Connect with us

Reports

COVID-19 Drives Sub-Saharan Africa Toward First Recession in 25 Years

Published

on

Growth in Sub-Saharan Africa has been significantly impacted by the ongoing coronavirus outbreak and is forecast to fall sharply from 2.4% in 2019 to -2.1 to -5.1% in 2020, the first recession in the region over the past 25 years, according to the latest Africa’s Pulse, the World Bank’s twice-yearly economic update for the region.

The COVID-19 pandemic is testing the limits of societies and economies across the world, and African countries are likely to be hit particularly hard,” said Hafez Ghanem, World Bank Vice President for Africa. “We are rallying all possible resources to help countries meet people’s immediate health and survival needs while also safeguarding livelihoods and jobs in the longer term – including calling for a standstill on official bilateral debt service payments which would free up funds for strengthening health systems to deal with COVID 19 and save lives, social safety nets to save livelihoods and help workers who lose jobs, support to small and medium enterprises, and food security.

The Pulse authors recommend that African policymakers focus on saving lives and protecting livelihoods by focusing on strengthening health systems and taking quick actions to minimize disruptions in food supply chains. They also recommend implementing social protection programs, including cash transfers, food distribution and fee waivers, to support citizens, especially those working in the informal sector.

The analysis shows that COVID-19 will cost the region between $37 billion and $79 billion in output losses for 2020 due to a combination of effects. They include trade and value chain disruption, which impacts commodity exporters and countries with strong value chain participation; reduced foreign financing flows from remittances, tourism, foreign direct investment, foreign aid, combined with capital flight; and through direct impacts on health systems, and disruptions caused by containment measures and the public response.

While most countries in the region have been affected to different degrees by the pandemic, real gross domestic product growth is projected to fall sharply particularly in the region’s three largest economies – Nigeria, Angola, and South Africa— as a result of persistently weak growth and investment. In general, oil exporting-countries will also be hard-hit; while growth is also expected to weaken substantially in the two fastest growing areas—the West African Economic and Monetary Union and the East African Community—due to weak external demand, disruptions to supply chains and domestic production. The region’s tourism sector is expected to contract sharply due to severe disruption to travel.

The COVID-19 crisis also has the potential to spark a food security crisis in Africa, with agricultural production potentially contracting between 2.6% in an optimistic scenario and up to 7% if there are trade blockages. Food imports would decline substantially (as much as 25% or as little as 13%) due to a combination of higher transaction costs and reduced domestic demand.

Several African countries have reacted quickly and decisively to curb the potential influx and spread of the coronavirus, very much in line with international guidelines. However, the report points out several factors that pose challenges to the containment and mitigation measures, in particular the large and densely populated urban informal settlements, poor access to safe water and sanitation facilities, and fragile health systems. Ultimately, the magnitude of the impact will depend on the public’s reaction within respective countries, the spread of the disease, and the policy response. And these factors together could lead to reduced labor market participation, capital underutilization, lower human capital accumulation, and long-term productivity effects.

In addition to containment measures, we have seen that in responding to COVID-19, countries are opting for a combination of emergency fiscal and monetary policy actions with many central banks in the region taking important actions like cutting interest rates and providing extraordinary liquidity assistance,” said Albert Zeufack, Chief Economist for Africa at the World Bank. “However, it is important to ensure that fiscal policy builds in space for social protection interventions, especially targeting workers in the informal sector, and sows the seed for future resilience of our economies.”

The authors emphasize the need for a customized policy response to reflect the structure of African economies (especially the large informal sector) and the peculiar constraints policymakers currently face, particularly the deteriorating fiscal positions and heightened public debt vulnerabilities, and the overall low operational capacity to respond.

The immediate measures are important but there is no doubt there will be need for some sort of debt relief from bilateral creditors to secure the resources urgently needed to fight COVID-19 and to help manage or maintain macroeconomic stability in the region,” said Cesar Calderon, Lead Economist and Lead author of the report.

Due to the COVID-19 pandemic, economic circumstances within countries and regions are fluid and change on a day-by-day basis. The macroeconomic analysis in the report is based on data available by the first quarter of March 2020.

The World Bank Group is taking broad, fast action to help developing countries strengthen their pandemic response, increase disease surveillance, improve public health interventions, and help the private sector continue to operate and sustain jobs. It is deploying up to $160 billion in financial support over the next 15 months to help countries protect the poor and vulnerable, support businesses, and bolster economic recovery.

Continue Reading
Comments

Reports

Small Businesses Adapting to Rapidly Changing Economic Landscape

Published

on

The World Economic Forum has long been at the forefront of recognizing the strategic importance of sustainable value creation objectives for business. While interest has mostly focused on how large corporations contribute to the global economy and sustainable development objectives, small and mid-sized enterprises (SMEs) are often overlooked as major drivers of economic activity, as well as social and environmental progress around the world.

A new report released today finds factors that previously disadvantaged SMEs can lead them to new opportunities. Nine case studies from multiple industries and regions highlight what SMEs can do to increase their future readiness.

Developed in collaboration with the National University of Singapore Business School, the University of Cambridge Judge Business School and Entrepreneurs’ Organization, the report also finds that SMEs are lagging behind in terms of societal impact. Although there is a clear need to operate in line with sustainability goals, many SMEs have yet to include explicit strategies and performance measurement centred on societal impact.

The top challenges cited by SME executives include talent acquisition and retention (for 52.5% respondents), survival and expansion (43.8%), funding and access to capital (35.7%), non-supportive policy environment (21%), the difficulty of maintaining a strong culture and clear company purpose and value (20%).

SMEs can leverage their size, networks, people and the strengths of technology to support their goals of sustainable growth, positive societal impact and robust adaptive capacity. While it is essential for SMEs and the wider economy to increase their future readiness, they can thrive only insofar as the necessary supporting infrastructure and regulatory frameworks exist.

“We hope this will inspire and encourage SMEs and mid-sized companies to harness their potential in becoming a major driver of sustainable and inclusive economic growth and innovation by focusing on several core dimensions of future readiness,” said Børge Brende, President, World Economic Forum.

“Through this report, the Forum aims to highlight the significant role SMEs can play not just locally but also globally. The New Champions Community is a step towards bringing these smaller companies into the forefront of global discourse around socioeconomic development and engaging them in a community of forward-thinking companies from across the world,” said Stephan Mergenthaler, Head of Strategic Intelligence and Member of the Executive Committee, World Economic Forum.

The report aims to develop a deeper understanding of organizational capabilities and orientations needed for SMEs to successfully generate lasting financial growth, affect society and the environment positively, and develop high levels of resilience and agility.

It relies on robust research methods and combines rigorous primary and secondary research. The takeaways and conclusions presented in the research have been derived from an analysis of over 200 peer-reviewed articles and engagement of more than 300 CEOs and founders of SMEs through surveys and in-depth interviews.

Continue Reading

Reports

France: Invest in skills, digitalisation and the green transition to strengthen the recovery

Published

on

Swift and effective government support has helped France to rebound rapidly from its COVID19-induced recession. Using the country’s announced Recovery and Investment Plans to invest in education, worker training, and the green and digital transitions should result in stronger and more resilient growth, according to a new OECD report.

The latest OECD Economic Survey of France says that while it is important not to prematurely withdraw support for households and firms, as the recovery gains traction support measures should increasingly be targeted at the most viable businesses and sectors and should favour investment. Professional training and support for workers transitioning to new jobs should be strengthened to ease labour market shortages and address the mismatch between skills and the needs of the business sector.

“France’s response to the COVID-19 crisis has been swift and effective, enabling it to emerge from the health crisis with jobs and household incomes well protected and its economic capacity largely preserved,” OECD Secretary-General Mathias Cormann said, launching the Survey alongside French Minister of Economy, Finance and Recovery Bruno Le Maire. “A rigorous implementation of the government’s Recovery and Investment Plans will help to turn the rebound into lasting sustained growth, building a greener, more digital and more resilient economy.”

After an 8.0% contraction in economic activity in 2020, the Survey projects a strong GDP rebound of 6.8% in 2021 and 4.2% in 2022 as domestic demand resumes. This follows a period of slower growth in France in the decade leading up to the COVID-19 crisis marked by weak gains in productivity and living standards. Low-skilled and young workers face difficulties in accessing the labour market and unequal opportunities have weakened inter-generational social mobility. The pandemic has also exposed a lag among small and medium-sized enterprises in adopting digital technologies.

These structural weaknesses can only be addressed through reforms, the Survey says. It calls for renewed efforts to boost skills to help sustain jobs and productivity growth. A combination of labour market, taxation and spending reforms could lead to a tangible increase in living standards in the years ahead, according to the Survey. 

It is particularly important to use the recovery period to improve the fiscal framework and notably the effectiveness of public spending through reviews and better allocation of resources, the Survey says. France’s public spending as a share of GDP is the highest of OECD countries, and the high level of social expenditures, notably on pensions, as well as looming pressure from an ageing population makes it vital to rebalance spending towards more investment. This would support growth and help to stabilise and then gradually lower the public debt-to-GDP ratio. 

The government has already pursued important reforms to reduce labour market segmentation and strengthen active labour market policies. Ensuring broad access to retraining and enforcing high quality standards for lifelong training courses would boost employment opportunities.

France has made the transition towards a greener economy a pillar of its recovery plan, and it is vital that this leads to increased private investment in green infrastructure and technology. Greater incentives are needed to drive behavioural changes within businesses and households. To be fully effective, this should extend to all available policy instruments, including regulation and R&D as well as progressively aligning carbon prices across sectors, albeit alongside complementary measures. To avoid unfair impacts on people and sectors, it is essential to support vulnerable households and firms, through targeted measures, for example help-to-buy schemes for clean vehicles and equipment.

Continue Reading

Reports

People are increasingly worried about inequalities but divided on how to address them

Published

on

Photo: Arno Senoner/Unsplash

For a recovery from the COVID-19 crisis that is strong, sustainable but also fair, it will be key to tackle inequalities and promote equal opportunities. Yet while there is growing consensus that inequality is a problem, people are increasingly divided about its extent and what to do about it, according to a new OECD report.

Does Inequality Matter? says that most people are concerned about inequality. Four in five people in the OECD feel income disparities are too large in their country. People care about inequality of both outcomes and opportunities, as they perceive high income and earnings disparities as well as low social mobility. Moreover, concern over income and earnings disparities has risen in the last three decades, in line with the increase in income inequality.

People’s perceptions are not disconnected from reality. Along the lines of observed trends in income inequality, people believed, on average, that top earners earned 5 times as much as bottom earners in the late 1980s/early 1990s, while this perceived top-to-bottom earnings ratio has increased to 8 today, after having reached a peak of 10 during the Great Recession. Tolerance for inequality has also increased, though by less. Today people believe, on average, that top earners should earn 4 times as much as the bottom earners, up from 3 times in the late 1980s.

More than 6 out of 10 OECD citizens believe their government should do more to reduce income differences between rich and poor with taxes and transfers. The more people are concerned about inequality and perceive low social mobility, the higher their demand for redistribution.

However, beliefs about effectiveness of policies and determinants of inequalities matter. People are less likely to demand more redistribution if they believe that benefits are mistargeted, and they are less in favour of progressive taxation if they believe that corruption is widespread among public officials, prompting the misuse and misallocation of public benefits.

Demand for more progressive taxation is also lower where people believe that disparities are justified by differences in personal effort, rather than to circumstances beyond people’s control. For example, in 2018 in Poland 25% of people believe poverty is due to lack of effort rather than injustice or bad luck and 54% demand more progressive taxation, while in Germany that figure is 4% and 77%, respectively.

Yet, despite most people being concerned about inequality, they have strongly different beliefs about its extent and what to do about it. Within the average OECD country, one fourth of people thinks that more than 70% of the national income goes to the 10% richest households, contrary to another fourth who think that less than 30% goes to the richest households.

Furthermore, the large heterogeneity of people’s views on inequalities has grown in the last three decades, even among people with similar socio-economic characteristics. There is evidence of growing polarization: in most OECD countries there is an increasing gap between those who believe inequality is high and those who believe it is low. More unequal countries have a more divided public opinion: in Chile and the United States – two among the most unequal OECD countries – the perceptions about the extent of the top richest 10% shares diverge the most.

Continue Reading

Publications

Latest

Africa2 hours ago

Q&A: Arguments for Advancing Russia-African Relations

As preparations are underway for the second Russia-Africa summit planned for 2022, African leaders, politicians, academic researchers and experts have...

Terrorism Terrorism
Intelligence4 hours ago

ISIS-K, Talc, Lithium and the narrative of ongoing jihadi terrorism in Afghanistan

Chinese and Russian efforts are underway to strengthen the Taliban government economically and militarily, along with legitimacy and international recognition....

Health & Wellness4 hours ago

Left Ventricular Aneurysm Surgery

A heart aneurysm is a serious illness that causes impairment of the contractile activity of the affected area of the...

Middle East6 hours ago

Vienna Talks: US-Russia-China trilateral and Iran

Talks between Iran and other signatories to the Joint Comprehensive Plan of Action (JCPOA) 2015/Iran Nuclear deal regarding the revival...

Africa8 hours ago

Nigeria’s role in ECOWAS peacekeeping

ECOWAS is the 44-year-old economic community of West African states. “The evolution of ECOWAS from the level of an organization...

Africa10 hours ago

What a Successful Summit for Democracy Looks Like from Africa

The Biden administration is wrapping up preparations for its Summit for Democracy, to be held virtually next month. While the...

Reports12 hours ago

Small Businesses Adapting to Rapidly Changing Economic Landscape

The World Economic Forum has long been at the forefront of recognizing the strategic importance of sustainable value creation objectives...

Trending