Africa is watching a potential health disaster turn into an economic crisis, quickly

A woman wears a protective face mask, due to the global coronavirus disease outbreak in Dakar, Senegal
A woman wears a protective face mask, due to the global coronavirus disease outbreak in Dakar, Senegal
Image: REUTERS/Zohra Bensemra
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There is now almost universal agreement among economists, think tanks, and policymakers that the global economy is heading into a recession due to the coronavirus health crisis. Nowhere is that more clear than in Africa.

Thus far, the focus has been on the potential health disaster looming for African countries. Some of the inexpensive preventive measures prescribed for developed countries, such as social distancing, are costly and difficult to enforce for people in an informal economy. Many African countries also have the additional concern of inadequate health systems getting easily overrun in the event of a widespread viral outbreak.

Compared to Europe, the coronavirus case numbers remain relatively low: over 4,000 cases in 46 African countries. But those figures are rising quickly, and there are real worries that the low case numbers might reflect low testing capacity.

However, even if Africa somehow avoided the worst of the human toll, it’s going to be near impossible to avoid a major economic hit. Even though there has been stellar growth in several small- to mid-sized economies over the past few years, the two biggest economies—Nigeria and South Africa—have bumbled along from recession to uninspiring recovery.

Not only are African countries fully integrated into the global economy, but many states are often playing a weak hand as exporters of commodities whose prices have been falling precipitously. And for those who are importing goods, their currencies are losing value against the dollar in an uncertain global economy. Several countries have both of these challenges, as international investors start to turn away from Africa to worry about the problems at home.

For now, few are predicting a continent-wide recession, but Nigeria and South Africa, which have been treading water in recent quarters, are going to take a big hit. Like another big oil producer, Angola, Nigeria has seen oil prices drop by some 50% since the start of the year. IMF estimates “each 10% decline in oil prices will, on average, lower growth in oil exporters by 0.6% and increase overall fiscal deficits by 0.8% of GDP.”

South Africa, which last week completed the trifecta of junk ratings even as it was forced to shut the economy, is expected to tip back into recession for the year, from its anemic growth.

“The pullback from African markets as well as a projected decline in export revenues has led to depreciations of local currencies,” writes Brahima Sangafowa Coulibaly, director of Brookings Institution’s Africa Growth Initiative. “These exchange rate depreciations will push up local inflation and trigger monetary policy and financial tightening.” Meaning the repayments on the rising dollar debt will be even more difficult to cover.

“Across the region, growth will be hit hard. Precisely how hard is still difficult to say,” writes IMF Africa director Abebe Selassie and Karen Ongley, head of IMF’s Sierra Leone office. “But it is clear that our growth forecast in April’s regional outlook will be significantly lower.”

The impending economic downturn has seen the UN Economic Commission for Africa estimate the continent will see growth drop to 1.8%, from a previous estimate of 3.2%. Among other things, the decline is due to disruption of global supply chains and a crash in oil prices that will cost up to $65 billion in export revenues.

Brookings lowered its forecast for Sub-Saharan Africa’s GDP growth in 2020 to between 1.5% to 2.5% from a previous forecast of 3.6%. Coulibaly thinks even if African governments are quick to contain the spread of the virus and global conditions stabilize, the region’s growth will decline by one percentage point. The worst-case scenario of a long-lasting pandemic and slow global economic recovery would see a decline of two percentage points.

Another key problem on many policymakers’ minds now is debt. After a decade of cheap credit, many African countries have piled on debt to meet various needs, from infrastructure to health and education. But the terms of that credit haven’t always been the best, and the repayments will be much more onerous in the changed economic environment.

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The IMF and the World Bank have already called for debt relief for the world’s poorest countries, but also those with an unsustainable debt situation. Many African countries fall into both camps.

The concern here is obvious. If governments are paying down international debt rather than focusing on the potential health catastrophe in their country, it could have long-term disastrous consequences for neighbors and beyond.

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