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Corona is hitting economies around the world - but development in African countries is diverse. Why is that? Apl. Prof. Jann Lay of the GIGA Institute provides answers.
This year, economic growth on the African continent appears to have developed more heterogeneously than in Europe or South America. Why is that?
In general, economic growth in Africa is often more heterogeneous than in the other two regions of the world you mention. This year, there are also obviously the effects of the pandemic, which differ considerably from country to country. The causes for this are varied, but we can group them into three factors: On the one hand, the direct economic effects of the pandemic differ due to differences in the length and intensity of lockdown measures. Almost all African countries took tough measures early on, towards the end of March, which were eased in West Africa in July/August. In southern Africa, the measures were kept in place one to two months longer. Of course, these measures also reflect actual infections.
On the other hand, the indirect effects of the crisis differ significantly. For example, the oil-dependent economies are severely affected as they are suffering a double shock from the lockdown measures and significantly lower oil prices. In contrast, the price of gold is rising, which benefits countries such as Ghana. Strong negative effects of the decline in demand in Europe and the USA can be seen in textile (Ethiopia) and cotton exports (Mali, Burkina Faso, Senegal). Thirdly, ailing economies are particularly vulnerable. South Africa experienced a particularly sharp decline in GDP of 51 percent from the first to the second quarter of 2020. This severe recession is also the result of previously weak economic performance, with record unemployment of 30 percent even before the pandemic. This weakness in South Africa seems to be spreading to its neighbours, such as Botswana and Namibia.
They say that the coronavirus is hitting African national economies particularly hard. Where can we see that?
It is not true that African economies have been hit particularly hard by the pandemic. This only applies to a few countries with specific conditions that make them particularly vulnerable to this crisis, for instance raw material exporters, or South Africa because of their previous poor performance.
How does this effect the general populations?
A great many people have been severely affected by the lockdowns, especially those who work in the informal urban sector. In the absence of government support, many people have had to fall back on their often meagre savings or the support of their families and social – sometimes rural – networks, or simply limit their consumption. The incomes of many entrepreneurs in the informal sector, which accounts for the majority of employment in almost all African nations, have almost completely evaporated. Despite the tough lockdown measures, many African governments gave their citizens and companies much less economic support than governments in other regions of the world. According to admittedly imprecise estimates, the signalled additional, non-health-related government expenditure in most African countries is less than two percent of GDP, compared with more than ten percent of GDP in Germany. Social security coverage remains low in sub-Saharan Africa: such programmes only reach five percent of the population in sub-Saharan Africa through cash or in-kind transfers, compared to a global average of 22 percent. This is true regardless of recent advances in building social safety nets in Africa. Most African countries now have at least one social security programme. Supplementary programmes have been set up in response to the crisis, for example in Nigeria and Togo.
The good news of the crisis in Africa is that some economies have shown themselves to be quite resilient.
How can African economies become resilient?
The good news of the crisis in Africa is that some economies have shown themselves to be quite resilient. This applies to both health crisis management and macroeconomic resilience, supported in part by the International Monetary Fund, the World Bank and other donors. Export diversification and integration into international value chains – which is one way of reducing such risks – can be a double-edged sword: while the clothing industry has been badly hit, for instance in Ethiopia, other value chains, for example in the food industry, have proven to be quite resilient. The crisis has clearly shown the need to build social transfer systems that can mitigate negative income effects on a broad basis. It remains to be seen how increased debt levels will affect some countries in the medium term. Some of these effects have already been mitigated by debt relief initiatives, but what is needed here are instruments that automatically take effect in crises and not just ad hoc and for the poorest countries.
Is the era of strong, steady economic growth over in Africa?
From my point of view, Africa has never seen periods of universal strong, steady economic growth. However, robust economic growth over an extended period of time over the past 15 years has been observed for a significant number of countries, particularly in West and East Africa. I do not necessarily see a deterioration in these countries’ economic outlook, although they will not be able to completely escape the negative effects in the short term. The economic problems of countries in difficulty, from South Africa to Cameroon and Nigeria, have often become intensified. After all, in some economic “success stories” of the past few years, for example Ethiopia and Uganda, the pandemic overlaps with political crises that call into question what has already been achieved, and especially any future progress. As is often the case, a differentiated view of the “economic situation in Africa” is what’s required.
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