Macro Analysis /

The Emerging Markets that are most resilient to lockdowns in US and Europe

  • Loss of external demand as developed markets hibernate will impact emerging markets as much as the virus itself

  • The best-placed countries will have robust cashflows, strong balance sheets and agile policy adaptation

  • South America does particularly well, while Emerging Europe and South-East Asia appear particularly exposed

The Emerging Markets that are most resilient to lockdowns in US and Europe
Paul Domjan
Paul Domjan

Senior Contributing Analyst

Tellimer Research
27 April 2020
Published byTellimer Research

Last week, I introduced a framework for assessing the vulnerability of various emerging markets to Covid-19 by looking at two axes of vulnerability: how well positioned countries are to cope with the virus domestically and how resilient their economies are to a withdrawal of external demand as developed markets hibernate economically. This identified five larger emerging markets that appear well-positioned on both axes – Brazil, Russia, India, China, Saudi Arabia and Kazakhstan. Although this analysis approaches the question completely differently to our equity strategy, Kazakhstan and Saudi Arabia are Tellimer Strategist Hasnain Malik’s top picks in the CIS and Middle East, respectively (he does not rate the larger EMs).

I then looked in detail at the drivers of domestic vulnerability to the virus and how they play out across the wider developing markets universe. This week, I’m going to focus on the other axis—vulnerability to a withdrawal of external demand—and, in a separate report, look at how you can download and use the data to develop your own ranking, if you would like to exclude some of the factors that I have used or change their relative weighting in the index.

Developed economy hibernation and the collapse of external demand

Much of the debate over Covid-19’s impact on developing markets has focused on how those countries will cope with the virus domestically, ranging from benefits like having past experience of epidemics to weak health systems and high densities. This debate is undoubtedly important, and I’ve contributed to that debate first by looking at Africa’s advantages in responding and last week by benchmarking the whole universe. To recap, I used 10 factors to identify countries that may be well-positioned to cope with Covid-19 domestically:

  1. Low density makes it less likely that the virus will be transmitted.
  2. The lower the percentage of the urban population living in slums, the higher the likelihood of successful social distancing.
  3. Low urbanisation reduces the number of people in likely hotspots.
  4. High availability of basic handwashing facilities helps to control the disease.
  5. A small amount of travel within the country makes it harder for the virus to spread.
  6. A small elderly population reduces the share of the population at high risk.
  7. A low incidence of comorbidities, like tuberculosis, reduces the hare of the population at high risk.
  8. High average May temperatures may make it less likely that the virus will spread.
  9. High-quality health administration at ports of entry helps to avoid importation of the virus.
  10. A large number of hospital beds per capita makes the health system more able to cope.

However, the vulnerability of developing countries themselves is only one facet of Covid-19’s negative impact. Lockdowns – the public health response to Covid-19 in developed markets – have entailed shutting down large parts of economies, causing demand for imports to collapse. Even if they do not go into the same sort of lockdown themselves, developing countries will need to manage this loss of external demand. At a high level, South America, Russia and Kazakhstan appear better prepared to do this than the rest of the emerging world, and Southeast Asia appears notably vulnerable.

If we think about an economy as being like a firm, the contagion channels quickly become clear: cashflow will fall, which will lead to balance sheet stress and require both operational and strategic agility. We can measure this for countries by looking at three areas: trade and financial flows (cashflow), financial resources to survive without external demand (balance sheet) and the ability of their governments to make effective policy in this challenging environment (agility). I estimate vulnerability in these areas through eight factors, including interactive visualisations for each (green on the maps equates to resilience against the economic impact of lockdowns on that factor; purple indicates weakness).

Figure 1: Overall ranking – the emerging markets best-placed to cope with the collapse of external demand (green = more resilient, purple = more vulnerable)


Falling inflows of cash will be the most direct channel of contagion from developed market hibernation to developing market economic growth. Global trade will fall, but its composition will also change, so I look at what countries exports as well as the role of trade in their economies. With oil prices crashing, oil producers are particularly vulnerable, while oil importers will benefit; but, given the complexity of this issue, I have not included oil exports in this model. Trade patterns vary from country to country based on what each country exports and to where, so I look at three factors to estimate the extent of trade contagion, as well as one factor looking at exposure to financial flows:

1. Low exports as a share of GDP mean that, all other things being equal, a fall in trade will have a relatively smaller impact on a more closed economy that is less reliant on trade. Larger economies tend to be less open, and China, Brazil, Argentina, India, Pakistan, Kenya, Tanzania and Ethiopia do well here, while South-East Asia, Emerging Europe and Southern Africa are more exposed.

Figure 2: Economies that are less reliant on trade will be less impacted by withdrawal of external demand during hibernation (trade as a % of GDP; green = low, purple = high) – interactive map

2. A large share of food in exports: While total exports from developing countries to developed ones will surely fall precipitously during lockdown, demand for certain categories of goods will continue. I cannot capture all of these categories in this model, but food exports stand out both because they are disproportionately important for many of the poorest developing countries and because developed countries’ demand for food will surely persist during lockdown. Indeed, demand for some food exports will rise during lockdown. For example, home brewers tend to use coffee beans less efficiently than coffee shops, so bean demand rises as consumption shifts from cafes to homes. South America (with the notable exception of Venezuela) and many countries in Africa benefit from a large share of food exports.

Figure 3: Large share of food makes it more likely a country will maintain export earnings during hibernation (green = large share, purple = small share) – interactive map

3. A small share of tourism in exports: Just as food is one category where foreign demand is likely to remain robust, tourism (money spent during international tourist visits to a country and spent with its airlines are counted as one of its exports) is one category that will completely cease during lockdown, and possibly for some time afterwards. Interestingly, when scaled as a share of total exports, Brazil, despite its famous beaches, appears quite robust on this measure, whereas the countries of South-East Asia (with the exception of Vietnam) do not. In the safari hotspots of East Africa, Kenya and Tanzania will be impacted by the cessation of tourism, but a much higher share food in exports will cushion the blow in Kenya.

Figure 4: Countries that are less reliant on tourism will be less impacted (green = less reliant, purple = more reliant)– interactive map

4. Low remittances as a share of GDP: In 2019, remittances overtook FDI as the largest source of financing, and the World Bank expects that remittances will fall by 20% as a result of Covid-19. Also, unlike FDI, which can be lumpy, and flows to firms, which may have savings or other sources of financing, remittances flow directly to households that typically rely on them month to month to meet their basic cashflows. While South-East Asia, South Asia, Emerging Europe, Mexico and Central America appear highly exposed, South America and much of Sub-Saharan Africa are better positioned.

Figure 5: Countries with lower reliance on remittances are less exposed to reduced economic activity during hibernation (green = lower reliance, purple = higher reliance) – interactive map

Balance sheets

Financial resources are perhaps the easiest aspect to measure, and I use three factors:

5. High reserves to imports mean that a country is more likely to be able to pay for its imports out of its own resources. Countries without adequate reserves will need to increase their exports to pay for imports, which is unlikely during Covid-19; or seek foreign capital, whether aid or debt, to pay for imports during the recession; or cut imports with the attendant impact on the population. China, Russia, Brazil, Algeria and Botswana appear well-placed, while Mexico, Vietnam and much of Sub-Saharan Africa are particularly vulnerable.

Figure 6: Countries with greater reserves in months of imports will be more able to cope – interactive map

6. High reserves to external debt make countries less likely to need to choose between meeting the needs of their population or paying their debts. Recent debt relief programmes will help to cushion this risk, but it remains a good indicator of a country’s financial health. Here, Brazil scores somewhat lower, and Ethiopia and Sri Lanka are countries of particular concern.

Figure 7: Countries with greater reserves coverage of external debt will be more resilient  interactive map

7. High gross domestic savings are a more comprehensive measure than external reserves. Countries with high gross domestic savings, wherever they sit in the economy and in whatever currency, have greater domestic resources with which to replace external demand. The picture is particularly nuanced in Emerging Europe, where the Czech Republic and Hungary appear as areas of strength, while Ukraine and South-East Europe are particularly weak.

Figure 8: Higher gross domestic savings prepare countries to weather a withdrawal of external demand during hibernation (green = high savings, purple = low savings)  interactive map


8. High quality of policy making: The first seven factors describe the situation a country finds itself in at the beginning of global hibernation. How the country responds to that situation, managing weaknesses and taking advantage of strengths, will be the key determinant of its eventual success in withstanding the challenges of global hibernation. Quantifying this is tremendously difficult but, given its importance, I have chosen to use the World Bank’s CPIA database to give an estimate. CPIA only covers a subset of most less developed countries, but it still provides a starting point for analysis. CPIA shows how even poorer countries, like Ethiopia, Georgia and Rwanda, can achieve higher-quality policy making, equipping them to respond to crises.

Figure 9: Higher-quality public sector management helps to contain Covid-19 (green = high quality, purple = low quality) – interactive map