December 2, 2020

Edu Pulse Magazine

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Coronavirus and its Unexpected Effect on Trade in Africa

Coronavirus and its Unexpected Effect on Trade in Africa

The effects of the coronavirus may be felt for more extended periods than envisaged. During the early days, most people were focusing on the health effects of the virus, but now people are more concerned about the economic hazards posed by the pandemic. This has been the realization by most countries as they somewhat relax lockdown measures against the backdrop of incapacitating effects on economies caused by the coronavirus containment measures.

The strict measures implemented by governments to ensure the health and safety of their countries through lockdowns and the task to ensure flexible economies during the pandemic has been daunting if not impossible as evidenced by most economies that have crumbled globally. The World Bank estimates that by the end of 2020 over 25 million people in the sub-Saharan region will be pushed to extreme poverty and economic growth will decline from 2.4% in 2019 to between -2.1% and -5.1% in 2020, depending on the success of measures taken to mitigate the pandemic’s effects. This means that the region will experience its first recession in 25 years.

The decline is mainly due to massive contractions in South Africa, Nigeria, and Angola driven by their dependence on exports of commodities whose prices have crashed as well as other structural issues. This will undoubtedly affect Africa’s participation in trade and value chains as well as reduce foreign financing flows. Given the limited regional market, trade with the rest of the world is vital for Africa. Prior the pandemic, Africa’s trade with the rest of the world has been showing good momentum. 

Regardless of numerous borders in Africa, the movement of goods across borders has been significantly restricted with costs to move the essential goods and foodstuffs hitting the roof despite reduced rates of import duties. In East Africa, the cost of moving cargo between Mombasa and Kampala went up by 50 per cent. In contrast, the time to move the cargo doubled as drivers were restricted to deliver the cargo at the final destination amid coronavirus concerns.

The SADC region is no exception as long delays at the borders results in astronomic demurrage costs on the average cargo moved across borders. These problems have been there before the onset of the coronavirus; the pandemic just worsened the already bad situation. This has brought under the spotlight the plight of landlocked countries like Zimbabwe and Zambia to mention a few.

These effects are not only being felt on continental Africa only as small island developing states have experienced the impact of regional trade routes as well. These restricted trade corridors, limited supplies chains compounded by countries’ lockdowns have disrupted most large businesses with effects that have dropped further down to the micro small and medium enterprises.

Crisis brings opportunity. There are several things that Africa can do to mitigate the effects of the pandemic on economies. Firstly, it is time for Africa to embrace the digital age and adopt more and more digital technologies for both production and services. The sectors with a high level of digitization seem to weather the storm much better. In doing so, it needs to strengthen its education system, especially the training and learning related to digital skills.

Secondly, Africa must strengthen and promote intra-regional trade. This includes harmonizing trade regulation, customs controls, and reduce both tariff and non-tariff barriers, and meanwhile, improve the infrastructures and connectivity to lower the logistics cost. This is in-line with realizing the African Continental Free Trade Area (AfCFTA) idea.

Thirdly, most African economies are agro-based economies, and the pandemic has emphasized the importance of food and health sectors. Now it is the time for Africa to fully utilize its abundant agricultural resources and improve its agro-processing capacity. However, in the health sector, significant improvement is required, and Africa needs the aid of development partners.

Lastly, there is a need for Africa to engage in more international trade agreements to boost the export sector. Africa must pursue more favourable treaties with other major economies, including India, Japan, China and other such markets.  

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