The United Nations warned that the devastating socio-economic impact of the COVID-19 pandemic will be felt for years to come unless smart investments in economic, societal and climate resilience ensure a robust and sustainable recovery of the global economy.
In 2020, the world economy shrank by 4.3 per cent, over two and half times more than during the global crisis of 2009. The modest recovery of 4.7 per cent expected in 2021 would barely offset the losses of 2020, says the latest World Economic Situation and Prospects.
Developed economies, projected to see a 4 per cent output growth in 2021, shrank the most, by 5.6 per cent, due to economic shutdowns and subsequent waves of the pandemic, increasing the risk of premature austerity measures that would only derail recovery efforts globally. Developing countries saw a less severe contraction at 2.5 per cent, with an expected rebound of 5.6 per cent in 2021, according to the estimates presented in the report. However, economic contraction among developing nations, falling exports and local consumption rates as well as high levels of public debt will significantly increase poverty levels, says the report.
African countries are experiencing an unprecedented economic downturn with major adverse impacts on development. Lower commodity prices, the collapse of tourism and lower remittances – exacerbated by much-needed domestic lockdowns and other measures to control the spread of the pandemic – have caused a severe and widespread deterioration of the economic situation. Limited fiscal space, challenging financing conditions and rising public debt have increased the risks of debt distress.
“We are facing the worst health and economic crisis in 90 years. As we mourn the growing death toll, we must remember that the choices we make now will determine our collective future,” said UN Secretary-General António Guterres, who will address the Davos Agenda event later today. “Let’s invest in an inclusive and sustainable future driven by smart policies, impactful investments, and a strong and effective multilateral system that places people at the heart of all socio-economic efforts.”
The report underscores that sustained recovery from the pandemic will depend not only on the size of the stimulus measures, and the quick rollout of vaccines, but also on the quality and efficacy of these measures to build resilience against future shocks.
An unprecedented downturn with major consequences for development in Africa
Despite the relatively few number of cases compared to the number of cases in other continents, the COVID-19 pandemic will continue to strongly impact living conditions and development progress in Africa. The crisis is already increasing unemployment, poverty and inequality. Most countries are facing enormous challenges to keep the pandemic under control and mobilize financial resources to support health systems, protect vulnerable groups, and support the recovery.
After a contraction of 3.4 per cent in 2020, Africa is projected to achieve a modest recovery, with regional GDP expanding by 3.4 per cent in 2021. This recovery is predicated on the rise of domestic demand and the pick-up of exports and commodity prices.
Nigeria’s GDP is projected to expand by 1.5 per cent in 2021, after a contraction of 3.5 per cent in 2020. Yet, tighter foreign exchange liquidity, mounting inflationary pressures and subdued domestic demand cloud the medium-term outlook. In South Africa, GDP is projected to expand by 3.3 per cent in 2021, after a contraction of 7.7 per cent in 2020. However, a strong and sustained recovery remains uncertain, amid power shortages, elevated public debt and policy challenges.
Egypt’s GDP is estimated to have grown by 0.2 per cent in 2020; and in 2021, GDP growth is projected to climb to 5.4 per cent, underpinned by a strong recovery of domestic demand and facilitated by the absence of severe balance-of-payments constraints. After a contraction of 0.5 per cent in 2020, the Ethiopian economy is projected to expand by only 2.3 per cent in 2021. While agricultural exports are showing resilience, the tourism sector will remain restrained throughout 2021.
External financing and high debt levels pose major risks
Elevated public debt is limiting the capacity to boost spending across the continent. Also, meagre growth prospects mean less capacity to sustain debt levels, as foreign reserves, remittances and capital flows falter and depreciations constrain the capacity to service foreign currency-denominated debt. African countries need further support from the international community and strong national efforts in averting a debt crisis. A debt crisis would not just cause a further economic deterioration, but also force painful fiscal adjustments. Against such a backdrop, social unrest and political tensions may easily escalate, which could in turn worsen food insecurity, violence, internal displacement and migration pressures.
A strong and sustained recovery requires decisive policy actions
Africa needs a sustained revival of growth. While a focus on the short term is essential, African countries need to lay the groundwork for a strong and inclusive development path in the medium term, which entail the creation of decent jobs at a large scale.
“As countries will emerge from the crisis with higher levels of debt, a careful rebalancing of policy priorities will be required to build resilience and boost productivity,” said Hamid Rashid, Chief of the Global Economic Monitoring Branch at the UN Department of Economic and Social Affairs, and the lead author of the report. “This includes unlocking growth opportunities and accelerating technology adoption and bridging digital divides, enhancing climate resilience and boosting domestic revenue mobilization.”
The report highlights the need for African countries to prioritize the diffusion of digital technologies, supported by the expansion of affordable and universal digital infrastructure. An effective framework for the implementation of the African Continental Free Trade Area could also become a major tool for promoting intra-African trade, food security and productivity.
Severe economic downturn is undermining development prospects in Africa
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Ethiopia’s port ownership to be answered in the 10 year transport plan
Ministry of Transport (MoT) expressed that ownership and management of seaport will be determined by the ten year transport plan.
The transport sector development in general is expected to consume 3.2 trillion birr or USD 75 billion in the coming decade, while the sector that is mostly preserved for public and domestic investors will expand its playground to foreign investors in different schemes.
Dagmawit Moges, Minister of Transport, said that the transport sector has six strategies, 22 sub strategies goals and 98 interventions in the logistics sector.
One of the interventions is looking into the port usage of the country. “Under the initiative we may have a program that shall be turned to become a project,” she said.
For the implantation of the strategy, the Council of Ministers’ have formed a National Logistics Council that is chaired by MoT and includes Minister of Trade and Industry, Ministry of Revenue, Ministry of Agriculture, Ministry of Finance, National Bank of Ethiopia, Customs Commission, Investment Commission and representative of the private sector logistics actors.
The one commitment area of the Council that commences its work this budget year is looking at an alternative port service and increase the overall logistics efficiency.
“On its first six months evaluation, it has underscored that relatively undertaking some sort of activity regarding to the port issue and using alternative hubs,” she says, “For instance in the past, 99 percent of port service was covered by ports around the city of Djibouti but that has declined to 92 percent since we are using Berbera and Port Sudan in addition to the new facility of Port of Tadjourah.”
She added that there are several interventions which will be included in the logistics strategy including management of port.
Dagmawit told Capital that the management of port will also be answered in the coming year, “While it is determined by detailed studies.”
On his first foreign trip when he became a Prime Minister, Abiy Ahmed, paid a visit to Djibouti. In relation to his trip, a joint port and other logistics development had been mentioned between the logistics partner country. It has also been expressed of Ethiopia’s interests to developing and owning ports in other neighboring countries like Sudan and Kenya.
“Investments in regional countries will be determined by different agreements that Ethiopia will forge forward with other countries. It will also need several discussions, negotiations and agreements to come up to an end,” the Transport Minister said.
MoT has disclosed that the ten year development plan on the transport sector, which is crucial for other economic development as well.
The transport sector development has included diversified sub sectors in different investment. To attain the goals, government under its transport sector policy revision has decided to open up the highly closed logistics and other transport sub-sector in different schemes including; joint venture, public private partnership and full investment.
The required investment for the development is 3.2 trillion birr for the coming ten years.
From the 3.2 trillion birr, 69.55 billion birr will be covered by the money collected from the service provided by the sector and the rest will be financed by the government budget, which is about 2.2 trillion birr, loans of 582 billion birr and foreign aids of 164.5 billion birr.
The intervention of the private sector including foreign investors has also been considered as a major source of investment in the sector.
To attain the objective MoT has hosted the first transport sector investment summit that was held for three days from Wednesday March 24.
So far at the summit, government has availed 44 projects in five transport sub sector like aviation, logistics, railway, and infrastructure like toll road and transport service.
Dagmawit said that some of the selected projects have got detailed studies, some of them are partly concluded and others are in preliminary and early stages.
On the summit that gathered different big and significant global players, the projects and future approaches have been discussed as highlighted:
Multimodal
Since the amalgamation of four public enterprises in to Ethiopian Shipping and Logistics Service Enterprise, about 11 years ago, the government had introduced the multimodal scheme on the aim to improve the logistics sector, which was criticized as one of the major challenges for the economic activity in the country.
However, the scheme is solely given to the enterprise that became controversial as the private sector claimed in different occasion.
Even though the logistics and transport sector has been referred to as ‘opened for local investors’ the government had been the dominant player.
Since the reform was introduced, about three years ago, the former ruling party’s higher body that included senior leadership of TPLF had decided on the opening up of different sectors including the logistics sector. As per the decision, the government had announced that it will sale shares on Ethiopian Shipping and Logistics Service Enterprise and allow foreign investors to invest up to 49 percent share on the logistics business which was followed by the coming of some foreign companies which took shares on some private freight forwarding companies.
However, the real change has not yet been fully fulfilled.
On her latest press conference, Dagmawit said that the controversial monopoly on multimodal will be opened for limited private actors.
She said that the national council has decided to open the multimodal sector for not more than five companies as per the detail study that was tabled for the council.
She added that the criteria that were supposed to be fulfilled by new entrants have been discussed on first round at the council, “In the coming meeting we expect that the council will give final decision on the criteria and will call companies.”
However, experts on the sector have still criticized the new decision. One of those is Salahadin Khalifa, Vice Chairperson of Region Africa and Middle East of International Federation of Freight Forwarders Associations (FIATA) and former president of Ethiopian Freight Forwarders and Shipping Agents Association (EFFSAA).
He argued that the government is still looking at the sector very sensitively, “It was better to open the sector for everybody than limiting it to only five investors.”
“Because the interest to invest on the area is very high, we are lagging on the logistics and transport sector compared with other countries around the globe which costs the society. So to improve that, players’ number should be expanded,” he recommended expressing why the government should decide to open the sector.
“As per the science, the multimodal operation shall be handled in a single office, while in the Ethiopian context there are unnecessary criteria like ownership of vessel, ownership of dry port and trucks, which is unnecessary compared with the trend in the global experience,” he elaborated.
According to Salahadin, head and owner of Samatra Logistics and Shipping PLC, one of the biggest logistics companies in the country, the multimodal operation is all about coordinating different logistics and transport activities and reduce the logistics sector cost that contributes for the inflation.
“Efficiency will be real if the sector was opened without restrictions giving allowance to competitive business,” he argued.
Instrumental ten year plan ratified
The ten year plan that would have a shift on commodity export from agriculture to industry has been ratified.
By 2030 the country revenue from tax is expected to reach to 3.5 trillion birr.
The ten year plan, that will be implemented in two-five years period revealed that the country export goods will have a shift from the traditional agricultural commodity to the manufacturing sector.
The development plan matrix that was officially issued early this week indicated that by 2030 the export share of industrial goods will have a share of 48.4 percent from the total export. As of last budget year the manufacturing sector export contributed only 13.3 percent of hard currency earnings for the country. The new plan will boost the manufacturing export share by more than 3.6 folds from the base line of last year.
In contrast, the agriculture sector contribution will be contracted to 36.4 percent from the existed 77 percent, which is more than a double reduction. The mining sector that has received higher attention by the current government is also expected to take the share of 11.3 percent from the total export from the existed 6.9 percent.
The export of commodities is targeted to grow by six folds at the end of the planned year reaching USD 18.3 billion, while the share manufacturing industry will contribute USD 9 billion, agriculture USD 6.7 billion, mining USD 2.1 billion and electric and others USD 0.7 billion.
In the fiscal policy development, the government has targeted to register an average 26.1 percent annual growth on gross government revenue in the coming decade reaching 3.9 trillion birr from the past year’s 395 billion birr.
The tax revenue share will be 3.5 trillion birr by the growth of over 11 folds compared with 317 billion birr of last year’s performance.
The tax GDP ratio is expected to climb to 18.2 percent from 9.2 percent of last year.
The government expenditure will also reach 4.5 trillion birr at the end of the planed year from 480 billion birr of the 2019/20 budget year, while its share for GDP will be 23.4 percent. However, the budget deficit is projected to continue at 3 percent in the first five year period and 2.9 percent in the second five year.
On the other hand the country’s debt will stand at 48.6 percent of the GDP by 2030.
At the end of the ten year development plan, the share of agriculture for GDP will be 22 percent from the existing 32.7 percent, industry from 29 percent to 35.9 percent, and the service sector share will be increased to 42.1 percent from 39.5 percent.
In addition, the manufacturing sub-sector from industry sector is expected to register massive growth and share from the current 6.9 percent to 17.2 percent at the end of the ten year plan.
