uring the 2008 Recession, Sub-Saharan Africa (SSA) faced a bleak economic forecast. Trade decreased, jobs disappeared, and development gains of the past decade threatened to vanish overnight. Despite the downturn, SSA was not affected as severely as expected and actually experienced economic growth rates 2.9 percent higher than the rest of the world over five years following the financial crisis. As SSA again faces a dire forecast in light of the economic effects of the COVID-19 pandemic, there are four key differences since 2008 that can guide policy actions today.
Slowdown vs. Recession
While Africa did not experience a recession following the 2008 market crash, it is expected to experience its first recession in 25 years, given the more widespread impact of COVID-19. In 2008, SSA growth rates slowed from 5 percent to 3.25 percent in 2009, but began to recover in 2010. Currently, the World Bank forecasts growth in SSA will fall from 2.4 percent (2019) to -2.1 to -5.1 percent in 2020. McKinsey also estimates a decline, with previous 2020 growth rates projections of 3.9 percent now revised to 0.4 to -3.9 percent. In addition to negative growth rates, capital flight and declining remittances are also issues; some experts estimate that $100 billion has fled developing countries (including SSA) so far this year—already five times greater than in 2008.
Increased Debt
Since the Great Recession, average public debt in SSA has increased to between 40 to 59 percent of GDP. Of the 46 countries in the region, 24 have surpassed the 55 percent debt-to-GDP ratio recommended by the International Monetary Fund (IMF), with 17 countries classified being in or close to debt distress. While China is not necessarily SSA’s largest creditor, it held $145 billion of countries’ $583 billion total debt as of 2018, with Djibouti, Republic of the Congo, Niger, and Zambia among the top 10 most indebted countries. Many countries will be unable to pay the nearly $8 billion of debt payments due this year, and have called on China to provide debt relief measures.
Increased linkage with Chinese Markets
Debt is not the only thing SSA countries and China share—investment and market linkages have also significantly increased since 2008. Therefore a decrease in trade demand and manufacturing output from China (“twin supply-demand shock”) has a deeper ripple effect in SSA now than it did in 2008, as Chinese investments in the region have increased from $7 billion to $60 billion (as of 2018). The full impact of China’s industrial slow-down on SSA markets is not yet clear, but will likely be significant.
Improved Technology and Infrastructure
The most positive change since 2008 is the increase of large-scale infrastructure and smartphone penetration in SSA. Although the total infrastructure need for the region is vast (estimated $93 billion shortfall), new roads, airports, and energy facilities across the region represent a huge gain. The pandemic has significantly affected global supply chains, but there are now more ways to transport goods between countries once borders resume and trade resumes.
Increased smartphone access has also provided SSA residents new ways to quickly transfer funds, share information, and even use artificial intelligence to improve agricultural outputs. Young adults (ages 18-29) are most likely to own a smartphone, which could become critical in combatting the continent’s projected “youth bulge.” Lack of connectivity and power remain challenges throughout the region (only 44.7 percent of residents have access to electricity), but SSA remains the fastest growing region of the world for mobile phone use. For those who are able to access networks, there are more mobile services, ways to conduct business, and educational resources available than ever before.
Considering these differences since the 2008 Recession, there are two key actions leaders and development partners should take to help SSA countries withstand the current crisis.
Lean In: Continue Aid
In 2008, institutions such as the IMF, World Bank, and African Development Bank implemented a wide range of initiatives to help SSA countries survive the crisis. The same is happening now, but on a larger scale; World Bank has committed $160 billion over the next 15 months for countries in need, the IMF has confirmed $11 billion in assistance for 32 African countries (in addition to other measures), and global institutions have collectively pledged an additional $80 billion.
In 2008, the U.S. Congress authorized $255.6 million of assistance for developing countries, including Ghana, Liberia, Tanzania, and Zambia. One of the most important steps the United States can take today is to maintain—if not increase—current aid commitments in SSA. It is also critical to double-down on programs that support U.S. private sector investment in Africa, such as Prosper Africa or the Development Finance Corporation. These investments do not cost Americans jobs, but rather help SSA countries grow their economics and prevent losing hard-won development gains.
Strengthen Local Networks: Focus on Inter-Regional Trade
Reversing the current configuration of low intra-African trade and high extra-African export markets has long been a goal for SSA countries, and there is no time like the present to make this a reality. The pandemic may slow upcoming deadlines for implementation of the Africa Continental Free Trade Area (AfCFTA) Agreement, but this initiative is exactly what the region needs to recover. Restructuring value chains to produce more goods in Africa and strengthen inter-regional trade infrastructure among SSA countries to better distribute resources could help countries recover faster now and be more resilient to global market shocks in the future.
An Unwritten Future
Although the present economic forecasts are daunting, SSA countries have weathered challenges before and will so do again. The question is how the international community will engage this region considering these changes since the 2008 Recession. Leaders can start by addressing debt levels, maintaining aid flows, using new infrastructure and smartphone access, and restructuring regional trade. Now is the time for the region, as well as the international community, to decide whether the economic effects of COVID-19 in SSA will be a staging ground for future growth or the source of development dreams delayed.
a global affairs media network
COVID-19 in Africa: Delaying Dreams or Catalyzing Growth?
May 29, 2020
D
uring the 2008 Recession, Sub-Saharan Africa (SSA) faced a bleak economic forecast. Trade decreased, jobs disappeared, and development gains of the past decade threatened to vanish overnight. Despite the downturn, SSA was not affected as severely as expected and actually experienced economic growth rates 2.9 percent higher than the rest of the world over five years following the financial crisis. As SSA again faces a dire forecast in light of the economic effects of the COVID-19 pandemic, there are four key differences since 2008 that can guide policy actions today.
Slowdown vs. Recession
While Africa did not experience a recession following the 2008 market crash, it is expected to experience its first recession in 25 years, given the more widespread impact of COVID-19. In 2008, SSA growth rates slowed from 5 percent to 3.25 percent in 2009, but began to recover in 2010. Currently, the World Bank forecasts growth in SSA will fall from 2.4 percent (2019) to -2.1 to -5.1 percent in 2020. McKinsey also estimates a decline, with previous 2020 growth rates projections of 3.9 percent now revised to 0.4 to -3.9 percent. In addition to negative growth rates, capital flight and declining remittances are also issues; some experts estimate that $100 billion has fled developing countries (including SSA) so far this year—already five times greater than in 2008.
Increased Debt
Since the Great Recession, average public debt in SSA has increased to between 40 to 59 percent of GDP. Of the 46 countries in the region, 24 have surpassed the 55 percent debt-to-GDP ratio recommended by the International Monetary Fund (IMF), with 17 countries classified being in or close to debt distress. While China is not necessarily SSA’s largest creditor, it held $145 billion of countries’ $583 billion total debt as of 2018, with Djibouti, Republic of the Congo, Niger, and Zambia among the top 10 most indebted countries. Many countries will be unable to pay the nearly $8 billion of debt payments due this year, and have called on China to provide debt relief measures.
Increased linkage with Chinese Markets
Debt is not the only thing SSA countries and China share—investment and market linkages have also significantly increased since 2008. Therefore a decrease in trade demand and manufacturing output from China (“twin supply-demand shock”) has a deeper ripple effect in SSA now than it did in 2008, as Chinese investments in the region have increased from $7 billion to $60 billion (as of 2018). The full impact of China’s industrial slow-down on SSA markets is not yet clear, but will likely be significant.
Improved Technology and Infrastructure
The most positive change since 2008 is the increase of large-scale infrastructure and smartphone penetration in SSA. Although the total infrastructure need for the region is vast (estimated $93 billion shortfall), new roads, airports, and energy facilities across the region represent a huge gain. The pandemic has significantly affected global supply chains, but there are now more ways to transport goods between countries once borders resume and trade resumes.
Increased smartphone access has also provided SSA residents new ways to quickly transfer funds, share information, and even use artificial intelligence to improve agricultural outputs. Young adults (ages 18-29) are most likely to own a smartphone, which could become critical in combatting the continent’s projected “youth bulge.” Lack of connectivity and power remain challenges throughout the region (only 44.7 percent of residents have access to electricity), but SSA remains the fastest growing region of the world for mobile phone use. For those who are able to access networks, there are more mobile services, ways to conduct business, and educational resources available than ever before.
Considering these differences since the 2008 Recession, there are two key actions leaders and development partners should take to help SSA countries withstand the current crisis.
Lean In: Continue Aid
In 2008, institutions such as the IMF, World Bank, and African Development Bank implemented a wide range of initiatives to help SSA countries survive the crisis. The same is happening now, but on a larger scale; World Bank has committed $160 billion over the next 15 months for countries in need, the IMF has confirmed $11 billion in assistance for 32 African countries (in addition to other measures), and global institutions have collectively pledged an additional $80 billion.
In 2008, the U.S. Congress authorized $255.6 million of assistance for developing countries, including Ghana, Liberia, Tanzania, and Zambia. One of the most important steps the United States can take today is to maintain—if not increase—current aid commitments in SSA. It is also critical to double-down on programs that support U.S. private sector investment in Africa, such as Prosper Africa or the Development Finance Corporation. These investments do not cost Americans jobs, but rather help SSA countries grow their economics and prevent losing hard-won development gains.
Strengthen Local Networks: Focus on Inter-Regional Trade
Reversing the current configuration of low intra-African trade and high extra-African export markets has long been a goal for SSA countries, and there is no time like the present to make this a reality. The pandemic may slow upcoming deadlines for implementation of the Africa Continental Free Trade Area (AfCFTA) Agreement, but this initiative is exactly what the region needs to recover. Restructuring value chains to produce more goods in Africa and strengthen inter-regional trade infrastructure among SSA countries to better distribute resources could help countries recover faster now and be more resilient to global market shocks in the future.
An Unwritten Future
Although the present economic forecasts are daunting, SSA countries have weathered challenges before and will so do again. The question is how the international community will engage this region considering these changes since the 2008 Recession. Leaders can start by addressing debt levels, maintaining aid flows, using new infrastructure and smartphone access, and restructuring regional trade. Now is the time for the region, as well as the international community, to decide whether the economic effects of COVID-19 in SSA will be a staging ground for future growth or the source of development dreams delayed.
