Global Governance
Africa’s Lions and the Global Crisis

The grave consequences of the pandemic for Africa provide more opportunities to expand Russia’s presence and spheres of influence on the continent by allowing it to go beyond the production and exports of minerals and raw materials to the soft security sphere and greater opportunities for Russia’s soft power, writes Natalia Piskunova, Associate Professor at Lomonosov Moscow State University, World Politics Department.

The African continent, which in the past century has repeatedly been ravaged by severe epidemics that claimed the lives of tens of millions of Africans, including children, has been spared by the coronavirus pandemic and thus remains beyond the scope of international attention. The statistics of detection and growth/decrease in the incidence of the coronavirus in Africa are still incomparable with the peak rates now seen in the United States, Italy, Spain, France and other countries of the developed (according to the UN) world. According to the WHO, outbreaks of the coronavirus were recorded in 45 African countries (including sub-Saharan Africa and the Maghreb), but the sheer scale of the pandemic in Africa is incomparable with that in the EU or the United States with its 30,000 sick and 1,360 dead (according to the WHO data as of April 25).

Presumably, the post-pandemic ramifications will be fairly severe for the entire African continent not so much because of the large number of the sick and dead, but because of the restrictions imposed by partner countries (the EU, the United States, China and others) and African countries themselves to combat the pandemic.

A different configuration of trade flows that go through Africa and inside it may come as the most important potential change in the rules in Africa following the pandemic. In fact, we will witness the first continent-wide recession in the past 25 years, which is guaranteed to adversely affect the economic, social and political climate. According to the World Bank, sub-Saharan Africa is in for a sharp decline in GDP growth. In 2019, it stood at around 2.4 percent, but then went negative in 2020 and amounted to anywhere from -2.1 percent to -5.1 percent as of April. The recession rates in different countries of the region will be uneven. Presumably, the drop in GDP will hit hardest the three largest national economies, namely, Nigeria, Angola and South Africa. Just a few months ago, Africa was referred to as the continent of the future.

According to the World Bank’s preliminary estimates, Africas total losses from the coronavirus pandemic could amount to anywhere from $37 billion to $79 billion in the wake of severed trade ties and supplier bankruptcies. This will inevitably have an adverse effect on African exports, which will be particularly painful for the countries whose economic stability almost entirely depends on exports.

The consequences of the pandemic will affect Africas investment climate as well. Foreign aid and direct investment flows are expected to contract amid continued capital flight from Africa. The World Bank has announced its plans to provide financial assistance to African countries in the amount of $160 billion to overcome the effects of the pandemic over the next 15 months.

Pandemic: A strike targeting Africas lions

The pandemic is particularly dangerous for Africas six lions - Kenya, Ethiopia, Ghana, Nigeria, Mozambique and South Africa, which managed to make a great leap in economic growth in recent years.

Weaker national currencies, many of which are heavily dependent on the US dollar, are among the consequences. For example, Ghana, one of Africas lions of sustainable growth, has lost its fiscal revenue and is unable to bolster up its currency, which is down over 10 percent against the US dollar. The national bank had to bring the refinancing rate down to its lowest in the past eight years. The inflation rate that Ghana has been combating over the course of several decades is now running at 7.5 percent.

In addition to the ramifications of the spreading disease and restrictions imposed on the movement of people and goods, Africa will be affected by the current oil crisis. Changes in the output and supply of oil, petroleum products and natural gas will be further exacerbated by changes in the African countries’ (energy exporters and importers alike) role on the global oil market. This will be especially painful for Nigeria, Algeria, Libya, Angola, Gabon and Equatorial Guinea  the African OPEC members who joined this organisation in the 1960s and 1970s after the continent got its freedom. For several decades, energy exports have been shaping the economy of the new independent states.

Africa’s six lions will get the short end of the stick here as well. Ghana is a case in point. According to the IMF, Ghana's GDP growth was 7 percent in 201 ̶ 2019 and fell to 5.8 percent in April with a forecasted decline to 1.5 percent. This will be the worst number for Ghana in the past 37 years, because Brent oil accounted for 20 percent of Ghanas export earnings, and its price is now half of the number set in the country's budget. In addition, over 50 percent of the GDP is used to service Ghanas external debt, which, given the negative balance (according to the IMF, the anticipated number is -4 percent) and other causes on top of it, forced the government to ask the IMF for aid in the amount of $540 million. The termination of the contract with Maersk Drilling, which was involved in the countrys offshore petroleum production, dealt another blow to Ghanas economy.

Nigeria, one of Africas lions and an OPEC member, is another illustrative example. The country was held hostage in the price war between Saudi Arabia and Russia: Nigeria was forced to follow the policy of cutting oil prices to their lowest and increasing output to its highest. However, the price that this African exporter had to pay is beyond reasonable. With the oil price set at $57 in the 2020 national budget, Nigeria is facing the threat of its national currency depreciating and its trade balance plunging into a crisis, as petroleum accounts for 94 percent of the country's exports (even though export revenue accounts for 10 percent of Nigeria's GDP, 57 percent of the national fiscal revenue come from petroleum).

South Africa, the only developed economy in Africa, is the third lion which suffered heavy losses. Most contracts in this sphere have been suspended amid back-to-back bans on trade and travel designed to combat the coronavirus, and falling petroleum prices and weakening bilateral trade with the neighbouring states given the absence of a single law regulating oil and gas production and export. 

Africa may face severe poverty again. According to the World Bank Group, up to 60 million people in Africa may find themselves below the poverty line in 2020, which could be a critical factor leading to a worsening sociopolitical situation across Africa. Over 5 million people have already slid below the poverty line in Nigeria, over 2 million in the DRC, and over a million in South Africa. In fact, they are back to 1998, when poverty was triggered by the Asian financial crisis, and this undercuts the 2000 Millennium Development Goals and the UN Sustainable Development Goals until 2030.

In turn, a sharp increase in the number of insolvent debtors, that is the countries that are simply unable to service their external debt, may be behind a possible new round of poverty in Africa. Africa's total debt shot up by 150 percent in 2018 ̶ 2019, reaching a record high of $583 billion (the World Bank data), and continues to grow, which nullifies the efforts to overcome the debt burden on the continent over the past 20 years. The “resource reinforcement” of external debt may be the reason for this surge in debt numbers as the mining sector was hardest hit by the current developments.

The China factor also matters as China was the main importer of resources from Africa in recent years, and even the temporary shutdown of its foreign trade made Africa feel the pinch. This affected the financial sector as well. According to the China Development Bank and the Chinese Eximbank, more than half of China's loans went to Angola ($21.4 billion), Ghana ($3 billion), Niger ($1 billion) and Sudan ($3 billion). Since China was the first to overcome the pandemic and to open its borders to goods and services, it can oust the European players and the United States from the African market as long as the borders remain closed.

The impact of the pandemic and the oil and financial crises will lead to sociopolitical changes in Africa. For example, Angola, which depends on exports of oil and other resources, was fighting inflation and recession for five years, and almost overcame it in 2019.  However, since the country had to close its borders to foreign trade, it also had to call off the national economy reform which included privatisation of state-owned companies and a plan to reduce debt, which provided for full repayment of the external debt by 2020. A state of emergency was declared in the country, which increased social tensions.
The food security crisis in Africa is yet another dangerous fallout of the pandemic due to higher costs, lower domestic demand, the breach of food contracts between the countries of the continent and a decrease in food imports from other regions of the world. (The decrease could be anywhere from 13 percent to 25 percent according to the World Bank data as of April 2020.)

The EU and the United States leaving the African market, even temporarily, will create and expand new niches for other external players, including non-conventional or relatively new ones for Africa such as BRICS, China, India and Russia. The grave consequences of the pandemic for Africa provide more opportunities to expand Russias presence and spheres of influence on the continent by allowing it to go beyond the production and exports of minerals and raw materials to the soft security sphere and greater opportunities for Russias soft power.

Views expressed are of individual Members and Contributors, rather than the Club's, unless explicitly stated otherwise.