Update: World Bank says Nigeria, SA, Angola economies will be hard-hit by Covid-19 pandemic
...As SSA faces First Recession in 25 Years
Africa’s largest economies, including Nigeria, South Africa and Angola will face the toughest outcomes yet on account of ongoing coronavirus pandemic which has so far infected some 1.5 million people around the globe and killed 88,500.
This gloomy picture is contained in the World Bank’s latest Africa’s Pulse, a twice-yearly economic update for the region due to be released later Thursday afternoon.
The Bank projects a sharp drop in Sub-Saharan African GDP growth from 2.4% in 2019 to between -2.1 and -5.1% in 2020, the first recession in the region over the past 25 years on account of ongoing coronavirus outbreak.
In general, oil exporting-countries will be hard-hit, while growth is also expected to weaken substantially in the two fastest- growing areas—the West African Economic and Monetary Union and the East African Community—due to weak external demand, disruptions to supply chains and domestic production.
The region’s tourism sector is also expected to contract sharply due to severe disruption to travel.
“While most countries in the region have been affected to different degrees by the pandemic, real gross domestic product growth is projected to fall sharply particularly in the region’s three largest economies – Nigeria, Angola, and South Africa— as a result of persistently weak growth and investment,” the bank notes.
According to the World Bank, growth has been significantly impacted by the pandemic as analysis shows that COVID-19 will cost the region between $37 billion and $79 billion in output losses for 2020 due to a combination of effects.
The losses will come in trade and value chain disruption, which impacts commodity exporters and countries with strong value chain participation; reduced foreign financing flows from remittances, tourism, foreign direct investment, foreign aid, combined with capital flight; and through direct impacts on health systems, and disruptions caused by containment measures and the public response.
The COVID-19 crisis has the potential to equally spark a food security crisis in Africa, with agricultural production potentially contracting between 2.6% in an optimistic scenario and up to 7% if there are trade blockages.
Food imports would decline substantially (as much as 25% or as little as 13%) due to a combination of higher transaction costs and reduced domestic demand.
“The COVID-19 pandemic is testing the limits of societies and economies across the world, and African countries are likely to be hit particularly hard,” Hafez Ghanem, World Bank Vice President for Africa says in a mailed statement.
“We are rallying all possible resources to help countries meet people’s immediate health and survival needs while also safeguarding livelihoods and jobs in the longer term – including calling for a standstill on official bilateral debt service payments which would free up funds for strengthening health systems to deal with COVID 19 and save lives, social safety nets to save livelihoods and help workers who lose jobs, support to small and medium enterprises, and food security.”
Pulse authors base their macroeconomic analysis on data available by the first quarter of March 2020 as they recommend that African policymakers focus on saving lives and protecting livelihoods by focusing on strengthening health systems and taking quick actions to minimize disruptions in food supply chains.
They also recommend implementing social protection programsmes, including cash transfers, food distribution and fee waivers, to support citizens, especially those working in the informal sector.
Several African countries have reacted quickly and decisively to curb the potential influx and spread of the coronavirus, very much in line with international guidelines.
But the report points out several factors that pose challenges to the containment and mitigation measures, in particular the large and densely populated urban informal settlements, poor access to safe water and sanitation facilities, and fragile health systems.
Ultimately, the magnitude of the impact will depend on the public’s reaction within respective countries, the spread of the disease, and the policy response. And these factors together could lead to reduced labor market participation, capital underutilization, lower human capital accumulation, and long-term productivity effects.
“In addition to containment measures, we have seen that in responding to COVID-19, countries are opting for a combination of emergency fiscal and monetary policy actions with many central banks in the region taking important actions like cutting interest rates and providing extraordinary liquidity assistance,” Albert Zeufack, Chief Economist for Africa at the World Bank notes.
“However, it is important to ensure that fiscal policy builds in space for social protection interventions, especially targeting workers in the informal sector, and sows the seed for future resilience of our economies.”
The authors emphasize the need for a customized policy response to reflect the structure of African economies (especially the large informal sector) and the peculiar constraints policymakers currently face, particularly the deteriorating fiscal positions and heightened public debt vulnerabilities, and the overall low operational capacity to respond.
“The immediate measures are important but there is no doubt there will be need for some sort of debt relief from bilateral creditors to secure the resources urgently needed to fight COVID-19 and to help manage or maintain macroeconomic stability in the region,” said Cesar Calderon, Lead Economist and Lead author of the report.
The World Bank Group is taking broad, fast action to help developing countries strengthen their pandemic response, increase disease surveillance, improve public health interventions, and help the private sector continue to operate and sustain jobs.
It is deploying up to $160 billion in financial support over the next 15 months to help countries protect the poor and vulnerable, support businesses, and bolster economic recovery.