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Recession and what it means for Africa

Sub Saharan Africa (SSA) is experiencing its first recession in over 25 years brought about by the ongoing coronavirus pandemic.

The region which is among the poorest in the world hosts almost half of the world’s 736 million extreme poor according to the World Bank’s 2015 estimates.

Of the five countries with the highest number of extremely poor in the 2015 estimates were India, Nigeria, Democratic Republic of Congo, Ethiopia, and Bangladesh in descending order. Noticeably, three of the five countries are in SSA while the five are the most populous in their regions.

Efforts have been underway to make significant progress towards achieving the global target of reducing extreme poverty to less than 3 per cent by 2030. However, these efforts should focus on large reductions in these five countries which are poverty struck to make any substantive change.

But, the global economy has hit a bump towards achieving this milestone and a recession is inevitable.

Already, growth in Sub-Saharan Africa has been significantly impacted by the ongoing coronavirus outbreak with forecasts that it will fall sharply from 2.4 per cent in 2019 to -2.1 to -5.1 per cent in 2020.

So, what is a recession and what does it mean for Africa?

Also read: Sub-Saharan Africa faces first recession in 25 years – World Bank

Economist Julius Shiskin defined a recession as a declining Gross Domestic Product (GDP) which is the opposite of a healthy economy which keeps expanding. Shiskin said in 1974 that if GDP shrinks for two quarters in a row, then it is a suggestion that there are serious underlying problems to the economy.

The US National Bureau of Economic Research (NBER) defines a recession as any significant decline in economic activity spread out across the economy.

Unlike Shiskin, NBER notes that a recession could last more than a few months with its consequences visible in real GDP, real income, employment, industrial production and wholesale-retail sales.

Using these two definitions, a recession has already started in Africa hitting the most vulnerable.

Many people have lost their jobs and means of sustenance while industrial production and wholesale-retail sales have plummeted in some sectors since the populations’ purchasing power has been hit.

The World Bank notes that economic and social impacts are immense, costing the region between US$37B and US$79B in estimated output losses in 2020.

There is reduced agricultural productivity, weakened supply chains, increased trade tensions, limited job prospects and exacerbating political and regulatory uncertainty. The volatility in the global environment currently is taking a heavy toll on human life and placing excessive pressure on health systems negatively impacting the SSA region.

The dim economic prospects show that growth will weaken substantially in the West African Economic and Monetary Union and the East African Community. These are the two fastest-growing areas in the region and the dip is due to a weak external demand, disruptions to supply chains and domestic production.

Tourism in these areas is expected to contract sharply due to severe disruption in the travel and tourism sector.

Countries relying on exporting extractives are also likely to be hardest-hit with growth falling by up to seven percentage points in oil-exporting countries and by more than eight percentage points in metal exporters.

Looking ahead, a collapse in economic activity from containment measures and macroeconomic instability will increase poverty and endanger lives and livelihoods.

“Household welfare is expected to be equally dramatic with welfare losses in the optimistic scenario projected to reach 7 per cent in 2020, compared to a non-pandemic scenario,” notes the World Bank.

Another likely challenge for the continent is the public debt levels.

For many countries, debt risks are rising and this might jeopardize debt sustainability at a time when the availability of good jobs has not kept pace with the number of entrants in the labour force.

Also read: Central Banks mull support for Africa debt swap, envoy says

Fragility is costing the subcontinent a half of a percentage point of growth per year with gender gaps still persistent which limits the continent from reaching its full growth and innovation potential.

Currently, more than 416 million Africans are still living in extreme poverty and the recession threatens to have many more slide into that poverty.

The 14th Tanzania Economic Update (TEU) shows that for instance, an additional 500,000 Tanzanians could fall below the poverty line especially in the urban areas relying on self-employment and informal/micro-enterprises.

With many people being vulnerable to falling back into poverty, Mara Warwick who is the World Bank Country Director for Tanzania, Malawi, Zambia and Zimbabwe says that this underscores the need for stronger policies and investments in safety nets and human capital to ensure future resilience.

Source: The Exchange

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