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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,
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
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.