COVID 19: African Economies sliding into Recession?

By Emmanuel Allottey

COVID-19 has delivered an enormous setback to the growth prospects of many economies in Africa. The combination of government-imposed lockdowns and other restrictions needed to address the public health crises have resulted in reduction in economic activity and ultimately national output. Africa’s largest economies are anticipating a contraction in economic activity and have downgraded their domestic outlooks. The continued decline in economic activity will lead to the worst recession in Africa’s history.

Recent World Bank reports indicate that economic activity in Sub Saharan Africa is on course to contract by 2.8% in 2020. This is an aggregated average, with sharper deterioration in individual African states. South Africa’s output is projected to contract by 7.1% with the economy of Nigeria expected to shrink by 3.2% this year. The central bank of Botswana anticipates a contraction of 13.1% this year, the deepest contraction in decades. These forecasts highlight the negative impact of COVID 19 with expectations of recovery of economic activity in 2021.

The implementation of different economic interventions to mitigate the impact of COVID 19 by African governments will come at a cost. Economic policies, including monetary and fiscal policies introduced by governments are designed to sustain the functioning of essential sectors and support of the economy. The deployment of these economic interventions will be stretching an already constricted budget. Budgeted projects will have to be suspend or deferred to the detriment of national progress.

African economies are heavily reliant on commodity exports. The commodity market is facing a decline with exporters of energy or industrial commodities to be particularly hard hit. Oil represents 80% of Nigeria’s exports. Angola and Libya are among oil led economies that are directly impacted by the decline in commodity prices. Demand for metals and transport-related commodities such as rubber and platinum have also drastically reduced. Tourist reliant economies have come to a grinding halt as international travel restrictions have limited tourist visits.

African economies are expected to recover in 2021, however this is not guaranteed. Ratings agency Moody’s have downgraded the outlook of many African nations taking into consideration the deterioration in fiscal strength and structural growth. Post COVID 19, African nations will have the arduous task of rebuilding their economies and credit ratings.

The economic landscape in Africa is changing dramatically and what remains is the uncertainty of how long it will take to emerge from this pandemic.

7 views0 comments