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14. New Coronavirus Pandemic ― World Bank Bulletin: The first recession in Sub-Saharan Africa in 25 years

2020-04-09

On April 8, 2020, the World Bank published a report assessing the magnitude of the economic impact of the novel coronavirus disease (COVID-19) pandemic and policy response in the Sub-Saharan Africa (SSA) (Calderon et al. 2020). As the COVID-19 pandemic sweeps across the globe, it is also spreading rapidly in SSA in recent weeks despite a late arrival. As of April 7, 2020, a total of 5,425 infected people were reported in 45 of the 48 countries in SSA, but the actual number of infected people is not higher due to limited testing capacity in many countries. The key messages of the report are summarized below.

Economic growth in Sub-Saharan Africa is projected to decline from 2.4 percent in 2019 to -2.1 to -5.1 percent in 2020, the first recession in the region in 25 years. In addition to COVID-19 pandemic containment measures, production suspension in major trading partners such as China and the euro area, falling commodity prices, and macroeconomic risks from the stagnation of tourism are expected to cost the region between $37 billion to $79 billion in terms of output losses for 2020. The COVID-19 shock is hitting the region’s three largest economies—Nigeria, South Africa, and Angola—in a context of persistently weak growth and investment, and declining commodity prices. The prices of oil industrial metals fell by 50% and 11%, respectively, from December 2019 to March 2020. 

Model simulations suggest that, compared with a no-COVID base case, average real gross domestic product (GDP) growth in these countries could be reduced by up to 6.9 percentage points in 2020 in the baseline scenario, and by up to 8 percentage points in the downside scenario. Even in countries that do not depend on resource exports, economic growth is expected to slow significantly. In the baseline and downside scenarios, growth will fall well below the regional average population growth rate of 2.7 percent, indicating that, in the absence of appropriate measures to mitigate its effects, the COVID-19 outbreak will severely impact the welfare of large numbers of individuals in the region. 

Although agriculture dominates an important position in the SSA economy, COVID-19 border closure will particularly affect the agricultural workers and informal unskilled workers due to rising prices and supply shortages. In many areas where food security is already threatened by the effects of climate change such as drought, conflicts, and desert locust emergency, it is feared that the weakening currencies and the rise in food prices will exacerbate the situation. Currently, there is sufficient food stocks  worldwide, the prices of other staples are starting to rise in countries that are experiencing currency depreciation, leading to increasing concerns over spikes in consumer prices and food crises. Disruptions in the food supply chain are beginning to hinder access to inputs and services and labor movement. Agricultural production is likely to contract between 2.6 percent in the optimistic scenario and 7 percent in the scenario with trade blockages.  Food imports are also projected to fall sharply (13% to 25%) due to higher transaction costs and shrinking domestic demand. The African food crisis associated with COVID-19 must be avoided at all costs through international collaboration.

In the SSA region, the economic impact of COVID-19 is expected to spread through the following multiple channels. The first channel is due to the disruption of the trade and value chain, especially among countries that export goods (as the international prices of oil, minerals and metals collapse) and the countries with strong value chain participation (such as Ethiopia and Kenya). The second channel is reduced foreign financing flows such as foreign investment, assistance, remittances from overseas, a drop in tourism revenue, and capital flight ($1.75 billion in portfolio outflows experienced by South Africa in March). The third channel is the health channel, the direct impact of COVID-19 on economic activity due to the increase in the number of infected people and fatalities. The fourth channel is the disruption due to the containment and mitigation measures imposed by the governments and the response of the citizens.

The report states that the policy makers in SSA countries should prioritize the protection of human life and livelihoods, and calls for short-term emergency assistance and medium-term restructuring measures including expansion of the health system, income compensation for workers, and capital injection into businesses. At the same time, in view of financial difficulties in the SSA countries and debt in the public sector, donor countries and organizations are requested to give financial support through COVID-19 related multilateral assistance and debt service stand still with official bilateral creditors. 

The governments of SSA countries are taking this economic crisis seriously and seem to be responding rather swiftly. At the same time as implementing lockdown for initial containment, the presidents and ministers in countries such as Kenya and Rwanda take the lead in announcing their own salary cuts, and taking measures such as tax exemption for their citizens (Africanews, PMLdaily, The Star).

Through the Tokyo International Conference on African Development (TICAD), Japan has taken the position of strongly supporting development in Africa, the fastest-growing frontier of the 21st century, in cooperation with the public and private sectors. It is necessary to support Africa in the current economic crisis in cooperation with the international community. JIRCAS is implementing international joint research on stable food production in the SSA region as a flagship project. We will continue to work closely with our partners to gather information and contribute to the solution of the food crisis through agricultural research.

 

References

Africanews. African officials donate salaries to COVID-19 fight: Rwanda cabinet joins list. April 7, 2020. Accessed on April 9, 2020.

Calderon, C et al. 2020. Africa's Pulse, No. 21, Spring 2020: An Analysis of Issues Shaping Africa’s Economic Future. World Bank, Washington, DC. © World Bank. 

PML daily. COVID-19 CRISIS: Kenyatta announces 100% tax relief for workers, salary cuts for govt officials in Kenya. March 25, 2020. Accessed on April 9, 2020.

The Star. Uhuru, Ruto take 80% pay cut in wake of economic crisis caused by Covid-19. March 25, 2020. Accessed on April 9, 2020.

 

Contributors: IIYAMA Miyuki (Research Strategy Office), NAKASHIMA Kazuo (Stable Agricultural Production Program) 

TICAD VI @ Nairobi, Kenya