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Africa's economies will suffer from the Corona pandemic also in the longer term

22.09.2021

The number of Covid-19 cases and deaths in Africa is significantly underreported in official data. Estimates of excess mortality show that the reporting gap is particularly large compared with other world regions. The Covid-19 pandemic affects the continent’s economies substantially despite low official case numbers and will also weigh on economic development in the longer term. This is the result of an analysis by the Kiel Institute.

african lady in face mask with thumbs up-child vaccination concept

"Especially unskilled workers and women suffer from the economic consequences of the pandemic. An immediate response should be international support with vaccination programs and debt relief to cope with the consequences of the pandemic," says Kiel Institute researcher and co-author Saskia Meuchelboeck.

According to an analysis by the Kiel Institute for the World Economy (Gern, Lück, Meuchelböck: "Covid-19 in Africa and its Impact on the Economy"), one reason for the sluggish recovery of African economies from the consequences of the Corona pandemic is the still dramatically low vaccination rate of only about 5 percent. This also leads to disruptions in health care and continued school closures, which worsens people's job prospects in the long term. An additional 30 million people have been pushed into extreme poverty due to the pandemic, especially unskilled workers and women.

Pre-crisis levels in many countries not before 2025

Economically, countries with a high share of services, tourism and international trade, such as South Africa or Tunisia have been particularly hard hit by the pandemic. Oil-exporting countries such as Algeria, Angola and Nigeria are now benefiting from the significant rise in commodity prices. However, Africa is expected to reach its pre-crisis level of gross domestic product (GDP) per capita only in 2023, and in many countries not before 2025.

Estimates of excess mortality show that the number of Covid-19 cases and associated deaths in Africa is significantly underreported in official data, mainly due to low testing and surveillance capacities in many countries. Nevertheless, the mortality rate in Africa is likely still comparatively low, not least because of the very young population.

"The international community needs to ensure that sufficient and affordable supplies of vaccines is provided quickly to limit future health and economic impacts for Africa," says Kiel Institute researcher Meuchelboeck from the Research Center Business Cycle and Growth.

Uncertainty about the further development of the pandemic is slowing down foreign direct investments, which the continent urgently needs for its economic development. Announced greenfield FDI in the manufacturing sector, an indicator of future investment activities, dropped by 75 percent in 2020 – much more significantly than in other developing regions (Latin America: -46 percent; Asia: -40 percent).

Debt relief to cope with the consequences of the pandemic needed

Government options for stimulating the economy are limited. High inflationary pressures in many places prevent central banks from lowering interest rates further. High public debt, limited access to the international capital market and low government revenues - which are also due to a large share of activities in the informal sector – make impossible extensive fiscal support packages as in the industrialized countries.

Countries in sub-Saharan Africa spent only about 2.6 percent of GDP to support affected businesses and households, while the Maghreb countries and Egypt only spent between 1 and 3 percent. In developed economies, fiscal packages averaged 7.2 percent of GDP.

"The G20 has already agreed on debt restructuring and relief for countries with unsustainable debt burdens but these efforts are unlikely to be enough to give Africa financial room for manoeuvre," Meuchelböck said. "In order to regain fiscal space further suspension of official debt payments and in some cases debt relief may be needed, provided distressed countries put in place medium-term consolidation programs including mobilization of tax revenues and realizing efficiency gains in the public sector."

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