Economic Effects of the COVID-19 on Africa- by UNECA

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COVID-19 as a global pandemic is a threat to every country in the world. As of the date of publication of this brief, the virus has been detected in 152 countries, with more than 180,000 infected and more than 7,000 deaths. Though Africa remains one of the regions with the fewest cases, the number of countries affected has increased over the past week. Nearly 450 cases have been reported in 30 countries so far, concentrated in northern Africa and South Africa. The Economic Commission for Africa (ECA), member of the Infrastructure Consortium for Africa (ICA), through its report dated 18 March 2020, highlighted the economic and social effects of the pandemic.

While the relatively low number of cases on the continent compared to the rest of the world is so far good news, ECA notes an exponential health impact. The number of confirmed cases has increased from about 50 on March 13 to over 400 on March 17, while the number of countries affected increased from 12 to 28. 

« $100bn will be needed to bridge the funding gap »

Added to this, the crisis may overwhelm the fragile health care systems on the continent. ECA projects that about 80K people out of 1,3 Bn (African population) could be affected by COVID-19 with about 3000 deaths at minimum, considering that according to UN Habitat Data UN-Habitat (2016) World Cities Report half of the affected countries 55.9%, excluding North Africa, live in slums. In some affected African countries, less than 50% of the population has access to safely managed drinking water services (World Development Indicators, 2017).  It is therefore expected that achieving the SDGs and Agenda 2063 will be severely compromised! According to ECA, $100bn will be needed to bridge the funding gap and propel the Decade of Action.

The channels of impacts in Africa

Africa is increasingly interconnected with the rest of the world and the continent started 2020 with a positive economic outlook ( from 3.4%  by end 2019 to pick up to about 3.9 % in 2020), as outlined in the African Economic Outlook, AfDB (AEO 2020). However, the COVID-19 pandemic will have effects on trade, fiscal position, the banking sector, remittances, tourism, investments and financial markets, social impacts such as poverty and gender inequality, as consumer and business sentiments are disrupted.

Moreover, the wind of poverty and the decline in employment that is blowing on the continent will soon turn into a maelstrom. ECA indicates that Coronavirus is a new blow to economic growth expected to drop from 3.2% to 1.8%.

Commodity prices and trade in goods

51% of Africa’s exports go to countries highly impacted by COVID-19. As we know, Africa is a large net exporter of fuels. Exports of fuels tend to fluctuate and closely follow the evolution of crude oil prices. ECA predicts over US$ 65bn losses in revenue. The top 10 African exporters of fuels will be hit (based on 2016-18 averages). Average 2016-18 yearly exports revenues from fuels for Africa were US$ 166 billion, with WTI average yearly price for the period at US$ 57.6. Commodity prices are expected to continue declining. The current decline in oil prices has been far more rapid, with some experts projecting, even more severe price declines than in 2014. Already, crude oil prices have fallen by 54 percent in the three months since the start of 2020, with current prices falling below $30 per barrel. The same for non-oil commodity prices. Furthermore, the shock comes at a particularly bad time for three of the largest economies: Nigeria, South-Africa and Angola which already had weak growth outlooks, with South Africa already in recession. COVID-19 could reduce Nigeria’s total exports of crude oil in 2020 by between US 14 billion and US 19 billion (compared to predicted exports without COVID-19). Unfortunately, ECA and ICA analysts expect similar stresses in some other countries.

Decline on remittances and financial sector

Remittances, an important sector of economic activity for many African countries, will be heavily affected by COVID-19 as countries begin to encourage social distancing and confinement measures. Remittances as a share of GDP exceed 5 percent in 13 African countries, and range as high as 23 percent in Lesotho and more than 12 percent in Comoros, The Gambia, and Liberia. The decline in remittances will impact African Small Island Developing States (SIDS), Least Developing Countries (LDCs), conflict affected countries and countries with fragile situations.

Disruption in access to trade credit will further impact pre-financing options of food exporters and importers. For trade credits, countries will need liquidity help, especially those which are net food exporters to avoid increases in Non-Performing Loans (NPLs). Fragilities in this sector will lead to economic uncertainties and challenges for public finances and fiscal positions. There is no doubt that affected countries together with their Development Partners such as the MDBs have already started dialogues on immediate crisis response measures and countercyclical support facilities to help governments  mitigate the significant negative economic impacts being caused by the COVID-19.

Poverty, gender and urbanization

The other channel through which COVID-19 will affect economic activity is through poverty, gender and urbanization. In addition, female care-givers will be disproportionately impacted. To illustrate, 65% of all nurses are females, while 72% of all doctors are males. With the experience of Ebola, ECA have found that health workers were more likely than the other groups to become infected and die after being infected.

While the Health of those affected by the virus is clearly of paramount concern, African governments must also prepare for the pandemic’s economic effects to ensure that their countries emerge from the crisis stronger than before. Economic Commission for Africa analysis on impact of COVID-19 on the continent is here to help combat the pandemic. The outbreak should also be a call to strengthen global institutions.

A summary of the document by the ICA Secretariat.

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