The world is looking forward to 2021 as a new dawn for the global economy following the devastation caused by the Covid-19 pandemic in 2020.
This year has shaping up to be a very difficult one for the global economy since many countries were unprepared for the health pandemic. Lockdowns seemed like the only plausible way to protect lives and preserve health systems but in enforcing them, an economic crisis was triggered spreading as quickly as the virus itself.
For the first two quarters of this year, data from the United Nations Conference on Trade and Development (UNCTAD) shows that the pandemic saw economic output contract more sharply than in 2008-2009. In some cases, the pandemic-induced depression registered the steepest drop on record.
“Estimates for the year point to a generalized global recession matching the Great Depression of the 1930s,” notes UNCTAD.
Globally, though, the tidings next year brings may be uneven for the different economies even with the world resetting to the new normal. The pandemic seems to have been brought under manageable controls and anything is possible in the next 5 months.
But debt remains a challenge for developing nations, most of which are in Africa.
UNCTAD points out that on the eve of the Covid-19 outbreak, the total external debt stocks of developing countries and economies in transition reached US$10 trillion, a new record high. This amount was more than double the figure of US$4.5 trillion in 2009.
“The average ratio of total external debt-to-GDP for all developing countries rose from 25 per cent in 2009 to 29 per cent in 2019. This figure rises to an average 38 per cent in 2019 if China’s very large developing economy is excluded, owing to its modest ratio of external debt to GDP,” notes the latest UNCTAD report: From global pandemic to prosperity for all: avoiding another lost decade.
For Africa, just like with other economies around the world, UNCTAD points out that next year will likely see a rebound.
However, it will be uneven within and across countries and uncertainty will persist. Unemployment will be on an upward trend, more and more companies will be facing the threat of bankruptcy; supply chains will be fragile; confidence will be shaken; demand will be weak.
“Debt levels across the world, in both the public and private sectors, will have risen significantly from the historically high levels registered before the crisis. In this condition, the wrong policy steps – and ignoring the experience of the last decade – could trigger further shocks which would not only derail recovery but could usher in a lost decade.”
UNCTAD also expects Africa to register a recession in 2020 and an expansion in 2021.
The contraction will be 3 per cent this year, and the expansion of 3.5 per cent next year. The decision by numerous governments in Africa to pre-emptively implement containment measures in mid-March to prevent a widespread outbreak of Covid-19 in their countries went a long way in stemming the pandemic in the continent.
However, the economic ramifications have been significant. The detrimental impact in terms of levels of poverty and income inequality were exacerbated by the high proportion of workers in the informal sector and the lack of adequate social safety nets. In addition, the absence of necessary policy space to enact suitable fiscal stimulus and support have worsened the situation.
Given the diversity of the region, this scenario can be broken down in various qualitatively distinct patterns.
In the case of Angola, Nigeria and other oil-exporting economies, the contraction in GDP is likely to be particularly pronounced, as these countries suffer the twin shock of the economic fallout from the pandemic as well as the precipitous drop in oil prices.
In the case of South Africa, which has been the hardest-hit country in the continent in terms of infection rates, slow growth and macroeconomic imbalances before Covid-19 and the application of strict lockdown measures in an effort the contain the virus’ spread will translate into a severe recession which will have negative consequences in terms of employment as well as already elevated poverty and inequality levels.
For Ethiopia and Kenya, the impact of the pandemic is compounded by locust swarms which have decimated agricultural production in the two countries.
The decline in agricultural output compounds the negative impact on trade, tourism, investment and consumption spending resulting from the economic upheaval brought about by the pandemic and ensuing containment measures.
For its part, Rwanda – which has been one of the fastest-growing economies in the continent in recent years – will see a significant deceleration in its growth rate in 2020 as the global impact of the pandemic provokes a weakening of demand and prices for Rwanda’s main export products – which include agricultural and mining commodities – as well as a drop in FDI, flows to the country.
The latest supplement by the African Development Bank (AfDB) shows that West and Central Africa will have higher concentrations of people falling into poverty from the pandemic.
Households living in the West and Central African regions would face a higher risk of falling into extreme poverty due to the pandemic than households in other regions. In the baseline scenario, the rate of extreme poverty would increase in West Africa by 3.2 percentage points to 41.8 per cent in 2020 and 4 percentage points from 37.8 in 2021 compared with the pre-Covid–19 projection.
In Central Africa, extreme poverty rates would increase by about 2.7 percentage points in 2020 from 54.9 and 2021 to 57.4 per cent.
The Democratic Republic of Congo is likely to drive the slide in Central Africa given that it has both the biggest projected population of the region (89.5 million, or 61.9 per cent in 2020) and the highest rate of extreme poverty (72 per cent in 2020 in the baseline scenario).
Similarly, Nigeria’s population and economy, particularly its high dependence on the severely hit oil sector, could explain the poor performance of the West Africa region.
Both Central and West Africa include many oil and commodity exporters severely affected by declines in prices.
In East Africa and Southern Africa, poverty impacts will also be large as the regional economy slows due to lower demand among trading partners, disruptions in supply chains, lower domestic production, and reduced tourism and hospitality activities.
In the aftermath, some 59–60 per cent of Africa’s new extreme poor would live in Central and West Africa in 2020, with less than 1 per cent in North Africa.