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South Africa and Africa can’t afford to wait on the rest of the world to beat COVID-19

27 November 2020 Chris Egberink Head of Global Banking, South Africa & Southern Africa at Standard Chartered

When the Covid pandemic first hit us earlier in the year, none of us from the East to the West, North to the South had any idea how long this would last and the extent of the human and economic impact.

Historically, we have seen the larger; more established economies able to emerge from global shocks relatively unscathed, but in this instance, we have seen the devastating impact felt globally and Africa is no exception.

Measures taken to curb the spread of the virus not only saw economic activity grind to an unprecedented halt but also disrupted global supply chains and trade flows. Global trade activity had already come under pressure in 2019 due to rising trade tensions. The impact of COVID-19 has provided us with a sobering glimpse of what a world with increased protectionism and trade restrictions could look like. Looking at this with an African vantage point – this picture can appear even grimmer.

In October 2020, the International Monetary Fund (IMF) cautioned that it expects sub-Saharan Africa’s economy to shrink by 3% this year. This first recession in sub-Saharan Africa in 25 years can largely be attributed to the expected recession in South Africa, (which is estimated to see its economy shrink by circa 8% this year), in addition to the required austerity measures against COVID-19 - coupled with falling commodity prices. Whether it is oil, coal, coffee, or copper, African economies still heavily rely on commodity exports to the rest of the world.

According to the United Nations Conference on Trade and Development (UNCTAD), exports to the rest of the world made up between 80% to 90% of Africa’s total trade between 2000 and 2017. By contrast, intra-African exports made up only 16.6% of Africa’s total exports in 2017. It is therefore important for Africa to acknowledge that simply resuming production of its commodities is not the much-needed panacea to lift ourselves from the current recession. What is required is a simultaneous and sustainable Global recovery to ensure demand for these commodities. COVID-19 is exposing ( as in the previous global crises) – just how vulnerable Africa is to declining demand from the rest of the world.

What this means is that policies and goals that were needed to drive African development before this pandemic are still required - with even greater urgency. COVID-19 should be encouraging African Governments to work together and focus on boosting intra-African trade with even more vigour. An African solution for an African problem – is what is required. Intra-African trade, defined by UNCTAD as the average of intra-African exports and imports, was around 2% during the period from 2015 to 2017. Trade with America, Asia, and Europe was, respectively, 47%, 61%, and 67%. Physical borders may be closed, but country borders and physical distance now matter less than ever before in sharing knowledge, building networks, and doing deals. Africa should grab this opportunity with both hands to not only build new trade linkages with the rest of the world but more importantly, within the continent.

While it is broadly acknowledged that African Governments do not have the same fiscal firepower available to many of our counterparts in developed markets, we do however have the opportunity to increase regional cooperation, harmonise trade regulations and reduce tariffs and other trade barriers. The implementation of the African Continental Free Trade Area (AfCFTA) is a crucial step to achieving this. The AfCFTA envisions creating a single continental market for goods and services, with free movement of people and investments, by bringing together 55 member states of the African Union. Trading under the AfCFTA Agreement was due to start in July this year, but unfortunately due to the pandemic, this was pushed out to 1 January 2021. The Africa continent can’t afford for this deadline to be postponed again.

The encouraging news is that most African leaders appear to understand the mutual benefit and are committed to embracing digital technology to help to finalise the implementation of the AfCFTA. For example, the African Union Commission has welcomed support from the private sector, notably the African Virtual Trade-Diplomacy Platform (AVDP), which aims to keep the AfCFTA on track using technology by enabling member states to participate effectively and securely in the outstanding negotiations.

Of course, other challenges to intra-African trade also remain. Addressing a lack of infrastructure to facilitate transport linkages, poor internet connectivity and weak energy security will also be key to strengthening African trade. Due to our excellent infrastructure, these factors may be less of a concern within South Africa than among our neighbours, but last year only circa 27% of South Africa’s exports went to the rest of the continent. Increasing this number remains one of the greatest opportunities available to South Africa and should be a key priority in our strategy to rebuild our economy post-COVID. On this front, the Department of Trade, Industry and Competition (the DTIC) should be commended for its efforts to continue trade discussions despite the restrictions imposed by COVID-19, most recently by hosting a South Africa-Ghana Trade and Investment via webinar to replace the need for physical meetings.

With the pandemic far from over, predicting how soon the world economy will recover is nearly impossible. Uncertainty is still high, which means that Africa is also far less likely to benefit from increases in foreign investment over the short- or medium-term. As a continent – and as a country – we cannot afford to wait for the world to recover or to turn its attention back to us. We must look inward and make sure that we realise opportunities in South Africa, and for the greater Africa.

 

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