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Boosting regional trade amid Covid pandemic

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NEED A BAIL OUT—Business operators

Most African governments seem lost to find the solution to Covid-induced economic problems.

Africa recorded its first Covid case in Egypt on February 14 2020. Since then, all the countries have reported cases with some economic distress plunging in.

Initially confined to capital cities, cases are now reported in a significant number of countries, multiple provinces and regions.

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By May 4 2020, the number of confirmed Covid cases had risen to 44, 873 and caused 1, 807 deaths. The African countries with the highest number of infections are South Africa, Egypt, Morocco and Algeria. However, the full scope of the pandemic remains uncertain, as cases are underreported and the accuracy of data collection varies considerably. On April 17 2020, the World Health Organisation (WHO) warned that Africa could be the next epicentre of the coronavirus.

Although the number of Covid cases and fatalities might still appear comparatively low in Africa than in other regions, the looming health shock of Covid could have disastrous impacts on the continent already strained health systems, and could quickly turn into a social and economic emergency.

Beyond health risks, the Covid shock to African economies is coming in three waves: Lower trade and investment from China in the immediate term; a demand slump associated with the lockdowns in the European Union and a continental supply shock affecting domestic and intra-African trade.

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It is shaking commodity-driven growth models that had largely failed to create more and better jobs or improve well-being. On the health front, greater capacities to test, protect, treat and cure are essential. On the socio-economic front, policy measures should cushion income and jobs losses, while tackling the specific challenges of high informality. Beyond the immediate response, recovery strategies should include a strong structural component to reduce dependence on external financial flows and global markets, and develop more value-adding, knowledge-intensive and industrialised economies, underpinned by a more competitive and efficient services sector.

Effective implementation of the African Continental Free Trade Area (AfCFTA) and the African Union’s productive transformation agenda can strengthen regional value chains, reduce vulnerability to external shocks, advance the digital transition, and build economic resilience against future crises.

In the immediate term, with the support of the international community, African governments should concentrate efforts on preventing the spread of the virus, invest in preparedness and early-detection mechanisms, and deploy emergency relief measures, notably in highly informal sectors. To alleviate the immediate healthcare crisis, major producers of medical products should refrain from export bans and other trade policies that fragment production and increase the costs of essential supplies for import-dependent countries.

In the short-term, fiscal and monetary measures should channel liquidity to SMEs, households and informal workers, especially in the most vulnerable economies, within a coordinated global response to the crisis. Although the implementation of the African Continental Free Trade Area (AfCFTA) has been delayed due to the Covid disruptions, and has not come into effect by July 1 2020 as planned, countries should continue progress in their national plans to liberalise goods and services to establish a new implementation date as circumstances allow.

In the medium-to-long term, in partnership with the international community, governments should continue to strengthen health systems and extend health and social protection coverage. They should continue progress towards subsequent phases in the implementation of the AfCFTA, including on investment, competition policy, intellectual property rights and e-commerce, as well as the productive transformation agenda, particularly through regional integration and digitalisation. These measures will be key to reducing vulnerability to external shocks in trade and commodity prices, advancing the productive transformation of the region, and building human, societal and economic resilience for future global crises.

African policymakers and their partners should re-assess the trade-offs between short, medium, and long-term priorities. These and related policy measures will continue to evolve as economies enter the successive phases of crisis-response: surviving the epidemic (ensure adequate resources go to basic needs such as medicine and food, and ensure people’s physical and mental health, as well as safety); getting back to normal (support individuals and firms to resume their activities and repair the damage sustained during the pandemic), and re-focusing on the long term (shift resources and attention to long-term development). In this case, Africa faces a dual public health and economic crisis that risks overwhelming healthcare systems, destroying livelihoods, and slowing the region’s growth prospects for years to come.

Since 2000, Africa’s GDP growth has largely been driven by domestic demand (69 percent of the total), rather than an increase in productivity. Africa’s labour productivity as a percentage of the United States level stagnated between 2000 and 2018, and the Africa-to-Asia labour productivity ratio has decreased from 67 percent in 2000 to 50 percent today. Global markets account for 88 percent of Africa’s exports, mostly in oil, mineral resources and agricultural commodities. At the onset of the crisis, prospects differed across economies. Some were displaying high growth rates, in excess of 7.5 percent (Rwanda, Côte d’Ivoire and Ethiopia), but Africa’s largest economies had slowed down. In Nigeria (GDP growth of 2.3 percent), the non-oil sector has been sluggish, in Angola (-0.3 percent) the oil sector remained weak, while in South Africa (0.9 percent) low investment sentiment weighed on economic activity. Africa is confronted with a double supply and demand shock arriving in three successive waves: first from the People’s Republic of China (hereafter “China”), followed by initially Europe, and now the United States, and lastly a likely intra-African wave that may come if African countries fully implement confinement measures, such as South Africa. The decline in economic activity and employment in 2020-21 will be determined by the magnitude and the persistence of the shock, the impact of pre-existing crises and vulnerabilities (for example, conflict and fragility in the Sahel, or locusts in East Africa spreading to other regions) and the response by African governments and businesses.

A first wave comes from China through weakened trade channels and lowers foreign direct investment (FDI) in the immediate term. By contrast with South Africa or Ghana, least developed countries such as Zambia, South Sudan and Mauritania do not have alternatives to China as a buyer, nor do they have viable alternatives to their commodities for sources of growth. For instance, South Sudan was expected by the IMF to be the fastest-growing country in the world in 2020, growing by 8.2 percent, but mainly due to oil exports to China (98 percent of its total exports). Investments projects will also be delayed or cancelled as the country of origins of FDI go through and recover from the crisis.

Africa’s economy can recover through structure adjustment and public finance management by employing prudent economic measures. Our economy can return to pre- Covid pandemic economic growth as long as such structural changes are strictly followed. Let’s learn from the pandemic and become wiser on how we can save the African economy.

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