Africa is expected to start to recover in 2021 from the economic damage wreaked by the Covid-19 pandemic, which led to the continent’s worst economic recession in half a century. This is one of the key findings of the African Development Bank Group’s African Economic Outlook (AEO) 2021 report released on 12 March 2021.
The recovery will see Africa’s economic growth rebound to 3.4% in 2021, following a 2.1% contraction in 2020. A resumption in tourism, a rebound in commodity prices, and the lifting of pandemic restrictions is expected to underpin this growth, according to the report.
Economies that depend heavily on tourism, and oil and other commodity exports have been hardest hit by the pandemic, but also are expected to recover in 2021.
Not out of the woods
Despite the positive outlook, Africa is not out of the woods yet, and the African Development Bank fears that much of the recent gains in tackling poverty could be reversed. Thirty million Africans were pushed into “extreme poverty” in 2020, according to the report, and about 39-million remain at risk of falling into this category in 2021. The pandemic has had a disproportionate effect on women, youth and informal sector workers, deepening inequality.
Strict lockdowns undoubtedly shielded some countries from the worst health impacts of the pandemic, but economic effects have been severe, the report found. Lockdowns have also been less strictly enforced than in other regions due to African economies’ high level of informal sector workers.
The report makes a number of policy recommendations to support economic recovery, including:
- Countries should continue to support their health sectors, and to maintain routine public health campaigns such as vaccinations.
- Countries should embark on a path of fiscal consolidation, where there is fiscal space. Where there is no fiscal space, countries should seek international support.
- Schools should be opened where it is practical to have in-person schooling, and learning should continue via digital and other means where it is not practical to do so, to minimise the long-term disruption of learning.
- All forms of resource leakage in resource management should be eradicated.
The African Development Bank estimates that African countries will need $154-billion in 2020/2021 in additional gross financing to respond to the pandemic. As a result, debt-to-GDP levels are expected to surge, with tourism-dependent and resource-intensive economies, excluding oil, accounting for the sharpest increases.
This is expected to add to already high debt levels in a number of African countries. Experts speaking at the launch of the AEO report called for sustainable debt solutions for Africa. Panellist Masood Ahmed, president of the Centre for Global Development said: “The debt problem in Africa was building up for many years… Four out of 10 low-income countries already had high levels of debt or were in debt distress.”
Masood also said the inclusion of China in discussions regarding solutions for Africa’s debt problem would be key, as it is now the continent’s biggest bilateral lender.
The bank’s president, Dr Akinwumi Adesina, said it was time for an African economic stabilisation mechanism to deal with African debt.
“This should allow for macro and fiscal policies, to deal with the cause of the illness, not just the symptoms,” he said.
Professor Joseph Stiglitz, a Nobel prize-winning economist and professor at Columbia University, said the private sector would need to be on board with any debt restructuring efforts.
Stiglitz warned that in the absence of debt relief there would be “enormous suffering” as countries would make cuts to social programmes such as healthcare.
“You can’t expect people to honour a contract (signed) when there was no concept of a pandemic,” Stiglitz added.
According to the report, Africa has a long history of debt restructuring. Between 1950 and 2017, African countries restructured privately held external liabilities 60 times, and reached 149 agreements with the Paris Club of international creditors.
Panellists agreed that debt restructuring was not practical in all cases. South African Reserve Bank Governor Lesetja Kganyago pointed out that in South Africa a large proportion of debt is held by domestic pension funds and other entities, complicating the matter of forgiveness.
The African Development Bank, Adesina said, is supporting youth entrepreneurship investment banks to stimulate domestic resources, while also assisting Africa to develop its own pharmaceutical industry.
This was essential given the need for vaccines: only 1% of Africa’s population currently has access to Covid-19 vaccines, he said.
“Yes, we have solidarity, globally. But we’ve got to go beyond that towards vaccine justice and vaccine equity,” Adesina said. — Sarah Evans