COVID-19. What consequences for the African continent. Part one. The economic impact

Frammenti Africani

Frammenti Africani è un resoconto giornalistico di tematiche complesse del Continente Africano, futuro epicentro economico mondiale, dove coesistono potenze economiche e militari, crescita economica a due cifre, guerre, colpi di stato, masse di giovani disoccupati e una borghesia in piena crescita.
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Fulvio Beltrami

Fulvio Beltrami
Originario del Nord Italia, sposato con un'africana, da dieci anni vivo in Africa, prima a Nairobi ora a Kampala. Ho lavorato nell’ambito degli aiuti umanitari in vari paesi dell'Africa e dell'Asia.
Da qualche anno ho deciso di condividere la mia conoscenza della Regione dei Grandi Laghi (Uganda, Rwanda, Kenya, Tanzania, Burundi, ed Est del Congo RDC) scrivendo articoli sulla regione pubblicati in vari siti web di informazione, come Dillinger, FaiNotizia, African Voices. Dal 2007 ho iniziato la mia carriera professionale come reporter per l’Africa Orientale e Occidentale per L’Indro.
Le fonti delle notizie sono accuratamente scelte tra i mass media regionali, fonti dirette e testimonianze. Un'accurata ricerca dei contesti storici, culturali, sociali e politici è alla base di ogni articolo.

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COVID-19. What consequences for the African continent. Part one. The economic impact

Thanks to a series of combined factors: climate, resistance to diseases, young populations, timely containment measures adopted by various governments, the SARS-CoV-2 strain weaker than those in Asia, Europe and America; the number of cases and deaths from Covid19 in Africa are still low compared to other regions of the world. But how it will be the economic social and health impact? This series of articles will examine the present impact for each sector and the short middle and long term impacts. We start with Covid19 economic impact

di Fulvio Beltrami

covid19, pandemy, africa, afcfta, economic impacht, china, ue, united states of america

Fulvio Beltrami 27 July 2020

(Original article publish in Italian on Il Faro di Roma http://www.farodiroma.it/limpatto-economico-del-covid-19-sulleconomia-africana-solo-la-cina-ha-cancellato-in-parte-il-debito-estero-non-leuropa-ne-gli-usa-di-f-beltrami/)

Thanks to a series of combined factors: climate, resistance to diseases, young populations, timely containment measures adopted by various governments, the SARS-CoV-2 strain weaker than those in Asia, Europe and America; the number of cases and deaths from Covid19 in Africa are still low compared to other regions of the world.

The report n. 186 of 24 July 2020 on the pandemic prepared by the WHO reports 659,348 cases of contagion on the continent and 11,001 deaths. If you calculate the infectious level of the virus compared to the population of the continent (1,216 billion people) you get a very reassuring percentage: 0.054%. The percentage of deaths compared to infected people is 1.67%. A very low percentage due to two simple factors: the elderly in Africa are rare and those over the age of sixty enjoy good health as the typical diseases of old age (manageable in Europe) cause premature deaths in Africa due to financial difficulties access to treatment, especially for cancer and chronic diseases.

A war has been waged between the WHO, John Hopkins University (Baltimore, Maryland) and the ACDC (Africa Center for Disease Control) on health data related to Covid19. The last two institutions report significantly higher numbers of infections and deaths than those of the WHO. On July 24, 2020, John Hopkins and ACDC reported 789,226 cases of contagion and 16,715 deaths. Difficult to understand who is right. However, even the most alarming figures reveal a low impact of Covid19 in Africa. Hopkins and ACDC offer very interesting data. Of the total number of registered cases, 447,026 recovered, equivalent to 56.64%. Healings concern the most severe cases in need of hospitalization. In many cases (especially among the age groups of 18 to 26 years) the symptoms are mild and last less than 72 hours.

Despite the fact that Africa seems spared from this viral threat, the shock caused by efforts to contain the pandemic could have disastrous effects in the medium term on already weak health systems on the continent. The post-pandemic period could turn into a social and economic emergency too. The risks facing Africa have been well explained (in simple but clear words) by Don Dante Carraro. Director of the prestigious Italian health NGO CUAMM - Doctors For Africa in a speech on You Tube on 11 July. (https://www.youtube.com/watch?v=IGv3O3CnEqo& feature=youtu.be)

Because of the pandemic, people are not willing to move and consequently the coverage rate of child vaccination is falling. The control of the weight and height of children falls, making it difficult to monitor malnutrition. It is no longer possible to check pregnant mothers with prenatal visits and follow the pregnancy trying to understand if it can be at risk. " Don Dante Carraro explains to us.

Surely infant and childbirth mortality will increase in the coming months. The situation is more disastrous among chronic patients. Those suffering from HIV, tuberculosis, diabetes, who need daily therapies. We are losing them. The real health concern is about the indirect effects of the virus that weigh on the health profile. On a social level, the population falling in what we call Hunger is increasing. Because preventive lockdowns have broken the most fragile categories of the population. Those who come to the side of the road to sell you the cherry tomato, the banana, the peanuts. These people can no longer work and fall into extreme irreversible poverty in one, two, three days. This is the real social problem. The percentage of the very poor that is currently 25% at continental level will increase ”.

To understand in detail the post-pandemic impact in Africa, we consulted studies on the World Bank OECD (Organization for Economic Co-operation and Development), IMF, WHO, African Union. UNECA (United Nations Economic Commission for Africa). The research results offer a clear picture of the health, social and economic consequences that Africa will face in the post-pandemic period.

From a purely economic point of view, African economies will face three waves of post-pandemic risk: less immediate trade and investment from China; slump in demand associated with blockages in European Union and OECD countries; continental supply shock affecting domestic and intra-African trade. These three risks have the potential to undermine current growth patterns driven by raw materials and stop both the creation of new and better jobs and well-being. The most recent forecasts foresee a contraction of GDP in most countries in 2020, the first in 25 years. The United Nations estimates that around 30 million more people could fall into poverty and that the number of acutely food insecure people could increase significantly.

On the socio-economic front, the political measures hitherto adopted to contain the pandemic have strong connotations that tend towards totalitarianism. In Uganda President Yoweri Kaguta Museveni (in power since 1987) is exploiting the pandemic to prevent the opposition from organizing for the presidential elections scheduled for January and February 2021. Obviously "The Old Man M7" will present himself as a candidate to access the fifth presidential term consecutive preventing free and democratic elections. The possibility of Internet elections is even being aired. In Ethiopia, Prime Minister Abij Hamed postponed the elections "to prevent contagion" by effectively implementing a constitutional coup d'état that is creating strong social tensions and the risk of a civil war with strong ethnic characteristics.

In general, various African countries are using pandemic containment measures to strengthen (with the excuse of health security) their regimes and increase repression, preventing the opposition from participating in a healthy democratic process. These policies are actually exacerbating youth unemployment and exasperating the population, prompting them to react. In the medium term, a wave of mass protests is expected in various parts of the continent over thirst for democracy and freedom. The protests taking place in Mali are only the preamble to a probable wave of strong social protest.

Let's analyze the economic situation in detail.

The partial disengagement of Beijing.

The first risk comes from China through weakened trade channels and lower foreign direct investment due to the internal crisis created by the pandemic in China. The penetration of the Asian Dragon in Africa has had the merit of proposing an alternative to colonial relations with the West, of diversifying commercial partners, improving infrastructure and offering the possibility of starting the much desired industrial revolution.

Unfortunately, some African countries have become too dependent on Beijing. For example Mauritania, Zambia, Sudan and South Sudan have no alternatives to China as a buyer, nor do they have viable alternatives for selling their raw materials in non-Chinese foreign markets.

For example, South Sudan (despite the civil war that started in 2013 and is still ongoing) has based its annual economic growth on oil exports to China which represent 98% of total South Sudanese hydrocarbon exports. Now China has halved purchases of oil from South Sudan. Despite the image of a moderate and reformist politician, Burundian President Evariste Ndayishimiye is promoting a markedly anti-Western policy against the United States and the European Union, removing the possibility of resuming economic cooperation with the West. The Burundian racial regime CNDD-FDD is hoping for support from China. A difficult support for Beijing to implement at this delicate moment.

China, Africa's main trading partner and one of its major sources of investment, saw the index of purchases of African raw materials and investments in Africa reach an all-time low, falling from 50 to 35.6% between January and February 2020. Unfortunately, the trend of Chinese disengagement will last throughout 2020.

The collapse of tourism.

Closing borders to curb contagion has eliminated the tourism industry and put the civil aviation industry in serious difficulty, threatening direct and indirect employment. The IATA (International Air Transport Association) estimates the economic contribution of the air transport sector in Africa to 55.8 billion dollars. A key employment sector with 6.2 million jobs which contributes to 2.6% of the continent's GDP. The restrictions on international travel concern African airlines such as Ethiopian Airlines, Egyptair, Kenya Airways and South African Airways, which are important employers and have connections with other domestic activities.

The first effects will result in the partial unemployment of airline staff. In normal times, African airlines carry around 35% of world trade, and each job in air travel supports another 24 jobs in the travel and tourism value chain, creating around 70 million jobs. In a moderate impact scenario COVID-19, the tourism and travel sector in Africa could lose at least $ 50 billion in revenue and 2 million direct and indirect jobs.

The overall impact of COVID-19 on the economies of the main tourist countries will be much higher than that on the average African economies. The tourism industry contributed in 2019 to over 10% of GDP of the following countries (in decreasing order of% of GDP): Seychelles, Cabo Verde, Mauritius, Gambia, Tunisia, Madagascar, Lesotho, Rwanda, Botswana, Egypt, Tanzania, Namibia, Comoros and Senegal. In these countries, economic growth is expected to drop on average by 3.3 percentage points at the end of 2020.

The shock of the price of oil and raw materials and their impact on African exports

The current drop in crude oil prices has been much faster than in 2014 and will have far-reaching consequences on the ability of many African countries to deal with the COVID-19 crisis and implement counter-cyclical policies. Oil prices have fallen by about 50% in the first quarter of 2020. This leads to losses linked to the collapse in oil prices estimated at $ 65 billion for the continent. For Nigeria and Angola, the largest producers on the continent, oil represents over 90% of export revenues and over 70% of the national budget. Now the two hydrocarbon giants will pay dearly for their delay in diversifying the national economy.

At the same time, non-oil commodity prices have also fallen since January, with natural gas and metal prices declining by 30% and 4% respectively (World Bank commodity price data). Commodity-sensitive economies will experience major trade disruptions and exchange rate stability. Algeria, Angola, Cameroon, Chad, Equatorial Guinea, Gabon, Ghana, Nigeria and the Republic of the Congo will be among the hardest hit. The drop in oil prices will aggravate the shortage of foreign currency in African countries. The Economic Community of Central African States (CEMAC) could be forced to ask France for a devaluation of the CFA franc (the colonial currency controlled by the Central Bank of Paris).

Debt increase.

Several African national debts were relatively low before the current crisis. African countries have an average debt / GDP ratio of 60%, with the exception of 4 countries - Sudan, Eritrea, Cabo Verde and Mozambique - with a debt / GDP ratio above 100% The initiative of the early 2000s to partially cancel o totally the external debt of the heavily indebted poor countries (HIPC) was particularly important for freeing up resources for poverty reduction in 13 African countries: Benin, Burkina Faso, Ivory Coast, Gambia, Ghana, Guinea, Guinea-Bissau, Liberia, Mali, Niger, Senegal, Sierra Leone and Togo. In Burkina Faso, for example, since 2000 the poverty reduction rate is identical to that observed in China between 1996 and 2013.

However, IMF data show that debt levels have risen rapidly in recent years. After reaching a minimum of 32% in 2008 thanks to the cancellation of the external debt for 31 African countries in the HIPC program, the total amount of the African gross public debt has doubled to reach 57.6% of the estimated GDP in 2019. The increase in public debt is linked to investments in improving infrastructure. Oil-exporting countries and those that had previously benefited from debt relief have driven the rapid accumulation of public debt in Africa.

The COVID-19 pandemic will be highly destructive for financing development in Africa, regardless of the source of revenue. In general, countries' tax bases have shrunk as domestic industries lose revenue, as African airlines have lost $ 4.4 billion in revenue in the first three months of 2020.

Tax revenues before the pandemic were clearly improving in various African countries due to three factors: fight against corruption and tax evasion, increase in domestic and foreign companies, digitization of the national tax system. Now the pandemic forces an unforeseen increase in public spending: health expenditure, keeping public staff in lockdown and subsidies to the population. Added to this is the loss of earnings from industrial production and trade (frozen in various African countries), which forces tax and social security contributions to be reduced. This immediately led to the deterioration of the budget balance and tax revenues.

The lower tax revenues, the decrease in exports and tourism are leading to a drastic shortage of hard currency liquidity which also compromises private and international credit lines. Excessive dependence on global markets for essential goods, tourism and financing will amplify the effects of the crisis that is about to fall on Africa.

Geopolitical obstacles to debt cancellation in the post-pandemic period.

Since last April, various African countries have put strong pressure on the African Union to take action to request the cancellation of its debts from the United States, China and the European Union. The response from the United States and Europe has been very evasive. Western powers are reluctant to implement a second cancellation of African debt after the one implemented by the G20 in June 2005. At the time, 55 billion dollars were canceled to the African countries most indebted on terms of improving internal democracies, respect for human rights and to achieve the objectives of the Millennium Development Goals, the United Nations agenda to achieve fair and sustainable development worldwide.

After obtaining debt relief, the beneficiary African countries have not made great democratic progress and many of the Millennium goals have not been achieved. Washington, Brussels, the IMF and the World Bank have bitterly found that the cancellation of the external debt has benefited China. The African countries, relieved of the debt grip, have beaten cash in Beijing, engaging in a new cycle of debt aimed at improving their infrastructure and starting the industrial revolution.

From 2005 to 2020, China became Africa's most important creditor, through loans granted for infrastructure that are included in Beijing's global hegemony plan: the New Silk Road. 20% of African countries are heavily indebted to China. Ethiopia, for example, has received $ 3 billion from Beijing for the construction of the controversial mega Great Renaissance dam.

The total African debt contracted with China in the past 15 years is $ 152 billion. It is fair to note that these debts are oriented towards productive investments. The infrastructure created so far will strengthen continental trade and strengthen the start of the industrial revolution. However, they are debts to pay off.

Unlike the European Union and the United States, China has partially responded to the UA's request to cancel the debts to better face the post Covid19 period. Last June, President Xi Jinping announced a amnesty for some African countries, recalling that the majority of loans granted in the past 15 years have low interest rates or even zero interest. The Chinese President did not specify how much the amnesty will amount nor which countries will benefit from it.

That Chinese credits have minimal or even zero interest rates is a sacrosanct truth. Furthermore, the credits are only conditioned by the economic adjustability of the projects (bridges, airports, railways, roads, industrial parks, etc.) without any respect for democracy, human rights. Just the opposite of the credits granted by the EU, USA, IMF and World Bank, characterized by sustained interests and by "moral" bonds of strengthening democracy, openness to the free market, improvement of human rights including the thorny (in Africa) issue of homosexuality and transgender.

Yet Chinese claims hide a makeup beard. By acquiring them, each African country undertakes to open a preferential corridor for the export of raw materials to China, facilitate the import of Chinese goods, economic immigration from China to Africa and industrial delocalization partially started in 2016. For Beijing the credits they have a triple geopolitical function. Ensure the strengthening of the partnership with Africa (to the detriment of the West), a constant influx of cheap raw materials and to encourage an industrial revolution in the "Made in China" continent disguised as "Made in Africa".

The decision of the Central Committee of the Chinese Party to cancel the debts of some country to allow it to better face the post Covid19 is a "competitive" political act with respect to the United States and the EU and a political need to reconnect with the frayed relations and restore the reputation of the China endangered by the very serious acts of xenophobia against African immigrants registered last April in Canton and in the entire province of Guangzhou. Finally, the cancellation of debts to some elected countries will serve to allow their governments to go into debt again with China.

Global trade contraction. A great opportunity.

Unlike the other sectors and risks examined, the contraction of global trade, if taken into analysis in the set of global trade mechanisms that will undergo an inevitable rearrangement in the post-pandemic period, could represent a great opportunity for Africa.

In the short term, the contraction in world trade will affect the productive apparatus of different sectors across Africa. African industries import over 50% of their industrial machinery and production and transportation equipment from outside the continent. The most important suppliers are Europe (35%), China (16%) and the rest of Asia, including India (14%). Therefore, disruptions related to COVID-19 in global supply chains, in particular from China and Europe, will lead to a reduction in the availability of final and intermediate goods imported into Africa.

In the long term, low value-added sectors such as agro-industry, flowers or clothing could be more affected by supply shortages and the possible reintegration of production activities closer to the end markets. On the contrary, the sectors that are better integrated into global value chains can recover more quickly: the aeronautics, information technology and the nascent automotive industry.

The current COVID-19 crisis is likely to redesign global value chains, bringing challenges but also opportunities for Africa. Official data show that African producers provide only 12.9% of their inputs within the region, 1 compared to 21.6% in Southeast Asia. Strengthening value chains on the African continent could become a priority, given the uncertain global economic environment, with some multinational companies from OECD countries reviewing their supply chain models, possibly moving towards shorter chains in South America and Africa.

As the private sector advances in its digital transition, it is important that the continent invests in the enhancement of essential telecommunication infrastructures, including fiber optics and high-speed Internet, as well as to complete the regulatory agenda (e-commerce) for digital transition. This will be essential for the emergence and expansion of 21st century value chains in Africa, transforming it into an important global commercial bloc. In the medium to long term, the effective implementation of the regional economic communities and the AfCFTA will be essential to strengthen regional production networks and exchanges and reduce the continent's vulnerability to external shocks.

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