COVID-19 Takes Its Toll On African Economy
Africa has so far been spared the worst of the coronavirus pandemic in terms of cases and deaths but its economy has not been so lucky, especially the poorer, smaller countries dependent on a single resource or sector.
The spread of the disease has also picked up speed in recent weeks, stoking concerns that worse is to come.
Here are some key features of the pandemic’s economic impact on Africa:
– Historic recession –
For 2020, the International Monetary Fund (IMF) estimates that the economy of sub-Saharan Africa will shrink 3.0 percent, “the worst outcome on record”. However, it should then grow 3.1 percent next year — although this is a much slower pace than elsewhere in the world.
In terms of per capita income, it has fallen 5.3 percent and back to 2013 levels in the space of just a few months.
Abebe Aemro Selassie, the head of the IMF’s African division, highlighted the fact that unlike in the 2008-09 global financial crisis, sub-Saharan countries were in a much worse budgetary position, with fewer resources available to face the crisis than their wealthier peers.
– Different countries, different impact –
African countries can be classified as three economic types:
— Diversified, such as in West Africa, with Ivory Coast, Senegal and Ghana. In the east, Kenya, Uganda and Tanzania.
In these economies, activity has slowed significantly but they are still managing to grow, the IMF says.
— Oil producers such as Algeria, Angola and Nigeria. They have suffered very badly from the plunge in crude prices, especially in the early months of the crisis.
Since then, prices have firmed slowly to arrive back at around $50 per barrel.
— Tourism-dependent countries such as Morocco, Tunisia and the Seychelles. The pandemic has brought travel to a virtual standstill, grounding airlines, which are struggling to survive.
“The crisis has confirmed the differences between diversified countries and the exporters of industrial raw materials but has also impacted North African countries which were in a growth rebound thanks to tourism since 2016,” noted Clement Gillet, economist with Societe Generale.
Standing on its own, South Africa, the continent’s second-biggest economy, has been hit the worst given that it was already in recession before the crisis hit.
Its economy is expected to shrink 8.0 percent this year.
– Raising funds –
Again, the picture is mixed when it comes to how different countries manage debt and raise fresh funds.
On the one hand, there is Zambia, which is heavily dependent on mining and became the first country to default on its debt last month, while Ivory Coast only two weeks later easily raised funds on the market.
Since then, “the financial markets have found their appetite for risk again, and especially for African debt, but investors are going to be much more careful about the details” and quality of the issuers, said Gillet.
Another important source of funds for African countries is remittances from their foreign workers and inevitably this has also suffered in the pandemic.
According to the World Bank, such remittances are expected to fall 14 percent to about $470 billion going into 2021.
“The impact of Covid-19 is pervasive when viewed through a migration lens as it affects migrants and their families who rely on remittances,” said Mamta Murthi, Vice President for Human Development and Chair of the Migration Steering Group at the World Bank.
– Debt –
G20 countries have already put in place a moratorium on interest payments for some 47 countries, most of them in Africa.
The G20 has also said its members are ready to re-negotiate some of the debt itself but such moves have limits.
“Firstly, about 40 percent of African debt is accounted for by the private sector,” and not by governments, noted Kako Nubukpo, an economist and a former minister of Togo.
“Certain countries, such as Benin, with a lot of private sector debt, oppose the moratorium because they fear that when they return to the market to raise fresh funds their risk premium will explode,” he said.
But Senegal on the other hand has welcomed the debt service moratorium, he added.
At the same time, Gillet noted the profile of Africa’s creditors has changed, “which makes any restructuring agreement very complicated”.
“Up until the end of the 1990s, you could get all the creditors around a table,” he said.
“But now you have the debt owed to China, which is not part of the Paris Club (of state creditors), then the debt owed to the private-sector lenders (the London Club of bankers), and then above all the debt raised on the markets.”