Featured Issue 02 - 2020 MAGAZINE

Africa is on a path to slow economic recovery

Experts believe it is complex to predict the impact of coronavirus on the economy — but slow recovery is expected

Africa is a vast continent and to estimate the impact of the coronavirus pandemic on the continent is a difficult task. This is because the African economy is very complex. Currently, there are 54 sovereign African countries and two disputed areas in the African continent and they are a mix of emerging and poor economies. Another factor is that a large portion of the economies are in the informal sector and to acquire data of such magnitude is often close to impossible. That said, the impact of the pandemic is not marginal. Earlier this year, the International Monetary Fund (IMF) declared that the global economy has entered recession as a result of the pandemic. With that,the IMF has been forced to revise its estimates from time to time.

The IMF now estimates that sub-Saharan Africa’s economy will shrink by 3.2 percent this year as a result of the coronavirus crisis. The recent forecast by the fund is 1.6 percentage points more compared to its forecasts in April. It expects sectors such as tourism, resources, oil and mineral export businesses to be the most affected. With regard to the updated forecasts, IMF Africa director Abebe Aemro Selassie said that it better captures the realities of the fast-changing events on the ground in Africa and elsewhere in the world. Another pressing concern for African economists is that the continent’s per capita GDP is expected to contract by 5.4 percent this year. To further understand its significance, we can assume that the contraction could possibly wipe out nearly ten years of progress made in eliminating poverty on the continent.

The fact that the pandemic is slowing down economic growth in sub-Saharan Africa is expected to gradually recover during the second half of this year. The IMF has predicted an economic rebound to 3.4 percent growth next year, compared to an estimated 4 percent growth earlier. Since many sub-Saharan African economies have fewer and smaller policy options than more advanced economies, major economies in the region will not see real GDP growth return to pre-crisis levels till 2023 or 2024. Also, the bigger problem is that it is not possible to fully predict when the pandemic will meet its end as a lot of factors largely depend on the creation of a vaccine. IMF’s Abebe Selassie said that as long as the infection is not under control, we cannot expect an economic recovery which might be long-lasting.

South Africa to witness worst recession in 90 years
Among all African countries, South Africa has reported the highest number of positive coronavirus cases. Since South Africa is the continent’s most industrialised economy, it’s manufacturing purchasing managers’ index fell from 53.9 in June to 51.2 in July. This is a result of the lockdown measures introduced by the government to curb the spread of the infection in the country. At present, South Africa ranks fifth on the list of all countries with the highest number of coronavirus cases. Finance Minister Tito Mboweni told the country’s parliament during the presentation of a special budget that as a result of the ongoing coronavirus crisis, the South African economy is expected to contract by 7.2 percent this year — the worst in over nine decades.

South Africa not only entered a complete state of lockdown from March 27, but also sealed its borders and restricted air travel. Even now there is a ban on the sale of tobacco and alcoholic drinks, including wine which are a major source of the country’s revenues. The lockdown measures introduced to curb the spread of coronavirus are having disastrous effects on the restaurant business and farming sector in South Africa. According to their union leaders, if the restrictions are not lifted, it could result in a loss of around 800,000 jobs, especially in public catering workers and over about half a million employees of the wine-making industry. Its impact on the country’s tourism sector would be far more disastrous, according to experts. Around 3 million people have lost their jobs during the 4-month lockdown period and experts predict a growth in unemployment from 30 percent to 50 percent.
Many South Africans believe the government is failing when it comes to coping with the crisis. Also, the country’s healthcare system has come under scrutiny with many predicting that the sector is ill equipped to deal with a pandemic. Over the last couple of months, South Africa has also witnessed protest and resistance groups vandalising the streets showing their displeasure with the way authorities are handling the situation. All these factors are expected to severely impact the economy.

Coronavirus and depleting oil prices to impact Nigeria
According to the latest World Bank Nigeria Development Update (NDU), Nigeria is going through the worst economic recession since 1980. While the economy is being impacted by the coronavirus crisis, Nigeria is also feeling the heat of the global oil crisis, which saw oil prices depleting to an all time low. The report titled Nigeria In Times of coronavirus: Laying Foundations for a Strong Recovery forecasts that Nigeria’s economy would likely contract by 3.2 percent this year equaling a loss of $20 billion to GDP, taking into consideration that the spread of the infection in the country will be contained by the third quarter of 2020. However, if the infection is not contained in the third quarter, the economy could contract further. During the pre-pandemic period, the Nigerian economy was expected to grow by 2.1 percent in 2020.

Nigeria is one of the prominent African oil exporting countries and oil represents more than 80 percent of Nigeria’s exports. During the oil crisis, which also saw a global price war between Russia and the Saudi Arabia-led OPEC, it was forecasted that the Nigerian government’s revenues will fall from an already low 8 percent of GDP in 2019 to a projected 5 percent in 2020. Meanwhile, the pandemic has also impacted the level of private investments in the country, which means investors are not willing to shell out their money amid the pandemic. Against this background, remittances to Nigerian households are expected to reduce. Its is important to note that in recent years, remittances coming into Nigeria have been larger than the combined amount of foreign direct investment and overseas development assistance.
The report further forecasts that as a result of the pandemic, around 5 million Nigerians could be forced into poverty in 2020. Prior to the pandemic, which originated in the Chinese city of Wuhan last year, the number of poor Nigerians was expected to increase by about 2 million largely due to population growth. However, the recent numbers would now increase significantly by 7 million. This means the poverty rate in Nigeria is projected to rise from 40.1 percent in 2019 to 42.5 percent in 2020. Unemployment in Nigeria is also expected to reach 40 million by the end of 2020 as many jobs are expected to be gone in the large and complex informal sector of not only in the country, but the whole of Africa.

Kenya’s economy on a path to recovery
The latest World Bank Kenya Economic Update (KEU) forecasts a growth of 1.5 percent in 2020. If we consider that the pandemic would not end anytime soon, the World Bank forecasts a contraction to 1.0 percent. Kenya’s gross domestic product (GDP) is projected to decelerate substantially as a result of the countermeasures introduced to fight the virus. Much of it would also depend on external factors such as how the coronavirus crisis impacts the global economy and the policies undertaken by the government to weather the storm.
“We recognise that Kenya must balance between reducing the spread of the virus and cushioning Kenyans particularly informal workers and youth who make up 70 percent of the population from the adverse economic effects posed by coronavirus,” said Felipe Jaramillo, World Bank Country Director for Kenya. “In partnership with other development partners, we are supporting the Government of Kenya through financing and technical advice to strengthen its health systems capacity to contain the spread coronavirus.”

In rural Kenya, a majority of the citizens earn their livelihood from activities directly or indirectly related to farming. In urban areas, people are often self-employed or are informal wage earners. Protecting their livelihood and earnings should be the government’s top priority in the country. Therefore, it is critical for the country to scale up available social assistance programmes to provide poor households with food, water and other basic supplies to cope with the crisis. Peter W Chacha, World Bank Senior Economist and Lead Author of the report, said that supporting small businesses and protecting jobs to cope with the negative effects of the coronavirus crisis is particularly critical at this time.

Kenya’s medium-term growth is projected to rebound fast to about 5.6 percent over the medium term on assumption that investor confidence will be restored soon after the pandemic is contained. The greatest uncertainty to this outlook, however, is the extent of the impact of the global pandemic on Kenya. A more recent report by the central bank also stated that Kenya’s economy is on a recovery path due to the good performance of the agriculture sector, the country’s economic mainstay, and the opening of international air travel on Saturday.
There is also a cause for optimism in certain other African countries. West African countries with diversified economies such as Ghana, Senegal and Benin have had more success in containing the virus and sustaining economic activity, despite the deep recession in nearby Nigeria. Recently-released figures suggest that economic activity in Ghana has started to recover from a sharp downturn that hammered the external sector.

Digitalisation acceleration could help the African economy
To tackle the negative impact of the coronavirus crisis, governments across the continent have introduced different counter measures. Besides sealing borders, restricting travel and asking its citizens to stay home, governments have also introduced fiscal measures to help economies deal with the crisis. Various relief packages have also been released by various governments to the businesses, especially in the informal sector to cope with the shadow effects of the pandemic. However, as a result of the crisis, acceleration of digitalisation in various sectors across the world and in Africa seems to be inevitable.

Smart investments made in technology could help Africa fight the pandemic to some extent. In fact, mobile money in Africa has played a crucial role in recent years. More importantly, the use of mobile money has surged significantly in the last couple of months as the African government has introduced measures to boost social distancing. The widespread use of mobile money has reduced the use of cash in Africa, which the World Health Organisation (WHO) flagged as a conduit for the spread of the coronavirus.

Besides mobile money digitalisation is accelerated in other sectors such as healthcare. Many healthtech startups in Africa are joining the battle against coronavirus and are using their technological prowess to help their respective economies. Health departments across all African nations suffer from fewer resources compared to other parts of the world. According to reports, Africa’s healthcare department will need an estimated $44 billion increase in spending to deal with the crisis which represents a 32 percent increase As most of the African economies are poor or developing, it is difficult to resource such a huge amount in a short period of time. This is where the healthtech startups in countries such as Nigeria, Kenya and Egypt are coming into play.

Complexities in analysing the pandemic’s impact
The coronavirus pandemic poses a series of challenges at national, regional and global levels for the African continent. However, it is nearly impossible for experts to understand the full impact or the consequences of it. In fact, a lot will depend on when the vaccine will be created and until then it will not be possible to understand the trajectory of the economic damage caused by the coronavirus. Even if African countries are relatively less affected compared to other regions, the after effects from global developments or broken supply chains may still lead to faltering economic activities.

That said, African nations are highly dependent on foreign policies and relief packages from global bodies to cope with difficult times such as the ongoing pandemic. The over reliance on foreign aid could also impact the African economy on the back of the protracted pandemic and higher costs. But the aid may not match the requirements. Economists predict a negative economic spinoff for the continent, evaluated at an average loss of 1.5 points on economic growth for 2020. According to an updated forecast from the African Development Bank released last month, Africa’s economic growth could rebound in 2021, provided that governments manage the coronavirus infection rate well. In its report, the African Development Bank said that growth was now projected to rebound to 3 percent in 2021 whereas earlier it forecasted a contraction of -3.4 percent in the worst-case scenario for 2020. Regardless of the level of impact, coronavirus will have a harmful socioeconomic effect on Africa and it is understood that the path to economic recovery is going to be slow.

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