By Anzetse Were, Senior Economist FSD Kenya
Africa, like much of the world, is still in the throes of the COVID pandemic and related economic fallout. The pandemic has cost the continent about USD 69 billion per month and economic growth is projected to contract by 2.6% in 2020. This downturn is set to cost Africa at least $115 billion in output losses in 2020 with GDP per capita growth expected to contract by nearly 6.0 %. Additionally, the pandemic may push 40 million people into extreme poverty in 2020 across the continent, eroding at least five years of progress in fighting poverty.
Diverse sectoral impact
The sectoral impact of COVID-19 has been and will likely continue to be varied. Some sectors such as tourism, aviation and crude oil exports have been disproportionately hit in Africa, while COVID-19 is spurring certain types of digital technologies (such as mobile payments in Kenya and Rwanda), and food production in some countries has been resilient. This points to four main COVID impact-recovery sectoral performance paths (the chart is illustrative):
New winners (Γ shaped recovery): Sector performance is stable or improves during the pandemic and continues on a growth path.
Hibernate (V/W shaped recovery): The sector suffers a sharp but brief period of decline followed by a strong recovery (V); or the sector declines, recovers with a short period of growth, then falls back into decline before finally recovering (W).
Lengthy recovery (U shaped): The decline is longer than a V-shaped decline, and only slowly returns to trend growth.
Managed decline (L Shaped): The sector has a severe decline and does not return to ‘normal’ levels for many years, if ever.
To illustrate the point above, overall export performance for Kenya was deeply affected but with net positive performance. However, there are differences in value chains with flower exports on a V/W path, while vegetable exports face a lengthier U recovery trajectory:
(source: FSD Kenya)
An additional macroeconomic dynamic is substantial job loss; even as economic recovery emerges in 2021, unemployment rates will remain higher than they were pre-COVID-19. The World Bank states that one in three Kenyan workers are employed by firms facing high risk of temporary or permanent closure and reduced revenues due to COVID-19, highlighting the vulnerability in job recovery.
“In Africa only 16% of social protection and labour market measures are gender-sensitive and only 2% address unpaid care.” #DevMattersTweet
The gendered economic impact of COVID-19
Women and girls have been disproportionately impacted by COVID-19 partly because women tend to be in economic sectors and activities subject to lockdown restrictions, often with higher exposure to risk, such as trade, education, accommodation and food services, and as health and care workers. Further, in many countries, the first round of layoffs has been particularly acute in sectors such as retail, hospitality and tourism, where women are overrepresented. Additionally, women make up 3 out of 4 workers in the informal economy (excluding agricultural jobs). UN Women points out that this often leaves African women excluded from labour laws and social benefits, working for lower wages and in unsafe conditions, including risk of sexual harassment and abuse.
As a result, women are more economically vulnerable, with less capacity to absorb economic shocks than men. Women have also seen a massive increase in unpaid care and domestic responsibilities due to extended school closure and cultural norms that consider children to be the responsibility of women. Additionally, parents are getting more help from daughters than sons. UN Women also reports an increase in violence against women and girls in Africa including domestic violence, sexual violence, feminicide, sex trafficking , sexual harassment, coercion by landlords to vacate homes, denial of access to Gender Based Violence and reproductive health services, stigma, and attacks on health care workers – 70% of which are women.
Sadly, women have not been prioritised in African governments’ policy responses. The UNDP and UN Women’s COVID-19 Global Gender Response Tracker found that in Africa only 16% of social protection and labour market measures are gender-sensitive and only 2% address unpaid care. In terms of fiscal and economic measures to help businesses weather the crisis, only 19% are aimed at strengthening women’s economic security by channelling resources to feminised sectors.
What this means for 2021
These varied sectoral and gendered impacts, in addition to the limited resources available for public interventions, will drive economic dualism and deeper income divergence in Africa in two main ways. First, there will be inter-country differences that depend on the country’s economic structure and sectoral exposure to the pandemic; this will lead to slower GDP growth recovery in some countries. Second, there will be intra-country differences in recovery informed by the main sectors from which individuals, households and firms generate income.
“The varied sectoral impact presents African governments with the opportunity to restructure their economies including deepening industrialisation.” #DevMattersTweet
The broad trajectories of deeper income divergence will translate to a thinning layer of upper and upper-middle income Africans (able to retain jobs and business activity), juxtaposed with an increasingly vulnerable swathe at the bottom of the income pyramid, particularly women. The loss of jobs, especially in the formal sector will translate into more informalisation of income earning activities. Additionally, the gendered impact means that women will not be as economically empowered and productive as they were previously, if focused attention is not directed to them. Directing policy action to feminised sectors, as well targeting females in cash transfer programmes for example, will inform the ability of government and non-state players to offer real economic options and lifelines for women.
Moreover, particular effort ought to be deployed to understand the informal economy and data should be disaggregated by gender, sector, and geographical region. Investing in better data capabilities will not only support the targeting of COVID responses but will address the data ‘blackhole’ that disincentivises investment into Africa in general. The risk is that due to the limited fiscal space of many African governments, this will not be seen as a priority spend. Thus, development partners can play a crucial role here in 2021.
The varied sectoral impact also presents African governments with the opportunity to restructure their economies including deepening industrialisation. COVID has highlighted weaknesses in Africa’s manufacturing capabilities particularly in pharmaceuticals and medical supplies. The OECD Development Centre points to practical strategies Africa can deploy to build this manufacturing capacity by facilitating effective industrial reconversions, scaling-up successful experiments and leveraging regional industrial hubs.
Finally, the promise of digitisation in the context of COVID-19 has been highlighted, but there is already emerging evidence of divergence in digital use. For example, internet usage during COVID is strongly correlated with income level in Kenya and Uganda where significant increases in internet usage is reported in higher income groups, but lower income groups are more likely to reduce usage due to economic constraints. Thus, there are three factors that will inform the ability of all Africans to leverage digital opportunities: 1) access to digital tools at firm, household and individual levels; 2) financial inequality which informs digital participation; and 3) levels of digital skills. These three factors will inform income and economic inequality and the uneven accrual of benefits along a spectrum of digital access, capabilities, and financial bandwidth. As the recently launched Africa’s Development Dynamics 2021: Digital Transformation for Quality Jobs points out, to trigger large-scale job creation, policies need to bring digital solutions to the non-digital economy. These factors must be taken into consideration when crafting COVID-related solutions, responses and interventions using digital channels in 2021.