The impact of COVID‐19 on African economies: An introduction

Abstract

Over the last 14 months, Africa and the entire world experienced the worst Socioeconomic challenges of alarming proportion. Specifically, on 30 December 2019, an epidemiological alert was issued by the Chinese Wuhan local health authority of the emergence of a new strand of the coronavirus—severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2)—which causes what has come to be known as coronavirus disease 2019 (COVID-19). Africa's first case of COVID-19 was recorded in Egypt on 14 February 2020, followed by Nigeria on 27 February 2020. Early in March 2020, Algeria, Cameroon, Morocco, Senegal, South Africa, Togo and Tunisia reported positive cases. From then, the virus spread to all over Africa as in other parts of the globe. With the exception of a few, most governments all over the world initially downplayed the pandemic until it turned to sustained community-level transmission. Once governments noticed cases getting out of hand, the first response became mask mandates, closure of the international borders, with more stringent social distancing measures, and subsequent physical restrictions (lockdowns and shutdowns) of the Socioeconomic activities to restrict human movements, excepting those on essential services like medical and security personnel. Testing, tracking, therapeutic management of those infected as well as quarantines and isolation of positive cases became the norm. Governments' economic responses included fiscal (budget support for the health sector, through either re-prioritization or expansionary policy), expansionary monetary and macro-financial policies, as well as exchange rate/balance of payments adjustments. These responses were adjusted according to local country conditions as the pandemic progressed. Following the approval of some vaccines for emergency use in developed countries, vaccination is gradually progressing in Africa—after what was dubbed 'vaccine nationalism' in parts of Europe, preventing the exportation of vaccines to Africa, and thus prompting the intervention of Covax (the GAVI Vaccine Alliance) to help procure vaccines for African countries. International financial institutions (including the African Development Bank) collectively mobilized a global response package of US$230 billion between 2020 and 2021, to aid the global response to the coronavirus pandemic. The funds were raised to reduce the pandemic's impact, of which US$75 billion were to be directed to the world's poorest countries in 2020. The African Development Bank (AfDB) in April 2020 created the US$10 billion COVID-19 Rapid Response Facility (CRF), and launched a US$3 billion 'Fight COVID-19 Social Bond', the largest of its kind at the time to combat the crisis. Also, AfDB approved a grant of US$27.33 million to the Africa Centres for Disease Control and Prevention (Africa CDC) meant to support the continental strategy on COVID-19. There is also the African Union (AU) COVID-19 Response Fund, aimed at raising resources to strengthen the continental response to COVID-19 by supporting pool procurement of diagnostics and other medical commodities by Africa CDC for distribution to the Member States, and mitigating the pandemic's Socioeconomic and humanitarian impact on African populations. All entities and individuals can contribute to the fund, provided that the objectives and purpose of these are not inconsistent with the AU's purpose and objectives. We note that highly contagious mutants of the SARS-Cov-2 variants have emerged in the United Kingdom (B.1.1.7), South Africa (B.1.351), Brazil (P.1, which causes the E484K mutation), California (L452R), New York (B.1.526) and India (new 'double mutant' variant—L452R and E484Q mutations coming together), among others. These have engaged experts to determine their impacts, especially their impact on the effectiveness of vaccines approved so far for emergency use—Pfizer, Moderna, Johnson & Johnson (mostly deployed in the United States and a few developed countries) and AstraZeneca (mostly being used in the United Kingdom, parts of Europe and Africa). The rest of this introduction to the special issue can be adumbrated as follows. Section 2 examines COVID-19 confirmed and active cases in Africa. Section 3 discusses the Socioeconomic effects of COVID-19 on African economies, and Section 4 summarizes the papers selected for this special issue. Section 5 presents a brief conclusion. As the COVID-19 pandemic accelerated, Socioeconomic damage was increasing in Africa and all over the world. However, the curve of the pandemic within and outside the continent is flattening gradually in some individual countries while rising in others. Accordingly, as of 7 March 2021, about a year after the first coronavirus was detected in Africa, the total number of confirmed COVID-19 cases had reached 116,830,061 globally, the majority of which (30.2%) occurred in Europe, followed by North America (28.6%), Asia (21.9%), South America (15.9%) and Africa (3,964,055 or 3.4%). It must be noted that though Africa's reported confirmed cases (see Figure 1) are the lowest globally, testing has been extremely low in the continent. Source: Authors, using African Development Bank (2021a) From a regional perspective, confirmed cases were highest in Southern Africa (47.4%), followed by North Africa (29.8%), West Africa (10.13%), East Africa (10.12%), and central Africa (2.6%) (see also Figure 2). On a country basis, 78.7% of confirmed cases were in nine countries, namely South Africa (38.4%), Morocco (12.3%), Tunisia (6.0%), Egypt (4.7%), Ethiopia (4.2%), Nigeria (4.0%), Libya (3.5%), Algeria (2.9%) and Kenya (2.7%). Source: Authors, using African Development Bank (2021a) The number of global active cases reached 40,250,009 as of 7 March 2021 against Africa's 317,794. Active cases in Africa showed a downward trend from the end of December 2020 (see Figure 1). From a regional perspective, North Africa accounted for 33.6% of active cases in Africa, followed by East Africa (27.7%), Southern Africa (23.3%), West Africa (12.2%), and Central Africa (3.2%) (see also Figure 3). On a country basis, six countries account for 53.7% of the active cases in Africa as of this date. These countries are Algeria (32,157), Egypt (31,489), South Africa (29,516), Tunisia (27,104), Ethiopia (25,209) and Uganda (25,065). Source: Authors, using African Development Bank (2021a) In terms of new cases, a clear case of two-wave periods—June/July/August 2020 and December 2021/January 2021—can be noticed in Africa, as demonstrated in Figure 4. Unfortunately, a third wave is underway. Source: Authors, using data from WHO (2021)Coronavirus (COVID-19) Dashboard (Online) As with previous pandemics—H1N1 in 1918–1919 (Spanish flu), H2N2 in 1957-58 (Asian flu), H3N2 in 1968–1969 (Hong Kong flu), and H1N1 in 2009–2010 (swine flu), and HIV/AIDS (1980s)—COVID-19′s channels of economic impacts include demand-side and supply-side channels. Demand-side channels capture the effects on consumption, investment, trade, and travel (working through avoidance, fear, and uncertainty), while supply-side channels capture workforce and supply-chain disruptions, business closures, and rising costs of doing business (World Bank, 2020). The effects have been amplified by demographic profiles (especially the young vs. the old), poor health care systems, poor or lack of social safety nets, cross-country spillovers due to travels, and governments' macroeconomic responses (including their credibility). The COVID-19 pandemic and the measures deployed by governments and private sector institutions to contain its spread—lockdowns, quarantines, social distancing, travel bans and restrictions, masking requirements, shutdowns of non-essential activities—have caused severe socioeconomic dislocations on African economies. Many African governments responded with programs to mitigate personal hardship and disruptions to economic life. At the same time, central banks have cut policy rates and injected liquidity on an extraordinary scale in the economies. Therefore, it is not surprising that the pandemic and the actions taken to contain it have exacted substantial costs on African economies, including deep economic contractions. Specifically, some of the socioeconomic impacts of the COVID-19 pandemic are enumerated below. The human cost of COVID-19 has been enormous. Apart from the human suffering of the confirmed cases, loss of human capital has been devastating. The number of global deaths due to coronavirus reached 2,593,210 by 7 March 2021, with Africa accounting for 4.1% at 105,713 (see Figure 1 as well). Southern Africa accounted for 54.6% of African deaths at that date, followed by North Africa (31.8%), East Africa (7.1%), West Africa (4.9%), and Central Africa (1.7%) (see Figure 5 also). On country basis, five countries with the highest number of reported deaths due to COVID-19 since the start of the pandemic, were South Africa, Egypt, Morocco, Tunisia and Algeria, ranging from 50,678 in South Africa to 3013 in Algeria. Source: Authors, using African Development Bank (2021a) The case fatality rate (CFR) or deaths per confirmed cases for Africa stood at 2.7% by 7 March 2021. This was higher than the global CFR rate of 2.2%. From a regional perspective, West Africa had the lowest CFR at 1.3%, followed by Central Africa at 1.7%, East Africa at 1.9%, North Africa at 2.8%, and Southern Africa at 3.1%, which was higher than the African average. From a country perspective, as of 7 March 2021, 16 African countries, namely Sudan (6.2%), Egypt (5.9%), Liberia (4.2%), Mali (4.2%), Zimbabwe (4.1%), Comoros (4.1%), Eswatini (3.8%), Niger (3.7%), Somalia (3.6%), Tunisia (3.5%), Chad (3.4%), Malawi (3.3%), South Africa (3.3%), The Gambia (3.2%), Lesotho (2.9%) and DRC (2.7%), recorded case fatality rates higher than or equal to the African average. As Figure 6 shows, daily deaths followed the two waves of daily confirmed cases shown in Figure 4. Source: Authors, using data from WHO (2021) Coronavirus (COVID-19) Dashboard (Online) In terms of vaccinations, 10,109,006 vaccinations had been administered in Africa, representing just 1.9% of total global vaccinations, as of 28 March 2021. Out of the African total to date, Morocco accounts for 75.5% of the vaccinations. However, with respect to the vaccines proportionate to population size, Seychelles has administered vaccines to 98.1% of its population, taking second place globally after Israel, which has achieved 100% coverage (African Development Bank, 2021b). Africa has been hard hit by the COVID-19 pandemic, with the African Development Bank (2021c) estimating that economic growth in the continent shrank by 2.1% in 2020. Economic growth is forecast to resume at a moderate average pace of 3.4% in 2021 before leaping to 4.6% in 2022 (see Figure 7), underpinned by an expected rebound in commodity prices, resumption of tourism, a rollback of pandemic-induced restrictions, widespread roll-out of COVID-19 vaccinations, and barring persistent outbreaks in several countries, both in the continent and its trading partners. However, the overall African average masks regional differences. Among Africa's sub-regions, the hardest hit in terms of economic growth is Southern Africa, whose growth is estimated to have fallen by 7.0% in 2020. It is followed by Central Africa (−2.7%), West Africa (−1.5%), and North Africa (−1.1%). East Africa, which is least dependent on natural resources, managed an estimated 0.7% growth in 2020 (Figure 8). The overall African average masks marked differences with respect to key natural resources-dependent economies. As shown in Figure 9, among oil-exporting countries, Libya was the hardest hit with a steep fall in estimated GDP growth in 2020 at 60.3%, followed by Equatorial Guinea (−6.1%), Algeria (−4.7%), Angola (−4.5%), and Nigeria (−3%). Among key metals and mineral-dependent economies, Botswana's economy was estimated to have contracted by 8.9%, followed by South Africa (−8.2%), Zambia (−4.9%), and Liberia (−3.1%) (Figure 9). Key tourism-dependent economies were not spared either, due to travel restrictions: the Mauritian economy was estimated to have declined by 15%, followed by Seychelles (–12%), and Cabo Verde (−8.9%) (Figure 10). Source: Authors, using African Development Bank (2021c) data Apart from the 2.1% decline in economic growth in Africa, other macroeconomic fundamentals have weakened as a result of the COVID-19 pandemic. For example, as African Development Bank (2021c) has observed, large exchange rate depreciations occurred in Africa partly as a result of the disruptions in external financial flows, including remittances, foreign direct investment, portfolio investment, and official development assistance. Indeed, exchange rates across the continent remained about 5% weaker than levels before the pandemic, on average, following sharp depreciation in the first half of 2020. Also, according to the African Development Bank (2021c), counterbalancing forces in Africa kept average headline inflation stable at 10.4% in 2020, core inflation (in food and energy prices) has risen in many countries. Inflation trends were uneven in 2020 in African countries, as persistently soft demand helped contain inflationary pressures in some countries such as Kenya and South Africa. However, inflation (especially food prices) remained elevated or even accelerated in response to weaker currencies and food price pressures in others, including Angola, Ethiopia, Ghana, Nigeria and Senegal. Indeed, in some countries, rising food prices adversely affected household incomes and consumption, prompting some governments to implement policy measures to improve food provision, support the agriculture sector, and provide cash transfers to the poor. The COVID-19 shock triggered a new round of cuts in central bank policy rates such that in most countries, the inflation rate has far outstripped the return on both short-term and long-term investment instruments. The pace of monetary policy easing across a number of countries in the continent slowed somewhat in the second half of 2020, particularly in countries experiencing inflationary pressures. Many countries, despite rising inflation, have maintained the monetary policy ease. The year 2020 witnessed a huge increase in government indebtedness, as economic activity and government revenues sharply fell, whereas pandemic-related spending rose appreciably. Global public debt is estimated to have reached 98% of gross domestic product (GDP) at the end of 2020 compared with 84% in 2019 (International Monetary Fund, 2021a). Preliminary estimates put government debt in SSA, for example, as having jumped on average 8 percentage points to 70% of GDP (International Monetary Fund,). In cash-strapped economies, governments (including Angola and Zambia) faced severe difficulties paying their sovereign debts hence seeking debt restructuring. Africa's fiscal deficits have been estimated to have doubled in 2020 to a historical high of 8.4% of GDP, resulting in increased debt burdens, though a gradual consolidation process is expected in 2021 and beyond (African Development Bank, 2021c). With the huge financial resources required to contain the spread of the virus and its impact on African economies, many countries resorted to large-scale external and domestic borrowing, hence the fear of an imminent future debt crisis. The growing debt emanated from requirements for emergency funds to support the health responses to the pandemic, as available resources then were insufficient to deal with the magnitude of the problem. Many governments adopted additional discretionary monetary, financial and fiscal initiatives to soften the adverse effects on income, employment, and private balance sheets. Huge resources were also required to provide COVID-19 palliatives to vulnerable households and later purchase and distribute COVID-10 vaccines. The African Development Bank (2021c) estimates that African governments would need additional gross financing of about U$154 billion in 2020/21 to respond to the COVID-19 pandemic. Although the average debt-to-GDP ratio, a standard measure of debt sustainability, has stabilized at around 60% of GDP, it is expected to rise significantly in the short to medium term. Estimates by the African Development Bank (2021c) indicate that international remittances to Africa fell from U$85.8 billion in 2019 to U$78.3 billion in 2020, with Lesotho, Mozambique, and Seychelles having the most significant fall. According to World Bank (2020b) projections, remittances to sub-Saharan Africa (SSA) are expected to decrease significantly by around 8.8% between 2019 and 2020, from U$48 billion to U$44 billion due to the COVID-19 pandemic, restrictions in movement, and their devastating impacts on the global economy. This declining trend is expected to continue in 2021 when remittances are projected to decrease by around 5.8% to reach $41 billion (World Bank, 2020b). The decline in remittance inflows to SSA is due to a combination of factors, all driven by the COVID-19 crisis in major destination countries of the African diaspora, including EU countries, the United States, China, and Gulf Cooperation Council (GCC) countries: (a) SSA migrants are disproportionately affected in host countries as many are in precarious working conditions and informal jobs, with high vulnerability to contagion and loss of employment; and (b) SSA migrants are often excluded from social protection systems, health care, and government stimulus measures. Projections for the top five SSA recipients of remittances in 2020 include Nigeria (US$21.1 billion), Ghana (US$3.2 billion), Kenya (US$2.9 billion), Senegal (US$2.3 billion) and DRC (US$1.9 billion). Remittances to the Middle East and North Africa (MENA) region are projected to fall by about 8.5% in 2020 (falling from an estimated US$60 billion in 2019 to US$55 billion in 2020), and 7.7% (to about US$50 billion) in 2021. The projected decline in remittances to the region can be attributed to the projected persistence of the global slowdown due to the novel coronavirus. In 2020, Egypt is projected to see around −9% growth in remittance inflows, Lebanon −7%, Jordan −12%, Morocco −5%, and Tunisia −15%. 2020 top recipients in North Africa are Egypt billion), Morocco billion), Tunisia billion), and Algeria billion) (World Bank, The fall in remittance inflows to African countries has to a decline in these foreign exchange an increase in food and and a decline in the overall GDP and its as These are the development of the few The impact of the COVID-19 pandemic on for 2020 is especially with increased domestic fiscal in countries increased government spending to contain the spread of the pandemic and to support and households to reduce the adverse of the crisis. With respect to foreign direct investment, it is projected by the United on and Development (2021) that the COVID-19 pandemic caused a in globally in 2020. The pandemic is projected to have an impact in 2020, with a in 2021. estimates that global fell by to in 2020, from their 2019 of to thus for the first time since In 2019, to Africa declined by from billion to billion estimated to have fallen to billion in 2020, representing a fall of in 2020. The this fall include the direct impact of the pandemic, the health emergency as well as the damage of extraordinary measures that governments around the world are to support and The impacts were by low commodity prices experienced in of 2020. It was also estimated that for Africa, and fell by while and international fell by billion in 2019 to just billion in and North Africa an estimated of billion in 2020, from billion in It is to that Egypt remained the largest of in 2020 at an estimated in of a significant fall of In North Africa, was at an of its SSA, on the other hand, an estimated of representing a fall of from to low prices in of 2020, with the closure of development at the of the COVID-19 pandemic as a result of restrictions of movements, inflows to Nigeria declined from billion in 2019 to billion in 2020. inflows to South Africa to billion in 2020 from billion in 2019, though a number of large were Although inflows to Ethiopia and declined by (to billion) and (to billion), Senegal was of the few countries with higher inflows in 2020 as it representing a increase over the previous year the African capital activity in 2020 was the lowest in the last a significant decline in both and by and compared with 2019 The in activity increased by in 2020 compared to billion was raised from compared to billion raised from in public activity on the downward trend in the previous 4 with five recorded in 2020, the lowest in billion was raised through the five in 2020 compared with billion raised in In 2020, data from African (2021) indicate that March across in Egypt 30 Kenya Zimbabwe Morocco and As a result of the sharp decline of global commodity demand travel bans and restrictions to the spread of the most prices fell and This was particularly so for those commodities used in the Indeed, the of COVID-19 and the measures to its an in demand and a in Source: Authors, using data from the commodity prices Source: Authors, using commodity prices As and prices were most with the price by between the first of the virus were its in April 2020. The price at before a gradual in 2020. March 2020 the largest in prices on since The price also the largest decline in prices since The restrictions to the have in sharp in travel and which account for of and other economic Africa's faced an decline in their domestic revenues and foreign exchange thus resulting in sharp depreciation and on foreign In the overall was a of their fiscal which were even before the COVID-19 pandemic-induced in prices declined by between 2020 and April 2020, representing more than as as at the of the global financial crisis of However, the prices for metals driven by demand from prices, to experienced since 2020, their direct with economic activity (African Development Bank, World Bank, 2021a). However, some African countries experienced food price to from which the rise at the global As and most commodity prices over the second half of 2020. prices as fell particularly among the of the However, this rebound was more than the in other commodity prices as demand in prices has been witnessed since 2021. United on and Development estimates that global and fell significantly in the first half of 2020 due to the COVID-19 pandemic. of 2020 a in which by from the second It also that and of global are to in the by and Global and for 2020 are projected to be and than levels in 2019, United on and Development (2020b) that this would be the lowest growth for since the financial and the since then for The data from indicate that the growth rate fell by 2.8%, and in and The declined from in the last of 2019 to in of 2020, and to in of 2020 before to in the previous of 2020. On the other hand, the growth rate fell by and 8.4% in and Also, the declined from in the last of 2019 to in of 2020, and to in of 2020 before to in the previous of 2020. The African Development Bank (2021c) estimates that Africa's GDP per contracted by in terms in 2020, sharp in the of the As a result of the in among countries globally are projected to increase by of of in 2020 and 2021, while the of the population in rise by as as 4 percentage 5 of in (2021) new estimates indicate that the of the global population the international in compared with the of more when from the an rate of in would These new that the not be reached either of these two COVID-19 future effects high of the would that all economies at or 8.5% per per to about five the historical growth rates for sub-Saharan Africa. Indeed, in sub-Saharan Africa, for example, the decline in per by the pandemic of the largest in some 27 million to million new the large number of were on the of the impacts of COVID-19 are expected to by at least 3 in sub-Saharan Africa. Estimates by African Development Bank (2021c) indicate that about 30 million were in 2020 as a result of the pandemic. It is also estimated that about million fall in 2021. Unfortunately, those with levels of few and working in informal are most African Development Bank (2021c) that the monetary cost of the poor to the per be billion for 2021, representing about million on average per In and is projected to increase as a result of the impact of the pandemic on vulnerable such as and informal sector According to the World Bank COVID-19 has created the worst crisis to and globally in a It that COVID-19 is on the of young and the of and economies caused by the COVID-19 pandemic