In August 2020, the number of confirmed COVID-19 cases in Africa had risen to a million and caused about 30,000 deaths, which is lower than in other world regions. African governments acted quickly and learned lessons from policies on other continents hit earlier by the pandemic. As early as March 2020, many authorities enacted containment measures — including lockdowns, school closures, e-schooling, travel restrictions — to control the outbreak, in combination with digital solutions and health, economic and social policies. According to data available in early September 2020, the number of detected cases per million people in Brazil, Chile and Peru was about twice as high as in South Africa. With a median age of 19 , the African population may be less prone to severe COVID-19 infections. However, since late April, the need to keep the economy afloat led countries like Cameroon, Mauritius, Niger, Rwanda, and South Africa to ease containment measures gradually, even though the infection curve had not yet reached its peak. As a result, the number of identified cases increased in August 2020, with over 50% of all African cases confirmed in South Africa. The scope of the pandemic remains uncertain, because cases are likely underreported and data collection varies across countries.
As a result of the pandemic and its negative exogenous shock, African economies face their first recession in 25 years. Current forecasts vary between -2.1% and -5% growth in the continent’s Gross Domestic Product (GDP). 31 out of 54 countries will likely experience negative GDP growth. This compares with 11 countries in recession in 2009 when the global financial crisis hit the continent. In 2020, Africa is likely to perform better than Latin America and the Caribbean (-9.4%) and OECD economies (-7.5%), but less than developing Asia (-0.8%). Africa’s economic performance will depend on a weakening of the pandemic, which remains uncertain. It impacts many factors linked inextricably: the rapid resumption of local consumption and production; the durable rebound in commodity prices and the behaviour of global financial markets; and how the more diversified African economies adjust to the world crisis.
The overall impact of COVID-19 will be higher in commodity- and tourism-dependent economies:
- With the fall in oil prices by 265% in the first quarter of 2020, Libya is forecasted to go into recession by -59%; Sudan by -7%; and Nigeria by -3% in 2020. Resource-intensive countries are likely to recover with the ongoing rebound in oil and other commodity prices, driven by higher global demand especially from China, the OPEC+ output reduction agreement, and reduction in production among G20 economies.
- The shutdown of the tourism industry, which employed 24.3 million people on the continent, has severely affected the 14 countries where revenues from tourism accounted for over 10% of GDP in 2019. Some of the worst affected economies depend on tourism, such as Seychelles, Mauritius, and São Tomé and Príncipe with a forecast GDP growth of -11%, -7%, and -6%, respectively.
- Other African countries, especially those with a more diversified economy and trade relations, will be less hit: Benin, Ethiopia, Rwanda and Uganda’s growth forecast exceed 3%.
The crisis affects Africa’s growth through various external and domestic channels. First, the continent is integrated deeply into the global economy (see Table 1). Oil revenues represent 4.5% of GDP, and oil exports about 7% of its GDP in 2019. The crisis hits external financial inflows severely, which make up 11.6% of Africa’s GDP (compared to 6.6% of developing economies’ GDP). For instance, remittances will drop by 23.1% to USD 37 million in 2020, especially hitting Nigeria, and 13 more countries whose remittance inflows exceed 5% of their national GDP (AUC/OECD, forthcoming). Second, confinement measures hit domestic demand, which had driven 69% of Africa’s GDP growth between 2000 and 2018. The crisis also led to postponing the implementation of the African Continental Free Trade Area (AfCFTA), slated for July 2020, until 2021. The AfCFTA aims to unleash intra-African trade, limited to about 16% of the total before the crisis.
Beyond short-term growth, this global crisis could derail Africa’s development prospects . The COVID-19 crisis could push about 23 million people in sub-Saharan Africa into extreme poverty in 2020. Djiofack, Dudu and Zeufack estimate that Africa’s capital accumulation and productivity could remain below their pre-COVID 19 trajectories until 2030. The most consequential disruptions will likely include productivity decline, reduced capital utilisation and increased trade costs, in addition to reducing higher education. This setback may stymie the achievement of the aspirations of the African Union’s Agenda 2063, in particular for rapid productive transformation, and of the Sustainable Development Goals.
The risk of a debt crisis increasingly hovers over some countries. Most governments took temporary fiscal measures to mitigate the adverse effect of the pandemic, despite limited fiscal space. Tax-to-GDP ratios had already been stagnating at 17.2% since 2015 in 26 African countries, despite important tax reforms. Widening fiscal deficits, exchange-rate depreciations and GDP contractions will cause the overall debt-to-GDP ratio to reach 64.8% in sub-Saharan Africa in 2020, up from 57.5% in 2019. While this average remains sustainable, the debt-to-GDP ratio is likely to increase further in some countries, like Sudan (295%), Angola (132%), Cabo Verde (137%), Mozambique (125%), and Congo (120%) (AUC/OECD, forthcoming).
To mitigate the socio-economic impacts on the continent, African recovery strategies now need to build stronger productive structures. The COVID-19 crisis is shaking previous growth models, in particular commodity-driven, which failed to create more and better jobs and improve well-being. Recovery strategies should include a strong structural component to diversify the economies, thus reducing dependence on global markets, by developing more value-adding, knowledge-intensive and industrialised economies. Effective implementation of the AfCFTA and of the African Union’s productive transformation agenda will strengthen regional value chains, reducing vulnerability to external shocks. Strong cooperation on an equal footing with the international community, in particular the European Union and its member states, will be key, by deepening the exchange of peer-to-peer knowledge and policy practices, reinforcing the mechanisms for financing Africa’s development, and implementing and evaluating policies jointly.
Proactive negotiations for debt relief or restructuring with both public and private creditors will be crucial for economic recovery. In 2018, African countries spent an average of 3.9% of GDP on debt services. As of April 2020, the G20 finance ministers launched the COVID-19 Debt Service Suspension Initiative (DSSI), a debt service moratorium for 38 African countries eligible for a debt standstill neutral in net present value: the debt service not paid in 2020 must be repaid over 2022-2024, with possible additional interests compensating the delay. This aimed to respond partially to liquidity problems, in particular those encountered by low-income countries, for which 48% of total external debt is concessional and held by official creditors. Some countries with market access, like Kenya, have opted out, as they feared a possible rating downgrade.
However, the existing tools leave aside an increasingly large share of privately-owned debt. In 2018, private lenders accounted for 39% of lending to African governments, up from only 24% in 2008. Engaging with private actors will be strategic for middle-income countries, whose total external debt is about 45% privately held, compared to only 11% for low-income countries. Seven middle-income countries hold three quarters of Africa’s debt to private creditors (South Africa, Egypt, Angola, Nigeria, Morocco, Ghana, and Côte d’Ivoire). Dealing with the growing number of private creditors poses many challenges, hence negotiations have stalled thus far.
A related moot point is which type of Chinese bank will be considered official creditor for the DSSI, thus affecting the size of the debt standstill. It is also unclear how non-Paris Club members will apply Paris Club terms at the country level. Horn, Reinhart and Trebesch estimate that about 50% of certain resource-rich African countries’ debt stock to China went undeclared to the IMF or the World Bank.
Table 1. Stylised facts on the dependence of African economies on global markets during the COVID-19 crisis
Source: Authors' elaborations based on the indicated sources
The opinions expressed and arguments employed are solely those of the authors and should not be reported as representing the official views of the OECD, the Development Centre, or their respective member countries.