News Africa13 Apr 2020

Sub-Saharan Africa:Region faces recession for first time in 25 years

13 Apr 2020

The COVID-19 (coronavirus) outbreak has set off the first recession in the Sub-Saharan Africa region in 25 years, with growth forecast at -5.1% in 2020 from a modest 2.4% in 2019, according to the latest Africa's Pulse, the World Bank's bi-annual analysis of the state of the region's economies.

The analysis estimates the pandemic could cost the region between $37bn and $79bn in terms of output losses in 2020. The impact on household welfare is expected to be equally dramatic with welfare losses in the optimistic scenario projected to reach 7% in 2020, compared to a non-pandemic scenario.

Additionally, COVID-19 has the potential to create a severe food security crisis in the region, with agricultural production contracting between 2.6% and 7% in the scenario with trade blockages. Food imports would decline substantially (as much as 25% or as little as 13%) due to a combination of higher transaction costs and reduced domestic demand.

These fallouts result from a combination of influences, including the disruption to trade and value chains affecting commodity exporters and countries with strong value chain participation; the reduced foreign financing flows of foreign direct investments, foreign aid, remittances, tourism revenues, and capital flight. The disruptions also stem from COVID-10 containment measures imposed by governments and the response of citizens.

Mr Cesar Calderon, World Bank lead economist and lead author of the report, said, “At this time it is also important to consider that most workers in the region are engaged in the large informal sector where they lack benefits such as health insurance, unemployment insurance, and paid leave. They usually need to work everyday to earn their living and pay for their basic household necessities. A prolonged lockdown would put their basic survival at great risk.”

“Due to deteriorating fiscal positions and increased public debt, governments in the region do not have much room for wiggle in deploying fiscal policy to address the COVID-19 crisis,” said Albert Zeufack, chief economist for Africa at the World Bank. “Africa alone will not be able to contain the disease and its impacts on its own; there is urgent need for temporary official bilateral debt relief to help combat the pandemic while preserving macroeconomic stability in the region.”

The report recommends a fiscal-policy approach with two primary objectives – to save lives and protect livelihoods. Immediate actions to consider include:

  • Focusing on strengthening health systems. The availability and allocation of financing for the health sector is still a major concern in Sub-Saharan Africa. The medical personnel in the region should be protected and properly equipped.

  • Implementing social protection programmes to support workers, especially those in the informal sector. This calls for cash transfers, in-kind transfers (food distribution), social grants to disabled people and the elderly, wage subsidies to prevent massive layoffs, and fee waivers for basic services (e.g. electricity tariffs and mobile money transactions)

  • Minimise disruptions within countries and in the critical intra-African food supply chains, and keeping logistics open to avert a looming food crisis in the region.

The report also encourages African policymakers to think about the exit strategy from COVID-19.

“Once the containment and mitigating measures are lifted, economic policies should be geared towards building future resilience,” the report says. “Economies still need to design policy pathways to achieve sustainable growth, economic diversification and inclusion.”

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