By McKinsey’s Kartik Jayaram, Acha Leke, Amandla Ooko-Ombaka and Ying Sunny Sun
The COVID-19 pandemic is primarily a health crisis and a human tragedy, but it also has far-reaching economic ramifications. In Africa, it is already disrupting millions of people’s livelihoods, with disproportionate impact on poor households and small and informal businesses – and the pace of this disruption is likely to accelerate in the weeks ahead. No country or community is exempt; in oil-exporting countries, COVID-related challenges are compounded by the collapse of the oil price.
Across the continent, leaders in the public, private, and development sectors are already taking decisive action – both to save lives and to protect households, businesses, and national economies from the fallout of the pandemic. But several leaders have told us that they need a clearer picture of the potential economic impact of the crisis. At the same time, many African countries are still in the early stages of organizing their responses into focused, prioritised efforts that make the most of the limited time and resources available.
To address these needs and help inform the response of leaders across the continent, this paper presents:
- An initial analysis of COVID-19’s economic impact, which finds that Africa’s GDP growth in 2020 could be cut by three to eight percentage points. We find that the pandemic and the oil-price shock are likely to tip Africa into an economic contraction in 2020, in the absence of major fiscal stimulus.
- A framework for near-term action by governments, the private sector, and development institutions to mitigate this impact. These actions are drawn from a global scan of economic interventions already being implemented or considered, plus our recent discussions with public- and private-sector leaders across Africa.
- Our message is clear. Governments, the private sector, and development institutions need to double down on their already proven resolve – and significantly expand existing efforts to safeguard economies and livelihoods across Africa.
In many countries, there is an opportunity to take bolder, more creative steps to secure supply chains of essential products, contain the health crisis, maintain the stability of financial systems, help businesses survive the crisis, and support households’ economic welfare. They also need to consider an extensive stimulus package to reverse the economic damage of the crisis.
As of March 31, more than 720 000 cases of COVID-19 had been recorded worldwide, with nearly 40 000 deaths. The number of cases, and deaths, has been growing exponentially. Compared to other regions, the number of recorded cases in Africa is still relatively small, totalling about 5 300 cases across 47 African countries as of March 31. Even though the rate of transmission in Africa to date appears to be slower than that in Europe, the pandemic could take a heavy toll across the continent if containment measures do not prove effective.
Against the backdrop of this worrying public-health situation, African countries will have to address three major economic challenges in the coming weeks and months:
- The impact of the global pandemic on African economies. This includes disruption in global supply chains exposed to inputs from Asia, Europe, and the Middle East, as well as lower demand in global markets for a wide range of African exports. Moreover, Africa is likely to experience delayed or reduced foreign direct investment (FDI) as partners from other continents redirect capital locally.
- The economic impact of the spread of the virus within Africa, and of the measures that governments are taking to stem the pandemic. Travel bans and lockdowns are not only limiting the movement of people across borders and within countries, but also disrupting ways of working for many individuals, businesses, and government agencies.
- The collapse of the oil price, driven by geopolitics as well as reduced demand in light of the pandemic. In the month of March 2020, oil prices fell by approximately 50 percent. For net oil-exporting countries, this will result in increased liquidity issues, lost tax revenues, and currency pressure. (We should note, however, that lower oil prices will potentially have a positive economic impact for oil-importing countries and consumers.)
For Africa’s economies, the implications of these challenges are far-reaching. A slowdown in overall economic growth is already being felt, and this is acute in hard-hit sectors such as tourism. Many businesses, particularly SMEs, are under significant cost pressure and face potential closure and bankruptcy. That is likely to lead to widespread job losses.
At the same time, the pandemic will impact productivity across many sectors. Closures of schools and universities could create longer-term human capital issues for African economies—and could disproportionately affect girls, many of whom may not return to school. Not least, the crisis is likely to reduce household expenditure and consumption significantly.