tralac’s Daily News selection
African Union: Impact of the Coronavirus Covid-19 on the African economy
Based on the description of specific key indicators of the African economy three scenarios are constructed. Afterward, we assess the impact on the African economy for each of the scenarios and present some of key measures taken by selected African Union Member States. The paper ends with a conclusion and key policy recommendations. Africa, because of its openness to international trade and migration, is not immune to the harmful effects of COVID-19, which are of two kinds:
The exogenous effects come from direct trade links between affected partner continents such as Asia, Europe and the United States; tourism; the decline in remittances from African Diaspora; Foreign Direct Investment and Official Development Assistance; illicit financing flows and domestic financial market tightening, etc.
The endogenous effects occur as a result of the rapid spread of the virus in many African countries. On one hand, they are linked to morbidity and mortality. On the other hand, they lead to a disruption of economic activities. This may cause a decrease in domestic demand in tax revenue due to the loss of oil and commodity prices coupled with an increase in public expenditure to safeguard human health and support economic activities.
Extracts: Exports and imports of African countries are projected to drop by at least 35% from the level reached in 2019. Thus, the loss in value is estimated at around $270bn. To fight against the spread the virus and medical treatment will lead to an increase of public spending in Africa estimated to by at least $130bn.
Africa imports around 90% of its pharmaceutical products from outside the continent, mainly from China and India. Unfortunately, estimates show that the annual earnings from substandard and/or counterfeit drugs were over $30bn, according to the World Health Organization 2017 report of fake drugs trade. Africa has the highest disease burden of communicable and non-communicable disease that contributes to a significant market for the pharmaceutical industry. Therefore, with the establishment of the African Continental Free Trade Area regulation shall be critical to guaranteeing the protection of this 1.2 billion African market from fake, substandard, and counterfeit products and services. Moreover, the current pandemic has proven to the African continent that it cannot continue to depend on external suppliers for its internal demand in products as strategic as pharmaceuticals. Therefore, countries should use this opportunity to accelerate the implementation of the Pharmaceutical Manufacturing Plan of Africa and the establishment of African Medicine Agency by prioritizing investment for regulatory capacity development; pursuing the efforts towards convergence and harmonization of medical products regulation in RECs; allocating adequate resources for AMA as stipulated by the successive AU Assembly decisions on the matter. [Related: AUDA-NEPAD response to COVID-19 and other epidemics]
Southern African People’s Solidarity Network: statement on the COVID-19 pandemic
The threat posed by COVID-19 cannot be treated solely as a health risk but must be seen as a threat to the overall development of Southern Africa. In this regard we are calling on SADC governments to implement a debt moratorium and divert resources meant for debt repayments towards rebuilding the public health system and investing in critical social service sectors including energy, water, sanitation and housing infrastructure to build the resilience of SADC people to withstand the impact of the crisis. SADC, like many corporations must declare force majeure, i.e. the existence of unforeseeable circumstances which make it impossible to fulfil the terms of trade and investment agreements that stand in the way of local production of vital health equipment, medicines and other inputs necessary to address the pandemic. SADC cannot continue to be bound by the Trade-Related Aspects of Intellectual Property Rights (TRIPS) and Trade-Related Investment Measures (TRIMS) embedded in various trade regimes such as in the WTO and the Economic Partnership Agreements.
The COVID-19 crisis: Accentuating the need to bridge digital divides (UNCTAD)
The spread of the latest strain of the coronavirus (COVID-19) is disrupting economic and social life in multiple ways and dimensions. This crisis is unfolding at a time characterized by rapid digitalization, which is helping in the decision-making process regarding response and adaptations to the situation by governments, businesses and consumers. However, differences in digital readiness hamper the ability of large parts of the world to take advantage of these technologies. Multilateralism is vital in a world facing critical development challenges. Extract (pdf):
Most digital solutions are offered or supported by a relatively small number of mega-digital platforms, mainly originating in the US and China. The further shift towards the digitalisation is thus likely to strengthen their market positions. As noted in UNCTAD’s Digital Economy Report 2019, the top seven digital platforms already accounted for two-thirds of the value of the world’s digital platforms. They benefit from network effects and from their ability to extract, control and analyse data. These data are then transformed into digital intelligence that can be monetized in various ways.
Against this background, much more attention should be given to bridging existing and emerging digital divides to allow more countries to take advantage of digitalisation. If left unaddressed, the yawning gap between under-connected and hyper-digitalised countries will widen, thereby exacerbating existing inequalities. Differences in digital readiness and the high concentration of market power in the digital economy underline the need for new policies and regulations aimed at ensuring a fiar distribution of the gains from digital disruptions. As with the coronavirus crisis and other development challenges, the world will need a coordinated multilateral response to deal with the challenge of digitalisation. [Virtual meeting platforms record double growth]
ITC’s Dorothy Tembo: Africa’s failure would be the world’s failure
American Chamber of Commerce Ghana: 50% of member firms severely impacted by coronavirus
Oluwatosin Adeshokan: Coronavirus in Nigeria catalyst to changes in financial sector
Dani Rodrik: Will COVID-19 remake the world?
As the global health crisis caused by the COVID-19 pandemic unfolds, it brings with it a global economic crisis. With economies only now beginning to properly recover from the global financial crisis of 2007/08, this economic crisis has potential to decimate Africa’s already fragile financial sector. While impacts will flow throughout the entire economy, it will be felt most by vulnerable members of society, including poorer households and small businesses. [The author: Ashly Hope]
Kenya: Safaricom, South Africa’s Vodacom acquire M-Pesa from Britain’s Vodafone (The Star)
Safaricom and Vodacom on Monday announced their complete acquisition of the M-Pesa brand, product development and support services from Vodafone through a newly-created joint venture. The Telecoms started a joint venture to acquire the intellectual property rights to M-Pesa mobile financial services platform from Britain’s Vodafone in 2019. “This is a significant milestone for Vodacom as it will accelerate our financial services aspirations in Africa. Our joint venture will allow Vodacom and Safaricom to drive the next generation of the M-Pesa platform – an intelligent, cloud-based platform for the smartphone age,” Shameel Joosub, Vodacom Group CEO, said in a statement. “It will also help us to promote greater financial inclusion and help bridge the digital divide within the communities in which we operate.” Michael Joseph, outgoing Safaricom CEO: “For Safaricom, we’re excited that the management, support and development of the M-Pesa platform have now been relocated to Kenya, where the journey to transform the world of mobile payments began 13 years ago.”
Mozambique’s National Cashew Institute (Incaju) is seeking alternative markets, including the domestic market, to overcome the issue caused by the Indian government, which increased the import tax on cashew nut imports from 45% to 70%, said an Incaju official. Lúcia António, head of the Industrial section of Incaju, told daily newspaper Notícias that the Mozambican cashew industry is facing difficulties due to the decision, mainly because India, which is the main market and processor of cashews (around 1 million tonnes per year), is one of the main destinations of cashews from Mozambique.
Between 2017 and 2019, over 80,000 tonnes of raw cashew nuts were exported and the country netted US$116 million, and 76% of the total went to India and 24% to Vietnam. In the same period 24,000 tonnes of processed cashews were exported leading to revenues of $155m. Processed cashew nuts in Mozambique were sent to Europe (36%), the United States (30%), Lebanon (9.0%), South Africa (9.0%), Vietnam (10%) and India (6.0%).
Why is China investing in Africa? Evidence from the firm level (World Bank, Oxford University Press)
Micro data from MOFCOM’s database on registered Chinese firms investing in Africa between 1998 and 2012 provide a different perspective. Key words in project descriptions are used to code the investments into 25 sectors. This database captures (pdf) the small and medium private firms investing in Africa. Contrary to common perceptions, there are few projects in natural resource sectors. Most projects are in services, with a significant number in manufacturing as well. Country-sector-level regressions based on firms’ transaction-level data find that Chinese ODI, both horizontal and vertical, is profit-driven, like investment from other countries. In particular, regressions show that Chinese ODI is relatively more concentrated in skill-intensive sectors in skill-abundant countries but in capital-intensive sectors in capital-scarce countries. These patterns are mostly observed in politically unstable countries, suggesting stronger incentives to seek profits in tougher environments.
Today’s Quick Links:
Fitch downgrades Nigeria to ‘B’: outlook negative
Alfonso Garcia, Moramichal Rutkowski: Remittances in times of the coronavirus – keep them flowing
Independent Evaluation Group: An evaluation of the World Bank Group’s global convening