Question

Outline the channels through which COVID-19 has affected economies in sub-Saharan countries

Answer 1

The first channel of transmission is the disruption in trade and value chains. Growth deceleration in major economies, including China, will affect the demand for Sub-Saharan African exports. It will sharply reduce the international price of commodities exported by the region—especially, oil, mineral ores and metals—and affect countries with strong value chain participation. The latter is relevant for countries with rising participation in agribusiness and apparel (Ethiopia and Kenya), manufacturing goods(Tanzania), auto industry (South Africa), and mineral exporters that are part of the value chain in electronics (the Democratic Republic of Congo and Zambia). Disruptions to GVCs might in turn exacerbate the plunge in oil prices as demand from China declines.

The COVID-19 infection rates in sub-Saharan Africa (SSA) have remained modest so far. (According to the WHO COVID-19 Situation Report of 29 April, the total number of COVID-19 cases reported in SSA is close to 20,000, with around 500 fatalities. There are concerns about the accuracy of those figures as medical infrastructure for testing and diagnoses is not widely available across the region. But with notoriously underfunded health systems (according to a recent not yet confirmed WHO survey including 41 African countries, the average number of ICU beds per 1 million Africans is 5 compared to the OECD’s 3,500) and the prevalence of other endemic diseases such as HIV and malaria, many analysts believe that the worst is still to come when the regional pandemic reaches its peak which is expected this summer. On the other hand, previous regional experience with Ebola and HIV containment efforts will help enhance response efforts.Virtually all countries in SSA have already introduced containment measures. In fact, the region—hosting 33 of the world’s 47 LDCs—responded promptly. The governments of 15 SSA countries closed their airports, ports and land borders before any coronavirus cases had been confirmed, and by the end of March, 44 SSA countries had closed their schools, banned public gatherings, or put in place other social distancing measures; 11 countries declared a state of emergency.

Countries have also responded to rising food security risks. For example, Niger has introduced “distribution of food from the strategic reserve”. Rwanda has begun “door-to-door provision of rice, beans, and flour every three days”, and in the Gambia, the prices of essential goods have been frozen for food commodities such as rice, meat, fish, cooking oil but also for soap, sanitizers and cement.Against such a debilitating backdrop (according to the estimations of the World Bank, the pandemic will cost SSA between USD 37 billion and USD 79 billion in output losses for 2020), SSA industries will not only be heavily impacted by COVID-19 containment measures at home but also by those that have been implemented abroad. Due to lower global demand, the region will likely see a reduction in key industrial inputs and outputs.

The simulations suggest an additional 9.1% of the population in sub-Saharan Africa have immediately fallen into extreme poverty as a result of COVID-19, with about 65% of this increase resulting from the lockdowns themselves. 8 million people (3.6% of population) including million of children under 5, are very severely food deprived at the end of an 8-week lockdown Consequently, in 2020, Sub-Saharan Africa will suffer its first recession in 25 years. In its June 2020 regional economic outlook for the region, the International Monetary Fund (IMF) projects that the region’s economy will shrink by 3.2 percent in 2020 before recovering to growth of 3.4 percent in 2021. The collapse in 2020 is dominated by the two largest economies in the region: Nigeria and South Africa (with contractions of 5.4 percent and 8 percent, respectively). Excluding these, the region’s recession would be significantly shallower, at –0.6 percent, and would recover faster with 2021 growth of 3.8 percent. Fourteen out of 45 countries will avoid a recession but grow at significantly lower rates than in 2019.