How Coronavirus (COVID-19) will Affect African Economies

Updated: Mar 26, 2020

Over 1,200 cases of COVID-19 have been reported in 43 African countries, with 77 recoveries and 26 deaths as at 24th March 2020.

It’s a health crisis and if it hits your country it could have very devastating direct economic effects. Some of the effects are visible and involve:

1. Supply Shock/Disruptions: For countries most hit by COVID-19, business activities and production will fall; productivity will reduce as workers get unwell or as lock-downs and quarantine are enforced; domestic and international supply chains will be disrupted; financial markets will be depressed; business costs will rise e.g. shipping costs; and economic growth will halt or decline.

The supply effects will of course be most severe for the industrial sector which provides employment to 11.4% of the sub-Saharan African population (i.e. 123 billion people) on average. Firms in tourism and hospitality industries e.g. hotels, bars, event companies; and firms dependent on raw materials and intermediate goods from heavily COVID19-affected countries will suffer the most.

2. Demand Shock/Disruption: As more cases of coronavirus unveils, it will lead to loss of income for many households as workers are laid off. It will also reduce consumers' spending on non-essential products due to uncertainty; this will ultimately affect businesses such as real estate and luxury goods companies. The effect can also result in mental and other health issues arising from heightened fear of contagion, uncertainty and panic.

The economic effect will be most painful for the poorest and the middle class especially in low-and middle-income countries, as they keep little or no savings. Savings rate (measured by Gross Domestic Savings as a share of GDP) as at 2019 was just 18% in Africa compared to 31% in all other low- and middle-income countries.

3. International Trade and Financial effects: Borrowing costs can rise and financial conditions can become more strict as banks will suspect borrowing firms and consumers may be unable to pay back on time. This can lead to decline in credits/loans which will further worsen the effects of the supply and demand shocks on firms and households. As multiple countries have similar financial effects, international trade could continue to fall, and commodity prices will continue to drop.

Ultimately, African countries will suffer a large portion of the economic effects as they are heavily dependent on commodity prices such as oil, gold and agricultural produces. Algeria, Angola, Cameroon, Chad, Gabon, Ghana, Equitorial Guinea, Nigeria, and the Republic of the Congo are some of the countries where single commodities make up over 30% of country's revenue source or GDP. In addition, African countries that are heavily dependent on external finance including remittances from citizens abroad will also be at a greater risk, as these source of funding decline. Remittances as a share of GDP exceed 5% in 13 African countries, even as high as 23% in Lesotho.


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Article Credit: Precious C. Akanonu (Editorial)

Tags: #Coronavirus #COVID19 #Africa #Economies #Effects

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