(Pix Credit: Nina Callaghan and Mark Swilling, "Covid-19: Economic impact on East and southern Africa," MSN News (2020-03-27))
We have been reporting on the effects of COVID-19 in Africa (Jonathan Kiwana and David F.K. Mpanga: "Coronavirus Disease Outbreak: Some Legal Considerations for Business in Uganda"). Important African states have followed the example of the larger global players and imposed a national lockdown to avoid a costly spike in infection (and thus the risk of overwhelming medical treatment capacity) (see Coronavirus: Moscow and Lagos in lockdown as countries tighten restrictions). African institutions have been trying to meet regional economic issues even as states seek to meet the health and economic challenges of the pandemic (Afreximbank Announces $3-Billion Facility to Cushion Impact of COVID-19)
We have tried to circulate information that is not about Africa, but from people and institutions on the ground in Africa. That is a hard task in a continent whose size, complexity and diversity defies any simple aggregation of insights.There are a number of firms and institutions producing some very interesting analysis of the evolving situation in many regions of Africa, and touching on a variety of areas of human organization. I have been following the work of Bowman's, a law firm with offices in East and South Africa that has been producing some interesting commentary on the changing COVID-19 landscape in the region.
The African Export-Import Bank (Afreximbank) has announced a $3-billion facility, named Pandemic Trade Impact Mitigation Facility (PATIMFA), to help African countries deal with the economic and health impacts of the COVID-19 pandemic. . . . It will support member country central banks, and other financial institutions to meet trade debt payments that fall due and to avert trade payment defaults, said Afreximbank. It will also be available to support and stabilize the foreign exchange resources of central banks of member countries, enabling them to support critical imports under emergency conditions. In addition, PATIMFA will assist member countries whose fiscal revenues are tied to specific export revenues, such as mineral royalties, to manage any sudden fiscal revenue declines as a result of reduced export earnings. It will also provide emergency trade finance facilities for import of urgent needs to combat the pandemic, including medicine, medical equipment, hospital refitting, etc. (Ibid.)
Links to some of the work of the firm though its offices in Kenya, Uganda, Mauritius, Tanzania, and South Africa follow below.
One of the more interesting collateral challenges for Africa in the shadow of the COVID-19 pandemic is its effect on the relationship between African states and China. African states are critical actors within China's Belt and Road Initiative. Africa has become both an important market for Chinese goods, and a critical source of materials essential for Chinese economic activity at home. The ties that bind African states and China have thus become to some important extent a key driver of economic activity, and that activity produces collateral effects in the form of growing political friendships and cultural interaction.
It is in the context of this trajectory of closer relations that COVID-19 appears to have cast a potentially long shadow, It is explored, discretely, in Bowman's recently distributed work, COVID-19 - Economic impact on East and Southern Africa (Bowman's (2020) (Research by Nina Callaghan, Centre for Complex Systems in Transition, Stellenbosch University in collaboration with Bowmans)). The insights there were developed as well in Nina Callaghan and Mark Swilling, "Covid-19: Economic impact on East and southern Africa," MSN News (.
Portions of that discussion follow. They highlight a few important points. The first is that Africa remains tightly bound up in global trade flows.But now the flows have evolved form simple two way currents toward old colonial centers, to a more complicated multiple site of flows to competitor states--principally China. Yet, in the end, the character of African states' engagement does nor appear to have changed much. Much of what is African trade remains dependent on higher valuing adding "apex" states and the satisfaction of their needs. None of this is surprising, but the extent to which COVID-19 affects economics which then affects the (fragile) economies of African states cannot be understated. Second, the character of African trade, its quality, is changing slowly. That is both good, but it also presents a trap. While the old colonial dynamic continues to operate, whether undertaken within America First, Belt & Road, or some variant of the new and improved European models, grounded on trade for natural resources exported to states that then produce high value goods for import back to African markets, African states have moved slowly toward indigenization of some productive sectors. But it is hardly enough yet and African states rise or fall on the needs of apex sates for resources or to travel to African states for tourism. Some of that expansion, however, is related to projections of foreign investment for purposes of resource extraction. Africa is full of stories of apex states insisting on importing their collateral businesses to tend to the needs of imported workers brought over to undertake foreign operations. That is the trap, then, which arises form the connection between the need to negotiate away resources and the growth of domestic production. Third, even this development of indigenous markets served by indigenous production is itself undercut by the New Era economic relationships that are built around both the extraction of resources and the preferred treatment for finished goods from the states to which the resources are directed. The resulting dependency becomes more exposed where in periods of epidemic the need for resources shrinks while the availability of goods shrinks. Fourth, the ability of African states, or the African Union institutions to ameliorate effects washing into Africa from its investment partners is limited. Notwithstanding the efforts, for example, of Afreximbank described above, other national facilities are now substantially stressed because of the fall of demand for commodities. Sovereign wealth funds fueled by resource extraction income and other funds are going to be challenged in this environment. In the shadow of COVID-19, it suggests that, even if African states are able to avoid the worst of the pandemic (and that is unlikely--the situation in Nigeria from the first week of April 202 is telling) in terms of human costs--African states will effectively bear a substantial economic burden of the economic consequences of the pandemic--at least for the short and medium term.
Portions of that discussion follow. They highlight a few important points. The first is that Africa remains tightly bound up in global trade flows.But now the flows have evolved form simple two way currents toward old colonial centers, to a more complicated multiple site of flows to competitor states--principally China. Yet, in the end, the character of African states' engagement does nor appear to have changed much. Much of what is African trade remains dependent on higher valuing adding "apex" states and the satisfaction of their needs. None of this is surprising, but the extent to which COVID-19 affects economics which then affects the (fragile) economies of African states cannot be understated. Second, the character of African trade, its quality, is changing slowly. That is both good, but it also presents a trap. While the old colonial dynamic continues to operate, whether undertaken within America First, Belt & Road, or some variant of the new and improved European models, grounded on trade for natural resources exported to states that then produce high value goods for import back to African markets, African states have moved slowly toward indigenization of some productive sectors. But it is hardly enough yet and African states rise or fall on the needs of apex sates for resources or to travel to African states for tourism. Some of that expansion, however, is related to projections of foreign investment for purposes of resource extraction. Africa is full of stories of apex states insisting on importing their collateral businesses to tend to the needs of imported workers brought over to undertake foreign operations. That is the trap, then, which arises form the connection between the need to negotiate away resources and the growth of domestic production. Third, even this development of indigenous markets served by indigenous production is itself undercut by the New Era economic relationships that are built around both the extraction of resources and the preferred treatment for finished goods from the states to which the resources are directed. The resulting dependency becomes more exposed where in periods of epidemic the need for resources shrinks while the availability of goods shrinks. Fourth, the ability of African states, or the African Union institutions to ameliorate effects washing into Africa from its investment partners is limited. Notwithstanding the efforts, for example, of Afreximbank described above, other national facilities are now substantially stressed because of the fall of demand for commodities. Sovereign wealth funds fueled by resource extraction income and other funds are going to be challenged in this environment. In the shadow of COVID-19, it suggests that, even if African states are able to avoid the worst of the pandemic (and that is unlikely--the situation in Nigeria from the first week of April 202 is telling) in terms of human costs--African states will effectively bear a substantial economic burden of the economic consequences of the pandemic--at least for the short and medium term.
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Covid-19: Economic impact on East and southern Africa
Covid-19 in Africa
The WHO says just over 2,455 positive cases of Covid-19 have been recorded in Africa (WHO, 26 March 2020). Twelve countries in Africa are now experiencing local transmission and with vastly different population demographics, the shape and impact of Covid-19 in Africa could look very different from Europe, Asia and North America.
Testing kits and medical supplies have been shipped to several countries on the continent, enabling 45 African nations to now test for the virus, as opposed to just two at the start of the outbreak in January 2020. WHO has also been supporting government health ministries across Africa, training 36 Rapid Response Teams. The training aims to improve their surveillance and contact tracing abilities along with data collection, reporting and diagnosis (Wang, 2020).
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Oil
China is the world’s biggest oil importer and with much of the country still in lockdown, combined with several other countries just enforcing lockdown and states of emergency to contain Covid-19, the International Energy Agency (IEA) has predicted the first drop in global oil demand in a decade (Hutt, 2020).
The IEA’s monthly report for March 2020 puts the year-on-year slump at 90kb/d. The current price of oil, as of 23 March 2020 at $22.43 a barrel is close to record lows during the Asian Financial crisis in 1998/9 (World Oil, 2020).
Analysts have predicted that the price war between Russia and Saudi Arabia has been catastrophic for OPEC, the world’s most successful cartel. In March 2020, the Saudis abandoned their 2017 output agreement, flooding the market with cheap crude oil. The move was in response to Russia’s refusal to effect deeper production cuts to help prop up prices in the face of declining demand due to Covid-19 (Fortune, 2020).
Oil price volatility has deep impacts for African oil-producing and exporting countries like Libya, Algeria, Nigeria, Angola and Ghana. The oil price drop in 2014 impacted significantly on the continent, which saw a decline in GDP growth for the sub-Saharan region from 5.1% in 2014, to 1.4% in 2016 (Brookings, 2020). Compared to 2014, the oil price fallout during the Covid-19 pandemic has plummeted over a shorter time, declining 54% in just three months.
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African oil-producing countries rely heavily on oil earnings to fund national budgets. They have pegged national earnings on a much higher oil price of around $60 per barrel (Bloomberg, 2020).
Ghana’s hopes of earning at least $1.5-billion off new oil discoveries this year have been dashed not to mention Nigeria’s and Angola’s projections, the continent’s first, and second-biggest producers and exporters respectively. China is Angola’s largest oil importer and with demand low, Angola’s economic resilience to weather a global economic recession is poor, this at a time when it is experiencing its fourth year of recession (SET, 2020).
Fragile and volatile markets look to be the order of the day, with key indices decidedly down on 23 March 2020. Uncertainty around when the pandemic disruptions would cease has prompted investors to sell even good stocks with fundamental value (Bloomberg, 2020). The big winners are those who anticipated the crash and bid short.
The Africa/China connection
Since 2009, China overtook the US as Africa’s biggest trading partner. Now, during this time of virus-induced panic, analysts are looking to China first for indicators of knock-on economic impact. China’s cities are still in lockdown, its production sectors have slowed dramatically, travel internally and to the rest of the world has all but ground to a halt, and commodity prices have plunged.
A slowed-down super-power means that low- and middle-income countries dependent on trade and tourism with China will feel the sting of the virus, even if Covid-19 infections in those countries don’t spike on the global graph.
Beijing’s Belt and Road Initiative has funded a range of infrastructure projects across the Eurasian continent and beyond, from roads and railways to power plants. Construction on the 2,000km crude-oil pipeline and the almost-complete Lagos-Ibadan railway has ground to a halt, the Chinese workforce not having been on site since just before the Chinese Lunar New Year in February 2020 (Kitimo, 2020).
Africa/China trade and commodities
Besides oil, Africa’s other commodities are also closely linked to China’s fortunes. Depreciations in industrial commodities are hitting resource-dependent economies hard.
The Congo’s commodity exports amount to 70% of GDP with exports to China accounting for 50% of total GDP (Smith, 2020).
Copper prices are down by 7%, which in turn will lower the value of exports from major suppliers – Zambia, the Republic of Congo and the Democratic Republic of Congo.
Africa’s copperbelt region produces 70% of the world’s cobalt and supplies a large percentage of global demand for lithium and other rare minerals.
China is the biggest importer of cobalt and rare minerals, being the world leader in the production of mobile phones, electric car batteries and hi-tech components (Smith, 2019). China also has significant investments in mines in the copperbelt region, exercising their control over value chains in the mining sector. With the overall China downturn, investments in these ventures have also slowed.
Chrome, manganese and iron ore make up two-thirds of South Africa’s total exports to China. Less demand for these metals has caused listed shares of these mining companies to tumble (Times Live, 2020).
Soft commodities like coffee, tea, rose flowers and cocoa are also suffering due to subdued Chinese demand. The slowdown affects Rwanda, Ghana, Ethiopia, Kenya and the Ivory Coast (Okoth, 2020). South Africa’s fisheries industry took a knock after China stopped all animal imports in January 2020. 95% of the country’s rock lobster harvest is usually sold on to China.
According to researchers at SET, the estimated lost revenue of sub-Saharan exports to China could reach around $420-million. Angola, Congo, Sierra Leone, Lesotho and Zambia have been named as the most economically exposed through exports and tourism (SET, 2020).
Supply chains
China’s record of favourable pricing and efficient logistics has made it a critical player in global demand and supply chains. Many African states have become dependent on Chinese imports like textiles, electronics and household goods.
Kenya’s port of Mombasa has become a regional transport and supply chain hub, receiving goods bound for Uganda, Rwanda, Burundi, Democratic Republic of Congo and South Sudan (Okoth, 2020). Since February 2020, Mombasa has recorded its lowest arrivals of cargo ships to date, with 37 cancellations and a further 104 scheduled dockings still uncertain – most of them from China. This has sent ripple effects across borders and down the supply chain, impacting the rail freight service that operates from the port (Kitimo, 2020).
Thousands of small- to medium-sized enterprises on the continent have been forced to shut down after disruptions to supply chains and an inability to store large stocks. China is Kenya’s biggest source market, accounting for up to 40% of all imports. Kenya Importers and Small Traders’ Association say they’ve lost $300-million since the Covid-19 outbreak (Kitimo, 2020). A fourth of all Ugandan imports come from China as well as 60% of all South Africa’s clothing and textiles (Evans and Over, 2020).
Several state-owned Chinese industries are returning to work after Covid-19 cases drastically reduced, but it is privately-owned industries and smaller companies that are really China’s economic engine. They produce toys, textiles and consumer goods and have not regained momentum with workers still idle due to lack of materials and enduring quarantine measures. (Evans and Over, 2020).
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