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Contributor

The Economy Of sub-Saharan Africa Is Currently At Risk

03 May 2020

The region of sub-Saharan Africa has been significantly impacted by the on-going coronavirus outbreak. The region’s economy is forecast to fall drastically from 2.4% in 2019 to -2.1 to -5.1% in 2020. The recession is expected to be the first in the region over the past 25 years, according to the African Pulse, the World Bank’s twice-yearly economic update for the region.

“The covid-19 pandemic is testing the limits of societies and economies around the world, and African countries are likely to be hot hard in particular,” said Hafez Ghanem, World Bank Vice-President for Africa. “We are rallying all possible resources to help countries meet their peoples immediate needs while also safeguarding livelihoods and jobs in the long-term, including calling for a social safety nets to save livelihoods and help workers who lose jobs, supporting small to medium enterprises and food securities.”

An analysis as provided by the World Bank shows that it will cost the region between $37 billion to $79 billion in output losses in 2020 due to a combination of effects. These include 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 disruption caused by containment measures and the public response.

While many countries in the region have been affected to different degrees by the pandemic, real gross domestic product is projected to fall sharply particularly in the regions three largest economies, Nigeria, Angola, South Africa. Exporting-countries will also be hard-hit; while growth is 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 regions tourism sector will contract sharply due to severe disruption to travel.

Also, the COVID-19 crisis has the potential to spark a food insecurity 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 will decline substantially (as much as 25% or as little as 13%).

With several countries having reacted quickly and decisively to curb the potential influx and the spread of the coronavirus, there is still too many a challenge 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 policy response. 

These factors could lead to reduced labor market participation, capital underutilization, lower human capital accumulation and long-term productivity effects.