COVID-19 could mean crippling economic losses for Africa

It is in everybody’s interest to defeat COVID-19 in Africa because if the virus takes hold, the continent could become a source of a second global wave of the pandemic in the near future

African countries have adopted a largely common strategy to slow the COVID-19 pandemic: aggressive prevention. The majority of them have taken drastic steps, including closures, curfews, lockdowns, and travel bans, to prevent community transmission of the disease. Despite these measures, however, the virus continues to spread to more African countries. As of April 12, 2020, the number of active confirmed cases in Africa is more than 15,300 while the toll is over 800 lives. Scientists predict the pandemic will continue to increase throughout the continent, and close to half a million [1] Africans could test positive for COVID-19 by May 2020. Such estimates will most likely compel African countries to beef up their response to flatten the curve.

Economic costs

The huge disruption caused by the pandemic in the global economy has resulted in legitimate concerns that the disease could deal a blow on African economies and exacerbate the current fragilities. The world’s poorest and second most populous continent could record its biggest economic loss in recent past as some African governments are unable to provide meaningful bailout emergency funds, with a significant portion of the population working unregistered in the informal sector. According to the UN, COVID-19 could cost up to 1.4 percentage points [2] of Africa’s GDP growth. The Brookings Institute projects that Africa will record a loss of 2.1 percentage points [3] or more in GDP growth if the novel coronavirus takes hold. Other estimates predict that Africa’s economies could record a loss of between $90 billion and $200 billion [4] this year. According to a recent publication by the African Union, the pandemic could cause up to 20 million job [5] losses. The pan-African organization predicts that the African economies will not be affected too adversely if the pandemic persists for only four months or less, while they will lose 4.5% in GDPs if the pandemic lasts for more than 6 months globally. In the latter scenario, COVID-19 may completely decimate Africa’s economies.

COVID-19’s economic impact on Africa comes in several shapes. First, it means a massive decline in the global demand for African exports as African countries trade more with the rest of the world than among themselves. Africa’s primary exports, such as oil and gas, natural resources as well as other products, including coffee, will be severely crippled. Already affected by the global oil shocks, Sub-Saharan African countries, such as Nigeria and Angola, whose economies rely on oil exports, could lose up to 65 billion USD in revenues. It is estimated that. African oil exporters will witness double-digit budgetary deficits while their economies will decline 3% on average. Additionally, many African states — South Africa, Angola, Congo, Rwanda, Namibia, South Sudan, and Kenya — whose economies heavily rely on exports to China, Africa’s biggest trade partner, are expected to particularly suffer.

Other key vulnerable industries include aviation, agriculture and tourism, which accounts for approximately 24.3 million jobs across Africa and contributes to around 8.5% of the GDP. However, the hardest hit of all will be the informal sector, which helps sustain 30-90% [6] of all non-agricultural jobs and over 40% of many African countries’ GDP. Secondly, the aggressive prevention measures, such as lockdowns and curfews, could quickly lead to a decrease in domestic production and demand, thus a sharp drop in tax receipts. Third, foreign investment inflows (FDI) to different African countries will abruptly fall. The global auditing firm McKinsey & Company estimates that up to 15% [7] of Africa’s FDI could disappear as projects are postponed or called off, with donor states finding it difficult to continue to provide much needed monetary assistance as development aid. Last but not least, remittances [8] by African diaspora — the continent’s largest financial inflow over the last ten years — will also register a sharp decline as Africans living abroad are hard put to send remittances to their home countries.

Likely consequences

It is too early to accurately predict the ultimate consequences of Africa’s economic loss due to the COVID-19 pandemic. However, the biggest fear revolves around a complete collapse of African economies if the virus takes hold. The second point of worry is that lockdowns and potential economic breakdowns might lead to unrest because according to most estimates African governments would be unable to provide emergency bailout funds. As lockdowns rob their livelihoods, African citizens will most likely not be able to stay at home, therefore risking clashes with security agencies, with the drastic anti-coronavirus measures being taken by African governments already resulting in violence [9] and loss of life [10].

Possible coping options

Set against the developed world, most African governments can neither inject cash into the economy nor provide substantial bailout emergency interventions or have the health infrastructure required for containing the disease, such as mass tests. One way to ensure income during the time of the COVID-19 pandemic is to keep the economies functioning. This option includes physically redesigning markets (creating public hand wash spaces, distributing hand sanitizers, etc.) and training retailers in safe product handling so that people could continue shopping while maintaining social distancing and hygiene. They should also keep markets in some neighborhoods partially open while regulating the number of people allowed to shop at any given time. A second option is to open borders and reduce trade barriers (export bans, duties on trade, etc.) to keep trade inflows during the pandemic. This will allow the African states to obtain access to essential services and goods, including medicine as well as food. Studies have shown that small-scale cross-border trade is an essential component of many African economies that contributes to the income of around 43% [11] of Africa’s total population. Such a step will also help the governments to achieve coordinated trade initiatives that lead to better responses to the disease, such as bilateral cooperation on border control and information-sharing and an organized acquisition of medical necessities.

Finally, African leaders should continue seeking global solidarity in the form of urgent emergency assistance. Donor countries, particularly the G20, and multilateral organizations should provide urgent financial as well as technical aid so that African governments could weather the economic impact of the new coronavirus. Africa’s external debt holders, including China, should immediately establish debt-relief measures so that Africa’s poorest countries can economically survive the pandemic. It is in everybody’s interest to defeat COVID-19 in Africa because if the virus takes hold, the continent could become a source of a second global wave of the pandemic in the near future.

[1] https://www.theeastafrican.co.ke/news/ea/450000-Africans-projected-to-contract-covid19-by-may/4552908-5513978-3cc9tn/index.html

[2] https://www.uneca.org/sites/default/files/uploaded-documents/stories/eca_analysis_-_covid-19_macroeconomiceffects.pdf

[3] https://www.brookings.edu/blog/africa-in-focus/2020/03/18/strategies-for-coping-with-the-health-and-economic-effects-of-the-covid-19-pandemic-in-africa/

[4] https://www.mckinsey.com/featured-insights/middle-east-and-africa/tackling-covid-19-in-africa

[5] https://au.int/en/documents/20200406/impact-coronavirus-covid-19-african-economy

[6] https://qz.com/africa/1759070/economists-struggle-to-figure-out-where-africas-informal-economy-starts-or-where-it-ends/

[7] https://www.mckinsey.com/featured-insights/middle-east-and-africa/tackling-covid-19-in-africa

[8] https://blogs.lse.ac.uk/crp/2020/04/07/remittances-affect-the-somali-covid-19-response/

[9] https://time.com/5811945/coronavirus-prevention-africa/

[10] https://www.aljazeera.com/news/2020/04/kenya-probe-fatal-police-shooting-teenager-200401161356158.html

[11] https://www.ictsd.org/bridges-news/bridges-africa/news/small-scale-cross-border-trade-in-africa-why-it-matters-and-how-it

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