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Ideas & Debate

There’s a silver lining for Africa exports in coronavirus gloom

 Export Processing Zone
A factory at an Export Processing Zone in Athi River. FILE PHOTO | NMG 

Since the dawn of the coronavirus pandemic, global economic performance has turned bleak. It is now business unusual. A growing list of economic indicators has made it clear that the outbreak is going to negatively affect global growth on a scale that has not been experienced since at least the global financial crisis.

Estimates so far indicate the virus could trim economic growth by as much as two per cent per month if current conditions persist.

The World Trade Organisation (WTO) expects world trade to fall by 13 per cent to 32 per cent in 2020, due to the disruptions to economic activity caused by the pandemic. Consistent with these developments, the pandemic is expected to set off the first recession in the sub-Saharan Africa (SSA) in 25 years, with growth forecast between 2.1 per cent and and 5.1 percent in 2020, from a modest 2.4 per cent expansion in 2019, according to World Bank.

Loss of export earnings both through disruption of supply chains and lockdowns is projected to cost Africa upwards of $500 billion.

With the European Union (EU) – the most open market for African exports accounting for 29.8 per cent of total trade – set to enter into a recession, the outlook for the continent is gloomy. First quarter data indicate that the Eurozone economy contracted by 3.8 per cent at an annual rate, the largest quarterly decline since the series started in 1995. To date, over 30 million people in Germany, France, the UK, Spain and Italy have applied for state support of their wages.

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Compounding the matter further, include issues involving escalating trade tensions, increasing trategic as pharmaceuticals, personal protective equipment (PPE)policy uncertainty and the weakening investment in the face of disruptions of global value chains. All this means, exports from Africa will face a serious demand problem in the foreseeable future.

Nonetheless, opportunities abound in the continent. There's a silver lining in the covid-19 crisis. One interesting opportunity is the soon- to- be -operationalised African Continental Free Trade Area (AfCFTA). The agreement stands to open up a market with over 1.2 billion people.

Tariff removal and cost reduction under the free trade arrangement are expected to reduce production costs and induce economies of scale. One way to take advantage is through special economic zones (SEZs).

According to World Investment Report (2019), SEZs are estimated to number nearly 237 with established SEZs located in 38 of the 54 economies on the continent. Kenya has the highest number.

Why is this vital? SEZs are particularly important for developing countries that rely on the export of commodities and aim to add value to these exports. In many countries, zone programmes account for a major share of exports, particularly manufactured goods. Furthermore, the current pandemic has proven to Africans that it cannot continue to depend on external suppliers for its internal demand of products as strategic as pharmaceuticals, personal protective equipment (PPE) and testing kits.

In the long run, the pandemic should allow necessary re-adjustments, prioritisation of critical sectors and acceleration of neglected investments to boost intra-African trade.

With intra-regional trade accounting for only 17 per cent of total trade in the continent, according to UNCTAD statistics (2019), the current season presents investment opportunities for Africa to re-position itself.

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