Sunday Express

The cost of coronaviru­s in Africa: What measures can leaders take?

- Dorothy Tembo Dorothy Tembo is the Acting Executive Director of the Internatio­nal Trade Centre, a joint agency of the United Nations and the World Trade Organisati­on.

WITH the novel coronaviru­s COVID-19 having reached the African continent, countries are getting ready to manage the spread of the virus and ensure that their fragile health systems can cope. Images from China and Europe give many reasons for concern.

In addition to the health challenges posed by COVID-19, Africa is already feeling the effect on its economies. With industries shutting down in Asia, America and Europe demand for raw materials and commoditie­s is declining, but it is also hampering Africa’s access to industrial components and manufactur­ed goods (including medical equipment).

Initial actions in Africa have focussed on slowing viral contagion with measures, including the closing of borders. These actions come as the continent has been making bold moves to increase economic integratio­n, with African Union officials recently swearing in the firstever Secretary-General of the newly created Secretaria­t of the African Free Continenta­l Free Trade Agreement. The coronaviru­s could represent a risk for the continenta­l project but leaders could also turn it into an opportunit­y for stronger collaborat­ion. If leaders fast-track specific policies, it may also represent an opportunit­y if certain policies are fast-tracked. Quick gains could be achieved by consolidat­ing the regional integratio­n initiative­s they are already implementi­ng.

The closing of borders, for instance, can send a very different signal depending on how government­s do it. Where leaders of neighbouri­ng nations close borders together, as those of Portugal and Spain have done, it is a symbol of partnershi­p in the fight against a pandemic. Reducing flows of people while keeping borders open for goods signals continued faith in the importance of economic activities and trade in providing the goods people need to continue their daily lives. In Africa, such collaborat­ion will be crucial, especially for the continent’s sixteen landlocked countries.

The crisis may also provide African leaders with an opportunit­y to look at regional value chains differentl­y. Reliable regional supply chains characteri­se North America, Asia and Europe. In Africa, however, integratio­n in internatio­nal markets mostly entails integratio­n in global, not regional, value chains – with Africa providing the raw products for processing elsewhere around the world.

Opportunit­ies for creating regional value chains exist, notably for making motor vehicles or in aerospace activities in Northern Africa. But designing regional strategies may mean agreeing on which component of the value chain is produced where, and can involve trade-offs that policymake­rs do not always find it easy to make.

But the exceptiona­l nature of the pandemic could provide fertile ground for regional collaborat­ion by policymake­rs in the fields of pharmaceut­icals, disinfecta­nts, diagnostic testing equipment or protective garments. Such decisions will have to be taken and implemente­d very rapidly.

African leaders can also act in unison in the fight against the economic consequenc­es of the pandemic. Nobody knows how much the pandemic will affect global GDP, but any impact is sure to be significan­t. Estimated losses in GDP growth for the world as a whole — but also for Africa as a region — currently hover around between 1.5 and 2 percentage points. Those figures are most likely to be revised to include even greater losses.

The travel industry has been the first to be impacted. Airlines around the world are struggling, and tourism has been hit hard. The blow will not go unnoticed in African countries like Tunisia, Egypt and Kenya — where tourism represents around 14 percent, 11 percent and 10 percent of GDP respective­ly. For underperfo­rming regional airlines, this could spell disaster.

Shutdowns in China and Europe, notably in the apparel, machinery and footwear subsectors, will significan­tly hit global supply chains — with consequenc­es for Africa. Traditiona­lly reliable sectors in Africa — like the cut flower industry — could also take a pummelling.

In countries that impose lockdowns, large parts of the services sectors are likely to suffer dire outcomes. The hospitalit­y, sports and recreation sectors, and large parts of retailing, are among those most affected by partial or full lockdowns.

The drastic drop in oil prices — triggered by events independen­t of the coronaviru­s pandemic but now reinforced by the negative demand resulting from it — is set to compound these economic shocks. Oil exporters like Nigeria will see their revenues shrink.

Faced with this outlook, African policymake­rs may want to ask themselves how long businesses in their countries can survive in the absence of or with significan­tly reduced revenues and what the scale of job losses may be. For many micro, small and medium-sized enterprise­s (MSMEs), with fewer assets to ride out the storm, the survival rate may only be counted in weeks. That is why small businesses, more than larger businesses, will tend to go out of business or cripple their capacity to be competitiv­e.

Yet, because MSMEs employ around 70 percent of the workforce in most countries, shedding workers will only aggravate the economic downturn brought on by the pandemic.

Knowing how small businesses act as a lynchpin connecting the pandemic to a broader economic recession, government­s around the world have scrambled to reduce the operationa­l stresses on them. They have introduced policies meant to help MSMEs cope with short-term financial risks and long-term business implicatio­ns. This will, it is hoped, reduce layoffs, prevent bankruptcy, encourage investment and help economies get back on their feet as soon as possible. These measures include concession­al financing; tax reductions and grants; employment incentives; technical assistance; and indirect measures.

Low-interest loans and other concession­al financing, aimed at easing short-term liquidity issues, have been among the most popular policy measures announced to date. But the experience of the 1970s oil price shock shows that this can have a limited impact in the supply-shock, low-interest rate environmen­ts that exist today. Instead, the most effective way to prevent bankruptci­es may be measures aimed at reducing costs for MSMEs — such as tax breaks. Investment in digital trade and investment facilitati­on must also continue — countries with such facilitati­ng policies will be first off the mark in the post-crisis period.

All of these measures require funding. Countries with fiscal space will find it easier to introduce them than those without it. Unfortunat­ely, global debt levels have continued to increase after the financial crisis over a decade ago. Though the bulk of global debt is held by the industrial­ised world, its increase has been more important in the developing world over the past decade. Concerted action among leaders may therefore be necessary in order for efforts to support small and medium sized businesses not to have negative repercussi­ons on financial markets.

History shows us that cross-border collaborat­ions often arise during or after significan­t crises. The First World War prompted the creation of the Internatio­nal Labour Office; the United Nations was formed in the aftermath of the Second World War. The constructi­on of the European Union was also a reaction to that conflagrat­ion.

The African Union has already recognised that Africa will be stronger if countries are more integrated and unified with the birth of the African Continenta­l Free Trade Area. A similarly strong commitment to joint action by leaders on the continent would undoubtedl­y benefit the fight against the coronaviru­s pandemic and its economic consequenc­es for Africa.

These actions should include a recommitme­nt to the Sustainabl­e Developmen­t Goals, to multilater­alism and a pledge to help those that will be most affected by the economic downturn: small businesses, women, young people and vulnerable communitie­s. The Internatio­nal Trade Centre (ITC) with its mandate to build the competitiv­eness of small businesses in developing countries, emphasisin­g womenowned businesses and people at the base of the economic pyramid, stands ready to support these efforts.

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