on Friday. “I’m certain in the next 10 days or so there will be more clarity after a bit more work” has been done on what impact the virus will have and how transmissible it is, he said. 

Travel and tourism contributed 7% to South Africa’s gross domestic product in pre-pandemic times, according to the World Travel and Tourism Council. While that’s below the global average, it nevertheless accounted for almost 1.5 million jobs in a country with an unemployment rate of 34.4% -- the highest of 82 countries tracked by Bloomberg.

South Africa is currently on the lowest level of lockdown measures, but the new variant has prompted the so-called coronavirus command council and cabinet to call a meeting for the weekend. President Cyril Ramaphosa could impose stricter domestic curbs, including a ban on the sale of alcohol, to spare health centers from the burden of drink-related accidents and violence, in the coming days. 

Here’s what analysts have to say about the potential impact of the new variant on South Africa and its economy: 

• Bernd Berg, emerging markets strategist at Bank J Safra Sarasin Ltd.:

“A new strain is definitely causing lots of volatility in markets and obviously South Africa is pricing in a risk premium right now, as you can see with huge selloffs in the currency markets, bond markets in South Africa. I think it is too early to call how dangerous the new virus strain is, but obviously it is very negative for the economic outlook and also global emerging markets.”

• Nicky Weimar, chief economist at Nedbank Ltd.:

“The U.K., Germany and Italy have now banned flights in and out of South Africa. The EU’s Ursula von der Leyen has asked other EU countries to do the same, so that just means South Africa’s tourism, hospitality, even things like restaurants and other forms of food services -- that big portion of the economy that has been under pain for so long -- will now soften even further. It is starting to become critical, if this continues, ultimately at the end of the day we are going to increasingly sit with a situation where more companies will fold, more people will lose their jobs and you will see a permanent loss of capacity.”

• Peter Worthington, senior economist at Absa Group Ltd.:

“This is a big deterrent to tourism, right at the juncture when the sector was just starting to perk up after nearly two years in the doldrums. However, it’s very early days and too early to say just how bad the variant is doing to be, in terms of its transmissibility and ability to avoid the immune response, or how quickly new infections might increase.”

• Ryan Woods, head of trading at Independent Securities

“This new variant of Covid has created a lot of panic selling, pretty much across the board here -- the rand’s weakened considerably.” The view in the market may be that “Christmas now, especially in the tourism side of things, is not going to look so good and it’s going to be a potential disaster for those who are trying to survive through this period, because it might just be the death knell.”

• Des Mayers, senior analyst at Afrifocus Securities:

“Things are changing very quickly with this new Covid variant and obviously it’s had a very negative effect on the travel and leisure sectors. When we go back to what happened in 2020 when Covid struck, we had a big breakdown in these companies’ share prices, all of them broke down and we have got something similar that’s unfolding here.”