Africhanel Business- What will the Future be for Africa post the Global Pandemic?

In December 2019, the world was hit by the corona virus, which turned out to be a global pandemic. As of July 2020, more than 10 million people have been affected globally. The major transmissions of the COVID-19 pandemic effects are two-fold, i.e. disruption in the normal way of life because people fear to contract the disease and disruptions in the supply chains at different levels. Governments have undertaken lockdown measures. These among others include shutting down public transport and private transport, and unfavorable curfew hours.

However, although there has been a positive trend in the fight against COVID -19, many have become vulnerable. The impact of a pandemic on economic well-being operates through two distinct channels, that is: through the direct and indirect effects of the pandemic and the behavioral effects resulting from the fear of contagion (World Bank, 2014).

First, the direct and indirect effects of the sickness and mortality, take-up health-care resources and subtract people, either temporarily or permanently from the labor force. Secondly, the behavioral effects resulting from the fear of contagion, leading to fear of association with others: reduces labor force participation; closes places of employment; disrupts transportation; motivates some governments to close land borders and restricts entry of citizens from afflicted countries; and motivates private decision-makers to disrupt trade, travel, and commerce by canceling scheduled commercial flights and reduces shipping and cargo services among other things. This ultimately leads to an increase in poverty, a reduction in food security, and slow economic activity.

Most importantly, this transmission mechanism can also be traced through the structure of the economy in line with the national accounts, i.e. real sector effects; fiscal sector effects; monetary sector effects and external sector effects.  The OECD indicated that global growth in 2020 will reduce to 2.4 percent from an earlier projection of 2.9 percent. Similarly, the UNECA Report on Covid-19 dated March 13 , 2020 suggested that the COVID-19 pandemic effects will decrease Africa’s growth rate from the current 3.2 percent to 1.8 percent in 2020 The report adds that 1.4 percentage point decline is expected from effects of pandemic as at March 2020.

Africa has experienced negative effects on the real sector such as economic growth, unemployment, income poverty and monetary policy targets. This will inevitably undermine the attainment of some the African Countries National development Goals and the attainment of Global commitments. The severity and longevity of these effects will depend on the scale and effectiveness of recovery stimulus packages constituted. For example, the anticipated economic growth rate will be negatively affected from the targeted 5.2% to between 3.2% to 1.5% in the FY 2020/21. For the case of Uganda. Some of the major sectors contributing to Uganda’s growth have been affected especially services, agriculture, tourism, manufacturing, and remittances.

Countries have continuously experienced reduced domestic trade as vital sectors such as transport, hotel and leisure shut down leading to increased joblessness as many companies shall either close or down-size their labour force as production slows down especially in the manufacturing, construction and transport sector. Negative effects on public investment projects as major sites are closed due to social distancing measures and public financing shifts towards addressing the health risks of COVID-19 pandemic.

However, there is an expected positive trend that will present for Africa. It has become increasing beneficial as there has been a dramatic increase in e-commerce and online trading in food delivery and ordering of other essentials online; improvement in mobile money platforms and e-banking. Africans are embracing the economic opportunities presented with the use of digital media. Policy shift towards import substitution which will result in local manufacturing and increased employment opportunities.

Foreign financial flow effects: This is because financial flows are expected to shift away from countries which are hit by corona virus to those which do not have. With the lockdowns and closures, there is also expected to be a decline in the Foreign Direct Investments (FDIs) and remittances.

Oil demand shocks. Generally, there is a reduced demand on oil globally. For example, OPEC met early March 2020 to make an additional cut of 1.5 million barrels per day to the end of June, 2020. Whereas the reduced oil prices may favour African Countries in terms of oil imports, it may not largely benefit due to the current depressed economic activity in the country. Conversely, countries may also be affected in terms of its oil production and the Final Investment Decision (FID) in the oil and gas sector.

This is a call for the Africa governments to put in place measures to harness the economic opportunities to realize development. There is need to review and prioritize Government budget towards mitigating the expected impact from the pandemic. Creating a mechanism to identify businesses most affected and mode of support to be provided should stand out as a priority for example Creation and stocking of Food Banks will build the resilience of African rural economies.