eBusiness Weekly
Elias Pacheso
Undiversified economies that rely on imports are more at risk of total collapse in the coming months as Covid-19 takes its toll.
Looking at the future, it is very likely that most economies will be inward looking as they try to recover the harsh impact of the pandemic.
The African Union estimates that Africa will lose US$270 billion in export and import business as a result of the pandemic.
Headlines of commodity price drops are the order of the day at the moment. The price of crude oil for instance dropped to US$1 a barrel last week, while cotton prices dropped for US70 cents a pound to US49 cents per pound in recent weeks.
On the other hand, the gold price continues to strengthen and is currently trading above US$1 700 per ounce. You would think countries that produce gold like Zimbabwe should be smiling all the way to the bank right?
Wrong production bottlenecks and export logistics continue to limit the ability of nations to take advantage of the galloping prices.
To keep ahead of crisis as indicated last week African governments must be proactive and plan ahead. It is no secret that most African economies are primary producers and exporters of low value goods.
As the country prepares for the Cotton buying and tobacco marketing season, we must be aware of the fact that worldwide commodity prices are declining and as such we need to come up with measures to cushion farmers to ensure that next season they continue to produce.
With most African governments already grappling with the high costs of managing the Covid-19 pandemic this will be difficult to do. In previous weeks we touched on this very fact.
Ensuring food security should be the top priority of the government as the crisis unfolds and this will require a redoubling of efforts in ensuring that the winter cropping programmes where irrigation is available are pursued.
Countries with surplus food will no doubt be wary of exporting to deficit countries in these uncertain times. Never has the need for self sufficiency been so important.
Exports play an important role in African economies allowing for the importation of critical goods and services.
Now that the world is in recession, it’s important for African economies to focus on rebuilding local production capacity and avoid unnecessary imports. This is easier said than done.
According to the World Trade Organisation (“WTO”) the pandemic presents an unprecedented disruption to the Global economy and world trade.
Production and consumption have both slumped placing a significant burden on the world economy. Emerging out of the crisis will see a number of changes to trading terms and conditions.
WTO estimates that world trade will slump by between 13 to 32 percent depending on whether economies respond in a co-ordinated manner to curtail the negative impact of the pandemic or not.
The worst scenario is that countries will choose to look after their own and avoid co-ordinating with others.
If the pandemic is contained, recovery will be fast according to the WTO and much will depend on the choices that the governments make on inclusive and socially inclusive recovery. It goes without saying that the weaker economies will need help to avoid imminent collapse.
In Africa the sad reality is that the intra-Africa trade remains low at just 15 percent in 2018, with South Africa being a key driver of this trade.
This crisis presents an opportunity for African governments to speed up the implementation of the free trade area as logistically intra-African trade is easier.
Without closer ties being forged among African countries recovery across Africa will be harder and may take longer. With the world still to find a vaccine or cure for the virus it is not clear how long recovery will take.
The WTO has published a list of the Dos and Don’ts in the Covid-19 crisis and urges countries to let trade continue during this crisis.
As most borders remain closed, it becomes clear that trade will suffer and so it is important for countries to ensure that there is room to ensure that trade continues. Statistics on trade at this time are very difficult to come by.
Apart from ensuring that the countries safeguard jobs and livelihoods allow exports ensures that critical goods reach those who need them the most especially food and medical supplies.
One of the most important areas that governments should be concentrating on at the moment is ensuring that the next food harvests are assured.
The WTO recommends that governments make sure that the inputs and other critical supplies are made available to farmers on time to ensure that food supply is assured in the future.
Communicating with farmers at this time is also very important. If any lesson is to be learnt from the current crisis by Africa it is that we must grow our own food and secure our own livelihoods.
While other countries with the means have announced massive packages to stimulate their economies, it is also important for countries that have limited resources to be creative and find ways of stimulating the economy.
Some of these measures may include tax holidays, tax refunds, lower taxes. South Africa announced a R500 Billion package this week with R50 Billion aimed at those hardest hit by the pandemic.
As highlighted last week, anticipating and planning for the impending economic crisis will be critical in managing it and limiting its impact on the economy. Key questions to ask as a government could be:
- How do we ensure that more food is produced?
- How do we limit job losses?
- How do we ensure that exports continue?
- How do we limit the disruption?
- Who can help us and what can we give back in return?
- How do we ensure that we have sufficient reserves to deal with future shocks?
We will come out of this pandemic stronger and more determined to protect ourselves from future crises. For now, let us focus on staying safe and limiting the pressure on our already stretched health care facilities and personnel. Until next time stay safe and stay healthy.
Pacheso is an experienced economist with more than 18 years’ experience in the financial services sector. He enjoys mentoring startups in his spare time.
