The economic aftershock of coronavirus hits hard the Horn, East and Central Africa

By Martin Namasaka

Coronavirus has stretched the public health systems of even the world’s richest countries beyond their limits. But the economic fall-out from governments’ efforts to contain the virus raise even greater alarm. New Oxfam research says that over half a billion more people globally could be pushed to poverty. The prognosis for the African continent is profoundly precarious. African governments already pay 22% of their revenues back to debt servicing and they simply do not have the kind of economic power to match the unprecedented stimulus packages that rich countries are rolling out to shore up their own economies.

Economic calamity

So far, African countries have lost around $29 billion due to the coronavirus pandemic, according to UN estimates. This is the equivalent of Uganda’s entire Gross Domestic Product (GDP). The United Nations Economic Commission for Africa (UNECA) predicts that coronavirus will shave 1.4% off Africa’s $2.1 trillion GDP as trade, tourism, remittances, financial markets and business both on the continent and abroad are disrupted and stopped. In the absence of major stimulus, McKinsey & Company says the pandemic is likely to tip Africa into an economic contraction.

Nearly half of all jobs in Africa could be lost. In Kenya, where flowers are a key export industry producers have already sent home 30,000 temporary workers, most of whom are women, because European demand has collapsed. Tourism in Kenya employs a million people and contributes approximately 8.8% to Kenya’s GDP, worth KSHS 790 billion (US$7.9 billion dollars). “The virus will starve us before it makes us sick,” a taxi driver told Oxfam. Similar, in Tanzania tourism contributes around 30% of export earnings, 10.9% of employment and 9.5% of total investments and in Uganda it is the number one source of foreign exchange, it constitutes 7.7% of the country’s GDP and employs close to 700,000 people. Tourism in Africa has effectively halted with the collapse of international travel — and the burden of this is dumped immediately onto millions of workers, traders and small businesses.

Chinese factory closures have hit small and medium enterprises (SMEs) hard in Uganda. The retail sector trade with China (abasubuuzi) constitutes 13% of Uganda’s economy. Nearly 20% of all the goods traded in this sector are imported from China. Trade in the Democratic Republic of Congo’s (DRC) abundant mineral deposits of gold, copper, diamonds, cobalt (DRC produces about 60% of the world’s cobalt), tin, coltan, coffee, oil and timber are likely to be decimated. Oil exporters such as South Sudan are also facing difficulty finding buyers now that China’s supply chains are broken.

The impact on Ethiopia’s airline industry and allied businesses could cost the country USD $1.2 billion and affect more than 323,000 jobs. In Rwanda, the lockdown has sent shockwaves in a country that largely depends on the service sector which contributed 49% to the GDP in 2019, according to the National Institute of Statistics of Rwanda (NISR). The International Monetary Fund (IMF), suggests Rwanda’s GDP is expected to shrink 5.1% in 2020, down from 10.1% registered in 2019.

Somalia is one of the few post-conflict fragile countries that rely heavily on remittances worth approximately $1.6 billion per year. Job losses for Somalis working overseas will cripple flows of remittances home that their families rely on for food, health and education. In Burundi, there is an election countdown amid a ‘deteriorating’ human rights situation and the government is yet to endorse the findings of a UN food security report, which found that more than 1.6 million people — 15% of the population — need immediate food assistance, with 291,000 people at emergency levels. Coronavirus is also set to exacerbate pre-existing gender inequalities and will disproportionately affect women in Sudan, according to the United Nations Population Fund.

Most countries in the region especially, Ethiopia, Kenya and Somalia have had to face up to this pandemic already weakened by multiple crises such as droughts, floods and locusts. Currently, 25.5 million people in Burundi, Ethiopia, Kenya, Somalia, South Sudan, Sudan and Uganda are already suffering from hunger and severe malnutrition. There are also concerns of the impact of the pandemic especially on refugees. Most countries in the Horn, Eastern and Central Africa (HECA) have limited capacity to absorb the economic shock from a pandemic that could bring their economies to a standstill.

No time for no action

If the virus is not defeated in Africa, it will only bounce back to the rest of the world.

Africa’s trillion-dollar debt burden must now be finally resolved. Regional institutions need to work together on an ‘Africa Recovery Plan’ now. Governments should introduce mechanisms for debt relief and financial coordination for most affected countries and should advocate for more resources to rescuing African countries economies.

Oxfam’s new report ‘Dignity Not Destitution’ calls for an Emergency Rescue Package for All that would enable poor countries to provide cash grants to those who have lost their income as a result of the pandemic, and to bail out vulnerable small businesses. The $2.5 trillion that the UN estimates is needed should be paid by cancelling or postponing $1 trillion in debt repayments, mobilizing $1 trillion of Special Drawing Rights (international financial reserves), and $500 billion more in aid. The choices being made now will have profound implications for our collective future.

Coronavirus is exposing the worst aspects of global inequality. It is revealing the African continent’s fragility in an increasingly highly connected world. We must not repeat the cynical reaction to the financial crisis of 2008, big banks were bailed out and ordinary people were left shouldering all the risk and cost. Africa’s development partners must honour their budgets and programs, which are needed now more than ever before. We’re all in it together. Social distancing is imperative now. Fiscal distancing is not.

About the Author

Martin Namasaka is a Regional Media and Communications Advisor at Oxfam in HECA.

The views expressed in this post are those of the author and in no way reflect those of Oxfam.

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Oxfam is a world-wide development organization that mobilizes the power of people against poverty.