Covid-19 is causing a detrimental effect on health systems and economies around the world. However, there are other global risks which haven’t been given as much exposure with Covid-19 dominating global news headlines recently. A perfect storm of financial, political, social and environmental risk, magnified by Covid-19, could be on the horizon.

The risks mentioned below are global in nature. However, they could directly or indirectly affect South Africa in a significant way as a result of our participation in this interconnected world. 

Unsustainable debt levels 

Generally speaking, the policy responses by governments around the world have been to borrow a significant amount of money to support their economies in the fight against Covid-19. This additional debt is being added to the already high debt levels which are becoming unsustainable. 

Private sector debt levels may also become unsustainable due to households and firms being under pressure as a result of a reduction in income. This has the potential to lead to broad defaults on loans and businesses going bankrupt. This, in turn, will lead to mass unemployment and a possible global depression.  

Aging populations: baby boomers

Globally, there is a significant number of “baby boomers” – those born after World War II ended – reaching retirement age. Covid-19 has shone a light on inadequate healthcare systems and infrastructure in both developed and developing nations. To realise improvements in this regard,  further pressure on government’s budget will be required. 

A double edged sword exists for many developed nations’ governments as their “baby boomer” population ages. The need for healthcare infrastructure will grow but the potential tax base will shrink. This makes it more difficult to fund future healthcare needs.

Domestic labour markets: Accelerating automation  

Multinational companies operate in developing nations in order to benefit from cheaper labour markets relative to their domestic labour market. These operations do have benefits for developing nations too. However, job losses and wage reductions could await workers within multinational and foreign firms as Covid-19’s global reach has affected trade and global supply chains. This severely affects the functioning of multinational companies.

In light of this, firms may bring production back to their own countries from lower cost regions. However, rather than supporting their domestic labour markets this often accelerates automation, using machines instead of the higher cost domestic labour market, which leads to unemployment. The use of cost effective automation will allow the firm to remain competitive on a global scale.   

China vs USA 

The standoff between China and the US could be re-ignited. President Trump looks set on blaming China for causing the pandemic to spread while China will retaliate with the notion that the US is trying to suppress their economic progression. 

Further trade wars, disinvestment and other economic threats may surface. South Africa will also be caught in the crossfire as these policy threats will have knock on effects on countries which trade with China and the US.

Climate change: Natural Disasters

Regardless of whether Covid-19 was natural or man-made, we have witnessed the financial and economic effect of a global scale environmental disruption. The world should pay more attention to health standards and reduce the abuse of the environment. 

Changes in the climate, resulting from various countries’ exploitation of the environment and population, will become more severe and frequent. The cost to life is already unacceptable, let alone the economic costs of future environmental disruptions that don’t originate from your country. 

Ross Reid

Written by .

Ross has joined the 22seven team as a Slice and Blog writer. He's a keen financial writer who enjoys demystifying the world of finance. Ross is currently pursuing the CFA designation and has a background in Real Estate finance and investment. In his spare time, he can usually be found reading, running or on the football field.
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