The coronavirus pandemic has threatened the world’s largest economies with a series of market disruptions, crash in the stock market and the recent bloodbath in the cryptocurrency market. Amid the arrival of the highly communicable disease in the country, what should the African countries do to salvage the already stagnant African economies?
African economies highly vulnerable to coronavirus pandemic
The menace posed by disruption in supply chain and shock rise in global demands due to the COVID-19-enforced lock down, on top of the oil price war between OPEC and Russia threatens to smack the upcoming sub-Saharan African economies more intensely than Europe and Asia.
According to senior financial economist at NKC African Economics, Irmgard Erasmus, Africa is highly vulnerable to COVID-19 pandemic due to a number of reasons. He says that the prime reason for Africa’s vulnerability is due to “import dependence and weak substitution of input materials, single commodity dependence and labor skills concentration, overstretched debt metrics and limited fiscal capacity, a large immuno-compromised population and weak health infrastructure.”
Last week, the UN Economic Commission for Africa (ECA) apprised that the coronavirus pandemic poses a big menace to the already lethargic African economy. In particular, countries that export oil could potentially lose up to $65 billion as crude prices steadily plummet as per the ECA.
Moreover, ECA’s Vera Songwe who was addressing the media in Addis Ababa on March 13, claimed that countries in Africa will need at least $10.6 billion sudden increase in health spending to lessen the spread of COVID-19. However, revenue losses might result in untenable debt increases.
Additionally, risk assets across the globe have commenced retributive repricing over the past couple of weeks. The doubt over the efficacy of state responses means additional strain on sovereign credit. As COVID-19 spreads across Africa, NKC’s terms-of-trade shock vulnerability index reveals that Tunisia, Kenya, Angola, Zambia,Gabon, Ghana and Ethiopia are the most susceptible to debt affliction in the aftermath of an extended shock.
Coronavirus lands in the continent
Earlier this week, South Africa declared a countrywide “state of disaster” with approximately 116 confirmed cases of COVID-19. The country’s economy is currently at a technical recession. In addition, the state of Sahel in Burkina Faso also reported the first coronavirus-inflicted death in the continent earlier this week.
Further cases have been confirmed in Ethiopia,Kenya, Rwanda, Seychelles, Somalia, Sudan, Tanzania, Djibouti, Mauritius, Eswatini, Namibia, Zambia, Cameroon, Central African Republic, Congo-Brazzaville, DR Congo, Equatorial Guinea, Gabon, Chad, Benin, Burkina Faso, Ghana, Guinea, Ivory Coast, Liberia, Mauritania, Nigeria, Senegal, Togo, The Gambia, Algeria, Egypt, Morocco and Tunisia
On March 17, the Central Bank of Kenya (CBK) asked the financial institutions in the country to offer relief to borrowers. On the other hand, the Central Bank of Nigeria has availed a 50 billion naira ($136 million) credit facility kitty while Egypt has launched a massive 300 basis point cut earlier this week; as major African economies look to save their economies from the COVID-19 pandemic.
Nevertheless, with the hassled fiscal positions of many African countries, which are over dependent on external debts, central banks are doubtful of receiving big resources to support the economies.