Africa has so far been spared the worst of the coronavirus pandemic in terms of cases and deaths but its economy has been shattered, especially the poorer smaller countries dependent on a single resource or sector. The spread of the disease has picked up speed in recent weeks, stoking concerns that the worse is to come.
Key highlights of COVID-19 Economic impact on Africa:
Historic Recession: Abebe Aemro Selassie, Head of the International Monetary Fund’s Africa division, highlighted the fact that unlike in 2008-09 global financial crisis, sub-Saharan countries were in much worse budgetary position with fewer resources available to face the crisis than their wealthier peers.
Countries Classified into Three Economic Types: Diversified Countries such as in West Africa, with Ivory Coast, Senegal and Ghana. In the East, Kenya, Uganda and Tanzania. In these economies, activity has slowed significantly but they are still managing to grow, the International Monetary Fund says Oil producers such as Algeria, Angola and Nigeria have suffered very badly from the plunge in crude prices, especially in the early months of the crisis. Since then, prices have firmed slowly to arrive back at around $50 per barrel. In Tourism dependent countries such as Morocco, Tunisia and the Seychelles, the pandemic has brought travel to a virtual standstill grounding airlines, which are struggling to survival.
Raising Funds: The picture is mixed when it comes to how different countries manage debt and raise fresh funds. On the one hand is Zambia which is heavily dependent on mining and became the first country to default on its debt, while Ivory Coast easily raised funds on the market.
Debt: G20 countries have already put in place a moratorium on interest payments for some 47 countries, most of them in Africa.
Public Health and Economic Crisis: Africa faces a dual public health and economic crisis that risks overwhelming healthcare systems, destroying livelihoods, and slowing the region’s growth prospects for years to come.
Double Supply and Demand Shock: Covid-19 arrived in three successive waves: first from China, followed by OECD countries (initially Europe and now the United States), and lastly a likely intra-African wave that may come if African countries fully implement confinement measures, such as South Africa. The decline in economic activity and employment in 2020-21 will be determined by the magnitude and persistence of the shock, the impact of pre-existing crises and vulnerabilities (e.g., conflict and fragility in the Sahel, or locusts in East Africa spreading to other regions) and the response by African governments and businesses.
First, Second and Third Waves Shock: First wave shock comes from China through weakened trade channels and lower foreign direct investment (FDI) in the immediate term. By contrast with South Africa or Ghana, least developed such as Zambia, South Sudan and Mauritania do not have alternatives to China as a buyer, nor do they have viable alternatives to their commodities for sources of growth. For instance, South Sudan was expected by the International Monetary Fund (IMF) to be the fastest growing country in the world in 2020, growing by 8.2%, but mainly due to oil exports to China (98% of its total exports). Investment projects will also be delayed or cancelled as the country of origins of FDI go through and recover from the crisis.
A second wave arrived from OECD Countries: due to the European demand slump associated with the lockdown and the halt in tourism, most-small island developing states and North African Countries, as well as several West African Economies depend on the European Union for at least 50%of their trade. The impact on their informal workers without social and health protection especially in Tourism may be partially high.
Third Wave: has come from the shock on internal demand and the slowdown of intra-African trade. The shock to internal demand will be driven by disruptions in household and business spending, and will particularly hit countries affected by strict confinement measures, such as South Africa. Travel restrictions and eventual business shutdowns to prevent the spread of the disease could also hamper regional sourcing, which currently stands under 15%, and endangering cross-border informal trade which is estimated at about one third of Africa’s trade.
A recession in several African Countries – According to Beegle and Christiaensen, 2020, a recession in several African countries the first in twenty-five years is now likely with ripple effects on already high poverty numbers.