The initial fears that the onset of Covid-19 would reverse years of economic gains and progress for Africa have subsided and given way to a renewed optimism about the region’s resilience.
The first wave of Covid-19 at the start of 2020 sparked a global economic shutdown, which restricted the movement of goods and curtailed trade. Global demand dropped, while supply was severely restricted. Prices fell.
No movement across global borders meant oil was subjected to extreme volatility. The oil price plunged to drastic new lows. Exports collapsed – as did imports.
Single-commodity economies, such as Angola and Nigeria, and export-powered countries, including South Africa, were left licking their wounds in the context of 2020. Tourism-dependent economies were no better off. No visitors, no revenue. The misery was widespread as Covid-19 wreaked havoc not only on economies but also on public health and people.
The Covid-19 crisis was both a supply and a demand shock
Capital took flight. Some countries suffered significant outflows as investors fled risky emerging market assets in favour of safe haven prospects. South Africa was not spared, and it is estimated that more than $1-billion in outflows was drained from the country between March and April 2020. Furthermore, remittances to Nigeria and Egypt were subjected to uncertainty.
It is against this backdrop that the World Bank anticipated in its October 2020 edition of Africa’s Pulse the region would contract by 3.3% in 2020, in what would be the continent’s first economic recession in 25 years.
However, in the latest edition of Africa’s Pulse, released on Wednesday 31 March 2021 and explained by the World Bank’s chief economist for Africa, Albert Zeufack, the institution strikes a more positive note about the content’s fortunes.
“… [Africa] is coming out better than expected. This is due to strong agricultural growth on the continent… [and] faster-than-expected recovery in commodity prices,” said Zeufack, whose demeanour on Wednesday was less sombre than it was in 2020 when the October edition of Africa’s Pulse came out.
Although the World Bank still projects a recession in 2020 for sub-Saharan Africa, the estimate is on the lower-bound forecast of 2%. Moreover, there are greater chances of a recovery in 2021.
“We have a couple of scenarios. We have an optimistic scenario that could see Africa growing 3.4% in 2021, and 4.5% in 2022; and sustaining that level of growth, above 4%, from 2022 onwards.
“That scenario depends on seriously implementing effective policies on the continent. Policies that can catalyse private investment. Policies that can lead to public investment in infrastructure,” is Zeufack’s analysis of the region’s growth outlook.
Even South Africa (3%), Nigeria (1.4%) and Angola (0.9%), the top sub-Saharan economies on the continent, are expected to grow again in 2021. These countries are benefiting from higher commodity prices.
The caveat, however, is that “… slow vaccine roll-out in the largest economies will weigh on the region’s outlook”. Zeufack lamented vaccine nationalism, also known as vaccine hoarding.
The World Bank expects robust growth for Botswana, Côte d’Ivoire, Guinea and Kenya in 2021 because of “a rebound in private consumption and investment as confidence strengthens and exports increase”.
“Sub-Saharan recovery is going to vary across countries. Our continent is diverse,” explains Zeufack.
Beyond growth, though, debt remains front of mind.
“… [Entering] the Covid-19 crisis, we were already facing vulnerabilities on the macroeconomic front, but debt was one of the key vulnerabilities,” Zeufack said.
The problem with debt in the region is that countries accumulated it fast. It was risky. This made the debt costlier. Most of the debt came from private creditors. Covid-19 complicated matters. The coronavirus-induced price falls meant some countries could not service their debt.
“At this point, the number of African countries at high risk of debt distress has increased significantly. Some countries are now moving into a situation of debt default. This is serious. We are hoping to see strong action at the G20 [Group of 20] level,” notes Zeufack.
Meaningful interventions will create the fiscal space necessary for recovery and sustainable growth. Despite the dangers posed by debt for some countries, Zeufack remains upbeat about the region.
“Africa has not wasted the opportunity of this crisis,” he declares. DM/BM