Emerging Markets
Frontier markets post-pandemic
Holger Siebrecht
Fixed income investment analyst
Key takeaways
  • High growth countries have tended to escape more severe slowdowns.
  • Richer, more developed countries have generally taken in less revenue (through lockdowns) and spent more, leading to higher deficits.
  • Many frontier markets rely on tourism as an economic driver, but there is a wide divergence between countries that are highly dependent on tourism and those less dependent.

The pandemic has introduced a large exogenous shock into economies and markets. While the young age demographic and reduced ability to implement lockdowns may have resulted in less of an impact on frontier economies, the impact has still been significant. These small, yet fast growing markets, have suffered from external shocks impacting the tourism industry and trade of goods and services as well as domestic shocks, with the slowdown in economic activity affecting local businesses and household income. Now that the pandemic hopefully enters a less severe stage, it is a good time to evaluate the frontier markets to see how things have changed 18 months after the pandemic first hit.


The pandemic severely disrupted the growth path of many economies and frontier markets were no exception to this. But higher growth countries were less affected. The chart below shows that the growth slowdown across frontier markets in 2020 has been close to linearly dependent on the countries’ rate of growth in 2019. The slope (1.25) of the linear regression line tells us that for every additional percentage point of growth a country gained in 2019, the subsequent recession in 2020 was shallower by 1.25 percentage points.

There are a number of frontier markets that have high structural growth rates with the potential to grow into more mainstream emerging markets (EM) over time. Many of these countries didn’t experience a recession in 2020 and could enjoy continued compounding of growth. This includes the more traditional frontier economies such as Benin and Ethiopia. These often have low per capita gross domestic product (GDP) and other measures of human development, still large dependence on agriculture, shallow financial markets, and lower debt levels. At the other end of the spectrum are countries such as Ecuador and Tunisia whose sheer magnitude of recession in 2020 were striking. Neither Ecuador nor Tunisia were growing much before the pandemic, which translated into some of the biggest drops in GDP in 2020.

GDP growth pre- and post-pandemic

Source: IMF, World Economic Outlook, October 2021

We have seen that high growth countries tended to escape severe slowdowns, but for those countries that did not escape, it is instructive to evaluate how long it will take to dig themselves out of the COVID-19 GDP hole. When rebasing GDP in 2019 to 100 we get the below paths, going forward.

The “structurally challenged” group, including Ecuador, Tunisia and Zambia, all suffered very large drops in GDP in 2020 and are unlikely to revert to their pre-pandemic GDP levels until after 2024.


Risk factors you should consider before investing:
  • This material is not intended to provide investment advice or be considered a personal recommendation.
  • The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment.
  • Past results are not a guide to future results.
  • If the currency in which you invest strengthens against the currency in which the underlying investments of the fund are made, the value of your investment will decrease. Currency hedging seeks to limit this, but there is no guarantee that hedging will be totally successful.
  • Depending on the strategy, risks may be associated with investing in fixed income, emerging markets and/or high-yield securities; emerging markets are volatile and may suffer from liquidity problems.

Holger Siebrecht is a fixed income investment analyst at Capital Group, with research responsibility for Africa, excluding Egypt, Sri Lanka. He holds a master’s degree in international development economics from Harvard University and a bachelor’s degree in economics from Duke University. He also holds the Chartered Financial Analyst® designation. Holger is based in London.

Past results are not a guarantee of future results. The value of investments and income from them can go down as well as up and you may lose some or all of your initial investment. This information is not intended to provide investment, tax or other advice, or to be a solicitation to buy or sell any securities.

Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. All information is as at the date indicated unless otherwise stated. Some information may have been obtained from third parties, and as such the reliability of that information is not guaranteed.