How Africa can bounce back from Covid-19

06 July 2020
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As has become clear, Covid-19 has crippled the world economy. Enormous government borrowing splurges coupled with an unprecedented fall in economic activity has left even the world's most prosperous economies in tatters, but nowhere has the economic cost of coronavirus been more severe than in Africa.

Unless rapid reforms are adopted, much of the human progress Africa has made in recent years will vanish.

In Africa's five largest economies - Nigeria, South Africa, Egypt, Algeria and Morocco - which together make up over 60 per cent of the continent's economic activity, GDP is set to decline by 5.4 per cent in 2020 alone. Among smaller African states, the picture is even worse. The fall in commodity prices alongside the stunting of productivity will see the GDP of some nations such as Botswana, Zimbabwe and Seychelles all fall by at least 9 per cent.

Government revenue collection in sub-Saharan Africa is expected to drop by 12 per cent and overall, the World Bank forecasts that average incomes in the region will plummet by 5.3 per cent this year.

In a continent where over 420 million already live in extreme poverty (defined as living on less than $1.90 per day) an economic contraction of this magnitude will be too much to bear. Recent predictions from the Economist estimate nearly all the gains that the continent has made in poverty alleviation since 2017 will vanish.

Worse still, many of these grim economic predictions were made in late May and early June, just as lockdowns began to be lifted across the continent and prior to the recent uptick in Covid-19 cases.

While it took almost 100 days for Africa to reach its first 100,000 cases of Covid-19, in the last five days, cases have increased by more than 100,000, leaving the total number of Africans who have tested positive with the virus at just over 430,000. These numbers are grossly understated, and many states have struggled to do more than a few hundred tests a day.

Notably, in Sudan, just 401 tests have taken place on a population of over 40 million. By contrast, when looking at the 44 nations in which testing data is available, South Africa, the continent's most industrialized economy, has performed more tests than the bottom 38 countries combined.

Regardless of the precise number, the recent uptick in coronavirus cases will likely lead to more lockdowns, which will further extenuate the continent’s already dire economic outlook. Rapid action must be taken to get Africa's economy back on track.

One solution to kick-start the continent’s economic recovery is the African Continental Free Trade Area (AfCFTA). Within five years of its implementation, the AfCFTA aims to remove more than 90 per cent of tariffs on goods traded between member states and, within ten years, at least 97 per cent of tariffs will be removed.

The United Nations Economic Commission for Africa predicts that if the AfCFTA were successful in achieving their tariff-abolishing goal, intra-African trade could increase by more than 53 per cent in just a few years.

This boost in trade would add billions to Africa's economy and help undo a sizable chunk of the estimated $37-79 billion the pandemic will likely cost the continent. Indeed, as a recent report by the Brookings Foundation noted, the implementation of the AfCFTA would reduce the "change in GDP induced by COVID-19… from -7.9 to -4.3 percentage points."

A 3.6 per cent reduction in economic damage may not sound like a lot, but in Africa, that would be the difference between millions of people falling back into extreme poverty, or not.

Similarly, the AfCFTA will also help make African economies more resilient when the next economic crisis hits. Today, commodities make up at least 70 per cent of the total exports in more than three-quarters of African nations.

As commodities are usually more prone to price fluctuation than other types of goods, a strong reliance on them results in increased economic volatility and a far more unstable business environment.

However, when African states trade with each other, those goods are three times more likely to be higher-value manufactured products, compared to the goods that leave the continent.

Therefore, increasing the trade of higher value manufactured goods through the AfCFTA will help many states diversify their exports, become less vulnerable to price fluctuations and build a more resilient business environment.

By no means will the AfCFTA alone be the silver bullet that solely enriches Africa. Policy initiatives such as strong property rights, lower taxes and uncorrupted legal systems, among others, are essential for the continent to prosper.

However, the AfCFTA represents the first opportunity in Africa's history in which its intra-continental trade could be based on free trade and it remains an important tool that could help improve the wellbeing of millions.

Unfortunately, the implementation of the AfCFTA, which was initially scheduled for July 1st, has been delayed due to Covid-19, and no new date for its launch has been confirmed. Equally worrying is that of the 55 African Union nations, just 30 have ratified the agreement, with five of the ten largest economies on the continent still reluctant to commit.

With the increasing calls from voices on both the left and the right for greater economic nationalism following the coronavirus pandemic, there is also a concern that the appetite for free trade among some African leaders could dissipate entirely.

Regardless of the difficult situation many states find themselves in, African governments should remain committed to enacting the AfCFTA as soon as possible. In doing so, their nations will be in a stronger position than ever before to bounce back from the current economic downturn. For the sake of millions of the continent’s poorest people, let’s hope they act fast.

This article was first published on 1828.org

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