AfCFTA to lessen economic impacts of COVID-19 on the Continent
Following the outbreak and the swift spread of the coronavirus (COVID-19), governments across the world are talking widely about its inescapable undesirable consequences- social sufferings and economic devastation in global communities. Particularly, given Africa’s weak health care system coupled with its fragile economies, the adverse impact of the epidemic is enormous and severe.
Taking these into consideration, in a presentation on the economic effects of the COVID-19 on Africa recently, The Economic Commission for Africa (ECA) has advised African governments to review and revise their budgets to reprioritize spending towards mitigating the expected negative impacts from COVID-19 on their economies.
As a safety net, the think tank is urging governments to provide incentives for food importers to quickly forward purchases to ensure sufficient food reserves in key basic foods items. “The intra-African market could help to mitigate some of the negative effects of COVID-19 through limiting dependence on external partners, especially in pharmaceuticals and basic food,” said Stephen Karingi, Director of the ECA’s Regional Integration and Trade Division adding that diversifying economies away from fuel-driven was vital beyond COVID-19.
ECA indicated that there was an opportunity that the African Continent could take advantage of the pandemic as trading within the African Continental Free Trade Area (AfCFTA) is set to commence this July. Apart from the negative impacts of the virus on the social and political aspects, its economic impact is undeniable. The shocks that it rested on the Ethiopia’s flower export industries, aviation industry, are among others. In an effort to slow the spread of the virus, the government has been taking measures such as suspending schools, sporting events, flights, and public gatherings for days. Likewise, closing night clubs and land borders, granting pardon for prisoners convicted with minor crimes are amongst the commitments of the government.
However, the pandemic threatens to disproportionately hit developing countries, not only as a health crisis in the short term but as a devastating social and economic crisis over the months and years to come, according to UNDP report. Though the pandemic has made crisis on the world’s health, it has put a scar on the social, political and economic aspects of the world and on the African continent. Executive Secretary of the Economic Commission for Africa (ECA), Vera Songwe, on her part said that having already strongly hit Africa’s major trading partner, China, COVID-19 was inevitably impacting Africa’s trade. “Africa may lose half of its GDP with growth falling from 3.2 percent to about 2 percent due to a number of reasons which include 100 disruption of global supply chains,” said Songwe, adding the Continent’s interconnectedness to affected economies of the European Union, China and the United States was causing ripple effects. She said the continent would need up to 10.6 billion USD in unanticipated increases in health spending to curtail the virus from spreading, while on the other hand revenue losses could lead to unsustainable debt. The ECA also estimates COVID-19 could lead to Africa’s export revenues from fuels falling at around 101 billion USD in 2020. Remittances and tourism are also being affected as the virus continues to spread worldwide, resulting in a decline in FDI flows; capital flight; domestic financial market tightening; and a slow-down in investments – hence job losses. Pharmaceuticals, imported largely from Europe and other COVID-19 affected partners from outside the continent, could see their prices increasing and availability reduced for Africans. With nearly two-thirds of African countries being net importers of basic food, shortages are feared to severely impact food availability and food security.
In addition, a decline in commodity prices could lead to fiscal pressures for Africa’s economic power houses such as South Africa, Nigeria, Algeria, Egypt and Angola. To this effect, Stephen Karingi emphasized the need for the continent to urgently implement the African Continental Free Trade Area (AfCFTA) as he urged African countries who export drugs to prioritize selling on the African market. Economists also suggest that applying expansionary fiscal and monetary policy would also play an essential role in lessening the negative economic effects of the virus.
To this effect, increasing government expenditure and minimizing tax are advisable. Similarly, increasing the distribution of finances/ money is also crucial in minimizing the tendency of financial liquidity and solidarity of financial institutions.
The Ethiopian Herald April 8/2020
