The disruptions caused by the COVID-19 pandemic pushed an estimated 55 million Africans into extreme poverty in 2020 and reversed more than two decades of progress in poverty reduction on the continent.
This is according to the Economic Report on Africa 2021(ERA2021) launched on the margins of the Economic Commission for Africa’s annual Conference of Ministers of Finance, Economic Planning and Development (CoM2022) in Dakar, Senegal.
Titled: “Addressing Poverty and Vulnerability in Africa during the COVID-19 Pandemic”, the report shows that pandemic has caused job losses, reduced income and further limited the ability of households to manage risks. An estimated 12.6 per cent more people are likely to be pushed into poverty in one year alone more than the combined total of the additional poor since 1999.
Furthermore poor households move into and out of poverty because of exogenous shocks like the COVID-19 pandemic and that their inability to manage uninsured risks only increases their vulnerability. So, achieving sustained poverty reduction requires thoroughly understanding the nexus of poverty, risks and vulnerability.
“Under current projections, the pandemic is likely to increase the number of people living in extreme poverty, in Africa and globally,” says the report.
The report was produced by ECA’s Strategic Planning, Oversight and Results Division; the Gender, Poverty and Social Policy Division; and the Macroeconomic and Governance Division.
Hanan Morsy, ECA’s Deputy Executive Secretary said the report analyses the implication of COVID-19 in terms of poverty, but brings a new dimension stressing the vulnerability in Africa. It brings the element of people centric analysis of what has been happening during COVID-19 and what we need to do to ensure that the vulnerable population are protected in terms of social safety net and putting up the right policies.
“This report is particularly relevant given to what we have seen as the implications on the continent. The most critical implication of COVID-19 has been the reversal of the very hard-won gains that the continent had managed to achieve in reducing poverty,” said Morsy.
While presenting the key findings of the report, Adrian Gauci, an Economic Affairs Officerat ECA said African countries responded to the poverty effects of the COVID-19 pandemic in part through expansionary fiscal and monetary policies to maintain consumption and aggregate demand and prevent firm closures and job losses.
“A major contribution of the report is the emphasis on the centrality of risk and vulnerability to shocks in the design of poverty reduction strategies in Africa,” said Gauci.
“The report calls for an urgent need to explore innovative and affordable market-led insurance schemes which can insure the poor from future shocks. Collaboration of governments with the private sector is paramount.”
The African Continental Free Trade Area (AfCFTA), the report says is an opportunity to build forward better Most African countries still depend on exports of raw materials and on imports of essential goods such as food items and pharmaceuticals.
“If AfCFTA is effectively implemented, intra-Africa trade is expected to be about 35 per cent higher than without the grouping by 2045,” says the report
“The AfCFTA would help Africa industrialize and diversify, reducing trade dependence on external partners and boosting the share of intra-Africa trade from roughly 15 per cent today to over 26 per cent.”
The key highlights of the report are on the economic trends, monetary policy performance, exchange rate, fiscal deficit and external debt and Africa’s trade trends.
Economic Trends
The COVID-19 pandemic has heavily disrupted the movement of people, goods, services and capital, and its impacts led Africa’s GDP to contract by an estimated 3.2 per cent in 2020. The pandemic is expected to weigh further on already slow economic growth.
Monetary policy performance
In 2018 and 2019, before the COVID-19 pandemic, most African countries had accommodative monetary policy as inflation remained stable or declined
Exchange rate performance
In 2019, many African countries experienced exchange rate volatility as their currencies depreciated, mainly on trade-related uncertainties and capital outflows, as well as country-specific factors such as widening fiscal deficits, declining foreign exchange reserves and lower capital inflows.
Rising fiscal deficits and external debt
Africa’s fiscal deficit narrowed from 5.3 per cent of GDP in 2017 to 3.0 per cent in 2019, mainly because of government fiscal consolidation efforts.
Africa’s trade trends
The share of global exports decreased from 2010 to 2019 in Africa but increased in other global regions. The continent’s share fell from 2.48 per cent in 2019 to 2.14 per cent in 2020, though Asia and Europe were resilient, owing partly to continued supplies of consumer goods and medical goods during the COVID-19 pandemic
The report recommends that African governments should adopt targeted social protection; provide short-term social assistance to the most vulnerable people; ensure health protection for all.
Over the longer term, African countries need to build resilience by investing in health protection for all, which also offers high potential for employment creation; Build a national and regional health emergency preparedness and response system for future pandemics; Build domestic capacity for vaccine production through initiatives such as the Partnerships for African Vaccine Manufacturing; Leverage the African Continental Free Trade Area and other Africa-wide initiatives to create decent jobs and reduce poverty.
Pandemic increased poverty in Africa
Dashen beer completes Debre Berhan, Gondar expansion
Dashen Beer S.C. announces its completion of the expansion of its factories in Debre Berhan and Gondar at a cost of over 1.7 billion birr. Dashen Brewery’s expansion is said to significantly increase its production capacity,
Inaugurated on Sunday May 8, 2022 with the presence of high government officials including Deputy Prime Minister Demeke Mekonnen, the expansion on Debre Berhan brewery, will increase its annual production capacity to 3.2 million hectoliters from 2 million hectoliters.
Similarly, the expansion in its Gonder factory will increase its production capacity from 800,000 hectares to 1.2 million hectoliters.
Overall, Dashen Brewery’s expansion will increase its annual production capacity to 4.4 million hectoliters. The new expansion will also help the factory add new products and create more jobs in both factories.
According to Dashen Brewery, this expansion will allow the barley, the main raw material for brewing, to be imported in large quantities from local producers.
Dashen Brewery has been in operation for 20 years, building its first factory in Gondar.
The dice is loaded against Africa: Ministers call for reform
African economy, finance and planning ministers, businesses and economists attending a conference in Dakar, Senegal, have made an impassioned case for a complete overhaul of the global financial architecture.
The Conference of Ministers (CoM2022) – organized by the United Nations Economic Commission for Africa (ECA) and hosted by the government of Senegal – heard from economists and executives who argued that these global arrangements, ostensibly meant to maintain stability in the international financial system, were outdated and unfair to many developing countries.
In Africa, they are “not fit for purpose,” said Vera Songwe, UN Under-Secretary General and Executive Secretary of UN Economic Commission for Africa.
Giving the keynote speech at CoM2022, President Macky Sall of Senegal, said Africa was being dictated to although it had over a decade of good growth, only suffering a reversal, like the rest of the world, because of the coronavirus pandemic.
Funds are loaned to African countries at a higher rate of interest than other comparable countries and their credit-worthiness hinges on the decisions of opaque credit ratings agencies. “Sometimes we feel sad,” President Sall said. “We ask ourselves: what can we do, where do we stand, what is our place?” He said African countries had asked for a re-allocation of Special Drawing Rights (SDRs) but “they said they couldn’t re-allocate. So we now have to ask for new ones…They talk about deficits and debt ratios while we need money like Covid patient needs oxygen.” Extending the analogy, the President said “and then they say they don’t have the instruments” like a patient denied oxygen because the instruments to administer it aren’t available.
There was consensus among participants at CoM2022, including Michael Camdessus, the former managing director of the IMF, that fundamental change was required. Mr. Camdessus said reform of the global financial architecture was “crucial for Africa. We cannot be paralyzed by the texts of our statutes.”
Concluding CoM2022, ministers said their targets for the 2030 Agenda for Sustainable Development as well as Agenda 2063 had suffered “significant setbacks”.
African countries’ annual expenditures just to meet the Sustainable Development Goals (SDGs) are expected to rise by $154 billion because of the pandemic. An additional $285 billion will be needed for the next five years to ensure an adequate response to COVID-19. Ministers attending CoM2022 pointed out that the continent also needed between $130 billion and $170 billion annually for infrastructure projects and about $66 billion a year to invest in health systems and health infrastructure.
Apart from the pandemic, economic recovery is being hampered by rising food, oil and fertilizer prices caused by the war in Ukraine. 29 African countries are expected to face a severe food crisis.
To add to these needs, over $3 trillion is required by 2030 to address the challenges of climate change. And with 640 million Africans lacking access to electricity, they said energy infrastructure was urgently required.
In a communiqué issued at the end of the conference, the 26 ministers acknowledged that bilateral and multilateral support had been forthcoming during the pandemic. But they argued it was “grossly inadequate” for lower-income countries and too narrowly targeted to help vulnerable middle-income ones.
They urged G20 countries to extend the Debt Service Suspension Initiative (DSSI) for two more years to help “create fiscal space for urgent spending”. They also asked for the Common Framework to be modified to make debt restructuring effective and broad-based to include commercial creditors.
A key demand was that developed countries support the recycling of $100bn in Special Drawing Rights (SDRs), of which they said $60 billion should be allocated to the Poverty Reduction and Growth Trust (PRGT) and to the new Resilience and Sustainability Trust (RST).
In addition, they asked for new SDRs and drew attention to the ECA’s Liquidity and Sustainability Fund (LSF), which they said should be established to allow African countries to use SDRs to improve liquidity, stabilize currencies and reduce the costs of credit.
CoM2022 questioned the surcharges imposed by the IMF on countries with large borrowings, which they pay in addition to interest payments and fees. Ministers said these are estimated to be in the range of $4bn for African countries this year alone and have asked the IMF to waive them for another 2 to 3 years during the war in Ukraine. In addition, they urged the IMF to use its Catastrophe Containment and Relief Trust (CCRT) to offer debt service relief to poor countries.
There was an admission from ministers present that the continent simply loses vast amounts of domestic funds. The communiqué said ministers were “deeply troubled” by illicit financial flows (IFFS). An estimated $83billion is siphoned out of Africa, denying the continent desperately needed resources that it could have used “for the people”. It also acknowledged that Africa had underdeveloped capital markets, “due in part to a large informal sector, low saving rates and weak regulatory and governance regimes”.
But, ministers said, they were very disappointed that there continues to be an “African premium”, which ranges from 100 to 260 basis points, for funds raised in external capital markets. “Interest rates charged to our countries are higher than those charged to our peers outside our continent with similar or worse economic fundamentals,” the communiqué said. With central banks in advanced economies raising their interest rates to restrain rising inflationary expectations, these costs would rise further.
Among the demands made by African ministers to ease liquidity issues, was the on-lending of SDRs – where countries which don’t need them can loan them on to those which do. The ministers commended China for its decision to pass them on and urged other bilateral donors to follow suit. “The on-lending of $100 billion in SDRs to Africa would be a cost-effective means of financing the continent’s recovery,” they said.
On the subject of sustainable and climate financing, ministers commended the ECA and the Pacific Investment Management Company for launching the Liquidity and Sustainability Facility (LSF), which would allow African countries to attract investments in sustainability-themed-financial products, including green bonds. They also said African countries should be compensated for the efforts they put in safeguarding some of the planet’s most important carbon sequestration assets.
The ministers said multilateral and regional development banks should make climate finance more readily available, so that they could “adapt and mitigate against the growing impacts of climate change” and fund green projects. Development partners were urged to replenish the African Development Fund (ADF), and to support recapitalising PDBs among other measures, to address a looming crisis due to the Russia-Ukraine conflict.
For their part, the African ministers gathered in Dakar made a commitment to increase their efforts to mobilize domestic resources and “implement policies that create an enabling environment” to attract the private sector and institutional investors They said resources would be directed towards priority areas, including infrastructure, health, education and climate change, including renewable energy to reduce dependence on foreign oil and gas. Oil-exporting African countries were urged to use the windfall caused by the Ukraine crisis to support economic recovery.
Noting that full implementation of the African Continental Free Trade Area (AfCFTA) would boost Africa’s GDP by an estimated $55billion by 2045, ministers said countries which had ratified the agreement should mainstream it and those that had not should do so. They also promised to strengthen their efforts to implement a “comprehensive and unambiguous tax policy” and improve capacity in combating tax-motivated illicit financial flows (IFFs). The ECA was requested to continue to provide its assistance in designing tax policies and their implementation.
The ministers’ statement commended the African Export-Import Bank (Afrexim Bank) for launching the Pan-African Payments and Settlement System to support the operationalization of the African Continental Free Trade Area (AfCFTA), “enabling instant, cross-border payments in local currencies between markets on the continent” at low cost and “reducing the dependence on hard currencies”.
The Economic Commission for Africa was praised for successfully implementing its work programme for 2021 despite the challenges of the COVID-19 pandemic and was requested to assist countries to respond to the impact of the Ukraine conflict and help them prepare for the next global climate summit, COP27.
COP27, “Africa’s COP”, will be held in Egypt from 7th – 18th November 2022.
