Even though Africa was tipped to see an impressive growth this year, that projection would have to wait till another opportune time as the African Union forecasts the continent’s growth to contract to, as low as, 0.9 percent on an average case scenario due to the impact of the coronavirus pandemic.
A new report published by the African Union states that disruption of the world economy through global value chains, the abrupt falls in commodity prices and fiscal revenues and the enforcement of travel and social restrictions in many African countries will cause the continent to lose a whopping US$270 billion in value and average GDP growth to decline to -0.9 percent from 3.4 percent projected for the year 2020.
One sector which will be heavily impacted on the continent, the report says, is the tourism and travel industry. The International Air Transport Association (IATA) has already indicated that international bookings in Africa declined about 20 percent in March and April; domestic bookings declined about 15 percent in March and 25 percent in April. Again, ticket refunds have increased by 75 percent between February 1, and March 11, 2020 compared to the same period in 2019.
African airlines, according to IATA, have already lost US$4.4 billion as of March 11, 2020, with Ethiopian Airlines recording a loss of US$190 million. It is also estimated that on the average-case scenario, Africa’s tourism and travel sector could suffer a US$50 billion loss, and job losses of at least 2 million, a big blow to a continent that already has high youth unemployment situation.
Prior to this, IATA estimates the economic contribution of the air transport industry in Africa at US$ 55.8 billion dollars, supporting 6.2 million jobs and contributing 2.6 percent of GDP.
When attention is turned on trade, the case is even more miserable. Africa’s major trading partners are the European Union, China and the United States. But the closure of borders due to the pandemic means African economies have nowhere to export their raw materials, as trade within the continent is less than 17 percent and the remaining 83 percent with the rest of the world.
The low levels of industrial transformation, infrastructure development, financial and monetary integration and the tariff and non-tariff barriers, are at the root of this situation, making the African economy vulnerable to shocks and external decisions. Typical of this is what is happening to crude oil exports.
Crude oil prices have tumbled by more than 50 percent since January, falling below US$30 per barrel due to the deadly pandemic and disagreement between Saudi Arabia and Russia.
The United Nations Economic Commission for Africa (UNECA) estimates the losses linked to the collapse of the price of crude oil at US$65 billion for the continent.
Besides the slump in economic activities which will deal a heavy blow to the African economy, the continent also faces the risk of high debt distress as government would have to rely on the international markets for cash to bring their economies back to life.
“There is a high probability that many countries could face an implosion in the stock of external debt and servicing costs due to the increase in fiscal deficits as more emphasis will be put to fulfilling social needs including health care systems, socio=economic stimulus to householders, SMEs and enterprises.
Yet one third of African countries are already or about to be at high risk as a result of recent sharp increase of debt levels owing to favorable international rise of bilateral donors and the non-residents subscriptions to nationally issued bonds on the African market,” the report said.