Pandemic-hit African economies 'need vaccines and debt relief'

Unskilled workers and women bear the brunt of the economic fallout from the pandemic, Kiel Institute says

African countries are in urgent need of Covid-19 vaccine supplies and debt relief from the international community to mitigate the economic impact of the pandemic, with many of these nations unlikely to return to pre-crisis growth levels before 2025, according to the Kiel Institute for the World Economy.

Quick action is necessary as the pandemic hits African economies "substantially", despite low official case numbers owing to underreporting. The pandemic will also weigh on economic development in the longer term, the think tank, which based in Kiel, Germany, said in a policy brief.

"Especially unskilled workers and women suffer from the economic consequences of the pandemic," said Saskia Meuchelboeck, a Kiel Institute researcher and report co-author. "An immediate response should be international support with vaccination programmes and debt relief to cope with the consequences of the pandemic."

Across the world, but especially in developing regions, the damage from the Covid-19 pandemic has been greater than that from the global financial crisis, most notably in Africa and South Asia, according to the UN Conference on Trade and Development.

Renewed international support is needed for developing countries facing the threat of a "lost decade" amid an uneven global economic recovery, it said last week.

The economic contraction in African countries last year was less severe than initially expected but is still the worst on record and marks the first recession in 25 years, according to the Kiel Institute.

The economic fallout has varied across African countries. It has generally been more severe in places with a high reliance on services, tourism and international trade, such as South Africa or Tunisia, the think tank said. On the other hand, oil-exporting countries such as Algeria, Angola and Nigeria are now benefiting from a significant rise in commodity prices.

However, Africa overall is expected to reach its pre-pandemic level of gross domestic product (GDP) per capita only in 2023, and in many countries not before 2025, the institute said.

One of the major reasons for the sluggish recovery rate among African economies is the "dramatically low" 5 per cent vaccination rate, which disrupts health care and leads to continued school closures and worsening job prospects in the long term.

An additional 30 million people have been pushed into extreme poverty owing to the pandemic, especially unskilled workers and women, the institute said.

"The international community needs to ensure that sufficient and affordable supplies of vaccines is provided quickly to limit future health and economic impacts for Africa," Ms Meuchelboeck said.

Unequal access to vaccines will widen the gap between rich and poor nations, leading to low-income countries requiring billions of dollars in investment to alleviate poverty and hunger, according to the International Monetary Fund.

In August, the fund approved a record general allocation of $650 billion in reserve assets, known as special drawing rights (SDRs), to help member countries, especially emerging and developing nations, cope with the economic fallout from the coronavirus pandemic.

SDRs are allocated according to countries’ quotas, or borrowing rights within the IMF, with quotas depending heavily on the aggregate GDP of a country.

"The G20 has already agreed on debt restructuring and relief for countries with unsustainable debt burdens but these efforts are unlikely to be enough to give Africa financial room for manoeuvre," Ms Meuchelboeck said.

"In order to regain fiscal space, further suspension of official debt payments and in some cases debt relief may be needed, provided distressed countries put in place medium-term consolidation programmes, including mobilisation of tax revenues and realising efficiency gains in the public sector."

The institute also recommended increasing the flows of foreign direct investment from developed nations into developing economies, with government investment guarantee schemes being a potential instrument to mitigate the problem of increased uncertainty.

"Elevated uncertainty regarding the further course of the pandemic in Africa – not least due to low vaccination rates – are likely to weigh on the recovery of FDI flows to the continent, preventing African economies [benefitting] from the positive effects associated with FDI," it said.

"It will be important to reinvigorate FDI from developed nations."

Updated: September 23rd 2021, 3:30 AM
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