The International Monetary Fund has recently adjusted its global economic growth forecasts, noting that “The COVID-19 pandemic is inflicting high and rising human costs worldwide, and the necessary protection measures are severely impacting economic activity.” It now expects global growth to come in at -3% for 2020 — the biggest contraction since the Great Depression. But what does this mean for Africa?
With around 70% of Africa’s workers operating in the informal sector, the effect on employment is likely to be shocking, with the UNDP forecasting that nearly half of all jobs in Africa could be lost. The end result is that the economic impact of the crisis in Africa is likely to be disproportionate versus other economic regions.
For African countries that lack economic diversity and suffer from an over-reliance on the exportation of resources, the deteriorating global environment is likely to compound the economic cost of COVID-19. In particular, in the event of global recession, African exports are likely to suffer — thus IMF expects oil exporters and resources-heavy exporters to be the second hardest hit economies.
Taking this into account, it is perhaps unsurprising that certain African economies are likely to experience a disproportionate negative effect on their economies from COVID-19. In our chart, those economies in the top left hand quadrant (labeled “Disproportionately affected”) are those that will be most affected by COVID-19 in the short run. This includes Africa’s largest economy — Nigeria — which despite its efforts is relatively undiversified. The labour intensive agriculture sector employs almost one-third of Nigeria’s workforce. Additionally the collapse in oil prices in 2014–2016 was a major contributing factor to Nigeria’s 2016 recession — its first recession in 25 years. In Africa’s second largest economy, commodity prices remain important as South Africa is a major exporter of minerals. Mauritius is the greatest outlier, experiencing healthy growth of 3.5% last year. However with services making-up 76% of the economy, and tourism accounting for around 14% of GDP, GDP growth for this year is expected to come in at -6.8%.
With the world all in the same metaphorical boat, what we can be sure of is that self-reliance and economic diversification will be key to Africa’s economic survival. Now is the time for Africa to fully embrace the promise of AfCFTA, and grow within, in unison with its neighbours. With intra-Africa trade hovering around 20%, achieving EU- or Asia-levels of intra-dependency (over 70% and ~60% respectively) may be the only viable long term antidote.