Oil in Nigeria and Angola has lost some 50% of its price since the start of the year. For two of Africa’s biggest producers, that alone is a serious blow.
Economists, think tanks and policymakers now almost universally agree the global economy is heading into recession because of the coronavirus. Quartz reported that the point is clearest in Africa, which has more than 4,000 cases across 46 countries. That is far fewer than Europe, but the count is rising fast, and there are real worries that low numbers reflect limited testing.
Most attention so far has gone to the health risk. Social distancing is costly and hard to enforce for people working in the informal economy, and many health systems could be overrun by a widespread outbreak. Yet even if the continent escaped the worst of the human toll, a major economic hit looks close to unavoidable.
Weak hands
African countries are fully plugged into the global economy. Many export commodities whose prices are falling sharply, and those that import goods watch their currencies lose value against the dollar. Several face both problems at once, as international investors pull back from the continent.
Few forecasters expect a continent-wide recession. Nigeria and South Africa, the two biggest economies, have drifted from recession to weak recovery for years and are expected to take a big hit. The IMF estimates that each 10% fall in oil prices lowers growth in oil exporters by 0.6% on average and widens fiscal deficits by 0.8% of GDP.
Brahima Sangafowa Coulibaly, director of the Brookings Institution’s Africa Growth Initiative, wrote that the pullback from African markets and lower export revenues have weakened local currencies. “These exchange rate depreciations will push up local inflation and trigger monetary policy and financial tightening,” he wrote. For governments with dollar debt, repayments get harder.
The forecasts
The UN Economic Commission for Africa expects growth on the continent to slow to 1.8%, from an earlier estimate of 3.2%. It cites disrupted global supply chains and an oil price crash that will cost up to $65 billion in export revenues.
Brookings cut its 2020 forecast for Sub-Saharan Africa’s GDP growth to between 1.5% and 2.5%, from 3.6%. Coulibaly thinks growth will fall by one percentage point even if governments contain the virus quickly and global conditions steady. A long pandemic and a slow global recovery would mean a drop of two percentage points.
IMF Africa director Abebe Selassie and Karen Ongley, head of the IMF’s Sierra Leone office, wrote: “Across the region, growth will be hit hard. Precisely how hard is still difficult to say.” They added that the fund’s growth forecast in April’s regional outlook would be significantly lower.
Debt is the other worry. After a decade of cheap credit, many African governments borrowed heavily for infrastructure, health and education, not always on good terms. Repayments will weigh more in the new environment, and the concern is that money going to international creditors could come at the expense of fighting the outbreak at home.
