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Economic Impact of COVID-19 in Sub-Saharan Africa

COVID-19 virus was first reported from Wuhan city in China in December, 2019, which in less than three months spread throughout the globe and was declared a global pandemic by the World Health Organization (WHO) on 11th of March, 2020.

So far, the ongoing pandemic severely damaged the world’s most developed countries and is becoming a major threat for low- and middle-income countries. The poorest continent, Africa with the most vulnerable populations to infectious diseases, is predicted to be significantly affected by the ongoing COVID-19 outbreak.

Prior to the COVID-19 pandemic, most of the healthcare infrastructure in African countries had deteriorated. Currently, in Africa, 65% of health care expenses is made from out-of-pocket expenditure compared to Europe, where the national and regional authorities are responsible for the health policies and expenditure of citizens.

Amidst the COVID-19 pandemic, despite the quarantine and other measures adopted to stop the spread of COVID-19 in African countries, the number of infected cases continued to increase significantly. This situation mounted unprecedented pressure on the public health systems in many African countries.

Some private hospitals refused to admit infected patients while public hospitals exceeded their capacity. This pressured the government of some countries to build isolation centres in large open fields around the country; notably, football stadiums were converted to isolation centres in countries such as Cameroon and Nigeria.

Even before the outbreak, the outlook for the world economy and especially developing countries was fragile. As early as 2019, the IMF had raised concerns about debt dynamics in selected African countries. During this period, the concern was that rapid debt accumulation, from various bilateral, multilateral and private creditors had resulted in 40% of African countries being classified as being in debt distress or at high risk of debt distress using the IMF/World Bank debt sustainability analysis framework.

In sub-Saharan Africa (SSA), it has been predicted that coronavirus will result in the first recession in that region for 25 years, with economic growth projected to decline from 2 .4% in 2019 to between -2.1 to -5.1%, World Bank report. Differences in preparedness across countries in the region further shaped the diversity of their responses.

Most African countries implemented some form of lockdown during early stages of the pandemic. Some did so without adequate resources for safety nets and faced serious challenges in enforcing social distancing, sometimes relying on state forces for compliance, particularly in countries that declared a state of emergency in their responses.

While Africa’s youthful population could lead to reduced mortality rates overall, living conditions for many of Africa’s poor, especially in informal districts around major cities, make social distancing unrealistic and could cause higher rates of infection.

Many of these countries succeeded in slowing the pace of infection, but very few South Africa notable among them were able to flatten the curve before beginning to reopen.
The spread of COVID-19 is translating into economic impacts that will affect the already most vulnerable populations.

The simulations suggest an additional 9.1% of the population in SSA have immediately fallen into extreme poverty as a result of COVID-19, with about 65% of this increase resulting from the lockdowns themselves. 8 million people (3.6% of population), including 3.9 million of children under 5, are very severely food deprived at the end of an 8-week lockdown.

The lockdowns in sub-Saharan African countries are likely to make the savings of about 30% of the population essentially vanish, removing all resilience capacity to future shocks. If the income shock suffered by urban workers in the informal sector persists beyond the end of the lockdowns, 18 million people could continue to be at risk of severe food deprivation.

The significant deterioration of the external environment compounds the impact of these factors. In particular, tighter financial conditions and sharp commodity-price declines (especially for oil) are exacerbating the challenges facing many economies.

The impact of COVID-19 affects migrant workers disproportionally. Often precarious working conditions and overcrowded living and transport arrangements increase their vulnerability to contagion and loss of employment, threatening their health and livelihoods. Those working under informal arrangements, commonly in the agriculture sector, are largely excluded from accessing real-time reliable information, social protection, healthcare and government response measures.

A 23 percent decline in remittances flow into sub-Saharan Africa, as a result of economic downturns, restrictions in movement and challenges sending transfers to SSA, is expected to heavily impact the livelihoods of households and countries that rely on them for food and other basic expenditures, such as health and education.

Regional governments also lack sufficient room for maneuver on the policy side as a result of dwindling revenues, compounded by the larger and riskier debt positions and an increase in external borrowing costs, which will further worsen debt sustainability prospects.

The restrictions on movement of people and border closures foreshadow a decline in exports. Already, countries around the world have closed their borders to nonessential traffic, and global supply chains for exports have been disrupted.

Border closures

Most African countries closed land borders to travelers, while still allowing freight to pass under tighter controls, which sometimes allow the movement of only agricultural and food products. Over one 10-day period in March, 25 African countries imposed such measures on land borders (Chart below). Almost all these countries have also suspended the arrival of international flights, at least from countries particularly affected by the virus. Many governments have also imposed curfews.

The Democratic Republic of Congo, Kenya, Liberia, and Namibia chose a different path: The entry of people at border posts is subject to temperature control and testing, followed by hospitalization and/or quarantine if necessary.

The consequences of these measures for intra-continental trade are still unclear due to a lack of recent data. Thus far, statistics compiled by the Food Security and Nutrition Working Group (weekly data collected at border posts in East Africa the only data available through the end of March) do not indicate a decrease in cross-border agricultural trade. Most of the border closures took place in the second half of March. So, it is too early to tell if data capture any effects. And only five countries (Sudan, Djibouti, Rwanda, Ethiopia, Uganda) implemented border closures in East Africa during this period.

These measures have been adopted to protect public health, but their economic consequences could be significant. Stricter sanitary border controls on the transport of products should slow down intra-African trade.

Prohibiting people from crossing the border stops one means of informal trade, widely practiced in Africa and often the main source of income for a family. This type of trade accounts for a significant share of recorded trade, for example, between 15% and 30% of official exports in Uganda.

Against such a debilitating backdrop (according to the estimations of the World Bank, the pandemic will cost SSA between USD 37 billion and USD 79 billion in output losses for 2020), SSA industries will not only be heavily impacted by COVID-19 containment measures at home but also by those that have been implemented abroad. Due to lower global demand, the region will likely see a reduction in key industrial inputs and outputs. The effects are multiple and circular in nature.

Industrial firms will simultaneously experience a drop in domestic sales and exports (due to lower demand, reduced prices for commodities and decreased production), shortages in supplies (because suppliers located in other countries are affected by COVID-19 containment measures at home), investments (due to higher risk aversion of foreign investors) and labour (people not allowed to work and move during the lockdown period).

At the same time, households are restricted in their economic activity; they provide less labour and hence receive less income from labour, businesses and remittances, and consequently consume less due to their decreasing purchasing power.

This challenge is compounded by already high levels of unemployment and underemployment. The African Union estimated that above 20 million African jobs may be lost during the global health crisis, with a particularly strong economic impact expected in Nigeria, South Africa and Angola, the World Bank noted.

The ILO modelled estimates, the size of the labour force (aged 15+) in SSA is approximately 430 million and in almost every country in the region, the combined rate of unemployment and underemployment exceeds 10%. The unemployment rate alone is near or higher than 20% in South Africa, Lesotho, Eswatini, Namibia, Gabon, Botswana and Sudan.

The poor performance of pre-COVID-19 social protection programmes in developing countries suggests that simply expanding existing programmes will do very little to mitigate the economic impact of COVID-19 and the lockdown measures.

Saving lives and livelihood protection

  • Focusing on strengthening health systems. The availability and allocation of financing for the health sector is still a major concern in sub-Saharan Africa. The medical personnel in the region should be protected and properly equipped.
  • Urgent focus is required to increase African governments’ capacity to respond to the crisis and rebuild. Whilst mobilizing resources is critical, the ability to deploy those resources optimally will determine how the continent emerges from this crisis.
  • With the public debt burden weighing heavily on the government, there is need to restructure the debt. A moratorium on debt servicing and debt cancellation by key creditor nations would free up resources and provide the budgetary flexibility needed. Improved quality of public expenditure including those funded through loans in development-enhancing areas is good for growth and good for debt sustainability.
  • Tougher decisions need to be made in the long term, including but not limited to diversifying the region’s revenue base away from mostly oil exports and improving investments in various health care sectors in ensuring that the economy is able to recover quickly from difficult conditions in the future.
  • Implementing social protection programs to support workers, especially those in the informal sector. This calls for cash transfers, in-kind transfers (food distribution), social grants to disabled people and the elderly, wage subsidies to prevent massive layoffs, and fee waivers for basic services. For instance, electricity tariffs and mobile money transactions.
  • Coordinated, multisectoral and multilevel responses that are migrant-sensitive in their design and include the perspective of migrant associations and diaspora, in addition to responses from governments, the private sector and producer organizations, should be developed in the region to ensure sustainable policies that go beyond the crisis and build back better.
  • Longer term measures should include support for reorientation and the development of new business models with different product mixes, local and regional sourcing of inputs, infrastructure development, and greater collaboration and innovation among firms in partnership with regional development organizations.
  • Recovery strategies will need to tap into the continent’s entrepreneurial capacities, with a focus on youth and women, and mobilize domestic and international support to boost innovation and investment.
  • Minimize disruptions within countries and in the critical intra-African food supply chains, and keeping logistics open to avert a looming food crisis in the region.
  • Short-term measures to rescue firms, especially MSMEs, include debt relief and subsidies that also support the continued employment of low-wage workers, women, youth, refugees, ex-combatants, etc. as well as the repurposing and digitalization of business operations. Informal businesses and vulnerable groups.

More integrated responses spanning several sectors including the health, finance, and trade sectors are required to address structural issues that make the region less resilient to shocks and limit its range of policy responses.

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