Neil de Beer is the president of the IFA and advises numerous African states on economic development. Photo: Supplied
Neil de Beer is the president of the IFA and advises numerous African states on economic development. Photo: Supplied

Neil on Africa: How Africa’s economy is Impacted through the lends of Covid-19?

By Neil de Beer Time of article published May 28, 2020

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CAPE TOWN – Declared a pandemic by the World Health Organization (WHO) on 11 March 2020, Covid-19 has become a global emergency, given its impact on the entire world population and the economy.

Covid-19 is disrupting an interconnected world economy through global value chains, which account for nearly half of global trade, abrupt falls in commodity prices, fiscal revenues, foreign exchange receipts, foreign financial flows, travel restrictions, declining of tourism and hotels, frozen labour market, et al.

The Covid-19 crisis is affecting the entire world economy and that of Africa to which many believe is experiencing the lull before the storm. This was echoed by WHO head of Africa, Matshido Moeti who stated that not only could coronavirus "cause thousands of deaths" in Africa, but it has the potential to "unleash economic and social devastation on the continent”.

African growth has improved considerably over the decade 2000-2010. However, after this decade of “growth”, there were extreme doubts risen on the continents ability to sustain high growth rates for the future. Since then Africa’s growth rates had fallen to 3.3 percent between 2015 and 2019. 

The forecasts are projecting a growth rate of 3.4 percent for 2020. However, with the negative impact of Covid-19 on key sectors of the economy such as tourism, travel, exports; with falling commodity prices, declining governments’ resources to finance public investment, it would be virtually impossible to achieve this optimistic forecast of growth rates in 2020. Africa is once again facing insufficient growth rates to catch up on the economic lag in the Covid-19 era.

The Covid-19 outbreak has taken a heavy toll on the top five African economies (Morocco, Algeria, Egypt, Nigeria and South Africa) which represent more than 60 percent of Africa’s gross domestic product (GDP). The level of the impact of Covid-19 on these five economies will be representative for the whole of the African economy.

The tourism and petroleum sectors represent on average a quarter (25 percent) of the economy of these countries. As such, growth is expected to drop in these nations. The effects of Covid-19 on global value chains are seen in the fall oil prices which will lead to the deterioration of the Nigerian and Algerian economies.

Morocco’s automotive industry, representing 6 percent of GDP over the period 2017-2019. Egyptian industries that depend on inputs from China and other foreign countries are affected and unable to meet both domestic and international market needs. Tourism sector is seeing a decline with the restrictions that will negatively impact domestic investments and employment in the country.

Remittances are one of Egyptian foreign sources of financing. It reached in 2018 more than $25.5 billion, compared to $24.7 billion in 2017 while in Nigeria, remittances were $25.08 billion in 2018, contributing to 5.74 percent of the GDP. Both countries account for more than 60 percent of Africa’s remittances inflows. Lastly, we can surmise that the Covid-19 pandemic will be susceptible to two valuable main sources of income for South Africa: mining and tourism.

The coronavirus outbreak ensured that the Year of the Rat did not get off to the most favourable start at beginning of the year as the Chinese market had anticipating effect on the South African market. Based on the research analysis the disruption of Chinese market would undoubtedly reduce the demand for South Africa raw materials including iron, manganese and chromium ores to China (which worth an equivalent of 450 million euros exports every year).

In late last year, South Africa entered a recession during the fourth quarter of last year, the current crisis will add on to the already deteriorated public finance, health infrastructure and mass unemployment in the country.

United Nations Conference on Trade and Development found that for the period (2015-2019), total Africa trade average value was $760 billion per year which represents 29 percent of Africa’s GDP (AU, 2020). Intra-African trade accounts for only 17 percent of total trade of African countries. Intra-trade between African nations is one of the lowest compared to other regions of the world, at 16.6 percent of the total.

To date organisations have not fully addressed the economic impact on individual African countries. This makes the African economy an extrovert economy and vulnerable to shocks and external decisions. A major shift is needed in order to change the trade patterns of African countries within themselves and with the rest of world particularly with China, Europe, the US and other emerging countries.

The Coronavirus disease poses many serious challenges at global, national and regional levels. The consequences, even if they are difficult to calculate, are expected to be enormous in view of the rapid spread of the Covid-19 and the drastic measures taken by countries whatever their size worldwide. Even if African countries are relatively less affected compared to other regions for now, the spillover effects from global developments or broken supply chains may still lead to faltering economic activity.

Today Africa and the World at large are left with no choice but to wait and endure the detrimental effects of this pandemic. No expert and Scientists can predict what the future holds for the World and beyond no matter how they try, it remains a mystery defined by opinions.

Worse than the 2008 Financial crisis which left the whole world with job losses and recession outcries, Covid-19 has proved to be a mercenary with no remorse, we will have to wait and see the damage in the following years to come.

Neil De Beer is the president of the IFA and advises numerous African states on economic development. www.ifa.africa or [email protected]

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