As the dangers of the Covid-19 diseases mounts globally, policy makers and experts are most worried about the timing of the Virus arrival in Africa which sets up the continent to likely be the last epicenter of the disease. A timing many see as the last straw that will devastate a continent already struggling to stay afloat in the face of global economic meltdown. While many focus on the potential health disaster looming for African countries where some of the inexpensive preventive measures prescribed for developed countries such as social distancing are costly and difficult to enforce for people in an informal economy, few are seeing the ancillary economic effects.
Unlike in Europe where the virus is peaking with deaths over 10,000, Africa has recorded relatively lower numbers with over 4,000 cases in 46 African countries but the rate the numbers are climbing is enormous judging from the poor healthcare system across the continent. However, a school of thought claims that Africa’s relatively low number is as a reflection of the continents low testing capacity. Whichever it may, the key issue is that even if Africa avoids a catastrophic health hazard as many fear, the economic impact will still deal a heavy blow on its lean resources as recession stares it in the face.
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Over the last decade, over 10 African countries joined the league of petroleum producing countries, with the crash in price of crude oil, and its attendant impact on gas, these countries that depend mostly on natural resources for foreign exchange earnings will suffer an economic blow. A country like Nigeria is already in a quagmire as the price of crude oil falls lower than its 2020 national budget projections. South Africa has recently gone into recession with major rating agencies grading its bonds as junk in the as junk in the last one week.
Not only are African countries fully integrated into the global economy but many states are often playing a weak hand as exporters of commodities whose prices have been falling precipitously. And for those who are importing goods their currencies are losing value against the dollar in an uncertain global economy. For several countries they have both of these challenges even as international investors start to turn away from Africa to worry about the problems at home.
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For now, few are predicting a continent-wide recession, but the biggest economies Nigeria and South Africa, which have been treading water in recent quarters are going to take a big hit. Nigeria, like another big oil producer Angola, has seen oil prices drop by some 50% since the start of the year. IMF estimates “each 10% decline in oil prices will, on average, lower growth in oil exporters by 0.6% and increase overall fiscal deficits by 0.8% of GDP.” South Africa, which last week completed the trifecta of junk ratings even as it was forced to shut the economy, is expected to tip back into recession for the year from its anemic growth.
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“The pullback from African markets as well as a projected decline in export revenues has led to depreciations of local currencies,” writes Brahima Sangafowa Coulibaly, director of Brookings institution’s Africa Growth Initiative. “These exchange rate depreciations will push up local inflation and trigger monetary policy and financial tightening.” This means the repayments on the rising dollar debt will be even more difficult to cover. “Across the region, growth will be hit hard. Precisely how hard is still difficult to say. “But it is clear that our growth forecast in April’s regional outlook will be significantly lower.,” write IMF Africa director Abebe Selassie and Karen Ongley, head of IMF’s Sierra Leone office.
The impending economic downturn has seen the UN Economic Commission for Africa estimate the continent will see growth drop to 1.8% from a previous estimate of 3.2% due to, among other things, the disruption of global supply chains and a crash in oil prices that will cost up to $65 billion in export revenues. Brookings lowered its forecast for Sub-Saharan Africa’s GDP growth in 2020 to between 1.5% to 2.5% from a previous forecast of 3.6%. Coulibaly thinks even if African governments are quick to contain the spread of the virus and global conditions stabilize, the region’s growth will decline by one percentage point. The worst case scenario of long-lasting pandemic and slow global economic recovery will see a decline of two percentage points.
Another key problem on many policy makers’ minds now is debt. After a decade of cheap credit many African countries have piled on debt to meet various needs from infrastructure to health and education. But the terms of that credit haven’t always been the best and the repayments will be much more onerous in the changed economic environment. The IMF and the World Bank have already called for debt relief for the world’s poorest countries, but also those with an unsustainable debt situation. Many of African countries fall into both camps. The concern here is obvious, if governments are paying down international debt rather than focusing on the potential health catastrophe in their country it could have long-term disastrous consequences for neighbors and beyond. “
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry