African Economic Outlook 2020 Supplement: Here’s what the AfDB’s latest publication says about Africa’s growth amid COVID-19 outbreak

- Advertisement -

According to the African Development Bank’s latest publication titled ‘African Economic Outlook 2020 Supplement’, Africa’s economic growth could rebound in 2021, provided that governments manage the COVID-19 infection rate well.

In a comprehensive socio-economic assessment of the pandemic’s impact, the supplement cautioned that the growth outlook for 2021 and beyond would depend largely on African governments’ effectiveness in flattening the curve of the outbreak and policies to reopen economies.

Charles Leyeka Lufumpa, Acting Chief Economist and Vice President for Economic Governance and Knowledge Management, at the African Development Bank, said: “To reopen economies, policymakers needed to follow a phased and incremental approach that carefully evaluates the trade-offs between restarting economic activity too quickly and safeguarding the health of the population.”

“Economic activities can be restarted incrementally on the basis of the transmission risks of different sectors,” Lufumpa said.

The supplement also noted that the curve of the pandemic in Africa was flattening gradually.

Here are the main highlights:

Macroeconomic Performance

• According to the report, the real GDP in Africa is likely to contract by 1.7 per cent in 2020, dropping by 5.6 percentage points from the January 2020 pre-COVID-19 projection, if the virus has a substantial impact but of short duration.

• The most affected economies are those with poor healthcare systems, those that rely heavily on tourism, international trade, and commodity exports, and those with high debt burdens and high dependence on volatile international financial flows.

• The overall impact of the pandemic on socioeconomic outcomes remains uncertain, however. It will depend crucially on the unfolding epidemiology of the virus, the extent of its impacts on demand and supply, the effectiveness of public policy responses, and the persistence of behavioural changes.

• The pandemic has already triggered an increase in inflation in the continent, in some cases by more than 5 per cent in the first quarter of 2020 due to disruptions in the supply of food and energy, the bulk of which are imported. Overall, although headline inflation, which includes food and basic energy prices, is expected to rise, core inflation might remain stable until demand picks up after the pandemic.

Socioeconomic Impacts

• The spread of the virus in Africa depends largely on the preparedness of countries to separate and treat infected patients, posing a major risk of a public health emergency because of the region’s high vulnerability to disease and low healthcare system preparedness.

• Although the number of people in extreme poverty in Africa (using the $1.90 international poverty line) was projected to reach 425.2 million in 2020 under the no-outbreak scenario, COVID–19 could increase it further, to 453.4 million in the baseline scenario and 462.7 million under the worst-case scenario.

• About 773.4  million Africans were employed in 2019, projected under the pre-COVID–19 assumptions to grow to 792.7 million in 2020. Under the baseline scenario of a 1.7 per cent GDP contraction, employment is projected to decline by 24.6 million jobs in 2020.

• The crisis would also affect the nature of surviving jobs, since wages and working hours for those in the formal sector could be downgraded, and the number of workers switching to informal sector jobs could increase as a survival strategy to maintain incomes in the face of lockdowns and restrictions.

Foreign Direct Investment & Remittances

Policy Options

Across Africa, the response must be well-sequenced and multipronged, involving:
– A public health response to contain the spread of the virus and minimize fatalities
– A monetary policy response to ease liquidity constraints and solvency risks
– A fiscal response to cushion the economic impacts of the pandemic on livelihoods and to assist businesses
– Labour market policies to protect workers and their jobs
– Structural policies to enable African economies to rebuild and enhance their resilience to future shocks.

Public Health Responses

• Develop effective information sharing and communication strategies.

• Redirect resources to the public health sector and develop sound health emergency plans.

• Invest in health preparedness to update and upgrade healthcare systems.

• Increase the number of healthcare workers. Africa’s education systems must change to prioritize public health curricula and improve the quality of the programs offered to students.

• Allocating more financial resources to the health system will be fundamental to remedying the structural underinvestment.

Labor Market Responses

“The impact of COVID–19 on Africa’s labour markets will have disproportionate impacts on vulnerable groups, notably youth and women, who are engaged in the informal sector, or with only casual job opportunities in the formal sectors,” the report added.

This situation needs carefully designed policies targeting people in vulnerable situations:

• For formal sector workers, governments could defer payroll taxes for small and medium enterprises (a third of them being owned by women) or create mechanisms for facilitating commercial credit lines that would be publicly funded.

• For workers in the informal sector, an option is to provide cash transfers by using digital technology tools such as mobile money transfer, but also by proceeding to the distribution of food staples, water, and hygiene products that may reach them faster, particularly if they are not digitally connected.

• Short-term incentives to healthcare and social workers such as bonuses, and in the medium-to-long term measures to address the gender pay gap.

Structural Policies

To prepare for a post-COVID–19 world and greatly increase resilience, governments should address structural bottlenecks that make the continent more vulnerable to future shocks. The policies they put in place in the aftermath of the epidemic will determine their long-term economic trajectories.

To reopen economies, the supplement recommended that policymakers needed to follow a phased and incremental approach that carefully evaluated the trade-offs between restarting economic activity too quickly and safeguarding the health of the population. They also must build public trust and buy-in and address structural bottlenecks that make the continent more vulnerable to future shocks.