The African Union-AU in a recent report on the impact of COVID-19 on African economies has done a profound study across various sectors and industries pointing out those that are already greatly affected. The report does a projection into the future of the economy borrowing from already existing data on other continents months into the pandemic which Africa is still making it’s way into. From the report, it is evident that Africa just like the rest of the world will be greatly hit view the outward looking nature of most economies on the continent.
At the beginning of the global financial crisis in 2008, many would have imagined Africa will not be affected but this wasn’t the case. Today will falls in global oil prices, foreign direct investments, remittances, and large scale effects across all sectors, there is no way Africa will be left out.
The COVID-19 pandemic has hit almost all African countries and appears poised to worsen dramatically. The disruption of the world economy through global value chains, the abrupt falls in commodity prices and fiscal revenues and the enforcement of travel and social restrictions in many African countries are the main causes of the negative growth.
Exports and imports of African countries are projected to drop by at least 35% from the level reached in 2019. Thus, the loss in value is estimated at around 270 billion US dollars. To fight against the spread the virus and medical treatment will lead to an increase of public spending in Africa estimated to by at least 130 billion.
Impact on the hospitality industry
Tourism, an important sector of economic activity for many countries in Africa, will be heavily affected by COVID-19 with the generalization of travel restrictions, closing of borders and social distancing. IATA estimates the economic contribution of the air transport industry in Africa at US$ 55.8 billion dollars, supporting 6.2 million jobs and contributing 2.6% of GDP. These restrictions affect international airlines including African giants Ethiopian Airlines, Egyptair, Kenya Airways, South African Airways, etc. The first effects will result in the partial unemployment of airlines staff and equipment.
However, in normal times, airlines transport around 35% of world trade, and each job in air transport supports 24 others in the travel and tourism value chain, which creates around 70 million jobs (IATA, 2020). A communique from IATA indicated that “international bookings in Africa declined about 20% in March and April, domestic bookings declined about 15% in March and 25% in April. According to the latest data, that Ticket refunds increased by 75% in 2020 compared to the same period in 2019 (01 February – 11 March) “.
According to the same data, African airlines have already lost US$ 4.4 billion in revenue by March 11, 2020 due to COVID19. Ethiopian Airlines has indicated a loss of $190 million. Their number was around 70 million in 2019 and projected at 75 million in 2020 (UNWTO). Travel and tourism are one of the main engines of growth of the African economy, accounting for 8.5% of GDP in 2019 according to the World Tourism and Travel Council (WTTC).
Impact on the oil industry in Africa
The fall in crude oil prices and demand contraction also directly affect the growth of African countries. Africa’s major trading partners include the European Union, China and the United States. The European Union, through EU due to strong historical ties with the African continent, carries out numerous exchanges, which accounts for 34%. Fifty-nine percent (59%) of North Africa’s exports are to Europe, compared to 20.7% for Southern Africa. China in its industrialization dynamic has for a decade raised the level of its trade with Africa: 18.5% of Africa’s exports are to China. Forty-four percent (44.3%) of Central Africa’s exports are to China, compared to 6.3% for North Africa (AUC/OECD, 2019)
Today, crude oil is facing the biggest demand shock in its history, falling below 30 dollars a barrel, due to the cessation of world trade (which started in China since January) following the Covid-19 pandemic and at the same time the disagreement between Saudi Arabia and Russia. Because of the current oil price drops, the largest disruption to trade will be for commodity-sensitive economies, with Algeria, Angola, Cameroon, Chad, Equatorial Guinea, Gabon, Ghana, Nigeria, and the Republic of the Congo among the most affected.
The CEMAC countries will be hit severely by oil price drop, which will exacerbate the shortage of foreign currency and probably strengthen the idea of the devaluation of the CFA. Oil exports range from 3 percent of GDP in South Africa (already in recession and showing a weak growth outlook) to as high as 40 percent in Equatorial Guinea and almost the totality of South Sudan’s exports, and are a key source of foreign exchange earnings. For Nigeria and Angola, the continent’s largest producers of oil, oil revenues represent more than 90% of exports and more than 70% of their national budgets, and the fall in prices will likely hit them in a similar proportion.
Africa’s imports are hit by the Covid-19. The drop-in imports and the shortages of basic consumer goods imported from China have increased inflation in South Africa, Ghana, etc. Rwanda has recently imposed fixed prices for basic food items such as rice and cooking oil. Many small poor importers, traders and consumers in Nigeria, Uganda, Mozambique, and Niger are seriously affected by the crisis as they earn their livelihood trading Chinese products such as textiles, electronics, and householders’ goods.
Impact on investments especially FDI
More than two thirds of the multinational enterprises (MNEs) in UNCTAD’s Top 100, a bellwether of overall investment trends, have issued statements on the impact of Covid-19 on their business. Many are slowing down capital expenditures in affected areas. In addition, lower profits – to date, 41 have issued profit alerts – will translate into lower reinvested earnings (a major component of FDI). On average, the top 5000 MNEs, which account for a significant share of global FDI, have seen downward revisions of 2020 earnings estimates of 9% due to Covid-19.
Impact on the automotive and energy industries
Hardest hit are the automotive industry (-44%), airlines (-42%) and energy and basic materials industries (-13%). Profits of MNEs based in emerging economies are more at risk than those of developed country MNEs: developing country MNE profit guidance has been revised downwards by 16%. In Africa, this revision amounts to 1%, compared to 18% in Asia, and 6% in LAC (UNCTAD, 2020). Furthermore, there have already been large-scale capital withdrawals from the continent; for example, in Nigeria the All Share Index registered its worst performance for a decade in early March as overseas investors pulled out. Experts estimated that overall Africa could lose up to 15% FDI inflow to the continent.
Among all the countries affected, these top five African economies (Nigeria, South Africa, Egypt, Algeria and Morocco) represent more than 60% of Africa’s GDP. The level of the impact of Covid19 on these 5 economies will be representative for the whole of the African economy. The tourism and petroleum sectors represent on average a quarter (25%) of the economy of these countries. As the pandemic continues to spread, the continent is projecting greater damages and more profound impact on the continent’s economy.