Building capacity to help Africa trade better

Recovery from the Economic Impacts of the COVID-19 Pandemic in Africa: What Role for Trade?


Recovery from the Economic Impacts of the COVID-19 Pandemic in Africa: What Role for Trade?

Recovery from the Economic Impacts of the COVID-19 Pandemic in Africa: What Role for Trade?

The economic impacts of the COVID-19 pandemic on African countries will be known only after the situation is brought under control. There will be immediate shocks to livelihoods, as well as severe disruptions to value chains, industries and government revenue for the foreseeable future. As an illustration, the United Nations Economic Commission for Africa (UNECA) estimates that the GDP growth in Africa will decline from 3.2 per cent to 1.8 per cent in 2020. It is also important to look beyond macro-analyses, because, as the current President of the African Development Bank has noted, ‘Nobody eats GDP’. Also, a significant proportion of the working population is engaged in the informal sector, where activities are not captured by formal accounting systems, and so GDP calculations may not present the economic picture. Economic contractions will be experienced by individuals, families and businesses. The bulk of Africa’s workforce operate in the informal sector, within micro, small and medium sized enterprises. Take for instance, the transport service operator unable to work as a result of lockdowns and prohibitions on movement within and between cities. Similarly, border closures translate to loss of income for those small-scale traders operating between countries. Many salaried workers will also be in a precarious situation, as businesses grapple with the loss of income associated with the lockdowns.

The World Bank Group announced a US$14billion emergency response facility for developing countries. By early April 2020, some African countries had accessed this facility, as shown in announcements of a US$2.5 million grant for Sao Tome & Principle, a US$10 million grant for Gambia and a $82.6 million ($41.3 million grant and $41.3 million credit) for Ethiopia. These funds notwithstanding, economic recovery will depend to a significant extent on countries’ deftness with policy manoeuvres, as well as the coordinated continental response to the crisis. It seems that trading under the terms set by the Agreement to establish the African Continental Free Trade Area (AfCFTA), which was slated to commence on 1 July 2020, will have to be postponed. In light of the pressures currently faced by African countries, it becomes pertinent to anticipate the impact of disrupted trade patterns on economic performance, and reflect the new realities of African economies in the negotiations for, and liberalisation of intra-African trade. Accordingly, it is important that trade-related considerations are accounted for in the measures for palliation, recovery and resilience at national and regional levels. These considerations include repositioning African countries in regional and global value chains, prioritising health services in the first round of AfCFTA services negotiations, promoting cross-border digital trade in services, and leveraging the AfCFTA for economic recovery and resilience.

  1. Beyond Debt Relief: Strengthening Regional Value Chains and Repositioning African Countries in Global Value Chains

    Trade performance affects overall economic health, as can be observed from the accumulation of the debt burden of the 1980s and 1990s. In the 1980s, a sharp fall in the prices of raw commodities sold by African countries and the resultant inability to service debts led to the compounded accumulation of huge debt portfolios owed the Paris Club and other creditor groups. In the present situation, where prices of primary commodities[1] have begun to fall and anticipating the contractions in government accounts, the Bureau of the Assembly of the African Union Heads of State and Government requested a moratorium on the payment of interest on bilateral and multilateral debt. Similarly, the African Ministers of Finance have requested US$100billion from international finance institutions, as well as assistance from UNCTAD to address restrictions on exports of essential equipment and goods which have been placed by some countries[2]. Similarly, the Prime Minister of Ethiopia has highlighted that servicing debts and cushioning the shocks caused by economic contractions might prove impossible for many African governments. However, it is important to note that previous reduction and cancellation of debt was predicated on the need for development and unfair terms of borrowing. Between the 1990s and 2000s, the World Bank led the Heavily Indebted Poor Countries and Multilateral Debt Relief Initiatives which were partial remedies to a situation wherein many African countries remain as raw material suppliers to the rest of the world. In the present context of a global economic recession, with a new set of creditors, including China and Russia, where the debt burden relates very much to the required infrastructure and investment for trade, and the imperative to change the development paradigm, some new mechanisms for debt relief among these new creditors may be required.

    Beyond debt relief, it is also crucial to reposition Africa in global value chains. In 2019, the level of intra-African trade in goods was estimated at 16 per cent, which means that 84 per cent of Africa’s goods exports are sent to trade partners in other regions. UNECA estimates that 51 per cent of Africa’s exports go to countries highly impacted by COVID-19, while 53 per cent of imports originate from these countries. Also, trade structures are such that African countries tend to mainly export cheaper primary commodities and import more expensive processed and industrial goods. At this time, it is pertinent to ask whether the market for Africa’s commodities remain open, and whether there will be improvements or deterioration in terms of trade; will there be significant demand for Africa’s commodity exports in other regions? If there is a sharp reduction in demand for commodities, what would be the implications for prices, and export revenue? If there is a drastic reduction in export revenue, what will be the impact on accounts, government spending, social welfare and investments? If African countries remain on the lower rung of value chains, measures such as debt relief will have limited impact on revenue. In addition, if, for health and safety reasons, trade partners in other regions institute additional standards-related requirements upon exports, will African countries have the resources and capacity to satisfy these? If there are measures to restrict exports of essential inputs and goods within producer countries, what would be the impact upon African countries?

    The AfCFTA is premised on the principle that increasing levels of industrial production is necessary for African countries to move up the ladder in global value chains. So what lessons are there for the implementation of the AfCFTA from the coronavirus pandemic and the responses of African countries, particularly since AU member states are still negotiating their services and goods tariff schedules? Could regional value chains reduce the impact of the economic shocks on the continent? For example, if there are readily available pharmaceuticals and personal protective equipment (PPE) from nearby countries, could these shorten the supply chains of such essentials in the fight against the virus? Could there be increased production of PPE under more sanitary conditions and with components coming from different parts of the continent? The World Trade Organisation has already observed restrictions on the exports of medicines, testing kits, ventilators, and PPE which are crucial for stemming the virus, as well as for some food products imported by African countries.

    The current crisis has shown that increasing levels of industrial production is entirely achievable, especially as countries have faced difficulties with sourcing inputs and products from overseas. Indeed, innovation and enterprise may thrive in the wake of the coronavirus outbreak; for example, in Senegal, a laboratory has developed a 10-minute COVID 19 testing kit. In Kenya, the government announced that the textile industry would be able to supply fabric manufacturers with the material to produce 60million face masks, as well as PPE. In Nigeria, a military facility increased its production of oxygen in order to supply hospitals and isolation centres, while the South African government issued a tender for the domestic production of ventilators.

    There might be a counter-argument that the crisis created extraordinary circumstances and thus unusual demand for specific products. Also, there might be pointers to previous import-substitution measures on the continent which have not recorded significant success. However, the current situation shows that there is potential for Africa’s industries, whether public or private to respond to demand. Thus, liberalisation of markets alongside the removal of barriers such as licensing requirements through measures such as mutual recognition systems, will serve as useful incentives for production by domestic industries. In the post COVID-19 global economy, it will be important for African countries to anticipate potential contractions in their imports and exports, in order to identify sources and markets within the continent, and collaborate towards building regional supply chains.

  2. Health Services in the First Phase of the AfCFTA Services Negotiations?

    The Ebola epidemic provided valuable lessons for African countries in tackling major health crises. The Nigerian government specifically was commended by the World Health Organisation for the speed and efficiency with which it was able to contain and eventually expel the virus from the country. The lessons learned by the Ebola-affected countries in West Africa (Guinea, Liberia and Sierra Leone) are also instructive for others, especially the way in which paper diagnostic systems were quickly transformed through digital solutions, enabling quick analysis of diagnostic data and avoiding delays, errors and data bottlenecks. Such diagnostic accountability was crucial to stemming and eventually stopping the spread of the virus.  In the end, connecting diagnostic instruments to the national health system, reduced the time it took to initiate patient treatment, improved the number of patients put on treatment and ultimately saved lives. Of course, technology cannot solve every health problem. There is no substitute for having enough medical personnel, hospitals, clinics and medical equipment. Traditionally, health management systems have not been robust in African countries and naturally they are playing catch up with this new virus (most African countries were at the bottom of the 2019 Global Health Security Index at the beginning of the outbreak).[3] And Africa Centre for Disease Control has noted that no African country was at level 5 (highest level) for operational readiness.[4]

    Investment in health services delivery now needs to be a priority because Africa is waking up to the fact that the health of its populations is fundamental to every facet of life – social and economic. Health services, although constituting a social service, may also be considered a backbone industry, and are among a range of services in which some African countries are seeking to become competitive. This is true of South Africa, Kenya, Mauritius, and Ghana. In the context of the AfCFTA, although health services are not included in the first round of services liberalization[5], they are very much at play in the current round through the liberalisation of professional services under the overall business services sector, which extends to medical services personnel.  Furthermore, through mode 3 (commercial presence), the establishment of polyclinics, hospitals, private laboratories, diagnostic centres, and other health infrastructure can be prioritized in the current round. 

  3. Cross-Border Digital Trade in Services in the AfCFTA

    Containment of the COVID-19 pandemic has highlighted the capacities of businesses operating primarily through digital channels, and the increasing reliance on technologies in the value chains of African economies. For example, Lifebank, a Nigerian health technology firm, building on its experience with monitoring the availability of blood in hospitals, created a digital inventory to track the availability of ventilators and respirators in hospitals. Also, there emerged a variety of applications to monitor and track the rate of infections, and disseminate health information such as the Safiri Smart Service developed in Kenya.

    Aligned to the liberalization of the health services is also liberalization of communication services (under which telecoms is a subsector), since health services can have a wider delivery through such technologies. Communication services are included in the first round of services liberalization, and African countries have an opportunity to open this sector in the negotiations. In preparing for the AfCFTA services liberalisation negotiations, African countries should identify and consider what digital channels and types of digitally-driven businesses were useful in tackling the coronavirus outbreak and seek to consolidate their market opportunity and capacities. Countries should engage with these channels and businesses to understand their priorities, challenges and market interests. These could include remote diagnostics and medical advice, the use of drone technology for delivering vital medication where road transport systems were halted, tracking infections and monitoring recovery, and establishing digital supply chains for pharmaceutical companies and distributors.

    There have been concerns about data, privacy, and the security of activities and transactions which occur on digital channels. Also, there are multiple strategies, policies and instruments governing the digital economy and digital trade at national and regional levels. The AU Digital Transformation Strategy (2020-2030) which was adopted by the Assembly of Heads of State and Government in February 2020 outlines approaches for continental standards and cooperation on these issues. On this basis, the Eighth Technical Working Group on Services decided to align the negotiations with the policy recommendations within the continental digital strategy. Additionally, Phase III of the AfCFTA negotiations, slated for 2021 will be dedicated to e-commerce. Liberalisation of the ICT sector in the AfCFTA services negotiations, as well as agreement on the rules and regulatory frameworks governing the digital trade of specific services is a necessary precursor for the negotiations to create a continental digital market.

  4. Leveraging the AfCFTA for Economic Recovery and Resilience

    In relation to the AfCFTA and its implementation, there may be a silver lining. The lull may provide much needed time for reflection and thought about what kind of trade space is required under the AfCFTA. Also, the crisis has shown the critical importance and opportunities within the digital economy for African economies. The need for inclusivity, as the plight of the poor during lockdowns is shown up in sharp relief; the particular needs of the informal sector, the needs of groups such as youth and women, or disadvantaged communities such as disabled. All of these need to be factored in as national governments seek to recover from the virus. What cannot be argued is that the AfCFTA initiative should slow down any further. Instead there is an exceptional urgency to the conclusion of negotiations on services schedules to enable vital industries to grow, develop home grown solutions, and drive regional value chains.  National and regional trade and industrial priorities should be set in the ongoing processes for AfCFTA implementation strategies, through dialogue at continental level, in order to have these reflected in the Phase II negotiations on intellectual property, competition policy and investment and the Phase III negotiations on e-commerce. The focus now should be on building more self-sufficient systems, strengthening of technical regulations, development and implementation of standards, conformity assessment, metrology, accreditation of laboratories, establishment of enabling infrastructure, such as energy/electricity, transport and ICT, digital connectivity in order to support competitive industries and link these to regional value chains and markets. Africa’s salvation on trade and economic development lies within itself.

    Africa is also in the process of re-framing its relationship with other regions; the Cotonou Agreement which governs the economic relationship with the European Union terminates this 2020. Efforts towards negotiations have commenced, and there are a number of joint initiatives towards establishing new terms and instruments of engagement. Similarly, in April 2019, the African Union and the United States of America signed a joint statement which places the AfCFTA as the primary conduit and the vehicle for framing trade agreements with African countries. In the rush to secure debt relief, it should not be forgotten that the AfCFTA has been placed as the anchor for Africa’s trade arrangements with other regions. Also, the consolidated market remains critical to ensuring that African countries have relative collective strength in numbers and bargaining power in the post-COVID 19 global economy.

[1] For example, in March 2020, the price of oil dropped to the lowest point since 2002. See https://www.ft.com/content/d63d0618-6928-11ea-800d-da70cff6e4d3. Oil producer countries like Nigeria and Angola have recorded significant deficits in expected revenue. The price of copper fell to its lowest level since 2016 (https://www.cnbc.com/2020/03/19/copper-prices-could-fall-further-amid-the-coronavirus-crisis.html), as the price of cocoa dropped by 4 per cent in mid-March due to coronavirus concerns (https://www.comunicaffe.com/cocoa-futures-prices-plummeted-by-4-pressured-by-covid-19-virus-concerns/).

[2] See Communiqué of African Ministers of Finance Second online meeting, held on 31 March 2020: Immediate call for $100 Billion support and agreement the crisis is deep and recovery will take much longer.

[3] The Global Health Security Index is compiled by the Johns Hopkins School of Public Health’s Centre for Health Security and the Nuclear Threat Initiative.

[4] According to the IHR State Party Annual Reporting (SPAR) tool; prevent, detect, respond, enabling function, and operational readiness.

[5] The first phase of services liberalisation covers five sectors; business (including professional services), communication, transportation, tourism, and financial services sectors.

About the Author(s)

Beatrice Chaytor

Beatrice Chaytor is an international trade lawyer, called to the Bar in England and Wales as well as Sierra Leone, with over 25 years experience in providing advice and support to NGOs, governments and intergovernmental organisations on trade and investment legal and policy issues. She is currently Senior Expert – Trade in Services in the Department of Trade and Industry at the African Union Commission, based in Addis Ababa, and works on the negotiations for the establishment of the African Continental Free Trade Area (AfCFTA). She holds a LLB (Hons) from University of East Anglia and a LLM from the University of London (University College).

pdf See full bio details (232 KB)

Ify Ogo

Dr. Ify Ogo is a legal economist and trade specialist. Her experience includes working as the UNDP Regional Coordination Specialist on the AfCFTA, as well as Trade Policy Expert at the African Trade Policy Centre, UN Economic Commission for Africa, where she led the trade in services work stream, and was a focal point for trade diversification covering the digital economy, blue economy and green economy portfolios. Ify has also supported the AfCFTA negotiations, as well as country-level implementation processes. Other roles have included investment advisory within the private and public sectors.

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