23/06 Impact of COVID-19 on East Africa - Recommended Reading

23 June 2020 Ryan Bourque

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.

23/06 Impact of COVID-19 on East Africa - Recommended Reading

1 – The World Bank's latest “Tanzania Economic Update” has two parts, one covering the impact of COVID-19 on the economy, and the second exploring the economic potential of digital technologies.

Part One: The State of The Economy

  • The World Bank estimates Tanzania will grow 2.5% in 2020 (the country grew 6.3% last year). An additional 500K people may drop below the poverty line.
  • Tourism operators are expecting a revenue contraction of 80% this year – and exporters of agricultural products estimate a 40% reduction vs. last year. This slowdown of activity across the formal sector will erode the tax base.
  • The World Bank believes the government needs to allocate additional resources to its health response (e.g. implement a “smart” containment strategy; ensure equitable access to equipment / facilities).
  • In addition, the World Bank believes the economy requires direct support (e.g. help private sector retain employees via wage compensation; keep firms viable with grants, guarantees, concessional loans & tax breaks).

Part Two: The Potential of The Digital Economy

  • Digital technologies can help strengthen policy responses and contain COVID-19.
  • Tanzania could benefit from its large number of pre-existing mobile accounts – when streamlining new cash transfer schemes and widening the coverage of social protection programmes.
  • Mobile banks could enable informal firms to quickly access government benefits; commercial banks could partner with mobile banks to accelerate the borrowing process for SMEs.
  • While data traffic in Tanzania is growing rapidly (e.g. usage of Airtel rose 52% last year), the digital divide vis-à-vis neighbouring countries is wide (e.g. Kenya’s bandwidth usage is 3x greater).
  • Narrowing the divide will require technological and legislative advances. For example, the government has a critical role to play in building trust re: digital payments.
  • The situation is becoming more urgent owing to COVID-19. As physical trade is being severely impacted, the World Bank argues that the government should move quickly to facilitate more digital trade (e.g. by passing a strong data protection act, introducing supportive regulations & reviewing online intellectual property rights).

Click here to learn more.

2 – The Economic Policy Research Centre in Uganda has surveyed 147 firms about the impact of COVID-19, covering every sector (e.g. agriculture, manufacturing & services) and business size (micro, small, medium & large).

The lead authors have summarised the findings for Brookings. While Uganda appears to have successfully limited the spread of COVID-19 thus far, the imposition of strict health measures has imperilled a great many firms, who are faced with additional operating costs, diminished demand & limited access to credit.

The Impact of COVID-19 on Uganda’s Firms:

75% of firms have laid off workers owing to COVID-19 (80% of agricultural firms have reduced workforce by a quarter; 41% of manufacturing firms have reduced workforce by more than half)

  • Business activity is down over 50% – esp. in micro & small firms (who can’t afford to observe health measures like on-site lodging for employees / hand-washing equipment for customers).
  • 69% of MSMEs are reporting a decline in access to credit – and high percentages of firms in manufacturing & services sector can’t repay outstanding debts.
  • Small & medium firms are reporting difficulty in accessing inputs – exposing the country’s over-reliance on international supply chains for raw materials
  • The majority of micro & small businesses (esp. in services sector) predict they will have to close within the next 3 months if the pandemic persists and restrictions remain in place.
  • If the threat of COVID-19 & associated measures continue for 6 months, 3.8M workers will lose their jobs temporarily & 626K workers will lose their jobs permanently (75% of those set to lose jobs permanently work in services sector).

Report recommendations:

  • To free up cash for firms, government should consider reducing tax rate / taxable income, offering tax credits / tax refunds. The government should also pay all outstanding sums to its suppliers.
  • Commercial banks should consider providing emergency loans to MSMEs on flexible terms. The government can encourage this by extending cash loans & loosening liquidity reserve requirements.
  • The government could offer concessional loans via Uganda Development Bank (the country has just received a $500M loan from IMF & is trying to reschedule $2B in debt repayments).
  • To increase firm access to credit, mobile money & e-platforms could simplify their loan application processes and reduce loan turnaround times.
  • The Credit Reporting Bureau should be on the lookout for unintended defaults – and financial institutions should share credit info with regulators.
  • The government can amend the legal framework on bankruptcy – with temporary measures to prevent liquidation.

Click here for the original survey and here for the summary.

3 – The Milken Institute's COVID-19 Africa Watch - a hub for information & analysis regarding the impact of the pandemic on the continent - examines ways in which Africa’s cities could become safer and more equitable following the pandemic.

The pandemic has largely affected those living in urban areas (95% of the world’s population diagnosed with COVID-19 live in cities). The situation is urgent in Africa: 300M currently live in crowded / underserved informal settlements and the urban population is set to double in the next 16 years (reaching 1B by 2036).

  • Urban density in times of physical distancing: Informal settlements should not be destroyed but upgraded (adequate housing, efficient service delivery, broader streets). Governments should also encourage the development of a more balanced network of cities & smaller towns.
  • From public transport to soft mobility: COVID-19 has exposed how cities depend on essential workers and essential workers depend on public transport. Governments need to focus on reducing commute distances, encouraging teleworking & promoting biking / walking (by creating dedicated lanes).
  • Economic revitalisation and the informal sector: The ILO estimates 71.9% of non-agricultural labour in Africa is in the informal sector, where workers have no safety net. Instead of treating these workers as “lawless vagrants”, governments should recognise how this sector is essential to the functioning of Africa’s cities - and focus on unleashing its potential / building its resilience.
  • Feeding the urban poor: Africa is a net food importer (c. $80B a year). Many in informal settlements are reporting eating less amidst the pandemic. Informal food markets are vital to feeding cities – governments should allow such markets to operate on more dispersed sites & support informal market workers.
  • Early Warning Systems (EWS): Urban observatories should be set up in Africa – tasked with collecting data, assessing risks and delivering timely warnings
  • African responses, now & tomorrow: The response to COVID-19 in Africa has been impressive (e.g. while wealthier countries import face masks from China, firms in Africa have produced millions since March). In many countries, governments have initiated cash transfers & food programmes – could this lead to long-lasting safety nets on the continent?

Click here to learn more.

Photo credit: Water and Sanitation Collaborative Council

23/06 Impact of COVID-19 on East Africa - Recommended Reading