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African Economic Outlook Supplement: Here is how African countries can deal with COVID-19, reopen economies and accelerate recovery, by Charles…

Charles Lufumpa, the African Development Bank’s Acting Chief Economist and Vice President for Economic Governance and Knowledge Management speaks on the recent release of the African Economic Outlook 2020 Supplement. He shares policy recommendations to cushion the shock of COVID-19 on countries.

 

How has Africa’s economic trajectory changed since the 2020 African Economic Outlook launched in January?

Almost everything has changed since January. The outbreak COVID-19 pandemic has distressed the global economy, particularly African economies. At the time the projections for Africa’s economic growth and prospects were prepared in January 2020, no one anticipated the magnitude of disruptions that COVID-19 would cause.

 Both the pandemic and the containment measures put in place by governments to limit its spread have had important economic implications. International travel restrictions, school and workplace closures, cancellation of public events, restrictions on public gatherings and closures of national borders and non-essential businesses have had an unprecedented  impact on Africa’s economic, health and political landscape.

The direct and indirect consequences of the outbreak have upended the strong upward trajectory of  many African countries through 2019. Our analyses, projections and forecasts in the AEO 2020 Supplement reflect this sharply changed landscape.

Why is the African Economic Outlook 2020 Supplement necessary at this time?

The pandemic has reversed the strong growth projections reported earlier in our 2020 African Economic Outlook due to the significant economic and health-related disruptions it is causing African countries.

To account for the impact of the pandemic on Africa’s socio-economic landscape, it was necessary to reassess the situation and revise our growth projections and outlook for 2020 and 2021.

The AEO 2020 Supplement presents revised projections for Africa’s economic growth and outlook for 2020 and 2021, assesses the  impact of COVID-19, and offers policy prescriptions on safe strategies to reopen economies and accelerate recovery after the pandemic.

What are the main policy recommendations to spur 3.0 percent growth in 2021?

 It is important to first underscore that projections of a 3-percent growth recovery in 2021 are subject to major downside risks arising from both external and domestic factors. For instance, there remains a non-negligible risk of a second wave of COVID-19 infection, which could necessitate that African countries  reimpose physical distancing, lockdowns, and quarantines.

We should also not forget other natural catastrophes such as the locusts swarms in parts of East Africa that are hurting farmers’ yields and livelihoods. Other exacerbating factors such as subdued commodity prices, high debt burdens, and tightening global financing conditions are likely to increase the uncertainty of Africa’s projected economic recovery.

The AEO 2020 Supplement emphasizes a multi-pronged policy approach to addressing the pandemic that involves: a public health response to contain the spread of the virus and minimize fatalities;  a monetary policy response to ease liquidity constraints and solvency risks, a fiscal response to cushion the impacts on livelihoods and to assist businesses; a labour-market response to protect workers and their jobs; and structural policies to enable African economies to rebuild and enhance their resilience to future shocks.

Actionable details on how to implement these policy responses are presented in Section 3 of the Supplement.

How can African countries build economies that are more resilient against future shocks?

The ongoing COVID-19 pandemic is certainly not the last major shock the continent will face. In the AEO Supplement, we emphasized the need to accelerate structural reforms to help African countries build more resilient economies and become better prepared to face future shocks.

By increasing productivity and addressing obstacles to the business environment, African countries could revive their productive base and increase levels of industrialization. These resilience-boosting reforms would require investment in human capital to build a workforce with the right skills for high-productivity sectors and bridging the infrastructure deficit to advance Africa’s industrial development.

Moreover, promoting economic diversification will help countries adapt to an increasingly volatile global economy and better shield their economies from future shocks. This will require targeted policies that boost agricultural productivity and move labor from low-productivity to high-productivity sectors as well as supporting competitive sectors such as agro-processing, digital technologies, or information and communication technology-based services, which have proved critical during the pandemic.

Other challenges that will need to be addressed in order to achieve faster-growing and more resilient African economies include: formalizing the informal sector; ensuring political stability, good governance and transparency, and stronger protections for property rights.  

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