The UN’s Economic Commission for Africa (ECA) estimates the coronavirus crisis could “seriously dent” Africa’s already stagnant growth, with oil exporting nations losing up to USD $65 billion in revenues, as crude oil prices continue to tumble. COVID-19 could lead to Africa’s export revenues from fuels falling at around USD 101 billion in 2020. Economic growth forecast for the continent has already been revised downwards by UNECA, from 3.2% to 1.8%.
UNECA bases its estimations on the slump in oil and fuels export income on a price per barrel of USD 35, but prices are already lowering to around USD 25 in international markets. “Further drops in (oil) demand could compound price drops (e.g. cancellation of flights, lower use of cars due to lock downs and quarantine measures, etc.),” UNECA says in its most recent report on the impact of COVID-19 for the continent.
According to ECA’s Executive Secretary, Vera Songwe, the continent could need up to USD 10.6 billion in unanticipated increases in health spending to curtail the virus from spreading, while on the other hand revenue losses could lead to unsustainable debt. Pharmaceuticals, imported largely from Europe and other COVID-19 affected partners from outside the continent, could see their prices increasing and availability reduced for Africans. Negative consequences are expected if COVID-19 develops into an outbreak in Africa.
With nearly two-thirds of African countries being net importers of basic food, shortages are feared to severely impact food availability and food security.
As the virus continues to spread worldwide, remittances and tourism are also being affected, resulting in a decline in FDI flows, capital flight, domestic financial market tightening, and a slow-down in investments – hence job losses.
UNECA estimates the country that will be the most hit in Africa will be São Tomé e Príncipe, whose dependency on tourism income should mean a 34% crash in its economic output. A drop in this sector, it forecasts, will generate fiscal imbalances, making “tight measures” necessary. Cabo Verde is not mentioned in UNECA’s most recent estimations report on the impact of COVID-19, but the country is also dependent on tourism.
Among the countries expected to be the most hit are oil producers like the Republic of Congo (-10.6%), Equatorial Guinea (-7.5%) and Angola (-5.7%).
In fiscal terms, the biggest economies in the continent are also high in debt, limiting their ability to respond with stimulus. Angola’s debt is estimated by UNECA at 95%, and Mozambique’s at 108.8%, the two highest among the largest economies. While Mozambique has a projected fiscal deficit of 6,1% this year, Angola has a 0.7% surplus, thus additional ability to partly manage the impact of a revenue loss.
UNECA recommends that as a safety net, countries provide incentives for food importers to quickly forward purchase to ensure sufficient food reserves in key basic foods items. Government should also fund virus preparedness, prevention and curative facilities including logistics, and use the crisis to improve health systems.
Also recommended is that Governments prepare fiscal stimulus packages (e.g. guaranteeing wages for those unable to work due to the crisis, favoring consumption and investment) and maintain infrastructure investments to protect jobs.
Set to commence this July, the African Continental Free Trade Area (AfCFTA), UNECA considers, should keep its momentum, as a mechanism for building long term continental resilience and volatility management. “For example, increase intra African trade on pharmaceutical and basic food products”, UNECA’s report adds.
Source: CLBrief via Macauhub