The Impact of COVID-19 on Developing Economies, Low-Income Nations, and Marginalized Populations
By Vaasav Gupta
The Coronavirus, widely referred to as COVID-19, was first discovered in Wuhan, China. The spread of this disease was officially declared a pandemic by the WHO in March of 2020. Since its discovery, the COVID-19 pandemic has taken over 6.1 million lives globally and infected over 450,000,000 worldwide. To combat the spread of the virus, governments imposed lockdowns, people isolated, and workplaces and education systems transitioned to virtual interaction. In addition to the threats it has posed to our health and the trauma it has caused millions, the global COVID-19 pandemic has had a devastating effect on the international economy. The measures taken to reduce the spread of the virus led to increased business closures, both temporary and permanent, and higher unemployment rates. The financial implications of the virus, however, have had an unequal impact on different populations and nations, with some being affected significantly worse than others. This paper will examine the economic impact of the pandemic on developing economies, low-income families, and marginalized populations.
Financial implications of COVID-19
Despite discrepancies in wealth and levels of development, the pandemic has had a significant impact on all nations. Given the transmissibility of COVID-19, lockdowns were necessary to reduce the number of infections. As people remained at home, they traveled and shopped less. This reduced spending created economic distress globally. According to the IMF, the global economy shrunk by 3.5% in 2020, a nearly 7% loss compared to the previous projections of a 3.4% growth. Unemployment increased as well – a total of 114 million lost their jobs during the pandemic, and that is just the loss recorded in the formal economy.
While the economic impact of the virus has been widespread, it is important to note that some industries have been hit significantly harder than others. In the US, arts, entertainment, and food industries have been among the worst-impacted by the pandemic, and by some estimates they could take more than five years to recover to pre-pandemic levels in terms of sector GDP. In developing communities, economies are more even service-based, which has worsened their financial health during the pandemic. A global, large-scale OpenTable analysis of seated diners year-over-year showed a -66% change in seated diners by the end of 2020. Between late March and early May of 2020, however, this number was consistently at nearly -100%. A possible explanation for this could be due to the nature of these industries. They typically involve a greater deal of face-to-face interactions and hygiene concerns than many other sectors. Because of lesser diversity in developing economies, the impact of reduced demand for restaurant and accommodation business meant less demand for inputs and labor in those fields, exacerbating the financial downturn caused by COVID-19.
While certain industries suffered immensely, there were certain sectors which saw growth during the pandemic. The technology industry saw particularly lucrative returns in markets. The Morningstar US Technology Index grew at nearly 46% in 2020, compared to about 21% for the US Index overall. Telehealth, delivery services, e-retailers, and online video communication were areas within technology that had an increased demand during the pandemic. The virus prevented people from visiting doctors and other service providers in-person, so companies offering virtual, computer-based care did well in 2020. Lockdowns and a work-from-home culture necessitated online video conferencing – Zoom stock grew by over 400% in 2020. Finally, an inability to go shopping and eat outside meant people needed to order goods online, prompting growth for companies providing food, produce, and product delivery.
How the pandemic has hit developing nations the hardest
Contrary to expectations, according to public records, lower-income countries seem to have experienced less Covid cases and deaths. In May of 2020, lower-income, lower-middle-income, and upper-middle-income countries combined made up only 14% of the global cumulative mortality, while high and upper-middle-income countries made up 86%. There are, however, a variety of reasons as to why the statistics alone may be misleading. People in developing nations are more likely to have comorbidities, which are other health issues which may have caused the death. It is important to note, though, that it is unknown whether or not they would have died if the other conditions were not present. Furthermore, developing nations are far more likely to have severely underreported numbers. High-income nations tend to have better-developed healthcare infrastructure. In low-income nations, however, weaker medical and diagnostic technology, less healthcare workers, and a smaller number of tests in general mean that there are likely far more COVID cases than detected. Another reason for this high-low income difference in COVID cases could be due to the average age of the population. Developing nations typically have younger populations than developed nations, which decreases their susceptibility to the virus. According to The World Bank, 21% of the EU population is above 65. This number is at only 9% for Latin American and Caribbean nations, and only 3% for sub-Saharan African nations.
Economic impact in these countries
Despite the fact that they have seemingly better COVID numbers, developing countries have been economically damaged significantly more than high-income nations. A major reason for this is because, unlike developed economies, these nations do not have the financial means for relief like stimulus, greater unemployment benefits, business loans, emergency funding for local governments, and big business assistance in the form of grants and loans. Furthermore, they have a greater reliance on fewer industries, particularly service industries such as accommodation, food services, tourism, and entertainment. Less diversification within the economy means more susceptibility to economic crises. This is because if one industry begins to fall, it drags the rest of the economy down with it. If there is a reliance on a large number of industries, however, one sector failing may not cause as much of an economic impact because there are numerous other areas which may be doing well, supporting the economy.
The unequal impact of the pandemic is evident in Africa and Latin America in particular. Global GDP dropped by 3%, but in Latin America and the Caribbean, it fell by 7%. This impact has particularly fallen upon the working class within those nations, with 69% reporting a drop in income, compared to only 45% in high-income countries, according to a BBC poll during late 2020. According to the same poll, Kenya, South Africa, Thailand, Nigeria, Indonesia, and Vietnam have been hit the hardest.
This financial distress has been caused by numerous reasons. When the pandemic hit, there were severe supply shocks and export prices fell, which decreased revenue for low-income nations in particular. A large reason for these supply shocks was the illness itself. Many workers who contracted the virus were unable to go to work and had jobs that could not be performed virtually. Labor shortages caused a decrease in supply and increase in price, which hurt low-income buyers and nations due to their largely service-based economies. In 2019, the services sector accounted for nearly 55% of GDP in developing economies, according to The World Bank. In the Maldives, for example, tourism makes up approximately 39% of the GDP, and as a result of the travel restrictions and reduced tourism, the Maldivian economy contracted by 32% in 2020 as the loss of tourists brought financial difficulties.
Labor shortages also impacted nations abundant with natural resources and those with particularly mining-based economies. Many mines were forced to close due to the high-contact, enclosed nature of the work and financial restraints meant consumer demand for valuable minerals such as gold and diamonds decreased. An S&P Global study found that at the peak of the pandemic, metal prices had declined by over 40%[32, though they have since bounced back in 2021. Many African nations are rich in natural minerals and were severely affected by the reduced demand for metals. In Ghana, where mining contributed to nearly 50% of total exports in 2018, gold output in 2020 fell by 11%, and diamond and manganese production fell by 25.2% and 63.3%, respectively.
The vaccine presents a solution to the labor shortage, as it can reduce the length and severity of employee illnesses from COVID-19. However, low-income nations have struggled to get enough doses to satisfy their needs. Wealthy nations such as the US, UK, and EU nations hold a majority of vaccine doses. Yet a sizable portion of their doses remain unused. Rather than going to poorer nations which have dire need for the vaccine, by some estimates between a third and half of some of these countries’ vaccines go unused. Because of this, the road to economic recovery for developing economies is significantly more challenging than it is for rich nations.
Unequal impact on low-income families and marginalized populations
The COVID pandemic has a disparate impact on low vs. high-income families worldwide, regardless of national economic status. For example, low-income employment rates decreased by 30% from January of 2020 to March of 2021 in the US, while those of high-wage workers returned to pre-pandemic levels (a 0% change). This inequality exists in part because of the different types of jobs held by high and low-income workers – more poor workers work in leisure and hospitality than average and high-income workers. Because of the high levels of direct person-to-person contact in this sector, businesses in these industries suffered severe losses and were forced to terminate workers. The unequal impact was exacerbated by world banks’ monetary policy during the pandemic. Central banks around the world increased money supply and inserted more and more money into the economy, which meant stocks saw a tremendous increase in value – the S&P 500 saw returns of around 18% in 2020. But this helped wealthy households more than poorer ones, as many low-wage families do not have money invested in the stock market.
The pandemic has also had an unequal impact by race. A study done by the Commonwealth Fund found that US counties with more African Americans have more COVID cases and higher mortality rates than those with less African Americans. There are three primary reasons for this. Firstly, African Americans tend to live in more densely populated, unsanitary housing than their white counterparts. A Princeton study revealed that African American children are more likely than white children to suffer from asthma as a result of living in more polluted and unhealthy neighborhoods with roots back to times of segregation. This limited access to hygiene coupled with high population density creates an environment where COVID can be transmitted easily. Secondly, African Americans are more likely to have pre-existing conditions and chronic disease than white Americans. African American adults are nearly 60% more likely to be diagnosed with diabetes than non-white Americans.
Hypertension, heart disease, lung disease, and blood disease are known to be more common in black communities as well. Having these underlying health conditions increases likelihood of death and hospitalization from COVID. Finally, African Americans are more likely to work in industries requiring in-person contact, which means that they are at higher risk of contracting the virus. They are overrepresented in service industries such as food service, taxi driving, and housekeeping, which makes it more difficult for them to socially distance as their jobs cannot be done virtually. Furthermore, African Americans and Hispanic Americans are less likely to have emergency funds in case of job loss – A Pew Research survey found that 73% of African American adults and 70% of Hispanic American adults said they did not have emergency funds, compared to only 47% of white Americans.
The factors combined have resulted in a dramatic disparity in COVID-related financial impact. In April of 2020, when the pandemic was in full swing, 61% of Hispanic Americans and 44% of African Americans said that they or someone in their household had lost a job or experienced a decrease in pay due to the COVID-19 outbreak, while the number was only at 38% of white Americans.
The inequality of financial impact due to COVID extends beyond the United States. In Brazil, Black Brazilians had a 1.5-fold increased mortality risk despite them being less than 10% of the population. In a similar fashion to the United States, sanitation is a significant reason for this. According to The Guardian, 34% of the Brazilian population lives in unsanitary housing, yet 66% of these people are people of color. Unhygienic, facilitate transmission of COVID-19. When proper sanitation measures are not taken, minority populations can suffer greatly due to their increased presence in such areas.
South Africa provides a valuable vantage point for examining the disproportionate impact of COVID-19 by race due to its former apartheid state. Because of the clear segregation that existed in the 20th century, many provinces have notably higher black populations than others. Moreover, South Africa has a unique healthcare system in that its private healthcare sector is markedly better-funded than its public care, and public care is more affordable than private care. As a result, the mortality rate in public hospitals is 23% while only 15% in private hospitals. According to a 2018 report done by the South African Human Rights Commission, 64% of black South Africans but only 1% of white South Africans live in poverty. Therefore, black South Africans are less likely to be able to afford private healthcare and thus receive worse care, which leads to more cases and a higher mortality rate within the community.
The COVID-19 pandemic has had an unequal impact by gender as well. Globally, McKinsey found that job loss rates due to the pandemic were 1.8 times higher than those of males. A likely reason for this is due to the fact that women make up a disproportionately large portion of the workforce in certain industries, which have been affected more by the pandemic than others. According to the same McKinsey study, women make up 39% of the global employment but 54% of jobs in the food and accommodation sector. Additionally, women face greater social challenges brought on by the pandemic. Because of job loss and school closures, UNICEF estimates that the pandemic has resulted in 10 million more child brides by 2030 than what was predicted before the pandemic. Further, increased stress caused by the virus has caused an uptick in gender violence. In France, for example, reports of domestic violence increased 30% from the beginning of the lockdown to the end of 2020 alone. One study attributed this to increased women’s increased economic dependence during the pandemic, greater alcoholism rates among men due to increased financial stress, and reduced support options for victims of gender violence.
An improving situation
Despite the unprecedented economic impact of the COVID-19 pandemic, the swift development of a vaccine has ameliorated conditions for wealthy and low-income nations alike. Seeing the disparity in COVID-19 vaccine access, many developed nations are pledging funds to improve vaccine infrastructure and buy more doses in low-income nations. In a June 2021 summit, numerous wealthy nations pledged $2.4 billion to expanding vaccine access in poor nations. The development of this vaccine has also brought financial growth: the global economy bounced back in 2021 with a growth rate of 5.3%, the highest in decades.
Because of the pandemic’s devastating impact on low-income families and developing nations, it is important to aid in their recovery. By connecting customers to artisans and artisanal goods, Spes Nova offers conscious consumers a way to support small business owners and craftspeople in low-income nations. The financial and technical assistance offered to these artisans by Spes Nova ensures livable wages and humane conditions during their financial recovery from the COVID-19 pandemic. To learn more about Spes Nova and the artisans we work with, please visit [www.spesnova.org](http://www.spesnova.org/).
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