Export dependence is Sub-Saharan Africa’s poverty achilles heel
As the world continues to struggle with the myriad social effects of the coronavirus pandemic, leaders are scrambling for solutions to the economic fallout. Economies worldwide have sunk into recession due to sweeping lockdown policies and overall lower consumer and business activity.
As many observers have pointed out, the economic effect has been felt most strongly in poorer and developing countries. And nowhere is this more true than in Sub-Saharan Africa. In terms of pure public health effects, Africa has actually fared rather well. The pandemic simply hasn’t hit Africa as hard as Europe, North America and other more developed parts of the world. However, as relatively low as the death toll may have been, the overall consequences of Covid-19 have been enormous for the continent.
Africa began the decade riding the wave of several optimistic trends. Many of the continent’s economies had been growing steadily, while poverty was declining significantly. The global pandemic has dramatically altered that landscape. Forecasts of global poverty have seen an about-face, with projections of a 0.3% fall in poverty turning almost overnight into a 0.4% increase.
One of the starkest examples of the economic chaos resulting from Covid-19 is SA, a country that was already stagnating before September, when the SA Reserve Bank forecast a GDP contraction of 8.2% in the wake of the pandemic. SA experienced one of the world’s strictest lockdowns, which shattered the country’s already struggling business sector. Unemployment has spiked to 23.3%.
The number of people now mired in poverty is ominous. Estimates suggest that by the end of 2020, Covid-19 will leave 140-million people globally in extreme poverty, including 49-million people in Africa. In general, developing economies will be hardest hit, and countries with more people close to the international poverty line (living on less than $1.90 a day) are expected to suffer the greatest consequences in terms of extreme poverty. This is especially bad news for Sub-Saharan Africa. According to estimates by the World Bank, the region will be the hardest hit in terms of increased extreme poverty, with about 23-million people pushed below the extreme poverty line.
At the top of the agenda is the introduction of transparent methods to ensure fiscal packages are well guided and therefore effective
Why is Sub-Sahara’s future looking so bleak? The answer lies in the rigid markets that distribute these nations’ domestic products. Africa as a whole has an extremely high dependence on exports. According to a report by the UN Conference on Trade and Development (Unctad) on African economic development, upwards of 80% of the continent’s total trade over the past decade was in the form of exports to other areas of the globe.
Intra-African trade (buying and selling between African nations) made up only 2% of market activity. It is therefore no surprise that these heavily export-dependent nations — including Nigeria, Angola and SA — were devastated when the prices of the commodities they sell to the world crashed. According to the World Bank’s African Pulse, the economies of Sub-Saharan Africa will decline by as much as 5% on average over 2020 as a direct result of the pandemic.
The chances of Africa recovering independently do not look promising. The mass production shutdowns, coupled with supply chain disruptions due to the rare “twin supply-demand shock”, have already created ripple effects across all global economic sectors. This will ultimately cause further uncertainty for a continent already grappling with widespread geopolitical and economic instability.
Many governments as well as several prominent non-governmental organisations have risen to the occasion and provided critical aid to the floundering nations in the region. However, the heavily damaged business sectors and supply chains will require more to recover than simply having money thrown at them.
Many observers are pointing to the current challenge as an opportunity for systemic change. To ensure Africa’s transformation trends of the past decade are not permanently derailed, African governments and their development partners must use the urgency of the Covid-19 crisis and make meaningful changes at the policy and managerial levels. These changes will not only allow African economies to be saved in the short term, but also strengthen them during the long-term recovery efforts.
At the top of the agenda is the introduction of transparent methods to ensure fiscal packages are well guided and therefore effective. Otherwise, resources run the risk of being misallocated and falling into the wrong hands. Part of this transparency and efficiency initiative will be to eliminate overlapping government initiatives and unnecessary bureaucratic bloat. This will help ensure international assistance achieves the highest amount of productivity possible.
Beyond merely salvaging wounded economies, African governments can leverage the current situation as a chance to revamp and revitalise their economic systems. It is imperative that authorities implement these methods to ensure economies not only get back on track but can move with greater confidence and prowess into the future.
• Asante is a political and economic analyst based in Ghana.
Would you like to comment on this article or view other readers' comments?
Register (it’s quick and free) or sign in now.
Please read our Comment Policy before commenting.