Africa Gears for COVID-19 Pandemic's Economic Fallout

The usually busy UN Avenue in Nairobi is almost empty as people stay at home to avoid spreading the coronavirus.
analysis

As the world prepares for an economic recession of what experts say could be epic proportions, Africa is doing it's best to lessen the impact. Much will depend on the willingness to help the most vulnerable continent.

Ethiopian Prime Minister Abiy Ahmed has urged leaders of the group of 20 most developed nations (G20) to help Africa cope with the coronavirus crisis by facilitating debt relief and providing $150 billion (€105 billion) in emergency funding. A statement issued in Addis Ababa says the pandemic "poses an existential threat to the economies of African countries."

The old trope of "when the West sneezes, Africa catches a cold" has gained new meaning with the rapid spread of the novel coronavirus on the continent. At this point, how deeply the pandemic is going to impact the African economy is anybody's guess.

"There are a number of very important variables that we have no control over," Jakkie Cilliers of the South African think-tank Institute for Security Studies (ISS) told DW. Among them, he said, were the "impact of approaching winter and the different climatic conditions" in Africa.

It also remains to be seen how the crisis is going to develop among the more vulnerable population, like residents in slums and, especially in South Africa, the high number of people suffering from HIV/Aids and tuberculosis. What can be said for sure, according to the head of ISS's African Futures and Innovation team, "is that Africa is going to be hit hugely by the spillover effect on global growth," not only because of the breakdown of trade with China, but also due to Africa's dependency on Foreign Direct Investments and commodity exports, according to Cilliers.

The wait for solidarity could be long

The United Nations Economic Commission for Africa (ECA) warned that the crisis could seriously dent Africa's already stagnant growth. It may see its GDP halve, with growth falling from 3.2% to about 2%, while oil exporting nations stand to lose up to $65 billion in revenues as crude oil prices tumble further.

United Nations secretary-general António Guterres called on world solidarity saying that "the recovery must not come at the expense of the poorest -- and we cannot create a legion of new poor." But Cilliers doubts that coming to the continent's aid will constitute a priority to countries preoccupied with their own situation. "The scale of the challenge and the assistance that Africa would need is of such a magnitude, that there is a limited amount of support that the international community would be able to provide rapidly enough," he said.

In an exclusive interview with DW, Carlos Lopes, the Africa Union's High Representative to Europe, stressed that the economy in Africa was already in trouble "before the start of the pandemic." The situation is bound to worsen. "Due to the impact of the coronavirus, we not only have a considerable decrease in logistics and transport, we have a drastic decrease in manufacturing production, we also have a decrease in world trade and therefore tourism, which creates many jobs. Although it is not yet an area of great importance in the GDP of many African countries, in some it is fundamental," Lopes said. These circumstances make it possible to predict a breakdown of domestic demand, "which has been responsible for two thirds of Africa's growth," Lopes added.

A call for pardoning debt

The loss of jobs and income is just as easily predictable. Considering the heavy debt burden of many African nations, their ability to respond to such an economic shock while servicing loans is non-existent. Ethiopian prime-minister Abiy therefore proposes that interest payments on government loans be "written off", and so should part of the "debt of low-income countries." On Monday, African finance ministers had already called for $100 billion in "immediate emergency economic stimulus."

In the meantime, Africa must act immediately to stave off the worst, says AU representative Carlos Lopes. "For example, all countries with means are asking their central banks to inject stimulus programs into the economy. This is not something that Africa is normally allowed to do by the IMF [International Monetary Fund], but in this context it is possible," he pointed out. Hardly, says Jakkie Cilliers: "Our ability is quite limited. Many African countries are struggling, We don't have the resources to undertake the stimulus programs that we see elsewhere in the world."

Braima Darame contributed to this article

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