The economic consequences of the Covid-19 pandemic for Africa
Posted on 14th April, 2020 in Director's Blog
Africa has already been severely impacted by the economic side-effects of the Covid-19 pandemic, whether the virus spreads more extensively there or not. This risks knocking years off Africa’s growth, exacerbating poverty and precipitating an African debt crisis. A major international effort to alleviate this situation is essential for the health not just of Africa, but of the whole global economy. China, Europe, the UK and US must all play their part in this effort if it is to succeed.
Next week, world finance ministers will meet – virtually, as we now must – at the IMF and World Bank Spring Meetings. Top of the agenda (in practice the whole of the agenda) will be dealing with the global economic impact of the Covid-19 pandemic.
Up to now, public attention has focused almost entirely on the major economies which have been hard hit by the coronavirus. China, the modern workshop of the world, enforced a massive suspension of business and lockdown of people in February to prevent the uncontrolled spread of the disease, drastically reducing the country’s output. Japan, South Korea and Taiwan have also taken measures to stop the virus, reducing their economic activity. Europe has experienced traumatic levels of mortality in Italy and Spain, with the death toll still rising in France and the UK, where the PM himself has been hospitalised. The resulting lockdowns, which have been imposed in almost all European countries (except Sweden), have brought much economic life to a standstill. Efforts to put businesses into hibernation and subsidise workers during the lay-off may save some, but not all, companies and jobs. In the US the virus is still spreading across the country and the numbers dying continue to grow, following an appallingly slow response from the federal government and despite the efforts of (some) state ones. As a result the unemployment rate has already risen to 13% – the highest since the Depression.
As a result of all this, the IMF is predicting that economic growth will stall completely in 2020, and the world economy suffer not just a recession but a set-back equivalent to the Great Depression. The IMF Managing Director expects economies to shrink during 2020 in at least 170 countries.
Almost everyone appeared taken by surprise, even though medical experts and National Security Councils had been warning of the risks of such an epidemic for years. The warning signs from Ebola had not been taken sufficiently seriously, and in the US the Trump Administration went so far as to deliberately dismantle the structures that had been put in place to manage such a crisis.
It is already clear that the world economy will not just bounce back into the shape it was before. It will recover, but three months’ worth of wealth has simply not been created: commodities not sold, goods not created, buildings not constructed, travel not taken, meals not eaten, coffee not drunk. It leaves an economic hole in the world’s growth trajectory that – however much money is loaned or printed – will take years to fill.
Though not yet the worst impacted by the disease, African countries are badly affected and deeply worried. Many have fragile health systems that could easily be overwhelmed by the infection. Many people, both young and old, have “underlying conditions” which would make them more vulnerable: malnutrition, HIV, TB, chronic malaria, respiratory problems. Faced with this prospect, and conscious of the high price European countries paid for reacting too slowly, many governments in Africa, like India, have acted pre-emptively to adopt the same measures used elsewhere – closing schools and businesses, stopping travel into and out of the country, and trying to enforce social distancing.
Covid-19 is nevertheless spreading, but more slowly than feared (see the African Arguments Coronavirus Tracker). Two weeks ago, South Africa, which introduced the most draconian restrictions, expected a rapid spike in infections and mortality. But it has not yet come. Perhaps governments acted in time; perhaps the coronavirus does find it harder to survive in warmer climates; or perhaps the youth of Africa’s population, with an average age of 19 as opposed to 42 in Europe, has helped protect it. Accurate figures are hard to come by, but with nearly 16,000 cases (by 14 April) and around 850 recorded deaths, largely in three countries (Egypt, Algeria and South Africa), the impact has so far been modest compared to Europe or the US.
But there is also a risk that, like an immune system going into overdrive against the virus itself, the reaction could do more damage than the disease.
Because of very different social and economic conditions in Africa, the local impact of the preventive measures is very different from that in China or Europe:
- Few countries have a social safety net, and most people have to rely on their family or a return to their rural communities;
- Large parts of the economy work on a cash basis and many people have no option but to live hand-to-mouth with no savings or cushion. Losing a job or trading income can mean almost instantly losing the ability to eat. The personal impact of preventive measures is therefore even more immediate and drastic than in western countries.
- Food supply chains operate through markets, not supermarkets, let alone home delivery. Human interaction and personal travel are essential, not optional, and import constraints are also already impacting urban populations. Shortages will immediately feed through into price inflation, as Vera Songwe, head of UNECA, has warned.
- Social distancing is in many cases impossible. Communities do have ways of avoiding contagion, but it needs community action not state enforcement. Stories of arbitrary beatings, arrests and even shootings by police of citizens out of doors merely adds grievance to inconvenience, and will make governments less trusted, not more.
These may be reasons why President Magufuli of Tanzania has refused to implement any preventive measures, though his publicly stated reason seems more theological than medical.
But even if local restrictions were lifted, African economies are still being severely hit by the global downturn.
The constraints on air travel as part of the lockdowns have effectively closed global markets for products like African fruit and flowers, as well as bringing the tourist industry – a major foreign currency earner for Kenya, Tanzania, Rwanda and South Africa – to a complete halt. Remittances are also reported to be falling, as employment falters in developed countries. The collapse in oil, gas and commodity prices – 60% down for oil, 20% for copper since the start of 2020, for example – also has an immediate impact on the revenues of several of Africa’s biggest economies. Nigeria, Angola, Algeria, Gabon and to a lesser extent Ghana and Cote d’Ivoire have all seen revenue forecasts dashed, and countries like Kenya, Uganda and Mozambique can wave goodbye to the energy bonanza they had been anticipating (and borrowing against) for years.
This, together with the withdrawal of nearly $100 billion in capital from emerging markets by the end of March (according to the IMF), has precipitated an African debt crisis that had been looming for at least a year. Zambia has already announced it can no longer pay its debts. To preserve their rapidly dwindling foreign exchange reserves, other countries may rapidly follow suit. It is unlikely that the easy access to global capital markets African countries have enjoyed up to 2019 will return once the crisis has past, particularly if defaults spread.
The consequences for all but the subsistence sector of African economies will be drastic. Oxfam’s research has highlighted the serious risk that the pandemic will cause a drastic increase in the number of people living in severe poverty. Ghana’s respected Finance Minister, Ken Ofori-Atta, told the Centre for Global Development that it had already lost $2 billion in income as a result of the crisis, and African Finance Ministers collectively called on 31 March for $100 billion aid to help Africa tackle the Covid-19 crisis (Communique here) and a major “debt resolution and restructuring package”. As Ofori-Atta said, this is a ‘Break the glass’ moment if the world is to help save African economies.
That will be a major focus for the Spring Meetings. The question is whether the world’s rich, faced with their own unprecedented problems, will respond.
This question highlights the profound geopolitical shifts the pandemic has revealed.
Most clear is that President Trump has seen the virus as an opportunity – not to lead, cooperate or build a global coalition to tackle this global problem, but to weaken his enemies. In seeking to shift the blame onto China, and refusing to help other countries (not just Iran, but diverting masks from Germany for example), the US has explicitly abandoned its leadership role in the world, even as the world faces its biggest threat in a generation. Perhaps we should not be surprised. But it is disappointing, and the world will struggle to find the necessary leadership elsewhere.
If others follow this example, there is a risk of exactly those beggar-thy-neighbour policies that deepened the Depression of the 1930s as everyone sought to protect themselves at the expense of others.
China has shown a more open face, at least to the world. It has offered masks and medical material to other countries, but is only slowly restoring its own productive capacity; and while it has friends, it has very few close allies and is not showing a true leadership role in international organisations, where it is needed. What will make a difference to Africa at this time is China’s willingness to reschedule or forgive the massive debts African countries have accumulated with it. But this would have a knock-on effect on the balance sheet of China’s own lenders which, while state controlled, are not limitless.
The EU has taken the strongest international lead, publishing proposals on 8 April to make €15.6 billion available to poor and emerging countries, including in Africa, to respond to the pandemic and mitigate the socio-economic consequences, even as Europe itself struggles to contain the virus. It will provide support not just to health sectors, but to cover humanitarian needs and to provide macro-economic support to struggling economies.
The UK has been uncharacteristically silent, both at home and abroad. Far from taking a lead in the global response, the government has focused its international effort almost exclusively on repatriating British nationals. DfID has been thinking and talking to its global partners, and has been diverting aid to help African partners prepare its health systems to cope with Covid-19. But there is as yet no sign of a global policy or coherent international response – the consequence, perhaps, of a government wholly focused around an incapacitated Prime Minister, and a Brexit policy that belonged to another, pre-Covid world.
At the same time as Britons are leaving African countries, British money should be arriving to help our friends in need. This is a moment of test for Britain’s place in the world, and for now, the jury is still out.
For Africa to manage the consequences of the pandemic and avoid a terrible relapse into poverty that could have drastic political consequences, it needs not only to get its own act together, but for the world to do the same. Africa needs a multilateral system that works: a UN whose recommendations are respected; a G7 and G20 that mobilise resources and adopt policies to help the developing world; international financial institutions that are allowed to provide exceptional aid; and lenders, private as well as public, that are willing to forgive debts that can never now be repaid.
Britain must be there, beside its African partners and friends, ensuring this is what happens. But where is it?
Nicholas Westcott is the director of the Royal African Society.
Neil Webster of LSE’s Firoz Lalji Centre for Africa, on what donors can do to support Africa in tackling the coronavirus crisis.
Peter Fabricius of ISS (South Africa), on whether the world can give Africa the support it needs to survive Covid-19 (here)
Rachel Strohm in African Arguments on how African governments and donors should respond to the Covid-19 pandemic.