Economic disaster looms as Covid-19 brings Africa to a standstill

Kampala, Uganda — Africa’s economic outlook for 2020 and 2021 was looking promising at the beginning of the year, with predictions that the continent’s Gross Domestic Product (GDP) would pick up to 3.9 percent in 2020 and 4.1 percent the following year, according to an African Development Bank (AfDB) report published in February.

However, the dawn of the Covid-19 pandemic seems to be turning this encouraging outlook into an empty dream, as many African countries are expected into plunge into recession, according to analysts.

As African governments order their people to stay at home to tame the killer virus, offices, schools and factories have closed, and life has come to a standstill, wounding the already fragile economy and pushing millions of impoverished Africans out of work.

The coronavirus is set to deliver a massive blow to Africa’s economic growth, bringing it down from 3.2 percent to 1.8 percent, the UN Economic Commission for Africa (UNECA) said in its Economic Impact of the Covid-19 on Africa report published last month. 

As the situation stands, job losses could affect nearly 20 million positions (informal and formal), according to the African Union. 

Unrealistic

“Initial hopes for a speedy recovery currently seem unrealistic due to the far-reaching effects of the pandemic and accompanying lockdowns,” Elsie Kanza, Africa head and Executive Member of the World Economic Forum (WEF), told TRT World this week in an exclusive interview.

“While government measures taken in advanced economies could slow down initial shocks, low and middle-income countries will experience more sudden-contractions due to less established health systems and weaker digital infrastructure,” the Kenyan-born Kanza added.

She said that in the absence of a significant stimulus, the pandemic and the oil-price shock would lead to a contraction of African economies in 2020.

Gideon Chitanga, Africa analyst and researcher, echoes Kanza’s sentiments on the continent’s lack of a major stimulus to reshape the economy. 

He told TRT World that unlike the European Union and the US which have pledged to inject a lot of cash to rebuild their economies, African countries do not have the reserves or the capacity to do so. 

Last week, finance ministers from the EU – a major trading partner for Africa – agreed on a joint emergency plan, with spats over the details, of over 500 billion euros ($644 billion) to limit the impact of the Covid-19 on the European economy.

Due to the lack of significant stimulus to revive their economies post-Covid-19, African countries may be tempted to refocus their resources in critical sectors that are economically beneficial, and doing so at the expense of social sectors such as health, education and food production, Chitanga said.

International coordination

While advanced economies can conjure rapid responses for their own economic needs, WEF’s Africa head Kanza insists that better international coordination from developed economies and more support from emerging markets and international organisations is needed.

“We currently have a unique moment to shape the future direction and quality of economic growth, and economic measures can only reach full potential when implemented in coordination with major trading partners,” the Geneva-based Kanza pointed out.

As if reading Kanza’s mind, French President Emmanuel Macron this week announced that the developed world must help its African neighbours fight the virus more effectively. 

“We must help them economically too by cancelling their debts,” Macron said, mindful of a continent devastated by decades of colonialism, corruption, nepotism and bad governance, which have completely reduced its chances of fighting a pandemic successfully.

Currently, the African continent owes its creditors more than $300 billion, $145 billion of which is owed to China. But some observers believe that African countries, whose leaders seem to have run out of ideas in the face of Covid-19, will continue borrowing to avoid being swallowed whole in these difficult times.

Already last week, Nigeria, Africa’s top oil producer and one of the continent’s most heavily indebted and corrupt nations, said it was seeking to borrow $6.9 billion from the World Bank, the International Monetary Fund (IMF) and the AfDB. 

The money is aimed at boosting its efforts to help it stop the spread of the Covid-19 and counter its impact on its economy.

Covid-19 cases have surged past 16,000 on the continent, and its most populous country, Nigeria, currently has over 440 cases, and South Africa and Egypt top the list on the continent with both having crossed the 2,600 mark.

Meanwhile, the IMF announced this week that it had approved immediate debt service relief to 25 of the IMF’s member countries under its revamped Catastrophe Containment and Relief Trust (CCRT), which is part of the fund’s response to help address the impact of the COVID-19 pandemic.

A total of 170 countries are expected to experience negative per capita income growth this year, the IMF said, describing it as the worst economic fallout since the Great Depression for both advanced and developing economies. 

“This is why governments, the private sector, and development institutions need to expand existing efforts to safeguard economies and livelihoods across Africa,” Kanza emphasised.

Informal sector decimated

While world leaders and international organisations scramble to help Africa to stay afloat, millions of informal workers across cities and villages are living in dire conditions, as their livelihoods have been decimated by lockdowns and curfews.

In the Ugandan capital Kampala, mini-bus driver John Kaddu’s life is devastated. “I have a pregnant wife and four children, and they all depend on me to survive. This job is my only source of income, but the Covid-19 lockdown has come to destroy it. What must I do now?” he wondered anxiously as a group of soldiers stood on the roadside and others patrolled nearby to ensure everything was in order.

Africa's informal workforce is among the largest in the world and employs more than 75 percent of its population, according to the WEF.

'I was hoping that the government would ease some restrictions this week, to allow us to carry at least five or six people, but it has instead extended the lockdown by 21 days. I can assure you that if the Covid-19 misses us, poor people like me will die of hunger. We are suffering a lot," Kaddu said emotionally.

"The state of poverty and inequality is going to be aggravated in Africa," Chitanga predicted, adding that the continent would likely experience a lot of social turmoil and suffering.

Chitanga, based in South Africa, said that the state would increasingly be a critical player in the process of dealing with Covid-19 now and later. 

"We'll see a lot of resources being mobilised through the states and these resources will have to be deployed in addressing social problems across the continent. Therefore, the states that will be too weak to address these problems will likely face resistance and protest from ordinary citizens," he warned.

Some governments across Africa have announced plans to help the less fortunate by distributing food parcels and cash to alleviate their suffering. 

Nigeria's Lagos State has announced an economic stimulus package targeting 200,000 households with food packs. At the same time, South Africa said it would set aside over $63 million to help small-scale farmers in a bid to support food production.

However, unlike celestial manna that fell from the sky and fed all the Israelites, the governments' manna doesn't seem to be enough to feed their people in the 21st century. 

Street trader Mary Nagulya, a Ugandan widow of six children, regrets that the state has overlooked her and her family in these difficult times. 

"I heard that the government people who are distributing food were in our area, but I did not see them in my street. I was expecting them to come door to door to give us even some sugar, rice and fish oil, but they just left," a teary-eyed Nagulya, who stopped selling on the streets for fear of being infected, said.

"The financial distribution channels currently in place might not be enough to reach those who need it most with the speed required," Kanza admitted.

Planes, airlines grounded

Africa's airspaces remain closed, and aeroplanes have been grounded. The process appears to have hurt African airlines, most of which – the likes of Kenya Airways and South African Airways – were already operating on life support. 

The air transport industry's economic contribution in Africa is $55.8 billion and supports 6.2 million jobs, according to the International Air Transport Association (IATA). 

"That's 2.6 percent of the continent's GDP. Globally, the aviation industry will be strongly affected by the drop tourism and the global cash flow it incurs which represents over 10 percent GDP in 15 of the 55 African states, and 8 percent in 20 according to the African Union," Kanza explained.

Asked if there is a possibility that the continent's aviation sector could rise again after sudden death of such magnitude, Kanza said to support recovery; the public sector needs to step in, reiterating however that a coordinated response at the global level was also needed.

The way forward

The Covid-19 crisis, which seems to have caught African states off guard, like much of the world, has thrown the continent’s policymakers into turmoil, with many not knowing how to respond effectively to get their populations out of the woods. Some, however, have resorted to introducing national packages.

However, Kanza said while governments are addressing their own needs with national packages, most of them are too broad and applied to a problem that needs speed and more precision. 

“The next wave of economic priorities, along with better coordination, also calls for greater exchange of best practices on which policies are most effective,” she advised.

How the continent will respond to the crisis is now any observer’s guess, as vast resources are being drawn from national budgets and redirected towards public health institutions to curb the spread of the disease.

“Even entrepreneurship and emerging businesses, which have been seen to be driving many African economies, will also suffer because in the absence of the state support and contribution of capital, as well as of the private sector, will be struggling,” Chitanga said.

“I don’t see where and how the key sectors of African economies could survive and where they could locate their strengths,” he concluded.