The economic contraction caused by the COVID-19 pandemic will spread broadly across countries in Sub-Saharan Africa in 2020.
Due to the combination of domestic lockdowns and related spillovers from the global recession, growth is expected to slow in all countries in the region.
Growth fell sharply in the second quarter of 2020 across countries, especially in Nigeria (6.1 percent year-on-year) and South Africa (17.1 percent).
The decline in growth is expected to be larger in East and Southern Africa than West and Central Africa, partly because of the stronger output contractions in South Africa and Angola.
Disruptions in the tourism industry and lockdowns will cause substantial slowdowns in Ethiopia, Kenya, and the island nations.
In West and Central Africa, the decline in growth is projected to be driven mainly by oil exporters.
Activity among non-resource-intensive countries, including Côte d’Ivoire, Ghana, and Senegal, will slow but not contract, helped by relatively more robust growth in the agriculture sector.
Ultimately, sustained recovery will depend on how fast African countries prioritize policy actions and investments that address the challenge of creating more, better, and inclusive jobs.
These policy priorities, in turn, operate through three critical and interrelated channels: digital transformation, sectoral reallocation, and spatial integration.
The rebound in economic activity is expected to be modest in Sub-Saharan Africa in 2021, and the economic outlook is subject to considerable uncertainty .
Sub-Saharan Africa’s real GDP is projected to pick up to 2 .1 percent in 2021, which is below the 2 .4 percent rate achieved in 2019 and below population growth; per capita GDP would contract by more than 6 .0 percent .
Baseline projections assume that new COVID-19 cases will continue to slow across the region, new outbreaks will not lead to national lockdowns, government policy responses will boost business and consumer confidence, the global economy will continue to rebound, and commodity prices will remain stable.
Under these assumptions, GDP could rise to 3.2 percent in 2022
In the downside scenario, the region’s GDP is projected to expand by only 1 .2 percent in 2021 and 2 .1 percent in 2022 .
In this scenario, heightened uncertainty related to the evolution of the pandemic constrains domestic consumption and investment, while lower commodity prices weigh on exports.
The road to recovery will be steep: most countries in the region entered the COVID-19 crisis with weaker growth-supporting institutions .
COVID-19 has exposed acute macroeconomic vulnerabilities across Africa . Most countries will emerge from the COVID-19 crisis with historically large budget deficits.
Fiscal deficits in the region will widen, on average, by 3.5 percentage points of GDP in 2020. Debt burdens will be heavier.
The risk of debt default has started to materialize for one country in the region. Declines in export revenues, including from international tourism, have compounded the domestic impact of the COVID-19 shock.
At the same time, reductions in remittance flows, the slowdown in foreign direct investment, and declining private capital flows have tightened external constraints, leaving countries in the region with daunting debt challenges.
Evidence shows that at the height of the lockdown, 25 percent of the firms in Sub-Saharan Africa accelerated the use of digital technologies and increased investments in digital solutions in response to COVID-19.
In the East African Community, the pandemic seems to have catalyzed greater trade flows.
Kenyan exports to the rest of the East African Community have recovered rapidly. Exports to Uganda and Rwanda already surpassed their pre-COVID-19 highs, and re-exports to Tanzania sharply accelerated by July.
Fiscal deficits in the region will widen, on average, by 3.5 percentage points of GDP in 2020—a paltry figure compared to the deficit expansion in the United States (9.7) and the Euro Area (6.8).
The World Bank’s June Global Economic Prospects report forecasted that the global economy would shrink by 5.2 percent this year, with activity in EMDEs falling by 2.5 percent—their first contraction in at least 60 years.
The global economy suffered an unprecedented and synchronized collapse in activity in the first half of the year, with many countries experiencing double digit contractions in activity, led by weakness in services consumption.
With cumulative cases per million people estimated at 1,007 as of September 15, 2020, Sub- Saharan Africa remains one of the regions least affected by the COVID-19 pandemic.
Although testing in the region as a whole is low, there is wide variation in testing across countries (figure 1.10).
Only eight Sub-Saharan African countries had conducted more than 200,000 total tests by September, with South Africa and Ethiopia conducting more than one million tests.
South Africa has so far conducted about four million tests (more than 67,000 tests per million people) and Ethiopia has conducted nearly 1.2 million tests (more than 10,000 tests per million people).
Nigeria’s population is about 207 million people, and the country has only conducted 2,328 tests per million people.
While the COVID-19 pandemic has evolved more slowly in Sub-Saharan Africa than in other regions, it has exerted a sizable toll on economic activity
The main channels through which the COVID-19 pandemic has impacted economies in Sub- Saharan Africa have been
(1) the drop in domestic production resulting from lockdowns and other restrictions on nonessential business operations as countries implemented strict containment measures to limit the spread of the COVID-19 virus,
(2) the impact on demand for goods and services as lockdowns decreased household incomes, and
(3) the disruption of global trade and its effects on commodity prices and exports.
The combination of domestic lockdowns and lower external demand from the global recession weighed heavily on economic activity across the region in the first half of 2020.
In South Africa, where containment measures were particularly severe, the economy collapsed in 2020Q2. Real GDP contracted by 17.1 percent, year-on-year, following a 0.1 percent year- on-year expansion in 2020Q1.
Angola, Sub-Saharan Africa’s second largest oil producer after Nigeria, saw its economy contract by 1.8 percent year-on- year in 2020Q1, hit by the fallout from the COVID-19
In Botswana, real GDP contracted by 24 percent year-on-year in 2020Q2, following a 2.6 percent year-on-year expansion in 2020Q1.
Tourism has been hit hard by the pandemic, with a collapse in the number of visitors.
Nigeria’s real GDP contracted by 6.1 percent year-on-year in 2020Q2—the worst result in more than a decade
Ghana’s economy shrank 3.2 percent year-on-year in 2020Q2, following a 4.9 percent expansion.
Agriculture sector growth partially offset output contractions in the service and industrial sectors (figure 1.21).
In Kenya, the PMI rose from 46.6 in June to 54.2 in July before moderating to 53.0 in August. Notably, export orders picked up, as the reopening of international travel supported an uplift in tourism.
However, the employment subcomponent indicated that firms are scaling back on wage costs.
Weaker jobs growth highlights the underlying challenges to a sustained recovery, even as business confidence has improved in recent months.
In Uganda, the headline PMI jumped from 50.3 in July to 54.6 in August, the highest reading since prior to the COVID-19 outbreak.
By contrast, in Zambia, customer demand remained weak in 2020Q3, contributing to a further reduction in business activity.
The PMI fell to 43.4 in August from 44.6 in July, reflecting the weakness in investment demand.
Sub-Saharan Africa’s median current account deficit is expected to widen from -4.8 percent of GDP in 2019 to -6.9 percent of GDP in 2020, the highest since the 2014 commodity price shock, before moderating to -4.9 percent of GDP in 2021
In 2020Q3, no Eurobonds were issued in the region and none have been issued so far at the start of 2020Q4.
remittances—a key source of financing for a large number of countries in Sub-Saharan Africa and an important contributor to the balance of payments—are expected to decrease by 23 percent this year before rebounding moderately in 2021.
The impact on individual countries will vary. Countries in which remittances account for a large proportion of GDP (South Sudan, Lesotho, and The Gambia) are the most vulnerable, while remittances are expected to hold steady in countries with diverse remittance sources, such as Kenya.
The region’s median inflation rate is estimated to have increased from 2.3 percent in 2019 to 3.5 percent in 2020, and it is expected to continue to rise into 2021
In 2020, the inflation rate was in double digits in 12 countries, compared with nine countries in 2019. Sudan and Zimbabwe continued to experience annual inflation rates of over 100 percent.
In the Democratic Republic of Congo, inflation jumped above 30 percent year-on-year in July before easing slightly in August.
Among oil exporters, inflation rates rose continuously in Angola, exceeding 23 percent year-on-year in August.
Real per capita GDP is projected to contract sharply in 2020, falling by about 6.0 percent, the largest decrease over the past two decades
World Bank has estimated that in 2020 COVID-19 will push 26 million people in Sub-Saharan Africa into extreme poverty
Risks to the regional outlook remain skewed to the downside.
The emergence of new creditors has increased the opacity in African debt (non–Paris Club governments). Therefore, the issue of greater debt transparency has become more complex.
The lack of disclosure in debt data may lead to mispricing sovereign bonds and associated default risks (Horn, Reinhart, and Trebesch 2019).
This leads to greater risks associated with massive hidden debt operations and greater (than expected) interest payments, which impose heavier government burdens (World Bank 2020).
The AfCFTA will cover a market of 1.3 billion people and US$3.4 trillion in economic activity. By 2050, Sub-Saharan Africa will account for one-third of the global labor force.