By ANTONY MUTUNGA
With COVID-19 still causing havoc around the world, especially increasing in Africa, Sub-Saharan Africa (SSA) is set to face the worst recession it has in the last ten years.
According to the World Bank through its Africa Pulse publication, the growth of Sub-Sahara Africa is projected to turn to the negative and range between -2.1 percent and -5.1 percent as compared to 2.4 in 2019.
The report states that the COVID-19 outbreak will have more negative impacts for SSA in 2020 as it is set to cost the region between Sh3.96 trillion ($37 billion) and Sh8.45 trillion ($79 billion) in terms of output losses. The losses will be as a result of macroeconomic risks arising from the sharp decline in output growth among the region’s key trading partners, including China and the euro area, the fall in commodity prices, reduced foreign financing flows from remittances, foreign direct investment, foreign aid as well as reduced tourism activity in several countries.
According to Hafez Ghanem, World Bank’s VP for Africa, the COVID-19 pandemic is testing the limits of societies and economies across the world, and African countries are likely to be hit particularly hard. This is why the institution is rallying all possible resources to help countries meet people’s immediate health and survival needs. “The bank is calling for a standstill on official bilateral debt service payments which would free up funds for strengthening health systems to deal with Covid-19 and save lives, social safety nets to save livelihoods and help workers who lose jobs, support to small and medium enterprises, and food security,” he said.
Reduced spending and job closures
The pandemic has caused a shock to supply and demand. On the demand side, the virus has caused organizations and businesses to reduce their spending in this time of uncertainty while on the supply side, there has been a reduction in terms of employment as a result of workplace closures and travel bans.
The largest economies in the region, Angola, Nigeria, and South Africa, have been greatly hit as they experience declining commodity prices, weak growth and investment. For the case of south Africa, the country was already in fragile state and now with the pandemic causing lockdowns and curfews, the economy is expected to face further challenges. The economy is facing a combination of reduced tourism activity, capital outflows, low commodity prices, and a major slowdown in key trading partners. In the case of Nigeria and Angola which are heavily reliant on oil, the reduction in production and oil prices is expected to weigh heavily on their domestic activity.
On the other hand, in resource-intensive countries such as those that depend on mining will also be the most hit. Growth is expected to decline by over 8% in metals exporters. With curfews and lockdowns, these countries are likely to experience a drop in the production of mining. In addition, non-resource-intensive countries are expected to face a slowdown but still remain positive.
Growth is expected to weaken in two of the fastest growing areas – the West African Economic and Monetary Union and the East African Community due to weak external demand, disruptions to supply chain, and domestic production. For instance, in Kenya, growth is expected to slowdown due to low demand from its trading partners and the disruption of local production as well as disruptions of supply chains.
Despite the pandemic, several countries in Africa have been able to react decisively to curb the spread. However, several factors still pose a challenge to the measures taken to contain the spread such as fragile health systems, large and densely populated urban informal settlements and poor access to safe water and sanitation facilities. The impact of the pandemic will greatly vary in accordance to the public’s reaction within respective countries, the spread of the disease, and the policy response. This combination could lead to a reduction in the participation of the labour market, underutilization of capital, long-term productivity effects and lower human capital accumulation.
Policy responses
According to Albert Zeufack, Chief Economist for Africa at the World Bank, in addition to measures, we have seen that in responding to COVID-19, countries are opting for a combination of emergency fiscal and monetary policy actions with many central banks in the region taking important actions like cutting interest rates and providing extraordinary liquidity assistance. “However, it is important to ensure that fiscal policy builds in space for social protection interventions, especially targeting workers in the informal sector, and sows the seed for future resilience of our economies,” he added.
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