The Long-Term Economic Impacts of COVID-19 in Africa: Where Do We Go from Here?
This blog was originally published on Medium.
By: Steven Forsythe and Suneeta Sharma
Historically, pandemics have economic impacts that last far longer than the virus itself. One hundred years after the Bubonic Plague of 1348–1350, for example, Europe’s population was still smaller than it was before the plague. This devastating impact had significant economic consequences for those who survived, creating labor shortages, higher wages, and the rise of Europe’s middle class. The flu pandemic of 1918 infected 30 percent of the world’s population, killing between 3 percent and 6 percent of all people worldwide. In the United States, states that suffered larger numbers of flu cases also benefited from higher wage increases. However, children born during the 1918 pandemic were found to have lower education attainment, higher rates of physical disability, and lower incomes when compared to cohorts not born at this time. As for COVID-19 in Africa, it remains unclear what are the long-term economic consequences. What appears likely is that the economic impact of COVID-19 will last much longer than the virus itself.
The COVID-19 pandemic, which has been estimated to have already infected 10 percent of the world’s population, is likely to have longer-term economic implications regarding income, debt, food security, health, poverty and education. While vaccines represent a glimmer of hope for the world’s health, they will not immediately resolve the economic scars that countries face because of COVID-19 and related lockdowns. The economic consequences of COVID-19 are most visible in the poorest countries, where pre-existing economic vulnerabilities are already being worsened by the pandemic.
Understanding COVID-19 in Africa requires an understanding of its diverse impacts. The number of infections per million population in early December 2020 ranged from as low as 8 (Tanzania) to as high as 19,673 (Cape Verde), a difference of 2,500-fold. South Africa, with the largest number of COVID-19 cases on the continent, is reporting more than 13,000 cases per million population. Chad and Niger have fewer than 110 cases per million population, while just to the north, Libya and Tunisia report more than 8,000 cases per million population. How countries are affected economically are in part related to how they are affected epidemiologically.
However, the economic vulnerability of African countries cannot be projected solely based on the number of reported COVID-19 infections. Some extremely poor African countries, such as Burkina Faso, have not seen a large number of COVID-19 cases, but are nonetheless facing dire economic consequences as a result of COVID-19. Other African countries, such as Tanzania, have tried to avoid the impact of COVID-19 by simply not reporting on cases, a “solution” which is not likely to be sustainable.
It is critical to understand how differences in economic structures can affect the impact of COVID-19. For example, Cape Verde, the most heavily infected country in Africa on a per capita basis, derives 18 percent of its gross domestic product (GDP) from tourism, a sector that has been devastated by COVID-19. In Kenya, shipments of fresh flowers declined by 80 percent as the demand from European countries vanished due to Europe’s COVID-related recession. On the other hand, African countries that are large producers of minerals such as gold have suffered much smaller impacts, due in part to the rising price of gold.
Macroeconomy. The African Union divides the economic impact of COVID-19 into exogenous effects and endogenous effects. The exogenous effects are related to declines in trade between continents, reduced foreign direct investment, reductions in official development assistance, declines in remittances, etc. On the other hand, endogenous effects relate directly to the economic impacts associated with the spread of COVID-19 in Africa, including the morbidity and mortality of workers, as well as the impacts of lockdowns which limit access to local trade.
At the start of 2020, the World Bank projected that the global economy would grow by 2.5 percent. By June of 2020, that projection had changed to -5.2 percent. Tourist-focused economies in Africa were projected to be particularly hard hit, including that of the Seychelles, which was originally projected to grow at 3.3 percent and is now projected to decline by 14.4 percent. Countries reliant on oil exports suffered from the plummeting price of oil (dropping from $67 per barrel to $30 a barrel between December 2019 and March 2020). South Sudan, which relies on oil for 90 percent of its exports, was projected to grow by 10.3 percent in 2020, but is now projected to see a 4.3 percent decline.
These declines will not be immediately reversed with the introduction of a vaccine and the end to lockdowns. McKinsey estimates that the loss of tourism revenues globally could amount to $8.1 trillion, not returning to 2019 levels until 2024. An analysis by the United Nations Conference on Trade and Development estimates that merchandise exports will decline by 17 percent in Africa as a result of COVID-19. These macroeconomic shocks, along with many others, will have long-term economic consequences for most African countries.
Debt. Increases in COVID-related deficits and debt are attributable to a combination of factors, including reduced revenues received by tax authorities and increased spending on fiscal and monetary policies designed to mitigate the economic impact of the pandemic. Numerous countries already faced a high debt to GDP ratio going into the pandemic, including Eritrea (189 percent), Cape Verde (124 percent) and Mozambique (104 percent). Estimates are that the pandemic will cause the loss of an additional $500 billion in Africa as a result of the pandemic, leading to further borrowing and additional debt.
Multilateral attempts to alleviate African debt through a debt moratorium were designed to free up resources for health services. However, such attempts have generally been unsuccessful. Of the 25 African countries eligible for such assistance, only four applied for it. The reasons for such resistance to debt relief include concerns about having existing debt downgraded and potentially causing a default of private sector debt.
South Africa has benefited from International Monetary Fund (IMF) loans. They will amount to approximately $4.2 billion and will need to be repaid 40 months after the first disbursement. Nigeria is expecting to receive $3.4 billion of funding from the IMF while Ghana is projected to receive $1.0 billion. Overall, IMF financing for African countries is projected to reach $16 billion.
Food Insecurity. The number of people who were food insecure in 2019 was estimated to be 135 million. With the spread of COVID-19 in 2020, this figure is projected to nearly double to 265 million. Oxfam estimates that 12,000 additional people per day could die of hunger by the end of 2020. There are various reasons why food insecurity and hunger have risen with the spread of COVID-19, including the lack of access to agricultural inputs (including seeds and fertilizer), restrictions on imports and exports, and an inability to move products to domestic markets (due to lockdowns that restricted domestic trade). As farmers have been unable to sell agricultural products, the farmers’ purchasing power has declined, resulting in further food insecurity and starvation.
Health. African countries face several health impacts indirectly related to COVID-19, predominantly because people are unable or unwilling to access essential health services. For example, one study in Kenya estimated that a three-month suspension of tuberculosis services followed by a gradual 10-month recovery would result in 24,700 additional tuberculosis cases and 12,500 tuberculosis deaths over the next five years. A study on the impact of COVID-19 on malaria cases indicated that there could be a 36 percent rise in high-burden African countries, with between 20,000 and 100,000 additional malaria deaths. Another analysis of HIV treatment indicated that a disruption in treatment caused by COVID-19 could result in an additional 500,000 HIV deaths in Africa. Another global analysis projected that a three-month lockdown could result in two million additional women being unable to use modern contraceptive methods and an additional 15 million cases of gender based violence.
Poverty. According to the World Bank, COVID-19 could push up to 150 million people globally into extreme poverty by 2021. For many African families, economic progress is determined in large part by changes in income. Are families earning more or less than they were the previous year? This question was asked as part of telephone surveys of households conducted in various African countries since the start of the pandemic. The results appear to indicate significant losses in income. For example, in Kenya, only 3 percent of respondents indicated they were earning more than they were the year before the pandemic (2019), while 42 percent indicated they were earning less. In Nigeria, only 5 percent of respondents were earning more than a year ago, compared to 48 percent who were earning less. In Kenya, 36 percent of families reported missing at least one meal in the previous seven days, while 61 percent of people in Nigeria indicated missing a meal. These data are worrying, as they suggest that already impoverished households in these countries may be incurring impacts that are pushing families further into poverty.
Education. COVID-19 has resulted in the closure of schools and other learning spaces for 99 percent of students in low- and middle-income countries. While the closure of schools has a direct impact on children and their ability to become educated, it also has an impact on their nutrition, the ability of parents to work, and the protection against gender-based violence that being in school provides, especially for girls and young women. COVID-19 can also result in shrinking public sector resources being redirected away from education to meet other pressing needs, including healthcare and fiscal stimulus efforts.
From an economic perspective, this loss of human capital is particularly worrying, as the loss of education can limit the ability of people to work, earn money, and pass on human capital to subsequent generations. Distance learning may represent a partial solution, but in poorer areas where young people do not have access to a computer or the internet, distance learning does not represent a real long-term solution.
Developing a Multisectoral Response. Any response to Africa’s pandemic must begin with treatment and prevention. The faster that African countries can receive affordable and effective vaccines, the faster they will be able to begin the process of economic recovery. However, health programs cannot focus solely on COVID-19, and must instead also focus on other health concerns that have been affected by COVID-19, including access to family planning and reproductive health services; maternal and child health services; and malaria, tuberculosis and HIV prevention and treatment. Thus, health systems strengthening must be a priority not only as a health measure, but also to reduce the economic implications of COVID-19.
COVID-19 prevention (including access to COVID-19 vaccines) and treatment programs, while essential, will not fully address the long-term economic consequences of COVID-19 in Africa. Responding to the economic impact must begin by defining the impact in each country. As already indicated, the epidemiological impact across the continent varies significantly, but the economic impact may be even more heterogeneous. Some countries, for example, have not incurred significant economic impacts because the price of their exports have risen (e.g., gold prices have risen significantly since the start of the pandemic). Other countries rely on sectors that have been much more negatively affected by COVID-19 (e.g., countries—such as South Africa—that rely heavily on tourism, have already incurred a large economic impact due to the pandemic).
Africa’s response must also address issues of debt. Efforts are underway by the World Bank and the IMF to grant debt-service suspension to poor countries. The level of debt is likely to rise, particularly in countries that had both large epidemics and strict lockdowns (e.g., South Africa). It is likely that additional IMF loans will need to become available in other African countries, which could potentially worsen the existing debt situation. Given the large debts being incurred by many donor nations, it may be particularly challenging to expect these countries to support further debt relief. An aggressive multilateral response to debt is therefore critical.
Any response to Africa’s economic situation must also address the issue of food insecurity. As Africa approaches its first recession in 25 years, it must be able to address food insecurity both from a supply and demand perspective. Food supplies have been hard hit by limits on movement within countries and across international borders. Only by keeping trade open will food insecurity be mitigated. However, movement of goods and services must be done in a way that keeps people safe and limits health risks to those who engage in trade.
Addressing poverty in African families requires a careful understanding of how families have been affected by COVID-19 and how these impacts can best be mitigated. Some countries (e.g., South Africa) attempted to minimize the impact through child support grants, social grants, and unemployment insurance. Other countries have focused their funds specifically on health-related interventions while avoiding grants for the most vulnerable. Overall, COVID-related fiscal spending in Africa has amounted to only 3 percent of GDP, which is much less than in other emerging markets or advanced economies.
Education is another area in which large, long-term investments will be required to minimize the impacts of COVID-19. Efforts are needed not only to reopen schools safely, but also to develop innovative ways of addressing the educational gaps created by the pandemic. New ways are needed to educate young people and assure that learners can return to the classroom safely.
Finally, Africa must be prepared for the next pandemic. A key lesson from COVID-19 is that the world cannot assume that the last pandemic will be similar to the next one. The next pandemic is likely to be different from COVID-19, and therefore contingencies must be established for a variety of possible scenarios. These scenarios need to consider how to keep African economies running, while maintaining healthy and well-educated populations.
Steven Forsythe is a health economist with HP+ and Avenir Health, focusing on issues of resource allocation, cost-effectiveness and costing. Suneeta Sharma is director of Health Policy Plus and vice president for health at Palladium.