Each week we are sharing some of the interesting articles we've read recently on the impact of the COVID-19 crisis in East Africa.
He provides four structural reasons for this:
- The economies are predominantly rural: agriculture contributes around a third of GDP and still accounts for about 70% of employment. Most farming is small-scale / subsistence and hence relatively insulated from the impact of economic lockdown.
- The region is a net importer of commodities: while the decline in commodity prices is hitting key regional exports like cash crops and minerals, East Africa stands to benefit from low oil prices.
- The urbanization rate is low: East Africa is one of the least urbanised regions in the world with less than a third of the population living in cities (vs. a global average of 55%). This limits the scope of disease spread.
- Young populations: With under-20s making up around 50% of the regional population, the health impact in East Africa is likely to be very different from developed nations, where populations are older / more vulnerable.
Nevertheless, the author mentions the severity of the challenges and threats posed by the pandemic in East Africa:
- East Africa is highly dependent on its services sectors, which contributes nearly 50% of GDP.
- The region is increasingly exposed to the global economy via trade – the disruption of supply chains will continue to have a major negative impact on industrial parks & horticulture / floriculture exports.
- Even pre-COVID-19, governments were facing unsustainable debt levels – the crisis has served to further tighten fiscal space.
- Owing to climate change and the ongoing locust plague, the region has a precarious food security situation which has been made worse by the pandemic.
So - what needs to be done to deal with the crisis and sustain economic growth?
- Mobilizing more investment through domestic resources.
- Investing more in public health, which has not hitherto been a regional priority.
- Expanding social protection measures - with better coverage of urban poor and informal sector.
- Strengthening regional integration by implementing the AfCFTA (this may create greater opportunities for regional manufacturers to fill the void left by reduced imports from China & Europe).
In particular, they examine the impact of the crisis on low- and moderate-income Kenyans, who predominantly work in the informal sector (referred to as “cuspers” in the blog). They also explore how women are being disproportionately affected by COVID-19 restrictions.
Why focus on “cuspers”?
“Cuspers” are especially vulnerable, as their incomes – which are already low – have been eroded by lockdowns and they are not covered by state support schemes. Many are already in distress owing to lockdown: 81% are reporting a significant reduction in their incomes. For an economic recovery to be inclusive, there needs to be explicit focus on this group to avoid increasing the poverty gap and inequality.
The blog mentions that the recovery for “cuspers” will vary according to their formality, economic sector and the extent to which they directly benefit from government policy / stimulus. The authors present three scenarios for economic recovery in Kenya:
- “Bounceback” (i.e. a quick recovery by mid-2021): this may mean the informal sector does not have adequate time to adapt to the disruption. In addition, formal firms will predominantly benefit from government support and this may drive out informal competition.
- “Limpback” (i.e. a moderate recovery by 2023): this may provide enough time for appropriate policies / structures to be put in place, which may enable informal players to seek opportunities in ‘winning’ sectors. However, the market saturation and limited capacity of such sectors will make absorbing these players a challenge.
- “Fallback” (i.e. a prolonged recovery past 2023): this may lead to lasting social and economic damage to “cuspers”, with urbanization trends reversed.
The negative impact on women
The authors found that women in the informal sector were being particularly affected by COVID-19. A majority of women work in high-contact sectors (such as wholesale / retail trade) and have been impacted by curfew restrictions (e.g. the elimination of key 5pm sales). Many are unable to benefit from fiscal stimulus measures as they are not officially registered. Since schools are closed, there are also increased household pressures.
What can be done to support the informal sector?
- Innovative support systems: conventional approaches - deployed by government and the financial sector - may not work to support the informal sector. The authors suggest offering bounce back loans through supply chains / community financial institutions and decreasing bureaucratic burdens.
- The needs vary by sector: the support provided to individuals working in resilient sectors should differ from the support provided to those working in sectors that have been seriously affected – like tourism.
- Digitalisation: While digital tools are an enabler, care will have to be taken to ensure the informal sector is not digitally excluded – owing to the cost of connectivity and electronic devices, at a time when disposable income is especially low.
3 – In a post for Trade Law Centre, Trudi Hartzenberg (Executive Director) and Gerhard Erasmus (Founder) detail why - contrary to popular opinion - the postponement of the $3.4T AfCFTA may in fact be beneficial for Africa.
With the current COVID-19 crisis, the authors question whether individual countries are really prepared for a Free Trade Area in Africa, as they focus on containing outbreaks. Even prior to COVID-19 in Africa, there was a significant amount of work outstanding:
- The AfCFTA was ratified by the 55 member nations at the end of May 2019. However, the AfCFTA would only be ready for implementation after rules for opening markets had been agreed and the required domestic procedures had been put in place.
- The outstanding negotiations include tariff reductions, rules of origin and conditions for trade in services. These talks would have required real momentum to conclude on 1 July 2020.
- The five priority services sectors as part of the AfCFTA are: finance, transport, communication, business services and tourism. Initially, the deals were to be completed by 31 January 2020 and finalized for free trade by the end of May 2020. This has all been delayed.
The authors point out numerous reasons why the AfCFTA cannot be implemented by its initial deadline of 1 July 2020:
- Owing to COVID-19, the domestic priorities for each member country have changed.
- The design of the AfCFTA is complicated.
- It would be difficult to complete the deal via e-negotiations, given the scope of the agreement.
- The levels of economic development in each member country vary greatly.
- There is a need for the impacts and implications of the pandemic to be better understood – as these will affect the nature of the AfCFTA.
The authors conclude by referring to the possible opportunity that COVID-19 may well present Africa: a moment to reflect, debate and seek innovative responses to very complex challenges.