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2021: Implications of Covid-19 on Africa

The occurrence of Covid-19 has shown the world that unpreventable calamities have serious effects on economies if not well prepared for. As we gear towards the end of the 2020 and moving into a new year of 2021, stakeholders are pondering on what could have been the impact of the Covid-19 on their prospective incomes domestically and globally.

Tinashe Mapungwana

There is no doubt that the outbreak has had grave financial consequences in the whole world that have led to dramatic changes in how businesses act and consumers behave. A number of researches have been conducted during the year and most of the outcomes pointed towards the health sector deteriorations and a global economic recession, for Africa the prospective consequences have been deemed to be much dire than for the rest of the world.

According to UNCTAD’s July 2020 report, the impacts of Covid-19 vary across African countries both within and across sectors.

“The fall in global demand for exports and a slump in prices of major commodities including fuels are the main concerns for Africa. There has also been a fall in Foreign Direct Investment (FDI), which is closely linked to the extractive sector and hence the commodity price cycle (World Investment Report, 2020). The decline in crude oil prices by up to 60% will put significant strains on the revenue of the net oil exporters, particularly those whose revenues are highly determined by crude oil sales.

“Accordingly, the results  suggest a -11.4% decline in Nigeria’s revenue in 2020 with relatively lower revenue falls for the other key exporters of fuels in the region such as Algeria (-2.5%), Angola (-3.8%), Gabon (-2.4%) and Congo (-2.3%). However, the final impact will depend on how the respective countries will take advantage of their respective key markets as frontier closures are lifted with productivity resumed in the world. Overall, fuel exports are estimated to fall by -7.7%, with a significant drop in GDP of about -3.3% in Congo and Mozambique,” stated the report.

The IMF’s Global Prospective report showed that activity in Sub-Saharan Africa (SSA) collapsed in the first half of this year due to the Covid-19 pandemic . The region has suffered as an effect of the pandemic.

In addition to the already weekend African economies, the pandemic led to shocks that were  exacerbated by heightened investor risk-aversion, resulting in unprecedented capital outflows from the region, dislocating currency depreciations, steep stock market falls, and sharply-higher sovereign borrowing costs .The large tourism sectors in the region have also  been affected by the pandemic hence low incomes from this sector have been witnessed, depending on the outcome of the second wave, the tourism sector is likely to continuously experience the negative balance sheet.

The report has also shown that the many agricultural commodity exporters have suffered from a collapse in export demand as well as disruptions to supply chains (Côte d’Ivoire, Ethiopia, Kenya).

“The precipitous fall in global travel as a result of the pandemic has had a particularly severe impact on countries with significant exposure to global travel and tourism (Cabo Verde, Ethiopia, Mauritius, Seychelles). Inflation in the region is expected to edge up this year, on average, reflecting sharp currency depreciations and disruptions to supply chains.

“Despite this, several central banks have eased their monetary stances in response to the Covid-19-related slowdown in activity (Democratic Republic of Congo, Ghana, Kenya, Mauritius, South Africa), while others have lowered reserve requirements to free up liquidity (Botswana, Mozambique),”stated the report

While the above highlights on the impact of the pandemic may give an indication of how the future for African economies may look, it is vital  point out what the state and citizenry should do to mitigate the negative impact of the pandemic.

The above statistics have clearly shown that as a continent our heavy dependency on commodity exports has critical implications given the scenario of the pandemic, where reduced trading occurred and  most  countries such as China are focusing on inward trading rather than outside boarder trading. This should be food for thought for our policy makers to seriously consider more investment in value addition and research and development to broaden the economic base of our countries and reduce the burden of dependency on commodity  market.

The pandemic has also forced most countries to focus on digital trade and marketing and all virtual means. This is also an area that consumers and businesses should venture in to reduce the spread of the virus as well as reach out to markets and increase their incomes. The only loop on this is the limited digital infrastructure in most African countries hence an eye opener to both Development Financiers and the policy makers, as this area was mainly  deemed to be a private sector concern  only. Several reports have shown that the pandemic has resulted in devastating effects on the health and well-being of the region’s population.

According to the world bank the negative impact of the pandemic will most likely have lasting effects on development and growth of the economies in Africa, as has been the case during previous epidemics. There is also an anticipation of a second wave of infections which could erupt within the region that needs to be prepared for.

In this light Africa will surely need financial assistance, however the worry for 2021 is that the developed countries that have been giving aid have also been hard hit by the pandemic and this may have negative implications on their ability to support African economies to the extent needed. Hence the pandemic is also expected to markedly increase the vulnerability of the region to debt distress.

The IMF Global Perspective report echoes borrowing costs across the region have risen sharply given heightened risk aversion, placing further pressure non fiscal capacity. Significantly larger, and more expensive, government debt burdens than last year mean that the risk of sovereign debt defaults has increased and may rise further if the projected recovery in activity were to disappoint. Severely constrained government resources, as well as restrictions due to social-distancing measures, could lead to a loss of critical public services during the pandemic and further weigh on activity. These include provision of water, electricity, and normal health care services.

“There are also growing concerns that the Covid-19 pandemic may cause a food security crisis in the region. Before the pandemic, 72 million people across 35 countries in Sub-Saharan Africa were already in food crisis, with many millions on the verge of falling into acute food insecurity (WFP 2020). Border closures and other trade restrictive policies, such as export bans for domestic stockpiling, are disrupting trading in food and agricultural products (World Bank 2020).

“Shortages could also induce food price spikes that may further exacerbate poverty. For 2021, regional growth is forecasted to recover modestly to 3,1%, but many countries will not return to 2019 levels of output until 2022–24. Countries have cautiously started to reopen their economies. However significant financing gaps are likely to prevail, and without significant additional assistance many countries will struggle to simply maintain macroeconomic stability while also meeting the basic needs of their population. Others may be forced to address clearly unsustainable debt burdens,” stated the IMF in their Global Perspective report.

The suggested way forward for transformative reforms is to promote resilience (including revenue mobilisation, digitalisation, and fostering better transparency and governance). According to the world bank reforms must draw on the lessons of the crisis to prioritise broad-based resilience.

From a global business outlook of  which Africa should also take cognisant of as we have increasingly become a global village, the pandemic is releasing a new age of modification for businesses.

According to McKinsey & Company, a new global survey of more than 800 executives revealed that companies are prioritising business building for organic growth, launching new businesses at an accelerated rate and, in turn, growing faster.

The need for economic reforms is now more urgent than ever before because of the pandemic, the year 2021 should focus on implementing effective practical reforms for Africa to go back to its growth path. The significant areas, which will require merged energies from both government and the private sector, include spending on infrastructure investment, reducing wasteful expenditure and corruption, unlocking efficiencies and opportunities presented by the digital economy, as well as a focus on implementation.

African countries  would also need to re-look at their individual fiscal and economic-policy priorities, to improve health and social provision systems, especially in countries that have unsuccessfully implemented critical health related policies . Africa will have to build productive capacities to address fundamental economic susceptibilities and boost continental abilities to manage the impact of the crisis.

Mapungwana is a Harare-based independent economist. These New Perspectives weekly articles are co-ordinated by Lovemore Kadenge, independent consultant & past president of the Zimbabwe Economics Society. — zes@gmail.com or mobile +263 772 382 85.

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