Recently I was asked by an international development professional what the impact of the corona virus might be on investment in Africa. That of course brings to mind the question of the economic impact of the virus in Africa as other emerging regions.
Confirmed cases have reached 3000 on the continent. Fatalities have been reported in Kenya, Nigeria, and South Africa. Nearly 20 countries have requested emergency financing from the IMF. Like the rest of the world, governments are beginning to impose lock downs, curfews and other restrictions to contain the spread of the virus.
Generally speaking travel restrictions and factory closings are a threat to the entire global supply chain. That plus the obvious reduction in economic activity as much of the world goes into some form of isolation has caused raw material demand to plummet, as reflected in much lower prices for oil, copper, and other African commodity exports.
Import bottlenecks for capital equipment could hinder Africa’s industrialization. Many countries are working hard to improve their capabilities in manufacturing and various high value industries. These industries often require the import of capital equipment which could be disrupted by supply chain issues. It does not seem to have happened yet. Ports remain open to cargo.
Because of its emergence as Africa’s largest trading partner Africa’s economic fortunes are heavily influenced by those of China. Michael Greenstone of the Becker Friedman Institute at the University of Chicago puts it this way:
“China is facing a daunting challenge to its economic recovery at this point, especially because the deteriorating situation across the globe is bringing an almost complete halt to the export sector in China, and could make it difficult for Chinese firms to access critical inputs provided by firms outside of China.”
In other words reduced demand for Chinese manufactured goods means reduced demand for the inputs they import from Africa, Latin America and other developing regions. In one sense, this is just an acceleration of a trend already underway where China is itself moving up the value chain, starting to leave the low cost manufacturing to others.
We will also observe China’s interaction particularly with Africa over the next few years. Will they continue to spread largess across the continent in the form of infrastructure projects, soft loans and other forms of assistance?
The first priority is of course to contain the virus and minimize the loss of life on every continent. The case load is starting to rise in several African countries and we are concerned about the burden that their public health infrastructures will have to bear. We must also consider the implications for the economic development of emerging nations in Africa, Latin America, and Asia. Growth forecasts will no doubt be revised downward. It is up to governments, businesses, their friends and partners to support the recovery and put the continent back on track towards economic freedom and prosperity.
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