The Impact of Covid-19 on the African Economy
The impact of Covid-19 on whole of the global economy is no longer in doubt. As the Covid-19 epidemic progresses, the outlook for economic growth is lowered. Indeed, the spread of Covid-19 has forced states to take measures that have an impact on the economy, namely the closing of borders, the closing of shops, total or partial lockdowns, etc. According to the Organization for Economic Co-operation and Development (OECD), we are heading towards a drop in global economic growth to 2.4% instead of 2.9% as initially forecast for 2020.
China, where the health crisis started should see its GDP decline by 2% to 3% (the IMF projected a growth of 5.8%) in 2020 before rebounding above its trend in 2021.
The United States, which has now become the new epicentre of Covid-19, is already said to have registered more than 3 million people as unemployed. Federal economic activity would contract by about 9% in the first quarter and then by 34% in the second quarter, according to Goldman Sachs.
Europe would see its wealth decline, according to Goldman Sachs, to reach 1.7% in 2020.
According to the Banque de France, the overall economic activity in France fell by 32% during the fortnight of the lockdown in March. Their Gross Domestic Product fell by 6%. 6 million newly unemployed people have been registered.
Africa, mainly exporters of raw materials, particularly from agriculture, forestry, mining and oil, although less affected in terms of confirmed cases and deaths, will see its economic growth rise by 1, 8% instead of the projected growth of 3.2% in 2020, according to the United Nations Economic Commission for Africa (UNECA).
In a report published early in April 2020, the Côte d’Ivoire based ratings agency, Bloomfield Investment Corporation, warns that the slowdown in economic activity will be amplified by, among other things:
- A disruption in the supply of local industries with inputs, medicines and food products.
- A decrease in supply and demand due to containment measures, restrictions on the movement of people and goods, which on the whole would contribute to a disruption of trade, transport and the decline in income and power household purchases.
- The instability of financial flows and markets driven by capital flight on the one hand, and the drop in foreign direct investment on the other hand, should, according to The United Nations Conference on Trade and Development (UNCTAD), experience downward pressure of 30%.
- The fall in the terms of trade mainly due to a drop in global demand would lead to a sharp fall in income, linked to export products (cocoa, oil, cotton, etc.), especially for Nigeria and Angola, whose share of oil income is around 70% and 80% respectively.
All these situations will cause Africa's export earnings to fall by more than 100 billion dollars in 2020 due to the contraction of foreign trade, which is due in particular to the shutdown of the world’s production chain. If we count the reduction in foreign trade and its counterpart in tax revenue, the postponement of tax collection from other disaster sectors, it is obvious that African states will have limited budgetary capacities to revive the economy. Faced with these serious threats to the sustainability of African economies, the countries have pledged to take up measures of mitigating the impact of the pandemic on their economies particularly through tax measures by providing general tax relief and targeted support to most affected sectors (hotels, restaurants, transport and culture). Banks should provide facilities and supports to the most affected businesses and operators.
In Côte d’Ivoire, the government has drawn up a plan to support businesses and civilians, which amounts to 1,700 billion CFA franc, or 2.5 billion Euros.
In Senegal, the government has set up a response and solidarity fund called “Force-Covid-19” of 1000 billion CFA franc, or about 2 billion US dollars, to fight the pandemic and support households, businesses and the diaspora.
In South Africa, despite the downgrading of the public debt rating by the rating agencies (Moody's and Fitch), the government has decided to set up a solidarity fund (https: //www.solidarityfund. co.za) that is supported by the State (7 million Euro), individuals and private foundations as part of a public-private partnership to slow the spread of Covid-19 and help the country's economic recovery. Also, the government has implemented various actions including a rescue programme for temporary employees to avoid layoffs; a 25 million Euro fund to help small and medium-sized enterprises in difficulty and an exemption from the provisions of the competition law to allow commercial banks to develop common approaches to debt relief and other necessary measures.
In Morocco, the government has decided to grant financial aid to families most affected by the coronavirus crisis and a special fund with 10 billion Dirhams (934 million Euros) has been created. This fund should also be used to support vulnerable economic sectors. An economic watch committee for monitoring, evaluation and guidance has been set up for this purpose.
Also, the Central Bank of West African States (BCEAO) has decided to:
- Increase the amount granted each week to banking establishments by 340 billion CFA franc "in order to allow them to maintain and increase the financing of the economy»;
- Expand the range of mechanisms available to banks to access Central Bank refinancing. This action will allow banks to access additional resources of 1.050 CFA franc and the companies concerned to negotiate and benefit from better conditions for their loans;
- Allocate 25 billion CFA franc to the subsidy fund of the West African Development Bank (BOAD), with a view to enabling it in turn to grant more concessional loans, and at better rates, to the Member States, for the financing of urgent investment and equipment expenditure in the context of the fight against the pandemic ;
Central Africa isn’t to be outdone. The Bank of Central African States (BEAC) forecasts a severe recession in the CEMAC subregion. It has therefore decided to:
- Revise the Interest Rate for Tenders (TIAO) by 25 basis points, from 3.50% to 3.25%;
- Give 500 billion CFA franc a week in cash to banks.
The Development Bank of Central African States (BDEAC) has also decided to directly support response programmes for its member states (Congo, Gabon, Chad, Equatorial Guinea, Central African Republic and Cameroon) with up to 4.57 million euros. In addition, € 137.2 million also planned to support public policies relating to the fight against the Covid 19 pandemic. Other efforts will have to be made to boost the African economy. The latest estimates of the World Bank dated February 12, 2019; the stock of external debt of African countries south of the Sahara was 584 billion US dollars representing 134.5% of the export earnings of these countries. These sums are distributed at 301 billion US dollars for public creditors and 283 billion US dollar for private creditors.
Senegalese President Macky Sall in an article published by the Pan African magazine «Jeune Afrique», on April 9 called for more solidarity to the ”heart of international relations” and it calls for the cancellation of the debt African.
The cancellation of public debt and the suspension of private debt service for the next 3 years with interest freezing could therefore help African countries redirect the resources released to the rehabilitation of health and university infrastructures.
In this spirit, the International Monetary Fund (IMF) approved last Monday (13 April 2020), debt relief for 25 countries including a majority of African countries namely Benin, Burkina Faso, Gambia, Guinea, Guinea Bissau, Liberia, Madagascar, Malawi, Mali, Mozambique, Niger, Central African Republic, Democratic Republic of the Congo, Rwanda, Sao Tome and Principe, Sierra Leone, Chad and Togo.
Also, following the "virtual summit" of the G20 countries on March 28, in which President Cyril Ramaphosa of South Africa participated as Chairperson of the African Union (AU), these countries approved recently the immediate suspension for a period of one year of the debt service of the poorest countries and weakened by the crisis caused by the coronavirus pandemic. At the same time, they call on private creditors to agree on an initiative on comparable terms, and ask the multilateral development banks to study ways of suspending debt service. After all this, the big challenge of good governance in public spending and the consolidation of African public finances will remain. According to the 2018 Transparency International report, the continent is the region of the world where corruption is the strongest, which undermines democratic institutions and development investments.
SOURCES: OECD Economic Outlook, Interim Report March (Coronavirus: The World economy at risk) - Point sur la conjoncture française à fin mars 2020 (https://www.banque-france.fr/statistiques/conjoncture/enquetes-de-conjoncture/point-de-conjoncture) - https://www.uneca.org/fr/stories/la-cea-estime-des-milliards-de-pertes-en-afrique-en-raison-de-l%E2%80%99impact-du-covid-19 - Report “L’impact du covid-19 sur la zone UEMOA” (Bloomfield Intelligence) - https://tradingeconomics.com/south-africa/rating - https://www.bceao.int/fr/Covid-19 - https://www.beac.int/wp-content/uploads/2016/10/Communiqu%C3%A9-presse-CPM-27-mars-2020.pdf - Tribune : L’Afrique et le monde face au coronavirus (https://www.jeuneafrique.com/924820/societe/tribune-lafrique-et-le-monde-face-au-coronavirus-par-macky-sall/) - The 2018 Corruption Perceptions Index