Africa Economy: Caught Between a Rock and a Hard Place

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Wednesday, July 08, 2020 / 01:14 PM / by FDC Ltd / Header Image Credit: FDC

 

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Africa continues to lag behind other major regions in terms of confirmed cases and related deaths from the Covid-19 pandemic, and there are fears that the worst is yet to come for many countries on the continent. Confirmed cases were just over 385,000 and related deaths just over 9,700 at the end of the fourth week of June, which represents a surprisingly small 2-4% of world totals. However, available official data continue to show increasing rates of new daily infections, active cases and related deaths in some of the region's largest economies. Firms are gearing up for the removal of all restrictions on business activity and the movement of people in the coming months. An easing of lockdown conditions will contribute to only modest economic contractions in the final quarter of 2020, and then a return to growth in 2021, assuming the virus does not get a new lease of life.

 

Africa is caught between a rock and a hard place as far as tackling the novel coronavirus (Covid-19) is concerned. The region has so far avoided the severe health crisis that has afflicted many parts of Asia, Europe and the Americas, but there are major uncertainties over the stage and trajectory of the outbreak in Africa and concerns that the continent has not yet dodged the bullet. Nevertheless, governments are under intense pressure to lift lockdowns, ease restrictions and reopen their economies to protect livelihoods and ensure their own political capital remains intact. In recent weeks, the balance of policy has shifted towards a gradual and phased easing of Covid-19 containment measures, including where the incidence of the virus has been rising fast. Lockdowns are expected to be lifted progressively in the next few weeks subject to regular health checks, which could contribute to improving economic and business conditions towards the end of 2020 and into 2021 assuming transmission of the virus remains in check and there is no need for a fresh round of lockdowns.

 

Still Approaching a Peak?

Towards the end of June most of the larger African economies were still in the accelerating phase and apparently yet to reach a peak of infection. This includes the African majors of South Africa, Nigeria and Egypt, which had relatively high and rising rates of infection.

 

The more dynamic and smaller economies of Kenya, Cameroon, Cote d'Ivoire and Ethiopia find themselves at a precarious peak and plateauing at a high rate of transmission. Some countries, especially Algeria and Morocco in North Africa and Ghana, appear to have passed an initial peak of infection but are faced with the prospect that a possible second wave is under way.

 

The true picture is clouded by the lack of antibody testing, some questionable official data and information gaps, which means we cannot be sure of how far Covid-19 is spreading in Africa. A clear example of this is Tanzania: the president, John Magufuli, declared the country "coronavirus-free" in midJune but his government has not reported any data since the start of May and the neighbouring countries of Kenya and Rwanda continue to impose strict border controls that seek to limit contact with travellers and truck drivers coming from Tanzania. Despite this uncertainty and indications of a worsening outbreak across much of Africa, a process of lifting containment policies is clearly under way as governments seek to balance the risks posed to lives and livelihoods.


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Emerging from Lockdown

African governments are banking on the pandemic easing in the months ahead and are keen to set the foundation for a quick return to economic growth, which many expect to materialise in late 2020 or early 2021. This has led some governments to embark on a phased and gradual easing of lockdown conditions, which is ongoing even in countries that are still suffering from high and rising rates of infection and are facing lingering uncertainty surrounding the stage, severity and possible resurgence of their outbreaks

 

South Africa moved from level four to level three in its five-stage process of unwinding restrictions on the economy at the beginning of June. Financial and business services, the media and communications, construction, manufacturing, mining, commerce (wholesale and retail trade) and government services reopened for business, albeit with strict public health and safety protocols. Later in June the government went a step further and reopened large parts of the leisure, recreation, hospitality and personal care sectors. Similar staged re-openings are under way in Nigeria, Egypt, Morocco, Algeria, Ghana, Cameroon, Cote d'Ivoire and elsewhere. Some countries such as Kenya and Ethiopia remain more cautious and appear reluctant to ease lockdown restrictions until they have greater clarity on the direction of travel in terms of health outcomes and related risks.

 

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We expect Covid-19 to be a seasonal illness with no vaccine in sight for the remainder of 2020 and 2021, which will complicate matters for governments and businesses alike. Modified social distancing measures are likely to remain in place during 2020 and most of 2021, which will prevent a more robust recovery in domestic business activity and international travel, trade and investment flows that are crucial for the economic health of the region.

 

Cautious Optimism Prevails

The Covid-19 pandemic will take a heavy toll across Africa in terms of economic outcomes despite efforts to ease restrictions and reboot economies during the second half of 2020. Africa as a region will suffer a serious economic setback in 2020 as a direct result of policies implemented in the region and elsewhere to contain the spread of Covid-19. There is great uncertainty surrounding the severity and likely trajectory of the outbreak in Africa, but many governments are sounding a note of cautious optimism that their outbreaks will soon be under control and are working at setting the foundations for a rapid return to economic growth in late 2020 and 2021. Not all countries will be affected to the same degree and some will emerge from the crisis of 2020 in better shape than others.

 

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