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COVID-19: UNECA report predicts devastating worst-case scenario

COVID-19: UNECA report predicts devastating worst-case scenario

The UN Economic Commission for Africa estimates that in a worst-case scenario COVID-19 could take 3.3m lives across Africa and is calling for a $200bn package to tackle the health and economic crisis on the continent

  1. Reports calls for $200bn package to tackle the twin health and economic crisis
  2. Debt relief should not take the form of debt cancelations but rather interest and repayment standstills and an increase in Special Drawing Rights
  3. Original estimates put deaths at between 300,000 and 3.3m across the continent, depending on interventions taken
  4. African exports are being decimated, from commodities, hard and soft, as well as other sectors such as textiles, tourism
  5. Silver linings from how government and private sector have mobilised resources
In a report published on 17 April, the UN Economic Commission for Africa (UNECA) outlines different scenarios and outcomes as well as the impact the Covid-19 pandemic has had across the continent.
 
The detailed report estimates 300,000 deaths in a best case scenario and 3m in a worst case one. In a call with African Business where a preview of the report was presented, the authors said they thought that the death estimate would be lower given the early and intense interventions taken by African governments.
 
The economic and health scenarios are developed against a worrying picture. Six hundred million Africans live in urban areas, of which 56% live in slums. Only 34% of Africans have access to basic household handwashing facilities, that is soap and water. And the continent is overly dependent on external sources for its pharmaceutical products, importing 94% of its total stock. With 71 countries around the world, including a dozen in Africa, having imposed some form of export constrictions on Covid related medical supplies.
 
Given this context, and given that there is limited exit strategy for now in terms of vaccine and treatment, they estimate that the continent will need $44bn in terms of emergency healthcare costs to deal with the pandemic. The early implementation of a suppression strategy will actually not only save lives but also cost less. But inevitably, continuing to contain and mitigate its spread will require a 32% increase in health spending.
 
From a macroeconomic standpoint, UNECA has revised its growth forecasts from an average growth rate of 3.2% across the continent to a contraction of 2.6% in a worst-case scenario. In its best case scenario, the model shows 1.8% growth. As part of their modelling the authors of the report looked at a number of commodities that make up the continent’s exports, and access to foreign currency. The oil story has been well documented, with the price more than halving since the start of the year. Given petroleum oils represent 40% of Africa’s exports, and 7.4% of Africa’s total GDP, the fall will have an outsize impact on growth. Nigeria alone could see a $19bn fall in income, the report calculates.
 
But the fall in prices is evident across all hard and soft commodities, other than gold, a refuge for investors. Cotton, which can be used as a proxy for the textiles industry, is down 26%; a basket of metals that includes copper is down 20%. This will also have a devastating effect on jobs. In Ethiopia and Kenya alone, 75,000 workers working in the textiles industry are at risk, not to mention the effect on farmers in the different countries growing cotton. Textile exports represent 17% of total exports in Morocco, and $15bn in terms of African exports.
 
Also, given what we’re seeing elsewhere, it’s unlikely that borders will open any time soon, and even if they do it will be very gradually, region by region. The report says that 95% of the 1.4bn tourists visiting Africa were from outside the continent and 51% from Europe, one of the worst affected regions from Covid-19. This will have a disproportionate impact on many of the islands, such as the Seychelles where tourism accounts for 38% of its GDP. The impact on foreign exchange and jobs is very real. Air transport alone accounts for 6.2m jobs.
 
This is why UNECA is calling for a $100bn to protect livelihoods and kickstart economies. More specifically, UNECA wants an Africa-wide response from the global community that includes debt standstill for two years, including middle income countries, as well as double access to IMF Emergency Financing Facility and raising Special Drawing Rights which will provide additional liquidity for procurement of fuels and foods.
 
The authors argue that these measures are necessary to help protect these businesses especially as governments are somewhat limited in terms of what they can do. Fiscal space is limited especially when you see that tax to GDP has actually fallen from 16.2% in 2014 to 13.4% in 2018, leaving limited fiscal space for governments to deal with Covid-19 and provide the required stimulus to the economy. The ability to mobilise resources through international markets is limited and the cost of borrowing will be unaffordable over the long term. 
 
On 13 April, the IMF did announce a package for 25 low income countries and in a presidential address that same evening President Macron called for a massive debt relief package for Africa, without putting any numbers. However, UNECA, along with ministers of finance across Africa, does not advocate a debt cancellation programme, as that would send the wrong signal to markets, and the risk premium will increase. There are three areas of debt that are being looked at: commercial paper – which will be hard to restructure – bilateral debt, that is between two countries, and multilateral debt to the international agencies.
 
It’s important to note that as in any crisis, there are not only opportunities but also silver linings. The authors were confident that the crisis will accelerate numerous programmes including creating national and regional value chains of critical goods. Economic diversification, they said, is an existential threat. Factories across the continent have been able to shift production lines to produce protective equipment, sanitiser gel and other products. Governments are using technology to disburse cash payments to the masses and all the informal workers who have lost their livelihoods, as is the case in Togo and other countries.
 
All this will only accelerate the implementation of programmes such as that of Digital ID and moving to a cashless society. Countries such as Tunisia and Morocco, for example, can renew ties with Europe, whose supply chains have become too dependent on one country, namely China. They see themselves as an obvious alternative in terms of diversifying supply chains and integrating global markets. Some good measures are also being implemented in many countries to ensure that despite lockdowns, harvest and other critical activities can still take place.
 
UNECA has been calling for swift action. The call seems to have been heeded but the speed of the response is just as important as the size of the package. As is the case with containing the virus itself, mitigating the economic shock will require a rapid and meaningful intervention, thus ensuring economies across the continent are kept far away from the intensive care corner.

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Written by African Business Magazine

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