Africa - COVID-19 pandemic undoes economic gains
World Risk Developments August 2020
The COVID-19 outbreak is undoing previous progress in the development of sub-Saharan Africa. The IMF expects real per capita GDP across the region to contract an average 5.4% in 2020, before recovering by 1.1% in 2021. Overall, per capita GDP will be 7 percentage points below the level forecast before the COVID-19 outbreak and back to levels seen almost a decade ago. Regional GDP in 2020 will be US$243 billion smaller than projected in October 2019—equivalent to the economies of Ethiopia and Kenya combined. The pandemic is set to increase extreme poverty for the first time in decades and widen income inequality as lockdowns disproportionately affect the informal sector, which accounts for two thirds of Africa’s workforce.
Backsliding is not predominantly a result of Africa’s health crisis. Indeed, the COVID-19 outbreak continues to slow and the region’s younger and more dispersed population may result in relatively fewer fatalities. Instead, growth is expected to fall the most in tourism and resource dependent countries. For instance, the collapse in global tourism will impose heavy costs on countries like Mauritius and Seychelles, where the sector’s share of the economy is particularly large. Lower prices for oil and diamonds will sap revenues from countries like Angola and Botswana, respectively. Further, Africa’s diaspora losing their jobs will hurt countries such as Senegal and Ethiopia which are major recipients of remittances. Finally, the retreat of international capital to safe havens in the current global economic crisis will damage prospects in countries that were promising for investors, such as Ghana. All four shocks are likely to be prolonged and will aggravate existing financial and economic vulnerabilities and security and environment challenges. This does not bode well for a rebound in Australia’s future exports to Africa, which fell almost 8% in 2019 to $4.7 billion, driven by lower exports to South Africa, Nigeria and Mozambique.