AfDB says Africa’s economy to shrink by 1.7%, as Covid-19 bites harder
.....project's 30 million job losses, 49 million people to slide into extreme poverty ....says Nigeria, Egypt, Soyh Africa remain hotspots for Covid-19
As the world faces the ravaging impact of Covid-19 pandemic, the Africa Development Bank (AfDB) has projected a contraction of Africa GDP by 1.7 percent in 2020, dropping from 5.6 percent from january 2020 pre covid-19 projection.
AfDB said the 1.7% contraction is a baseline scenario, but in the worst-case, GDP could fall to –3.4 percent by the end of the year.
But the bank sees a partial recovery of about 3 percent for the region in 2021.
The Africa Development bank in its Revised Africa Economic Outlook (AEO) noted that while Africa remains the least affected continent with over 400,000 reported cases and 10,000 deaths as at june 2020, NIgeria, Egypt, South Africa, and Algeria remain hotspots for the virus.
Hanan Morsy, Director, ECMR, AfDB, presenting the outlook on Tuesday during a vrtual conference said that covid-19 has neccesitated the bank’s reassessment and review of growth projections from what it had outlined earlier in January.
“We are now talking about Africa being in recession, the first in many decades” she stated.
“The curve of the pandemic is bending gradually in Africa, but hotspots are present in South Africa, Egypt, Nigeria, and Algeria.”
According to her, inflation has quickly increased in the continent because of supply chain disruptions—up to 5 pp more in some countries.
Exchange rates have equally fluctuated widely, especially for frontier economies as a result of capital outflows.
Oil exporting countries in the region will face dire consequences on low prices, while East Africa”s economy may not be badly affected on account of diversification which they had embarked on, pre-covid.
She stressed that if the virus continues beyond the first half of 2020, there would be a deeper GDP contraction in 2020 of 3.4 percent, down by 7.3 percentage points from the growth projected before the outbreak of COVID–19.
Extreme poverty is projected to increase by 2.14-2.84 percent in 2020 and by 2.51-3.63 percent in 2021, while covid 19 could push 49 million people on the continent into extreme poverty.
The AfDB thinks that the reopening of the economy could be done in an incremental manner considering transmission risks, by allowing businesses with low-to-medium transmission risks scuh as manufacturing, construction, and retail services to commence operation first.
The Bank specifically recommended two strategies for reopening economies and accelerating recovery.
These include: “zero tolerance” approach which means “Governments would refrain from reopening economic and social activity until there are
zero or no reported new cases of the infection. This is likely to take longer and have unbearable costs.
“The “staggered” approach means that Governments would reopen economic and social activity in a phased and incremental manner on the basis of transmission risks.
“Businesses with low-to-medium transmission risks such as manufacturing, construction and
some retail services can be reopened first,” the bank advised, adding that “if there are no rebounds, governments should proceed to open high transmission risk activities such as hotels,
schools, restaurants, sports, and entertainment.
AfDB policy recommendations include ensuring support for vulnerable households with targeted cash transfer and social sfaety net programs, develop policies to keep business afloat by providing targetted subsidies and tax reliefs, ease financial coditions by injecting liquidity, use unconvetional policy tools to support affected sector.
“There is need for the governmnet to assist vulnerable groups, especially women and youth in informality, use active labour market policies to protect worker and their jobs, allocate suffieciient resources to the health sector and devlop emergency plans”.
Njuguna Ndung’u, Former Governor of Central Bank of Kenya, in his remark said that as African Nations make efforts to revamp the economy, there is need to develop measures and policies to protect private sector investment.
He said “Easing the lockdown is not sustainable at the long run, but if it must be done, it should be supported with safety nets”.
Speaking further, Ndung’u said that governments should embrace economic diversification, market development across digital space to boost economic growth.
“Africa Nations at this time should come up with regulations to develop and protect the Africa domestic market,” he stressed.