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World Bank confirms economic downturn in sub-Saharan Africa, outlines key polices needed for recovery

World Bank confirms economic downturn in sub-Saharan Africa, outlines key polices needed for recovery
Photo credit: World Bank

09 Oct 2020

As Sub-Saharan African countries continue to face economic uncertainty in the time of COVID-19, the region’s latest macroeconomic analysis says governments can look to policy reform as a driver of economic recovery.

Driven by the economic fallout of the COVID-19 global pandemic, growth in Sub-Saharan Africa is predicted to fall to -3.3 percent in 2020, pushing the region into its first recession in 25 years, according to the latest regional economic analysis Africa’s Pulse: Charting the Road to Recovery. The pandemic could also drive up to 40 million people into extreme poverty in Africa in 2020, erasing at least five years of progress in fighting poverty.

While the health consequences of the COVID-19 pandemic have been less devastating than expected in the region, the combination of domestic lockdowns and related spillovers from the global recession significantly impacted economic activity. With over a million reported COVID cases across the continent, the pandemic is still not under control in Sub-Saharan Africa. Some governments, notably Senegal and Mauritius, have acted rapidly to reduce the spread of infections; however successful containment measures come with a high economic cost, as has been seen across the globe.

“The road to recovery may be long, and it may be steep, but prioritizing policy actions and investments that address the challenge of creating more, better and inclusive jobs will pave the way for a faster, stronger and inclusive recovery for African countries,” said Albert Zeufack, World Bank Chief Economist for the Africa regions.

Nigeria’s real GDP contracted by 6.1 percent year-on-year in the second quarter of 2020 – the worst result in more than a decade. South Africa, operating under severe containment measures, saw its real GDP contract by 17.1 percent year-on-year in the second quarter of 2020. Angola, Sub-Saharan Africa’s second largest oil producer after Nigeria, saw its economy contract by 1.8 percent year-on-year in the first quarter of 2020.

The decline in growth has been stronger among metals exporters where real GDP is expected to contract by six percent, partly reflecting the large drop in output in South Africa. Among oil exporters, after expanding by 1.5 percent in 2019, real GDP is projected to fall by more than four percent in 2020, owing to contractions in Angola and Nigeria.

In contrast, for non-resource-intensive countries, the decline in growth in 2020 is expected to be moderate, on average. In several non-resource-intensive countries, including Côte d’Ivoire, Ethiopia, and Kenya, growth is expected to slow substantially, but remain positive, owing to their more diversified economies. Meanwhile, the tourism-dependent economies, especially those of Cabo Verde, Mauritius and the Seychelles, experienced a sharp contraction as exceptionally weak international tourism severely impacted the service sector.

The substantial downturn in economic activity will cost the region at least $115 million in output losses this year. Gross domestic product per capita growth is expected to contract by nearly 6.0 percent, in part caused by lower domestic consumption and investment brought on by containment measures to slow the spread of the coronavirus.

“Although the pandemic is not over and the persistence and spread of the virus is uncertain, African governments have started putting in place policies and programs to support an inclusive and sustainable post-pandemic recovery,” said Hafez Ghanem, World Bank Vice President for Eastern and Southern Africa. “Countries are putting in place policies and programs that help create jobs and accelerate economic transformation to reduce the economic impact of the pandemic now, and build the capabilities needed to ensure inclusive economic growth in the future.”

Africa’s Pulse notes that the road to recovery will also require massive investments across countries, as well as financial support from the international community, and recommends a bold reform agenda that includes policies that create fiscal space, along with policies to speed up job creation.

By mid-September, 46 countries in Sub-Saharan Africa had put in place 166 social protection measures – with social assistance representing 84 percent of these measures. Social protection programs have proven to be a critical tool to mitigate the social impact of the pandemic.

“Steady recovery in Sub-Saharan Africa after the COVID-19 pandemic requires policies that foster sustained growth and build resilience, but growth alone is not enough,” said Zeufack. “African countries need to prioritize now policies and investments to create more better and inclusive jobs: that’s the key to sustained, inclusive and resilient growth.”

Several countries, including South Africa, Nigeria, and Ethiopia, have already begun implementing long-needed reforms in energy and telecommunications spurred by the current crisis, and 25 percent of African firms have accelerated the use of digital technology and increased investments in digital solutions.

The Pulse notes that the pandemic has also underscored the importance of the digital economy enabling governments, business and society in a time of lockdowns and social distancing, while recognizing government interventions to reduce the cost of devices and services, avoid disconnections for lack of payment, and increase bandwidth. These measures have been complemented by actions to facilitate network expansion and adopt new technologies, such as Google Loon in Kenya and Mozambique, and the boosting of internet efficiency in Ghana.

Noting that adoption of digital technologies by governments, households and firms in Sub-Saharan Africa still lag behind that of other regions in the world, the Pulse recommends improvements in areas from digital infrastructure and business models, to digital skills and literacy, as well as more effective regulation to expand digital infrastructure and make connectivity affordable, reliable and universal.

Economic Outlook

The Pulse predicts the region will rebound in 2021, however growth will vary across countries. While South Africa is expected to experience a weak recovery, overall growth in Eastern and Southern Africa region is expected to average 2.7 percent. Several countries, such as Ethiopia, have started to take advantage of the opportunity to put policy reforms in place.

“We’ve seen that Angola, Ethiopia and South Africa have accelerated reforms during this time, ensuring that they are poised for growth when the threat of the pandemic has subsided,” said Hafez Ghanem, World Bank Vice President for Eastern and Southern Africa. “There’s no escaping the economic impact that COVID-19 has had on the sub-region, but accelerating reforms is one way to be in the best possible position post-pandemic.”

While the Pulse notes Nigeria’s economic recovery will be weak as well, the Western and Central Africa region is expected to experience an average growth of 1.4 percent. “As COVID-19 continues to put substantial pressure on Western and Central African economies, it is important for policymakers to create the infrastructure necessary for rapid recovery,” said Ousmane Diagana, World Bank Vice President for Western and Central Africa. “Strong policies create the critical cornerstone for sustained, inclusive recovery and improved resilience to shocks.”

Amid the significant economic declines, the analysis recommends governments look to policies African countries need to move toward productivity-driven growth, and create more, better and inclusive jobs. While Pulse authors acknowledge that the road to recovery will be long and arduous – particularly as the region’s economic future remains uncertain amid concerns of a second wave of COVID-19 infections – they recommend governments aim to prioritize and support policies and investments that focus on connecting people to job opportunities, which can help end extreme poverty, particularly post-COVID-19.

In addition to recommending reconstituting of fiscal space to help governments finance programs that will stimulate economic recovery, the Pulse also highlights the following areas for policy consideration:

  • Sectoral reallocation policies, to foster the shift from exporting raw materials to greater value addition and intra-Africa value chains. As global trade takes time to recover, policymakers in the region need to promote the development of regional value chains while they are building the foundations and capabilities needed for more comprehensive continental involvement. The African Continental Free Trade Area (AfCFTA) has an important role to play by reducing production costs associated to tariffs, non-tariff barriers and trade facilitation problems. The AfCFTA can also help organize production across the region, expand intra-regional trade and build resilience along supply chains.
     
  • Spatial integration policies, to foster agricultural productivity and reallocate resources to more efficient job-creating locations through enhanced rural-urban and inland-coastal connectivity and investing in cities. Well-functioning cities are the cradle of innovation and of higher productivity, tradable industrial and service sectors. Boosting agriculture productivity, and improving living conditions in rural areas, including food security, will play a critical role. Scaling up infrastructure spending to invest across urban and rural areas, particularly, expanding access to basic infrastructure services.

“Charting the course to rapid recovery will also require massive investments across countries throughout the region, which governments must prepare for,” said Ousmane Diagana, World Bank Vice President for Western and Central Africa. “The recovery journey will be difficult, but without the advancement of structural reforms, robust growth post-pandemic will be even more challenging.”

Source World Bank
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Date 09 Oct 2020
 
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