By Phumza Dyani, Pan African Chamber of Commerce Chief Innovation Officer
By now, it should be a well-known fact that the Coronavirus (COVID-19) is a global health pandemic. What might, however, be unknown to many is the fact that COVID-19 is not only a health pandemic, but a development crisis that has the potential to wipe out about two or three decades of growth and development on the African continent.
The United Nations Economic Commission for Africa (Uneca) estimates the continent could lose half of its GDP growth, down to 1.8% from 3.2% as a consequence of disrupted value chains, stagnant exports and shrinking investment. Adding fuel to the fire, Africa’s economic growth projection for 2020 has been revised downwards from 3.9 percent to -1.7 percent in a baseline scenario (COVID-19 is contained by the third quarter of 2020) and -3.4 percent in a worst-case scenario (COVID-19 crisis persists to the end of 2020).
In fact, according to the International Monetary Fund (IMF), Nigeria, which is one of the biggest two economies in Africa is projected to deepen to 5.4 percent in 2020 as the country was hit hard by plummeting oil prices, lower oil production quota and declining activity. South Africa, which is home to a large market size (68.4), is projected to contract by 8.0 percent in 2020. Ethiopia, which is the leading fastest growing country in the region according to the IMF in terms of growth is projected at 1.9 percent in the 2020 fiscal year (FY2020), which is 1.3 percentage points lower compared to the April 2020 Regional Economic Outlook. While, Angola is expected to continue to fall for a fifth year, with GDP reduction of 4.0 percent in 2020 reflecting declines in oil production and prices, tightening credit conditions, and declining domestic business activity.
What compounds matters even more is that African economies are in danger of further marginalisation as a result of de-globalisation. The demand shock presented by COVID-19 has exacerbated the protectionist sentiment. Countries are clearly not actively promoting liberalised trade, seeking economic solace through protectionism in the short term. Rising trade frictions will result in increased trade polarisation, especially targeted at China, which is likely to respond in a similar fashion. We are likely to see a rapid erosion of the principles of free trade that could delay the global economic recovery. This could place Africa in a dire position as a 70% exporter to China.
On the other hand, Africa’s commodity-exporting countries are also facing difficult times ahead, as the COVID-19 pandemic looks set to depress prices for potentially years to come. We have seen the impact already in Nigeria and Angola as reflected by the GDP impact in 2020. Of specific concern is that the continent currently has a total external and domestic debt stock of $500-billion. Debt was a problem across all middle and low-income countries before Covid-19, and the pandemic exacerbated the problem. The IMF is projecting that gross public debt for these countries (both domestic and external) would reach an average of 55.7% of GDP in 2020.
In the midst of the current health pandemic, the advice for Africa in order to weather the storm is to look inwards for its support and given the finite nature of the continent resources, economic sustainability depends on its ability to transform the depleting stock of wealth into other forms of national wealth, such as human and physical capital, or improved natural capital and digital technologies. A very delicate balance between crisis responsiveness and long-term sustainability in an era of coronavirus is crucial. As a matter of urgency, strengthen health care systems and build the supply of medical equipment. Secondly, support job transitions whilst strengthening income protection. Lastly, support and enable more resilient supply chains. What we have learned from COVID-19 is that Governments can be nimble and execute on synchronised strategies. We need to, especially at the time of recovery, apply that nimbleness.
Extra-ordinary policies are required to get Africa back on track towards recovery. Global co-operation is at the centre of recovery, however, it leaves Africa the mercy of others to recover. The good gestures by the EU Council in the Press Release on the 30/06/202, restating the paramount importance of a stronger EU-Africa partnership is welcomed. However, there are strategic actions that can be taken by the continent to better position itself for recovery. The African Centre for Economic Transformation recommends Ten Policy Priorities for Africa (ACET), which are quite poignant and speak to absolutely simplistic yet effective actions that can enable resource mobilisation and management, governance, effectiveness and transparency, business and investment environment including digital innovation and entrepreneurship.
These are quite well thought out policy moves that can be quite impactful in how we move synergistically as a continent. These, supported by Africa being more deliberate about using African Continental Free Trade Area (AfCFTA) for import substitution. As an immediate opportunity, Africa spends US$16 billion on drugs annually and depends heavily on China and other countries in Europe and Asia for its pharmaceutical supply, some of which are badly affected by the current COVID-19 pandemic. Accelerating local production of pharmaceuticals across select hubs can support inter-regional trade for mutual economic benefits but also support investments locally. In some countries, African manufacturers are stepping up to produce essential medical supplies, which could contribute $1.5 billion dollars to the continent and, in the long run, African manufacturers can take advantage of opportunities that lead to African trade and global supply chain realignment. The strides being made in Francophone West Africa, harmonisation of currency and regulation has demonstrated what regional co-operation can achieve. Trade hubs like Côte d’Ivoire and Senegal have already emerged (measured as a share of total regional imports). The successful experience of these countries shows that closer integration can be a vital tool for building value-added economies. Much needs to be done in the Anglophone side as it represents the largest trading hub. South Africa alone is the source of about 35 percent of all intraregional imports in Africa (and about 40 percent of intraregional manufacturing imports).
It’s time that the continent acknowledges that addressing public health plays a major role in economic development. More than anything, it’s time for Africa to take action and address the possible two or three decades of growth regression which may have direct ramification on multitudes of people that may be pushed back to extreme poverty.
