The Cost of Coronavirus in Africa: What Measures can Leaders Take?

By Dorothy Tembo
GENEVA, Apr 10 2020 (IPS)

With the novel coronavirus COVID-19 having reached the African
continent, countries are getting ready to manage the spread of the
virus and ensure that their fragile health systems can cope. Images
from China and Europe give many reasons for concern.

In addition to the health challenges posed by COVID-19, Africa
is already feeling the effect on its economies. With industries
shutting down in Asia, America and Europe demand for raw materials
and commodities is declining, but it is also hampering Africa’s
access to industrial components and manufactured goods (including
medical equipment).

Initial actions in Africa have focused on slowing viral
contagion with measures, including the closing of borders. These
actions come as the continent has been making bold moves to
increase economic integration, with African Union officials
recently swearing in the first-ever Secretary-General of the newly
created Secretariat of the African Free Continental Free Trade
Agreement.

The coronavirus could represent a risk for the continental
project but leaders could also turn it into an opportunity for
stronger collaboration. If leaders fast-track specific policies, it
may also represent an opportunity if certain policies are
fast-tracked. Quick gains could be achieved by consolidating the
regional integration initiatives they are already implementing.

The closing of borders, for instance, can send a very different
signal depending on how governments do it. Where leaders of
neighbouring nations close borders together, as those of Portugal
and Spain have done, it is a symbol of partnership in the fight
against a pandemic.

Reducing flows of people while keeping borders open for goods
signals continued faith in the importance of economic activities
and trade in providing the goods people need to continue their
daily lives. In Africa, such collaboration will be crucial,
especially for the continent’s sixteen landlocked countries.

The crisis may also provide African leaders with an opportunity
to look at regional value chains differently. Reliable regional
supply chains characterize North America, Asia and Europe.

In Africa, however, integration in international markets mostly
entails integration in global, not regional, value chains – with
Africa providing the raw products for processing elsewhere around
the world.

Dorothy Tembo

Opportunities for creating regional value chains exist, notably
for making motor vehicles or in aerospace activities in Northern
Africa. But designing regional strategies may mean agreeing on
which component of the value chain is produced where, and can
involve trade-offs that policymakers do not always find it easy to
make.

But the exceptional nature of the pandemic could provide fertile
ground for regional collaboration by policymakers in the fields of
pharmaceuticals, disinfectants, diagnostic testing equipment or
protective garments. Such decisions will have to be taken and
implemented very rapidly.

African leaders can also act in unison in the fight against the
economic consequences of the pandemic. Nobody knows how much the
pandemic will affect global GDP, but any impact is sure to be
significant.

Estimated losses in GDP growth for the world as a whole – but
also for Africa as a region – currently hover around between 1.5
and 2 percentage points. Those figures are most likely to be
revised to include even greater losses.

The travel industry has been the first to be impacted. Airlines
around the world are struggling, and tourism has been hit hard. The
blow will not go unnoticed in African countries like Tunisia, Egypt
and Kenya – where tourism represents around 14%, 11% and 10% of
GDP respectively. For underperforming regional airlines, this could
spell disaster.

Shutdowns in China and Europe, notably in the apparel, machinery
and footwear subsectors, will significantly hit global supply
chains – with consequences for Africa. Traditionally reliable
sectors in Africa – like the cut flower industry – could also
take a pummeling.

In countries that impose lockdowns, large parts of the services
sectors are likely to suffer dire outcomes. The hospitality, sports
and recreation sectors, and large parts of retailing, are among
those most affected by partial or full lockdowns.

The drastic drop in oil prices – triggered by events
independent of the coronavirus pandemic but now reinforced by the
negative demand resulting from it – is set to compound these
economic shocks. Oil exporters like Nigeria will see their revenues
shrink.

Rwanda’s e-commerce booms as the first E-commerce Service
Centre sets up in Kigali, bringing Rwandan businesses to domestic
and international markets with minimal investment and risk. Credit:
ITU

Faced with this outlook, African policymakers may want to ask
themselves how long businesses in their countries can survive in
the absence of or with significantly reduced revenues and what the
scale of job losses may be.

For many micro, small and medium-sized enterprises (MSMEs), with
fewer assets to ride out the storm, the survival rate may only be
counted in weeks. That is why small businesses, more than larger
businesses, will tend to go out of business or cripple their
capacity to be competitive.Yet, because MSMEs employ around 70% of
the workforce in most countries, shedding workers will only
aggravate the economic downturn brought on by the pandemic.

Knowing how small businesses act as a lynchpin connecting the
pandemic to a broader economic recession, governments around the
world have scrambled to reduce the operational stresses on
them.

They have introduced policies meant to help MSMEs cope with
short-term financial risks and long-term business implications.
This will, it is hoped, reduce layoffs, prevent bankruptcy,
encourage investment and help economies get back on their feet as
soon as possible.

These measures include concessional financing; tax reductions
and grants; employment incentives; technical assistance; and
indirect measures.

Low-interest loans and other concessional financing, aimed at
easing short-term liquidity issues, have been among the most
popular policy measures announced to date. But the experience of
the 1970s oil price shock shows that this can have a limited impact
in the supply-shock, low-interest rate environments that exist
today.

Instead, the most effective way to prevent bankruptcies may be
measures aimed at reducing costs for MSMEs – such as tax breaks.
Investment in digital trade and investment facilitation must also
continue – countries with such facilitating policies will be
first off the mark in the post-crisis period.

All of these measures require funding. Countries with fiscal
space will find it easier to introduce them than those without it.
Unfortunately, global debt levels have continued to increase after
the financial crisis over a decade ago.

Though the bulk of global debt is held by the industrialized
world, its increase has been more important in the developing world
over the past decade. Concerted action among leaders may therefore
be necessary in order for efforts to support small and medium sized
businesses not to have negative repercussions on financial
markets.

History shows us that cross-border collaborations often arise
during or after significant crises. The First World War prompted
the creation of the International Labour Office; the United Nations
was formed in the aftermath of the Second World War. The
construction of the European Union was also a reaction to that
conflagration.

The African Union has already recognized that Africa will be
stronger if countries are more integrated and unified with the
birth of the African Continental Free Trade Area. A similarly
strong commitment to joint action by leaders on the continent would
undoubtedly benefit the fight against the coronavirus pandemic and
its economic consequences for Africa.

These actions should include a recommitment to the Sustainable
Development Goals, to multilateralism and a pledge to help those
that will be most affected by the economic downturn: small
businesses, women, young people and vulnerable communities.

The International Trade Centre (ITC) with its mandate to build
the competitiveness of small businesses in developing countries,
emphasizing women-owned businesses and people at the base of the
economic pyramid, stands ready to support these efforts.

The post
The Cost of Coronavirus in Africa: What Measures can Leaders
Take?
appeared first on Inter
Press Service
.

Excerpt:

Dorothy Tembo is Executive Director ad interim,
International Trade Centre (ITC)

The post
The Cost of Coronavirus in Africa: What Measures can Leaders
Take?
appeared first on Inter
Press Service
.

Source: FS – All – Ecology – News
The Cost of Coronavirus in Africa: What Measures can Leaders Take?