Picture: 123RF/DMITRIJS KAMINSKIS
Picture: 123RF/DMITRIJS KAMINSKIS

Many African countries will see a significant drop in export earnings in the coming months due to decreasing demand in key markets as Covid-19 continues to wreak havoc globally.

This will likely drive unemployment and poverty rates higher.

According to a new report by the World Trade Organisation (WTO), the decline in export earnings will hurt countries’ prospects of graduating from the least developed category.

The UN defines least developed countries (LDCs) as low-income countries confronting severe structural impediments to sustainable development. They are highly vulnerable to economic and environmental shocks, and have a high level of skills shortages.

There are currently 47 countries on the list of LDCs, many of which are in Africa. Such countries have exclusive access to certain international support measures, in particular in the areas of development assistance and trade, the UN says. The list is reviewed every three years by the UN’s Committee for Development.

The global trade body said in its report published this week that most LDCs have experienced a significant decline in export earnings since the outbreak of Covid-19. The report anticipates that the downturn in world trade in 2020 will continue to be particularly severe for LDCs. It notes that declining demand, as well as supply disruptions, have weighed significantly on LDC exports, especially exports of textiles and clothing products.

LDCs dependent on tourism revenues have seen the sector come to a virtual standstill. The UN World Tourism Organisation estimates that international tourist arrivals could decline by 20% to 30% in 2020, translating to losses of up to $450bn in international tourism receipts (exports).

Furthermore, according to the report, as migrant workers from LDCs return from host countries affected by the coronavirus pandemic, flows of remittances — a critical source of foreign exchange for many countries — have dramatically dried up. Average remittances accounted for 7% of GDP in LDCs in 2019. Remittance inflows to the top 10 LDCs reached $45bn in 2019, according to the WTO.

Commodity exports

The downward spiral in commodity prices is increasingly being felt by LDCs heavily reliant on commodity exports, the WTO said. Angola — the largest LDC commodity exporter, with oil accounting for more than 90% of its exports — saw the average price of its crude oil plummet to $14 a barrel in April 2020 from $33 in March and $57 in February. Overall, the average price of Angola’s crude oil nose-dived by 80.5% in April, year on year.

Zambia, which is among the top 10 exporting LDCs, relies heavily on the mining sector (70% of its exports). Since the start of the pandemic, over a span of two months, the price of copper in Zambia fell by 9.6%, contributing to a sharp depreciation of the kwacha.

All these factors are predicted to worsen in the coming months. 

 “Among the Covid-19 pandemic’s far-reaching consequences for the global economy, the LDCs are likely to be the hardest hit, even in countries spared the worst effects of the virus itself,” the WTO said.

It added that a lack of resources to support an economic rebound is compounded by LDCs’ dependence on a limited range of products exported to a few markets, some of which have been those worst affected by the health crisis. 

“The ongoing pandemic threatens to derail development gains in LDCs and may affect the near-term prospects for some countries to graduate from LDC status,” it said.

The report also collates the measures LDCs have taken to combat the pandemic, ranging from strengthening healthcare systems, to providing stimulus packages to export-oriented sectors, and liquidity support for small and medium enterprises.

phakathib@businesslive.co.za