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The Coronavirus Pandemic May Strangle Africa’s Economies, AU Predicts

Monday, 11 May 2020

The coronavirus pandemic isn’t only a public health emergency, but also a major threat to the world’s economy. From jobs to stocks, emerging markets, and thousands of businesses, the ongoing COVID-19 pandemic crisis had several impacts on the global economies in the first quarter of 2020. And, unfortunately, the next several months may not bring much relief as the virus is still spreading rapidly and keeping large parts of the global economy closed. 

Although so far, Africa has not suffered the death and disruptions the virus caused in countries like Italy or China, it is far from being immune when it comes to the economic impacts of it. 

The African Union predicts that the vulnerable African economies may be strangled by the coronavirus crisis, leading to nearly 20 million job losses. The report published by the African Union claims that African economies are incredibly vulnerable to external shocks, such as price increases as global supply chains break down. The AU gave two different scenarios, a “realistic” one and a “pessimistic” one, on how the economies across the continent will turn out post-pandemic. 

Coronavirus Pandemic

Image source: https://unsplash.com/photos/ezY6rc65mUE

The “realistic” scenario pictures a pandemic that lasts about four months, and that won’t leave Africa very affected. On the flip note, the “pessimistic” scenario predicts that it will take Europe and the US about six months before getting the virus crisis under control and will take Africa about eight months to stop the pandemic. In this more pessimistic scenario, the AU predicts that the reduction to the African continent’s GDP might be more than 4.5%. 

That being said, although Africa has escaped the scale of infection and its implications, which have been seen in other parts of the world, it is doubtful for it to avoid the economic consequences of COVID-19. 

The effects on the import of goods 

One of the biggest threats to the African economies in the context of the coronavirus pandemic is precisely the African countries’ import habits. Across the entire continent, countries trade more with other parts of the world than they do with each other. 

Moreover, Africa’s biggest trading partner is precisely where the COVID-19 outbreak began: China. So, as China’s economy was severely disrupted by the virus, from closed factories to workers placed in lockdown and suspended international flights, it isn’t a surprise that African traders suffered as well. Without access to Chinese goods, African markets can’t get hold of the stock they need. As a result, prices go up, and consumer spending could go down, causing economic growth to slow down over the next few months. 

Moreover, as the “world’s factory,” China, paused its production due to the COVID-19 pandemic, the country’s demand for African commodities also decreased significantly. For example, demand for oil, Africa’s most advantageous export, has fallen off a cliff. African countries such as Angola and Congo-Brazzaville sell this raw material to China more than any other country on the African continent. 

Also, in the context of Europe becoming the new epicenter of the COVID-19 pandemic, other African countries see demand in oil as well. For example, Nigeria sells more than a third of its oil to European countries. Yet, the ongoing pandemic made the demand for oil there take a significant hit. 

Likewise, as key trading partners of the African countries are struggling with the coronavirus spread, demand for other commodities will decrease as well. For example, the African country Ethiopia may struggle to sell its coffee. Likewise, Ivory Coast may struggle to find buyers for its cocoa and Zambia for its copper. 

The impacts on the travel and tourism industries 

Before the coronavirus outbreak, tourism in Africa was growing at a 5% rate a year. However, in the context of the global pandemic, flights are suspended, and some governments across the African continent even banned travel of passengers from China, Europe, and the United States. 

Therefore, the AU report predicts that the tourism and travel sectors will be profoundly affected by the pandemic. For most African countries like South Africa, Rwanda, or Uganda, the millions of international tourists every year bring revenue that is vital to their economies. For example, in 2018, South Africa received around 10.29 million arrivals of foreign tourists. Yet, it is doubtful for the country to see somewhere near this many arrivals in 2020. 

Moreover, the tourism and travel sectors in Africa don’t just generate billions of dollars, but they also support nearly one in ten of all jobs. Therefore, there will be many job losses in this industry across the continent. 

The COVID-19 pandemic hit the South African rand

Investments in Africa may also be affected in the context of the ongoing global coronavirus crisis. In an interview at the CNBC Africa, Egie Akpata, Director at Union Capital Markets, explains that there has been noticed a lot of panic activity among investors. He explains that this is also the reason why the markets experience drops in valuations.

Moreover, as of the 14th of April, several emerging markets currencies recorded lows against the US dollar, among which the South African rand. And, it is expected that these EM currencies will face unprecedented pressure until an end to the pandemic can be seen. 

As the African countries’ traditional markets are facing significant challenges due to the pandemic crisis, more and more investors will most likely embrace less dependent markets on the continent’s economies, such as the Forex market. For example, in South Africa, one of the largest FX market across the entire continent, there are many African Forex brokers with offices in Johannesburg. As more Africans will shift their attention to alternative investment methods that aren’t so exposed as the traditional markets, these brokers will surely grow in popularity after the COVID-19 pandemic ends.

With the trading partnerships with China already affected, and with Europe and the United States at the epicenter of the coronavirus, African economies are expected to experience a major impact. However, it is still too early to predict precisely to what extent some economies across the continent will suffer economically. 

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via: Information Nigeria

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