The impact of coronavirus on Sub-Saharan Africa

By Simi Siwisa, Absa Group Head of Public Policy


This blog is part of a series on tackling COVID-19 in developing countries. Visit the OECD dedicated page to access the OECD’s data, analysis and recommendations on the health, economic, financial and societal impacts of COVID-19 worldwide.


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Lagos, Nigeria – First Gate Market during the lockdown in response to the Coronavirus Pandemic, April 2020. Photo: Shutterstock

The IMF anticipates that the “Great Lockdown” will have a more devastating impact on the global economy than the Global Financial Crisis. For the African continent, it is forecasting “an unprecedented threat to Africa’s development with a decline projected at “1.6% in 2020, and real per capita income to fall by even more – 3.9% on average.” This is because many African economies are disproportionally affected by sudden stops in the global economy. A collapse in global demand and supply has resulted in a sharp decline in key commodity prices and export volumes. Related to this, flight to safety has resulted in tighter financial conditions with more than $4.2 billion outflows from African countries since February 2020. Less optimistic, the World Bank forecasts that Sub-Saharan Africa will “contract 2.1% to 5.1% from growth of 2.4% last year, costing the region $37 billion to $79 billion in output losses’. Under any scenario, the outlook for Sub-Saharan Africa remains bleak, and urgent interventions are required to prevent unmitigated health, social, economic and political crises. Debt relief is an important component of the crisis-response package. As David Pilling put it in the Financial Times, debt relief to Africa is in the self-interest of the rest of the world. However, for these efforts to work and not sow the seeds of future financial problems, the lessons from past debt relief initiatives and the changed nature of Africa’s debt must be taken into account.

The coronavirus landed in Sub-Saharan Africa when countries were already facing constrained sovereign balance sheets, with many countries facing challenges in meeting their debt obligations. As early as 2019, the IMF had raised concerns about debt dynamics in selected African countries.  During this period, the concern was that rapid debt accumulation, from various bilateral, multilateral and private creditors had resulted in 40% of African countries being classified as being in debt distress or at high risk of debt distress using the IMF/World Bank debt sustainability analysis framework. Further, significant governance failures in some economies meant that debt was not invested in productive capacity to stimulate economic growth and dynamism which would have fostered higher economic growth. Related to the latter, questions have also risen on the risks of publicly guaranteed debt of State-Owned Enterprises.

It is thus unsurprising that Sub-Saharan African countries face significant difficulties to implement counter-coronavirus strategies. In this context, the G20 correctly states that all available policy tools must be used to address the health, social and economic costs of the virus.  However, it seems that almost all countries in the region lack the arsenal to successfully fund their health budgets, protect vulnerable communities and businesses and bolster their respective economies.

In Southern Africa, the slowest growing region in Sub-Saharan Africa in 2019, governments have implemented strict measures to contain the spread of the virus. South Africa, the anchor economy, implemented a strict lockdown regime which initially lasted 21 days, and has been postponed by a further two weeks. Also, stringent travel restrictions that have since been replicated in neighboring countries have slowed down the infection rates and bought government time to develop a comprehensive public health response.

Despite this, available evidence suggests that like developed countries, the public health system will be overwhelmed by the full impact of the coronavirus. The South African government has battled to implement a comprehensive social relief program to cover millions of informal workers. Measures to support small businesses, though helpful are not adequate given the scale of the crisis. Fortunately, the monetary policy measures have provided much-needed liquidity and support to the financial sectors. Measures have included a temporal reduction in capital requirements and various debt relief interventions to support the economy.

South Africa’s President Cyril Ramaphosa unveiled fiscal spending worth a tenth of the country’s output, estimated at about $26 Billion. This was achieved by reprioritization of existing budgets, using funds available from the Unemployment Insurance Fund (UIF), tax instruments, and additional borrowing from multilateral institutions including the IMF, World Bank, African Development Bank and the New Development Bank.

The stimulus package is structured to direct budgets towards healthcare and securing PPE for healthcare workers, support vulnerable communities, and includes coronavirus social grants for the unemployed, additional increases to child grants, and old age pensioners. South Africa has introduced a nationwide basic income grant. This should alleviate social pressures as the nationwide shutdown has reduced household incomes, and pushed vulnerable communities into even more risk. There is more support provided for SMMEs with the introduction of a loan guarantee scheme backed by the government and to be executed by banks. South Africa has managed to use available fiscal resources to respond to the corona related crisis. What is clear is that smaller economies will have a much more limited fiscal space to respond to the crisis and this presents new challenges for the region and development partners.

If there is one lesson that must be learned from the pandemic, is that countries are interconnected and therefore there is a need for a coordinated global partnership to support the most vulnerable countries in dealing with a crisis. The externalities are borne by all of us, and in 2020 those can be transmitted to almost every corner of the universe.

The G20 has done well in providing leadership for a comprehensive and coordinated response to support emerging economies to develop the necessary fiscal responses to the crisis. However, the speed with which interventions can be implemented remains a challenge. Some developing countries remain underprepared for the full impact of the crisis. Besides, most measures appear not to address the real risk of prolonged coronavirus related crises.  This must be addressed. The post COVID-19 environment might threaten decades of progress against underdevelopment in Sub-Saharan Africa.

Recent proposals on a comprehensive debt relief programme as broadly proposed and supported by the G20, G7, Paris Club, African Union and other prominent commentators are welcome. However, the design and implementation of the debt relief initiative should not lay the foundation for Africa’s next debt crisis. Related to this, all proposals should be carefully managed so as not to create a disincentive for the development of African capital markets and the stability of African banks and the broader financial sector. First, the current proposals for a moratorium on debt service payment seem to fall short of the resources needed to tackle the pandemic and restore growth. More ambition is needed, including and beyond debt relief. The resources freed by debt relief are a one-shot intervention and cannot replace efforts at building fiscal space – through more effective taxation and access to capital markets.

Second, any debt relief initiative must be undertaken in ways that will not undermine African governments’ access to capital markets in the future. Since 2016 several African countries have been issuing Eurobonds and private creditors account now for a sizeable share of African sovereign debt today. Engaging them in transparent discussions about debt restructuring is crucial.

Third, urgent focus is required to increase African governments’ capacity to respond to the crisis and rebuild. Whilst mobilizing resources is critical, the ability to deploy those resources optimally will determine how the continent emerges from this crisis. Improved quality of public expenditure – including those funded through loans – in development-enhancing areas is good for growth and good for debt sustainability.

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