- COVID-19 will cost the region up to Sh8 trillion
- Food imports would decline substantially due to a combination of higher transaction costs and reduced domestic demand.
Sub- Sharan Africa is expected to experience the first recession in over 25 years as the effects of the novel coronavirus hit the region’s economy.
The World Bank's assessment of the economic impact of the virus and policy response in the region released yesterday predicts economic growth in the region to drop sharply from 2.4 per cent in 2019 to -2.1 per cent to -5.1 per cent in 2020.
According to the bank, the 2020 downward growth revision reflects macroeconomic risks arising from the sharp decline in output growth among key trading partners, including China and Europe.
It also cites the fall in commodity prices, reduced tourism activity in several countries, as well as the effects of measures to contain the COVID-19 global pandemic as contributors.
Regions that would see growth weaken substantially are the two fastest-growing areas—the West African Economic and Monetary Union where outbreaks are spreading rapidly and the East African Community—due to weak external demand and disruptions to supply chains and domestic production.
The latest Africa’s Pulse, the World Bank’s twice-yearly economic update for the region shows that COVID-19 will cost the region between $37 billion (Sh3.8 trillion) and $79 billion (Sh8 trillion) in output losses for 2020 due to a combination of effects.
These include 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.
In its baseline and downside scenarios, the bank projects growth will fall well below the regional average population growth rate of 2.7 per cent, 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.
''The welfare loss would be 10 percent greater than in the no-COVID case in the event of a lengthy crisis. The lower terms of trade coupled with lower employment result in a pronounced welfare loss for households,’’ the report says.
“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,” said Hafez Ghanem, World Bank Vice President for Africa.
The COVID-19 crisis also has the potential to spark a food security crisis in Africa, with agricultural production potentially contracting between 2.6 per cent in an optimistic scenario and up to seven per cent if there are trade blockages.
Food imports would decline substantially (as much as 25 per cent or as little as 13 per cent) due to a combination of higher transaction costs and reduced domestic demand.
''While global food stocks are plentiful and many commodity prices are stable, the prices of other staples (such as wheat and rice) are rising when many countries’ currencies are weakening,’’ World Bank said.
These two factors, compounded by other existing challenges, including the desert locust emergency, drought, climate change, fragility, conflict, and weak currencies will likely lead to spikes in consumer prices and contribute to increased food insecurity, particularly for food importers.
The lender, however, acknowledged that several countries in the region have reacted quickly and decisively to curb the potential influx and spread of the coronavirus, very much in line with international guidelines.
However, 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.
It is for this reason that Pulse authors recommend that African policymakers focus on saving lives and protecting livelihoods by focusing on strengthening health systems and taking quick actions to minimise disruptions in food supply chains.
They also recommend implementing social protection programs, including cash transfers, food distribution, and fee waivers, to support citizens, especially those working in the informal sector.
“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,’’ Albert Zeufack, Chief Economist for Africa at the World Bank said.