As the coronavirus outbreak continues to spread and escalate the potential global economic impact is becoming clearer. China’s extensive industry shutdown over the course of many weeks led to the loss of millions of jobs. In Italy — where we recently wrote about The Political and Economic Impact of COVID-19 — roughly €10 billion (US$11,355 million) was allocated for relief but that was before the scale of the crisis there multiplied significantly. The US government’s relief package may eventually exceed US$2,000 billion. It is becoming apparent that the virus could represent an unprecedented shock to the global economy.
We are, however, hearing less about the economic struggle facing Africa. It is too soon to make any conclusive observations about how the African economies will be affected but we can identify certain concerns to monitor.
Impact on trade
Africa has not yet seen as dramatic a spread of the COVID-19 coronavirus as elsewhere. Unfortunately however, it is likely to experience harsh economic effects in some of the most affected countries. The BBC recently broke down the effects on the broader African economy quite succinctly and noted the numerous potential problems.
Africa’s trade relations were highlighted. It has enormous trade links with China which is currently not producing or selling goods as reliably. Consumer spending in Africa could fall with a resulting economic slowdown. Similarly, demand for Africa’s main exports — oil and gas, minerals, coffee and other agricultural products, etc. — has fallen in its main markets which are currently effectively shut down.
It is therefore reasonable to expect that the overarching short-term effects on the African economy to be grim.
Outlook for SMEs
African SMEs are disproportionately important and are crucial to future economic development. They are likely to struggle because of the factors noted above with, for example, a slowdown in spending hurting small businesses. Furthermore, if there are severe outbreaks of COVID-19, the need to practice social distancing and self-quarantining would also harm SMEs.
The may be a glimmer of hope for some SMEs because many African businesses are equipped to handle the kinds of mobile payments and remote business that other companies may turn to amidst social distancing. This is particularly the case in Sub-Saharan Africa where Quartz estimates that 45.6% of global mobile money activity takes place. If people are more comfortable with digital payments they will require less contact to conduct transactions. It won’t save all SMEs — and safety from the coronavirus should remain the top priority — but in cases in which mobile payments can responsibly be made, this may be a factor worth considering.
There is less mobile money activity in North Africa but the change to these types of payments is simple and, while sub-Saharan providers are less active, there are also plenty of European options. For businesses operating online, eCommerce applications are easy to build into web platforms. For in-person businesses, FIS Global and others provide portable card machines that are now available to SME owners, and can support contactless payments. If mobile transactions help SMEs to maintain activity in the continent other parts of Africa could follow suit.
Taking proper health precautions are essential but the ability of many African SMEs to support mobile transactions could help limit the economic consequences.
Tourism sector is declining
International tourism is one of the biggest factors to consider. The BBC noted that 10% of all African jobs are related to the tourism industry. African Business examined African tourism and claimed that it accounted for 8.1% of the continent’s GDP in 2018, and is faster growing than anywhere except the Asia-Pacific region.
It is currently too early to calculate early to estimate how much these numbers might decline or what the ultimate effect might be. Global tourism is, however, going to decline drastically in 2020 with many countries already having implemented draconian restrictions to help slow the spread of the virus. The scale of the resultant economic impact on income and jobs will be enormous.
Therefore, while we are all obviously primarily concerned with the impact on our own families and countries, the impact on Africa should not be forgotten.