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COVID-19 effect on trade in services in Africa and post pandemic recovery policy recommendations

TEBOHO RAKOLOI

COVID-19 has affected trade in many services, regionally and globally. Some industries, such as travel and tourism, suspended almost all operations.

Other industries, such as telecommunications, e-commerce, online entertainment, have experienced massive growth. African countries will suffer most from the lower demand for travel, tourism and transport services in the following years as the case may be.

Insurance, financial, telecommunications and computer-related services will not suffer as much because they are not affected by the pandemic.

On 14 February 2020, Africa confirmed its first COVID-19 case in Egypt. To date, over 1 million cases have been reported, and there have been cases in every country on the continent. A study in May 2020 from the WHO Africa Regional Office posited that, within the first year of the pandemic, between 83 000 and 190 000 deaths and 5 million related hospitalizations could occur, and a further 29 to 44 million people could be infected if containment measures failed (WHO Africa, 2020).

As of 1 December 2020, a total of 2 179 843 COVID-19 cases and 51 915 deaths had been reported in 55 African countries. This makes up 3.5 per cent of all cases reported globally (Africa CDC, 2020).

The African continent is particularly vulnerable to the economic impact of COVID-19. The ILO estimates that over a third of economic activity on the continent is informal (ILO, 2018). Informal employment is very negatively impacted by the social distancing measures and shut-downs which become necessary as a means to prevent the spread of COVID-19.

Given these realities, the International Monetary Fund estimates that sub-Saharan Africa and the Middle East and North Africa experienced contractions in GDP growth of -3.0 percent and -5.0 percent in 2020, respectively (IMF, 2020).

There have been some concerns about inflation and currency depreciation due to increased demand from loose monetary and fiscal stimuli, as well as supply shocks due to public health closures.

Many developing countries have faced COVID-19-triggered depreciation, and African currencies have not escaped this trend (OECD, 2020).

The South African rand depreciated by 28 per cent in the first quarter of 2020, before appreciating by 2 per cent in the second quarter, and Nigeria’s official exchange rate was adjusted from N307/US$ before COVID-19 to N380/US$ as of November 2020.

African economies are mostly reliant on informal trade. Informal trade has been hard hit by the pandemic, in Lesotho for instance, street vendors, salon workers, taxi drivers and other informal business activity were affected and hardest hit by the shut-downs and social distancing measures.

Here are some of the post pandemic recovery policy recommendations; The burning issue is where is Africa’s future market and trading opportunities? As the old saying states, “crisis is also an opportunity.”

This time is no exception. African countries can build more resilient and sustainable economies if they can do things right following the pandemic. At least four policy options can be considered;

First, it is crucial to further diversify African economies and strengthen the few strategic sectors. The pandemic crisis highlights the importance of food and health sectors for all countries. Africa is uniquely positioned to further leverage its rich agricultural resources by improving basic infrastructure and efficiency, and agro-processing capacity. More resources will be needed to strengthen the public health sectors, with the support of development partners.

Secondly, Africa must embrace the digital age and adopt more and more digital technologies for both productions and services, such as banking, retailing, and learning as well as public services.

The sectors with high-level of digitization seems to weather the storm much better. In doing so, it needs to strengthen its education system, especially the training and learning related to digital skills.

Thirdly, Africa must strengthen intra-regional trade. To boost the intra-regional trade, African countries need to make concerted efforts to harmonize their trade-related regulations, customs controls, and reduce both tariff and non-tariff barriers, and meanwhile, improve the infrastructures and connectivity to lower the logistics cost.

This crisis provides an opportunity to take more concrete steps towards realizing the African Continental Free Trade Area (AfCFTA).

Finally, Africa will need more international trade agreements to support its growing but still fragile export sectors. This means that Africa would not only need the existing favorable treaties such as African Growth and Opportunity Act (AGOA) and Everything But Arms (EBA), but also should pursue more such treaties with other major economies, including India, Japan, China and other such markets.

In conclusion, most predictions foresee a profound and long-term shift towards online services.

 

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