The crisis brewing in emerging markets
Covid-related political unrest and financial collapse in the developing world are the biggest threats right now, says Matthew Lynn.


Over the last month, South Africa has seen some of the worst rioting and looting since the end of the apartheid era. More than 200 people were killed, many towns started to run out of food as supplies were disrupted, and troops had to be deployed on the streets across the country to restore order.
Turkey is looking more unstable by the day. In Cuba, there have been widespread protests against the government as the country’s economy has been battered by one of the worst outbreaks of Covid-19 in the Americas (see page 12). Worries have been starting to stack up in other countries too. Markets are getting jittery. The South African rand slumped. Cuba’s economy is under severe pressure. The effects are rippling out across the wider emerging markets, with all the main indexes and currencies sold off.
An age of Covid revolutions
It may just be a coincidence. Perhaps the protests will blow over without any wider consequences. Yet there are also reasons to fear that this could mark the beginning of a wider period of Covid-related political turmoil in the developing world. First, slow vaccination means the pandemic is hitting far harder, and lasting far longer, than it has done in the major economies.
MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Europe and North America have hit 60%-plus vaccination levels, enough to dramatically reduce hospitalisation and death rates even as new variants emerge. South Africa has only managed to vaccinate 5% of its people so far, and rates in the rest of Africa are even lower. The result? While much of America and Europe is opening up again, many developing countries have no choice but to impose fresh restrictions. The Covid emergency is stretching to two and perhaps three years, putting pressure on society.
Next, economies can’t be bailed out. Europe, the US and Japan all have credible central banks and secure currencies and can print money on a vast scale to get economies back on their feet. Furlough schemes protect jobs, tax breaks and soft loans keep companies afloat, and huge spending programmes keep demand buoyant.
The pandemic has done remarkably little damage to developed economies, but it is a different story in the emerging markets. None can print money and governments can’t step in with unlimited support. In many places, the pandemic means food and medicines are in short supply, unemployment has soared, and businesses have had to close down. Inevitably, that puts far greater pressure on political systems than in the developed world. People are angry and widespread corruption, as in both South Africa and Cuba, hardly makes it any better. It is not surprising that protests and riots are starting to emerge – people have plenty to be angry about.
Reasons to be fearful
Finally, in many cases we are starting to see state failure. Dealing with a pandemic requires an effective government. Even France and Germany, with some of the most efficient state machines in the world, have struggled to come up with an effective response. In much of the developing world, the government is riddled with corruption, appointments are dished out to cronies, and there are hardly any civil servants with the expertise to respond to an emergency. It is failing governments that are most at risk of revolutions – and a crisis such as this exposes every weakness in the system.
In the developed world, vast borrowing has allowed economies to sail through the pandemic without any real damage. But there will be a price to be paid somewhere and it looks like it may well come in the form of a series of Covid revolutions across the developing world. Markets are worrying about inflation, debt and how quickly growth will get back to normal. But political unrest followed by financial collapses in the emerging markets are the real threat over the next six months.
Get the latest financial news, insights and expert analysis from our award-winning MoneyWeek team, to help you understand what really matters when it comes to your finances.
Matthew Lynn is a columnist for Bloomberg, and writes weekly commentary syndicated in papers such as the Daily Telegraph, Die Welt, the Sydney Morning Herald, the South China Morning Post and the Miami Herald. He is also an associate editor of Spectator Business, and a regular contributor to The Spectator. Before that, he worked for the business section of the Sunday Times for ten years.
He has written books on finance and financial topics, including Bust: Greece, The Euro and The Sovereign Debt Crisis and The Long Depression: The Slump of 2008 to 2031. Matthew is also the author of the Death Force series of military thrillers and the founder of Lume Books, an independent publisher.
-
What is the 25x retirement rule and does it work?
The 25x retirement rule has been around for decades but many experts question if it is a suitable strategy
-
When is the self-assessment tax return deadline?
If you are self-employed, rent out a property or earn income from savings or investments, you may need to complete a self-assessment tax return. We run through the deadlines you need to know about
-
Are wealthy whisky enthusiasts leaving Britain?
Collectables Wealthy whisky enthusiasts are heading to tax-friendly countries such as Dubai, where there is more disposable income to spend on collectable luxuries like rare whisky.
-
'The rise and fall of Kodak is a lesson for the tech giants'
Opinion The long decline of Kodak – a once-dominant company – shows why no business is safe from disruption, says Matthew Lynn
-
8 of the best properties for sale with kitchen gardens
The best properties for sale with kitchen gardens – from a 17th-century timber-framed hall house in Norfolk, to an Arts & Crafts house in West Sussex designed by Charles Voysey with a garden by Gertrude Jekyll
-
Why investors can no longer trust traditional statistical indicators
Opinion The statistical indicators and data investors have relied on for decades are no longer fit for purpose. It's time to move on, says Helen Thomas
-
Investors rediscover the virtue of value investing over growth
Growth investing, betting on rapidly expanding companies, has proved successful since 2008. But now the other main investment style seems to be coming back into fashion.
-
8 of the best properties for sale with shooting estates
The best properties for sale with shooting estates – from an estate in a designated Dark Sky area in Ayrshire, Scotland, to a hunting estate in Tuscany with a wild boar, mouflon, deer and hare shoot
-
The most likely outcome of the AI boom is a big fall
Opinion Like the dotcom boom of the late 1990s, AI is not paying off – despite huge investments being made in the hope of creating AI-based wealth
-
What we can learn from Britain’s "Dashing Dozen" stocks
Stocks that consistently outperform the market are clearly doing something right. What can we learn from the UK's top performers and which ones are still buys?