LUMS MSc Entrepreneurship, Innovation and Practice graduate Opeoluwa Runsewe is the founder and managing director of frozen food vendor/supplier “Mobile Coldroom” and Executive Director of OJAR Foundation, an organisation focused on promoting sustainable development, social transformation, corporate partnerships, and education in Africa.
In his blog, Opeoluwa discusses the economic impact of the coronavirus on Africa, and the measures many African countries are taking to support businesses through these challenging times.
It has been a rough few months for the world’s largest economies as various regions navigate to find a new balance amidst the Covid-19 global pandemic. With the number of confirmed Covid-19 cases in Africa surpassing 60,000 as of May 10th, 2020, a good number of policies have emerged. However, a large number of these policies do not solely address the preventive measures required to curtail the spread of the Covid-19 virus but also take on several economic measures to mitigate the numerous economic consequences of the mandatory lockdown being enforced by African governments. The World Bank reports that the global pandemic has significantly impacted Sub-Saharan Africa’s economies, forecasting a sharp -2.1% to 5.1% fall in 2020, from a preceding 2.4% in 2019, potentially leading the region’s first recession in the past 25 years.
In what appears to be a new norm, more African countries are offering social safety net programmes to households and emergency loans to small businesses. As Gentilini reported, some countries in West Africa have abolished several transaction fees, Namibia offered an emergency grant to those who lost their jobs as a result of the pandemic, and Uganda permits businesses to reschedule social security contributions. These policies are in line with the International Monetary Fund’s three key objectives: to provide resources for people severely affected by the pandemic, to ensure the smooth functioning of essential service sectors, and to prevent excess economic disruption.
The conventional approach, which involves enforcing a lockdown on non-essential services and travel, has been widely adopted by African countries with confirmed cases of Coronavirus. The often busy streets of affected regions in South Africa, Rwanda, Morocco, and Nigeria have been empty over the last few weeks following restrictive measures put in place by governments across the continent to curb the spread of the virus. This however isn’t widely perceived to take into consideration the fact that the African economy is mostly informal and vulnerable to shock, with a vast majority of the population surviving on daily income; thus, validating the general concern as to whether the lockdown is Africa’s best bet and forcing some of its leading economies such as Nigeria and Ghana to ease lockdown restrictions and resort to imposing limited working hours and curfews.
Following the upward trends in global cases of the virus, crude oil has experienced its worst plunge in about two decades. The continued plunge in the US Oil Benchmark which, on April 22nd, lost over 100% on a single day after falling to a negative territory of $37.63 per barrel, has its vast economic ramifications bound to affect Nigeria, Angola, Algeria, Egypt and other top oil producers in Africa. This trend has apparent implications not just on government earnings in these countries but poses numerous other threats in varying degrees on investor sentiments, foreign exchange, and inflation.
Substantially, the pandemic also poses threats to food security in the continent as agricultural production may contract up to 7% in a pessimistic scenario with trade blockages, domestic demand, and higher costs of the transaction, food imports can potentially decline as low as 25%.
As growth declines substantially, the poverty gap is also expected to widen amongst vulnerable African economies. Africa is the world’s last frontier in the fight against extreme global poverty. Based on a report from the Brookings Institute, around 422 million people – one in three Africans – live below the extensive poverty line. Rather than forward, the fight against Covid-19 is likely to frustrate the effort against global poverty, therefore, pushing the income gap backward.
Beyond providing stipends to mitigate the impact of the compulsory lockdown on the most vulnerable who have to fend for themselves daily, an emergency monetary stimulus must also be made available to small scale employers. They, for reasons related to the ravaging pandemic, have suffered more significant consequences. If anything, the impact on non-essential services in the informal sector must not be overlooked; governments must lend their utmost support because these people are obliged to stay away from public places.
At the same time, African economies must respond to the impact of the crisis by focusing on unique areas of strength such as improving local manufacture of goods and food supply chains, placing priority on products required by front line health workers and investing enormously in exceptional Research and Development.
There are unfortunate reports that some vendors have taken advantage of the crisis to exploit consumers by inflating the prices of scarce essential materials like face masks, hand gloves, and other protective wears. Regardless, the market analysis continues to show upward trends in the sales of hygiene products and other consumables. More than ever, this is a great time to spur on local production, consumption, and leverage on these for increased internally generated revenue.
As many other world economies have started to experience socio-economic shocks in different magnitude, Africa is yet to record high daily casualties. It must make it is economy less dependent on importation to combat the virus and stimulate the recovery process. This, I believe, might be the long-awaited solution required to suppress the impact of the pandemic on job security in the various economic sectors in Africa.