It is legal to say the world as we know it has been kidnapped by the novel coronavirus, which has left thousands dead and millions who have contracted it. The United Nations Industrial Development Organization (UNIDO) confessed that “the economic crisis unleashed by the outbreak of COVID-19 is hurting economies, regardless of income level”.
According to its latest numbers, UNIDO indicated that both lower and upper–middle-income countries have been significantly impacted by COVID-19, with an average loss in industrial production across countries, standing at 18 per cent (high-income), 24 per cent (upper middle-income) and 22 per cent (lower middle-income).
The pandemic has hurt a lot of economies but more importantly has taken a toll in some developing countries, such as Kenya and Tanzania who rely on travel and tourism dealing a huge slap on foreign receipts.
The World Bank argues that the decline in the region will be mainly “due to large contractions in South Africa, Nigeria, and Angola driven by their reliance on exports of commodities whose prices have crashed as well as other structural issues. This will inevitably affect Africa’s participation in trade and value chains as well as reduce foreign financing flows.”
Further, global-giant investment bank Goldman Sachs argued that sub-Saharan Africa’s funding needs could surge by almost $75 billion. Hence—in light of this reality the continent requires a nearly $100 billion stimulus package to lift itself from the virus’ grip, per the continent’s finance ministers’ consensus arrived at on March 23, 2020 at the 53rd session of the Economic Commission for Africa in Addis Ababa.
However, according to the World Economic Forum (WEF), the pandemic has hit trade immensely. WEF organized a global online conference on the future of trade and investment in retrospect to the pandemic, and several ideas stood out the most.
According to the Trade Multi–stakeholder Conversation, merchandise trade volumes shrank by 3.0 per cent in the first quarter of 2020, compared to the previous year average and estimates suggest an 18.5 per cent drop for the second quarter. Services trade has been hampered by transport, travel and physical contact restrictions.
As other pockets of demand have displayed signs of surging such as trade–in medical equipment or video conferencing and cloud services, foreign direct investment is projected to fall drastically from 2019 levels of $1.5 trillion to nearly $1 trillion since 2005, according to United Nations Conference on Trade and Development (UNCTAD).
Although UNCTAD projected a decrease ranging from 5.0 to 10 per cent in 2021 and to initiate a recovery in 2022, governments and businesses must both shape effective trade responses to the immediate crisis and look to the future.
Also, foreign direct investment (FDI) flows to Africa are forecast to fall by 25 to 40 per cent in 2020. The negative trend will be exacerbated by low commodity prices. In 2019, FDI flows to Africa had already declined by 10 per cent to $45 billion.
However, there is room for improvement amid all the chaos. According to UNCTAD’s Economic Development In Africa 2019 report, from 2015 to 2017, total trade from Africa to the rest of the world averaged $760 billion in current prices, and the share of exports from Africa to the rest of the world ranged from 80 per cent to 90 per cent between 2000–2017 in total trade. The only other region with a higher export dependence on the rest of the world is Oceania.
WEF conference managed to draw several issues on trade that ought to be addressed by the global community and particularly could be a pinned issue to be eyed carefully by sub-Saharan Africa.
Subsidies and industrial policy
Until March 2020 the virus grip was projected to have shaved off $29 billion in Africa and will also wipe out almost 1.4 per cent of the continent’s $2.1 trillion GDP.
On the other hand, according to the World Bank biannual Africa’s Pulse report, as a result of the pandemic, economic growth in sub-Saharan Africa will decline from 2.4 per cent in 2019 to between -2.1 per cent and -5.1 per cent in 2020, depending on the success of measures taken to mitigate the pandemic’s effects. This means that the region will experience its first recession in 25 years.
Africa, the youngest continent on the planet could be under economic strain if robust interventions are not fully implemented.
WEF argues that governments have injected trillions of dollars of stimulus to keep economies afloat in recent months. These interventions can help save jobs or drive a green transition but they can also create negative spill-overs.
“Principles for well-designed government intervention should help governments achieve the impact they want while keeping a level playing field and avoiding waste,” WEF argues.
It is with no doubt that industrial policy, is considered as a cornerstone of development strategy in Africa (Kenya, Tanzania, Ethiopia and South Africa to mention a few); hence—it is the right moment to reassess policies to ensure they are fail–proof and effectively support governments to deliver an inclusive and sustainable recovery.
Economic shocks are sometimes unpredictable and natural hazards too—which cause strain on Africa’s economies, limiting mobility, disrupting production, supply and consumption, and the region needs to be ready and strong.
The region has been setting up mechanisms to boost the flow of merchandise and develop value chains over space and time. Even before the virus outbreak, intra-trade factors were being looked over for maximum sustainability.
This reflects on issues such as harmonizing the continent’s trade-related regulations, customs controls, and reduce both tariff and non-tariff barriers, and meanwhile, improve the infrastructures and connectivity to lower the logistics cost while domesticating the African Continental Free Trade Area (ACfTA).
According to the World Bank’s Senior Economist Douglas Zhihua Zeng in the recent decade, Africa’s trade linkage has been steadily increasing.
“Based on an upcoming study on Africa-Asia global value chain (GVC) linkages, exports to Asia are positively correlated with exports to the rest of the world, and increased exports from a Sub-Saharan African country to Asia tend to raise exports to the rest of the world as well as to other African countries, thus, helping Sub-Saharan African nations move up the value chains” Zeng argues.
More importantly, the entire perspective of resiliency ought to incorporate everyone, as the virus limits countries’ collective efforts to downplay unemployment and inequalities scenarios in the region. In South Africa for instance (with unemployment standing at 30 per cent), the region needs to secure every stakeholder—via sound policies on social protection and taxation.
There is a need to enhance and rebuild African economies, particularly with the idea of introducing greener economic approaches into development strategies, especially for Africa—which gets a significant amount of climate change strain.
Rethinking operations into a new domain, that is much simpler and more robust. As technology took the helms of power during lockdowns and resuscitate the global economy, “streamlining processes and making information easier to find will pay off”.
“Digital services have kept many of us connected during the pandemic. Barriers to these and other services need to come down. For this, we need to build trust in each other’s’ regulations and the global digital economy, not least in data governance and online consumer protection” WEF argues.
It is vital to gain strength within international trade agreements sphere to support its growing but still fragile export sectors.
Hence according to Zeng, “Africa would not only need the existing favourable treaties such as African Growth and Opportunity Act (AGOA) and Everything But Arms (EBA) but also should pursue more such treaties with other major economies, including India, Japan, China and other such markets.”
Africa has the potential to excel, even amid this challenging time, as before the pandemic hit Africa showed good progress including enhancing the digital landscape from 13 per cent mobile internet connection rate in 2014 to 24 per cent in 2018.
The rise of digital payments in East Africa where Tanzania, Kenya and Uganda (with nearly 102 million users, according to the African Report, has ushered mobile money services to a whole new level, giving the unbanked population customized financial services suited to their needs.
In a nutshell, Africa is poised for growth as it is now taking a gradual shift from private consumption toward investment and exports, and supported by the still-postponed African Continental Free Trade Area that stands to transform the region’s economies if utilised effectively.