As the coronavirus arrives in Africa, fragile economies are bracing for the worst

  • The global demand shock and supply chain disruption from shutdowns around the world, combined with an oil price war between Russia and Saudi Arabia, threaten to hit emerging economies in sub-Saharan Africa.
  • South Africa this week declared a “state of disaster” with cases now at 116 and the economy already in a technical recession, while the Sahel state of Burkina Faso reported the subcontinent’s first death on Wednesday.

Trade disruptions, debt vulnerabilities and a limited scope for monetary policy maneuvers threaten a slew of African economies as the coronavirus pandemic arrives on the continent.

The global demand shock and supply chain disruption arising from shutdowns around the world, combined with an oil price war between Russia and Saudi Arabia, threaten to hit frontier and emerging economies in sub-Saharan Africa much harder than their major European and Asian counterparts.

This is due primarily to “import dependence and weak substitution of input materials, single commodity dependence and labour skills concentration, overstretched debt metrics and limited fiscal capacity, a large immuno-compromised population and weak health infrastructure,” according to Irmgard Erasmus, senior financial economist at NKC African Economics.

The UN Economic Commission for Africa (ECA) warned last week that the coronavirus crisis posed a serious threat to the continent’s already stagnant growth. Oil-exporting nations in particular could lose up to $65 billion in revenues this as crude prices continue to tumble, according to ECA Executive Director Vera Songwe.

Speaking at a press conference in Addis Ababa on Friday, Songwe suggested that African nations would require $10.6 billion in unanticipated increases in health spending to curtail the spread of the virus, while on the other hand, revenue losses could lead to unsustainable debt.

While risk assets around the world have begun repricing with a vengeance over the past few weeks, uncertainty over the effectiveness of government responses could mean further pain befalls sovereign credit.

NKC’s terms-of-trade shock vulnerability index indicates that Angola, Gabon, Ethiopia, Ghana, Tunisia, Zambia, and Kenya are most prone to debt distress in the event of a prolonged shock, as looks likely to unfold in the case of the coronavirus pandemic.

South Africa this week declared a national “state of disaster” with cases now at 116 and the economy already in a technical recession, while the poor Sahel state of Burkina Faso reported the subcontinent’s first death on Wednesday.

The country’s main opposition party, the Union for Progress and Reform, issued a statement revealing that the victim was lawmaker Rose-Marie Compaore, the second vice president of the national assembly.

Cases have also been confirmed in Eswatini, Namibia, Zambia, Tanzania, Rwanda, DR Congo, Republic of Congo, Kenya, Somalia, Ethiopia, Djibouti, Sudan, Central African Republic, Gabon, Equatorial Guinea, Cameroon, Nigeria, Benin, Togo, Ghana, Côte D’Ivoire, Liberia, Guinea, Senegal, the Gambia and Mauritania.

On a continent where the majority of countries have fewer than 10 hospital beds per 10,000 people, there are serious concerns about capacity to contain the outbreak if it begins the exponential growth curve seen in Europe and the U.S. of late.

A host of African nations, particularly those badly affected by the Ebola outbreak between 2014 and 2016, have already announced border closures and stringent travel restrictions in a bid to nip the virus in the bud, despite case numbers so far remaining comparatively low.

However, the situation could escalate rapidly if coordinated early containment measures are not successful across the continent, and CSIS Africa Director Judd Devermont highlighted in a tweet Thursday that political parties in Nigeria and Malawi are still holding public mass rallies, despite World Health Organization (WHO) warnings.

Source: https://www.cnbc.com/2020/03/19/as-the-coronavirus-arrives-in-africa-fragile-economies-are-bracing-for-the-worst.html

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