African countries explore ways to bolster economies

Many countries in Africa, which registered its first COVID-19 case in mid-February and experienced a subsequent surge in numbers in March, swiftly began to implement measures to prevent the spread of the pandemic.

However, measures such as lockdowns and restrictions on movement have reduced income from the informal sector, tourism, exports and foreign remittances, all of which are among the largest contributors to African countries’ GDP.

The International Monetary Fund estimates that the continent’s economic growth will shrink by 1.6 percent, as the world enters into a recession with a preliminary estimate of $2 trillion as the projected comprehensive economic impact.

With the informal sector supporting approximately 85 percent of Africa’s labor force, it is estimated the income of workers in the sector dropped 81 percent after the onset of the pandemic.

The tourism sector, which has provided jobs to 24.3 million people in the region, accounting for 8.5 percent of the GDP, has been devastated.

The sector is facing a rapid reduction in demand, with a 12 percent decrease in tourist arrivals in the first quarter of this year and increased layoffs of employees, placing many small and mediumsized enterprises at risk.

The United Nations World Tourism Organization has said international tourist arrivals could decline by 58 percent to 78 percent this year, but this might change depending on the prevailing circumstances.

Many countries in the region, especially those in sub-Saharan Africa, export agricultural products and raw materials. Analysts have said the continent’s exports of food and agricultural products are worth $35 billion to $40 billion a year, and some $8 billion flows through intraregional trade in these products every year.

But the shutting down of airspace, and sea and land borders, has disrupted cross-border and international trade, resulting in a drastic fall in export revenues. In Kenya, for example, the flower sector is losing approximately 250 million Kenyan shillings ($2.35 million) per day and is expected to lose half of its value (60 billion Kenyan shillings) by the end of 2020.

Foreign remittances constitute a substantial share of GDP in Africa. According to a report in May from audit services provider Deloitte, remittance flows are expected to fall across sub-Saharan Africa from $59.1 billion to $48 billion, and the Middle East and North Africa from $56 billion to $47 billion.

This will further hurt the economies of some countries in Africa that had pinned hopes on remittances to jump-start their post-pandemic economic recovery.

The socioeconomic impacts of the pandemic could hinder the ability of African countries to set off on a recovery path. Expectations to enhance trade within the continent have perhaps been disrupted further by the postponement of the implementation of the African Continental Free Trade Area from July 1 to an unknown date.

Its effective application could have strengthened regional value chains, reduced vulnerability to external shocks, advanced digital transition and built economic resilience against COVID-19 and future crises.

However, not all is lost. African countries have been exploring various strategies to sustain their economies. For instance, the African Development Bank recently issued a $3 billion “Fight COVID-19” social bond, while the African Export-Import Bank has set up a $3 billion credit facility to support the national efforts.

Some governments are restructuring their budgets to prioritize spending toward mitigating expected negative impacts from

COVID-19 on their economies.

Countries in the region should consider implementing the African Continental Free Trade Area this year without delay. The benefits that will come along with this agreement will be instrumental in supporting the continent’s postpandemic economic recovery.

It is important for African governments to begin financial regulatory reforms to restructure and lessen the cost to African diaspora of sending remittances. It would encourage them to continue investing in their home country.

Aside from stimulus packages, governments in the region, while lifting travel bans, should focus on restoring the confidence of tourists, working with businesses to access liquidity support, establishing new health protocols for safe travel, and helping to diversify their markets.

Finally, African governments should take advantage of debt restructuring by international institutions and push for both bilateral and multilateral agreements to meet their debt obligations while sustaining their economic development.