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Summary: The Covid-19 pandemic has wreaked havoc on economies all over the world. While it is unclear how long these shifts will endure, the degree of the pandemic’s severe effects on the African economy and the global economy at large will be determined in great part by how the government responds to the catastrophe. Nigeria’s overreliance on crude oil for revenue has exacerbated the economy’s impacts of the precautionary lockdown. As a result, there is a pressing need to diversify the economy to mitigate the impact of the epidemic and imminent food crisis.
In the short-term, we are already aware of the immediate changes that COVID-19 has brought to our lives. Air travel is limited, many of us have been forced to work from home, students around the world are learning online, and businesses are struggling to stay afloat.
What is less immediately clear is how these changes will continue into the future, and how COVID-19 will shape our lives permanently. To try to best predict how our lives are going to change, we can turn to history for some answers. What are some significant events in the past that have generated widespread change around the world?
Perhaps, one of the most significant events in recent living memory is the 9/11 terrorist attacks in the United States. One of the impacts from the attacks that most of us encounter in our lives on a regular basis is the changes to aviation regulations and security proceedings that were implemented after the event. Longer airport lines, stricter restrictions, and full-body scans are now the norm. Is it possible that COVID-19, which was helped along by the large numbers of flyers crisscrossing the globe every day, will bring about even stricter flying restrictions, this time with a health-focused component? Will temperature checks, health declarations, and other methods of contact-tracing become standard features of commercial air travel? This is all still speculation. However, what we know for certain is that there will be changes in how we move around the world.
Changes in the flow of goods and people will have wider impacts on the global economy. Everything is dependent on the ability to easily move things around from place to place. Our supply chains have become globalised, so one finished product depends on parts sourced from multiple countries. Much of the global labour force is mobile too: Migrants, both domestic and international, are crucial workers in most countries’ economies. In particular, industries dependent on the easy mobility of people, such as aviation, hospitality, and tourism, will be greatly impacted. Also disproportionately impacted are fields that require more up-close and personal contact with clients, such as the food service and beauty industries. Many in these fields have already lost their jobs. For those of us fortunate enough to be able to work from home, many are discovering that they are more efficient, with less time spent traveling to and from the office, and probably happier. It is possible that digital workspaces will become more accepted, even after the COVID-19 pandemic has ended.
What COVID-19 has revealed are many of the pre-existing cracks in the system that many previously chose to ignore. The current crisis has highlighted how interdependent we all are, with popular slogans such as “Together Apart” making the rounds on social media sites. This awareness of our interdependence has the potential to make people ask for more supportive social safety nets. It could change our entire labour system to be more humane, with more protection for workers, better wages, more reasonable working hours, and more security in the form of things like paid leave. The more protection workers have, the less likely they are to find themselves in impossible situations where they are out of work and can’t make basic rent payments, due to forces entirely outside of their control. However, ultimately, the ability of COVID-19 to change the global system and global economy will largely depend on how our governments and institutions respond to the crisis.
I have analysed issues of global relevance. Most of them will also apply to us in Africa. At the close of 2019, Africa’s economic growth had stabilised at 3.4 per cent and was expected to pick up to 3.9 percent in 2020 and even 4.1 per cent in 2021. The African Development Bank Group, otherwise known as Banque Africaine de Developpement, a multilateral development finance institution, which comprises three entities, The African Development Bank, the Africa Development Fund, and the Nigeria Trust Fund, also serving as a financial provider for African governments and private companies investing in the regional member countries, made positive observations about Africa’s economic direction. It stated that, for the first time in about a decade, the continent’s investments accounted for more than half of its growth and that private consumption accounted for less than one third. It, however, delivered this news with one caveat, and it is that, this growth has not been all-embracing; only about “a third of African countries achieved inclusive growth, reducing both poverty and inequality”.
At the global stage, the World Bank had more subdued opinions on Africa’s economic situation at the close of 2019. With earlier projections expected to bring about what it termed an ‘economic recovery’, this growth was later to stabilise at 2.4 per cent. With growing global headwinds, such as a deceleration of major trading activities by major trading partners, higher policy uncertainty and falling commodity prices being compounded by the domestic fragilities in several countries. In Nigeria, South Africa, and Angola, three of the continent’s largest economies, this was especially felt as growth was subdued below historical averages; contraction was recorded for a fifth consecutive year on per capita basis. Outside these big-three economies, growth also slowed in several industrial commodity export countries in 2019, resulting from weaker prices and lesser demand, which deaden activity in extractive sectors, as in Liberia, Congo and Namibia. However, new investments in oil and mining boosted activity, and countries like Ghana, Mauritania and Guinea, exporters of agricultural commodities, made gains despite mild slacks.
Despite the uneven growth indices recorded in the region, 2020 growth projection was set at 2.9 per cent, with calculated assumptions. These include: Improved investor confidence in the larger economies, increase in oil production, ease in energy bottlenecks and a continuous robust growth among agricultural commodity exporters. Growth in Nigeria was expected to increase to about 2.1 per cent, though its macroeconomic framework – with multiple exchange rates, high persistent inflation, foreign exchange restrictions and an overtaxed central bank – did little to inspire confidence. It is with such outlook that the region, and especially Nigeria, welcomed the new-year (2020).
Just as the world, and especially Africa’s economies, were settling into the new-year; before any major trade deals could be concluded and the annual quarterly reports declared, the world was hit by a globe-wide pandemic which slowed down and eventually crippled economic activities as a result of the necessitated lockdowns implemented. However, for Nigeria, an oil producing country hugely (over 90 per cent) dependent on its proceeds, things had started to take a down turn in January, even before the virus struck; global oil prices, which were at 67.21$ at the close of 2019, dropped to 63.65$ in January 2020. Just a few months prior in 2019, the Nigerian government had passed into law a budget of $35 billion, projecting a daily crude production of 2.18 million barrels at $57 per barrel. As at April, the daily crude production was at 1,777.000 barrels/day at $9.12 (at the lowest) and rising to $34.76 as at May. This has resulted in budget cuts, which are predicted to affect infrastructure investments, health and education funding and almost every sector of the Nigerian economy.
The World Bank’s latest (biannual) ‘Africa’s Pulse’ report has had to review its economic growth projection in sub-Saharan Africa from an initial 2.4 per cent in 2019 to about -2.1 per cent and -5.1 per cent in 2020, depending on the success of the measures taken to mitigate the pandemic’s effects. In other words, the region will experience its first recession in 25 years and Nigeria’s second in less than five years, given the 2017 episode. The best case scenario is where this current growth plunge is immediately followed by an equally sharp recovery, which is highly unlikely for Nigeria, given its pre-existing myriad of economic challenges, ranging from its largely mono-economy, to its infrastructural deficit, huge debt profile, dwindling foreign reserves, huge underutilized human resources (burden) and security challenges. The (immediate) future promises to be rocky.
Given that Africa and indeed Nigeria is only just experiencing its first real surge in the number of COVID-19 cases, one can safely say that the lockdown situation, which is having diverse negative effects on both the private and public sectors, is not letting up soon. The first attempt at relaxing the lockdown, which has resulted in a surge in the number of cases of infected persons, has informed a more cautious and slower re-opening of the economy. This deepens the damages being wreaked on private and public businesses thereby, extending the economic recovery period. This recovery period would be slow and marked by a lot of hardship resulting from the numerous cut back measures necessary for any comeback. With the current ‘crises’ in the oil sector, the Nigerian economy would be forced to diversify, reduce the cost of governance at all levels, which means more unemployment and greater risk of strife and unrests.
Post-COVID-19 Africa would have to brace up for the lasting effects of the pandemic. The cost of handling the crises, both monetary and otherwise, is bound to leave a huge dent, both on the national psyche, individual and corporate accounts. There is the possibility of a food crises resulting from the disruption of the farming circle, which might necessitate the greater importation of basic food items at a time when the government really cannot afford them. This may lead to more borrowing, more debts, and an even longer recovery period.
Key Recommendations: To alleviate the impact of the epidemic and impending food crisis, there is an urgent need to diversify the economy.
About the Author: Toyin Falola is a University Distinguished Teaching Professor with the University of Texas at Austin.
This article is excerpted from an address at the 2020 Annual Fela Anikulapo Kuti Lecture organized by the International Research Center On African Culture and Knowledge.
Source: Premium Times
Keywords: COVID-19, African Economy, Pandemic, Economy, Crude oil, Nigeria, Government