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World Bank Warns African Countries Copying Western Anti-COVID-19 Policies

World Bank IMF and Dev Agencies	11556 VIEWS
World Bank IMF and Dev Agencies
11556 VIEWS

Tuesday, April 14, 2020 / 01:07 AM / By RedPepper Editorial & World Bank / Header Image Credit: WatPad

The World Bank Group has applauded Tanzanian unique approaches to contain the COVID-19 pandemic and also cautioned African states to desist from copying Western practices and policies to curb its spread.

"Thanks, President John Magufuli for not duplicating policies implemented in advanced countries and some middle - income as pasted by some African countries in the region.

The Africa's Pulse Report titled as "assessing the economic impact of COVID-19 and Policy Responses in Sub-Saharan Africa" released yesterday has commended Tanzania as one of the best examples for its strategic approaches that considers the best of its political economy and well-being of the society.

With 32 COVID- 19 confirmed cases, 3 deaths and 5 recoveries, Tanzania unlike other African countries has not locked down businesses and its citizens. The country has not also closed its borders but initiated strict testings and 14 days quarantine to all arrivals.

The World Bank report warns catastrophic consequences to sub- Saharan countries that have copied and pasted anti COVID- 19 policies.

"Facing a fast-changing situation with great uncertainty and so many unknowns, most governments around the world have resumed to similar approaches to contain the COVID-19 pandemic", the report states.

The report mentions South Africa, Ghana, Rwanda, and Kenya, who have reacted quickly and decisively to curb the potential influx and spread of the COVID-19 virus very much in line with emerging international experience.

The report warns these countries that as the situation evolves, there are more questions about suitability and likely effectiveness of some of these policies such as strict confinement.

It advises African governments deploy a series of emergency measures and structural features of African economies that shape the policy responses that are designed and implemented to fend-off COVID-19.

The World Bank has given multiple reasons why economic policies implemented in Sub-Saharan Africa should be different from those adopted in advanced countries and (some) middle-income countries.

First, informal employment is the main source of employment in Sub-Saharan Africa, accounting for 89.2 percent of all employment (ILO 2018). Excluding agriculture, informal employment accounts for 76.8 percent of total employment respectively.

Based on the number of entrepreneurs (own-account workers and employers) who are owners of informal economic units, the vast majority of economic units in the region are informal (92.4 percent).

Informal workers lack benefits such as health insurance, unemployment insurance, and paid leave.

Most informal workers, particularly the self-employed, need to work every day to earn their living and pay for their basic household necessities.

A prolonged lockdown will put at risk the subsistence of their households.

Additionally, the majority of workers hired are in a precarious situation, and most of these jobs are temporary and with low remuneration, do not offer social security, and put workers at a greater risk of injury and ill health.

Second, small and medium-size enterprises (SMEs), an important driver of growth in economies across the region, account for up to 90 percent of all businesses and represent 38 percent of the region's GDP.

Access to finance is one of the main challenges facing SMEs in normal times with the majority of these firms lacking the finance needed to grow.

Prior to COVID-19, the finance gap for SMEs in the region was estimated at US$331 billion (IFC 2018).

Third, concerns about the negative economic impact of the COVID-19 outbreak prompted interest rate cuts in several African countries in line with monetary policy actions around the world.

However, this type of monetary stimulus may not be effective for two reasons:

the prevalence of supply effects at the height of the containment measures (i.e. reduced labor supply and closed businesses, especially in contact-intensive sectors), and
the weak monetary transmission in countries with underdeveloped domestic financial markets.

African economies still need to design policy pathways to achieve sustainable growth, economic diversification, and inclusion.

The economic sustainability of African economies depends on their ability to transform their depleting stock of natural wealth into other reproducible capital assets such as physical capital, infrastructure, and human capital.

The findings on the impact of Covid-19 on African economies drew on two economywide models: a macro structural model, the World Bank Macroeconomic and Fiscal Model, "MFMOD", and the World Bank global dynamic computable general equilibrium (CGE) model, "ENVISAGE".

The analysis built on two scenarios.

The first an optimistic scenario which is based on the assumptions that the pandemic peaks in advanced economies such that containment measures are gradually removed in the next two months, the pandemic fades in China, and outbreaks are contained in other countries and in Sub-Saharan Africa.
The second is a downside scenario that assumes that the COVID-19 outbreak continues to weigh on the economy in the third and fourth quarters of 2020 and into 2021, as some social distancing measures are required to keep the spread of the virus at manageable levels.

Download Full Report Here - Africa's Pulse - An Analysis Of Issues Shaping Africa's Economic Future

ASSESSING THE ECONOMIC IMPACT OF COVID-19 AND POLICY RESPONSES IN SUB-SAHARAN AFRICA

AFRICA'S PULSE - April 2020|Volume 21

The Executive Summary

The COVID-19 pandemic has taken a toll on human life and brought major disruption to economic activity across the world. The impact of this unprecedented crisis on human life and the global economy reflects the speed and magnitude of the contagion, greater global integration, and the major role that China plays in global supply chains, travel, and commodity markets.

Despite a late arrival, the COVID-19 virus has spread rapidly across Sub-Saharan Africa in recent weeks . As of April 7, 5,425 cases of COVID-19 have been confirmed in 45 of the 48 countries in Sub- Saharan Africa. The insufficient testing capacity in many countries in the region suggests that these figures most likely understate the true number of infections.

We project that economic growth in Sub-Saharan Africa will decline from 2 .4 percent in 2019 to -2 .1 to -5 .1 percent in 2020, the first recession in the region in 25 years . It will cost the region between US$37 billion and US$79 billion in terms of output losses for 2020. The downward growth revision in 2020 reflects macroeconomic risks arising from the sharp decline in output growth among the region's key trading partners, including China and the euro area, the fall in commodity prices, reduced tourism activity in several countries, as well as the effects of measures to contain the COVID-19 global pandemic.

The COVID-19 shock is hitting the region's three largest economies-Nigeria, South Africa, and Angola-in a context of persistently weak growth and investment, and declining commodity prices. The prices of crude oil and industrial metals have fallen sharply (by 50 and 11 percent, respectively, between December 2019 and March 2020). Model simulations suggest that, compared with a no- COVID base case, average real gross domestic product (GDP) growth in these countries could be reduced by up to 6.9 percentage points in 2020 in the baseline scenario, and by up to 8 percentage points in the downside scenario. South Africa has the largest number of confirmed cases in the region, and strict measures to contain and mitigate the spread of the virus are weighing on the economy.

More generally, countries that depend on oil exports and mining would be hit the hardest. Growth could fall by up to 7 percentage points in oil-exporting countries and by more than 8 percentage points in metals exporters compared with the no-COVID base case.

In non-resource-intensive countries, growth is expected to slow but remain positive. Growth will weaken substantially in the two fastest growing areas-the West African Economic and Monetary Union where outbreaks are spreading rapidly and the East African Community-due to weak external demand and disruptions to supply chains and domestic production. Activity in tourist- dependent countries is expected to contract sharply in response to severe disruption to travel and tourism activities.

In the baseline and downside scenarios, growth will fall well below the regional average population growth rate of 2 .7 percent, indicating that, in the absence of appropriate measures to mitigate its effects, the COVID-19 outbreak will severely impact the welfare of large numbers of individuals in the region.

The negative impact of the COVID-19 crisis on household welfare would be equally dramatic.

In the optimistic scenario, welfare losses amount to 7 percent relative to the no-COVID scenario in 2020. The welfare loss would be 10 percent greater than in the no-COVID case in the event of a lengthy crisis. The lower terms of trade (as a result of the plunge in commodity prices) coupled with lower employment result in a pronounced welfare loss for households.

Policy responses that result in sub-regional trade blockages will increase transaction costs and lead to even larger welfare losses. In Africa, a region dependent on agricultural products, these policies will disproportionately impact household welfare as a result of price increases and supply shortages. u Welfare losses amount to 14 percent relative to the no-COVID scenario if countries were to close their borders to trade. Border closings would disproportionally affect the poor, particularly agricultural workers and unskilled workers in the informal sector. In this context, African countries need to take this opportunity to strengthen regional value chains in the context of the African Continental Free Trade Area.

The COVID-19 crisis is also contributing to increased food insecurity as currencies are weakening and prices of staple foods are rising in many parts of Africa . This is compounded by other existing crises in many countries, including the desert locust emergency, drought, climate change, fragility, conflict, violence and underdeveloped food markets. While global food stocks are plentiful and many commodity prices are stable, the prices of other staples (such as wheat and rice) are rising when many countriesâ€™ currencies are weakening. These two factors lead to spikes in consumer prices and contribute to increased food insecurity, particularly for food importers. Household incomes are also falling, reducing demand and contributing to food insecurity for the near poor, poor and vulnerable, such as refugees and internally displaced persons (IDPs).

Local agri-food supply chains are already experiencing disruptions, including reduced access to inputs and services, labor movements, transport and roadblocks, and credit or liquidity. This comes on top of the global supply chain disruptions such as export bans that affect local African food security in importing countries. There is an urgent need for coordinated, evidence-based policy responses and financing to prevent a major food crisis in Africa resulting from COVID-19.

The COVID-19 crisis has the potential to create a severe food security crisis in Africa. Agricultural production is likely to contract between 2.6 percent in the optimistic scenario and 7 percent in the scenario with trade blockages. Food imports also decline substantially (from 13 to 25 percent) due to a combination of higher transaction costs and reduced domestic demand.

These findings reflect the multiple channels of transmission of COVID-19 on economic activity in Sub- Saharan Africa.

The first is the disruption in trade and value chains, affecting commodity exporters in the region (as the international prices of oil, minerals, and metals collapse) and countries with strong value chain participation (such as Ethiopia and Kenya).
The second is the reduced foreign financing flows in the form of lower foreign direct investment (especially in extractives and infrastructure investments), foreign aid, remittances, tourism revenues, as well as capital flight (such as the US$1.75 billion in portfolio outflows in South Africa during March).
The third channel of transmission is the health channel, the direct impact of COVID-19 on economic activity from a wider spread of the virus in the region (the number of infected people and the number of fatalities).
The fourth channel includes disruptions caused by containment and mitigation measures imposed by governments and the response of the citizens. Combined, the weak external demand, the accompanying sharp fall in commodity prices, and the disruption in tourism that COVID-19 is causing will negatively affect economic activity in Sub-Saharan Africa.

Download Full Report Here - Africa's Pulse - An Analysis Of Issues Shaping Africa's Economic Future