THE ECONOMY NEXUS OF THE COVID-19 PANDEMIC

The COVID-19 pandemic, which is unprecedented in human history and has to date resulted in 15.8 million confirmed cases with 640,016 deaths, has seen governments undertaking strict lockdown measures which not only affected local business activities but also disrupted global value chains resulting in massive economic implications. The purpose of this paper is to review the impact of the COVID-19 pandemic on the economy with a special focus on the African continent. Because the coronavirus pandemic is still evolving and its duration is uncertain, it is difficult to accurately quantify the economic implications of the pandemic. As a result, this paper used the scenario basis analysis as well as extensive literature on the subject. The results show that the pandemic, although it has devastating social impacts due to loss of human life, it has also presented serious economic challenges which inter alia include economic recession, reduced trade volumes and subdued financial flows. Because of globalisation, Africa is not immune to these challenges. As noted in this paper, major economic activities and sources of foreign exchange in Africa such as the tourism sector, export of commodities, external finances and local business activities were negatively affected, resulting in most African economies falling into recession which has wiped out economic gains of the last ten years as noted by the International Monetary Fund. In mitigating this pandemic, African countries should use incentive packages to save businesses as well as institute a number of fiscal measures such as tax waivers and engage international development partners for bail out.


Introduction
The coronavirus pandemic was first reported on 31 December 2019 in Wuhan City, Hubei Province of China as a cluster of pneumonia cases of unknown cause (United Nations Development Programme, UNDP, 2020). Since then, the globe has witnessed phenomenal spread of the coronavirus and the disease that causes it, that is, COVID-19. On 30 January and 11 March 2020, because of the fast spread of the disease, both in terms of geographic coverage and casualties, the World Health Organization (WHO), declared the coronavirus outbreak, a public health emergency of international concern and a pandemic, respectively (UNDP, 2020). To date, as on 26 July 2020, the pandemic has seen confirmed cases rising to 15.8 million people, with casualties of 640,016 deaths (World Health Organisation, 2020).
Given the nature of the disease, there are certain epidemiological features that remain ambiguous hence at this stage it is impossible to determine with certainty how the pandemic will evolve. This paper reviews the economic impacts of COVID-19 with a special focus on the African economy.
In this paper, because of scarcity of data and the fact that the impact of COVID-19 is still evolving, it is difficult to quantify the actual and potential impact of the COVID -19 pandemic. In this regard, using existing literature from reputable sources such as the World Bank, International Monetary Fund (IMF), UNDP and other think tanks, the paper focuses on understanding the possible economic implications as well as scenario analysis with a view to establishing the impact of the pandemic on the global economy and the African continent. The paper is structured as follows: section two discusses the impact of COVID-19 on the global economy; section three discusses the impact of COVID-19 on African economy and section four presents the concluding remarks and policy priority.

Current Global Economic Context
The COVID-19 pandemic is destroying the global economy in an unprecedented manner. The level of economic destruction is phenomenal and has never been observed since the Great Depression of the 1930s and the recent global economic crisis of 2008. Sadly, this is taking place at a time when the world economy is struggling to fully recover from the 2008 crisis.
As observed, the pandemic has a devastating effect both on human life as characterised by massive mortalities witnessed, as well as economic impacts through disruption of global value chains which accounts for about 50% of world trade, sharp fall in commodity prices, drop in foreign exchange receipts, sudden fall in tourism arrivals, decline in foreign financial inflows and frozen labour markets as a result of lockdowns (African Union, 2020).

Plummeting of Commodity Prices
Because of a sudden fall in demand due to reduced travel, oil prices plunged down from US$67 per barrel to US$30 per barrel, that is, by more than 54% (African Union, 2020). Past experience has shown that drop in prices of oil has devastating effects on oil producing economies. For example, the decline in crude oil prices which was noted by the end of 2014 resulted in massive decline in gross domestic product (GDP) for the Sub-Saharan Africa from 5.1% in 2014 to 1.4% in 2016. During this period, crude oil prices dropped by as many as 56% over seven months (African Union, 2020). Notably, since the price of crude oil has plummeted by more than 54% in three months, the current decline in crude oil prices has shown to be very fast thereby presenting a gloomy picture, that is, gloomier than 2014, in as far as the GDPs of oil producing countries is concerned.
However, in trying to mitigate the continuous fall in crude oil prices, major oil producers came up with proposal to cut crude oil production by 1.5 million barrels per day by June 2020 (African Union, 2020). The expectations were that non-OPEC states such as Russia would follow the trend. Unfortunately, this did not happen because on 8 March 2020 Saudi Arabia made an announcement that it would increase production, which resulted in escalation of oil wars as non-OPEC members retaliated, thus causing further plummeting of oil prices (African Union, 2020).

Impact on the Aviation and Travel Industry
In 2019, the aviation industry recorded US$830 billion in revenue. In the absence of the COVID-19 pandemic, the sector was projected to US$872 billion of sales revenue in 2020. However, because of the coronavirus which resulted in abrupt lockdowns and massive restrictions on travel, on 5 March 2020, the International Air Transport Association (IATA) projected that the aviation industry is likely to run a loss of US$113 billion as a result of the disruptions which were caused by COVID-19. Recent statistics shows that aviation and travel industries are expected to gross up US$419 billion in 2020, that is, a 50% decline of 2019 sales revenue (IATA, 2020).
Likewise, the tourism sector is facing similar problems. The tourism sector is anticipated to witness fall of 60-80% in tourist arrival, as well as revenue in the region of US$ 910 billion -US$ 1.2 trillion, that is, almost two thirds of US$ 1.5 trillion revenue generated in 2019, in foreign currency receipts in 2020, as a result of the disruptions which comes with COVID-19 pandemic (United Nations World Tourism Organisation, UNWTO, 2020). When past market trends are considered, this loss in revenue amounts to five to seven years-worth of growth which will be lost as a result of the COVID-19 pandemic. The combined effect of this loss, from employment perspective, is that the tourism and hospitality industries are anticipated to shed of several millions considering the fact that 80% of all tourism businesses are small-and-medium-sized enterprises (SMEs) with limited financial capacity to absorb the shocks of sudden fall in revenue (UNWTO, 2020).
At a global level, the hotel and hospitality industries are likely to lose about 20% of its annual revenue. However, the top tourism destinations such as Cambodia, Vietnam, Thailand, France, the United Kingdom, Italy, the USA, Mexico, China, Turkey and Germany together with travel supporting one in ten jobs (319 million) in the world and generating 10.4% of global GDP are likely to lose between 40% and 60% of annual turnover as a result of the travel restrictions.

Impact on Global Financial Markets
As a result of the disruptions caused by the COVID-19 pandemic, global stock markets witnessed massive losses in their history in decades. For example, in what is called the Black Monday episode of March 9, stock markets such as the Dow Jones lost close to 3000 points in one day while FTSE plunged by about 5% and witnessed a staggering US$ 90 billion loss in one day (see Table 1). Likewise, the banking sector has lost about 40% of its value in just one month and the trend is still bearish.

Global Trade
On 23 June 2020, the World Trade Organization (WTO) projected that global trade volumes are likely to decline by 18.5% in 2020, with a rebound expected in 2021. This new projection shows a downward revision from the WTO's 8 April 2020 estimates which was rather more optimistic as it has forecasted that global trade volumes might fall by 12.9% due to the economic impact of COVID-19, as shown in Table 2.
Although there is a high degree of uncertainty regarding the duration and economic impact of the COVID-19 pandemic, the WTO argues that the impact of the pandemic on global trade volumes will exceed the drop in global trade witnessed during the height of the 2008-2009 global financial crisis (WTO, 2020).
With respect to exports, using the optimistic scenario, as noted by the WTO (2020), North America is anticipated to record a -17.1% decline in exports in 2020. In the same vein, the pessimistic scenario shows that North America could record fall in exports by 40.9% in 2020. Using the optimistic scenario, South and Central America, Europe, Asia and other regions, are anticipated to record decline in exports -12.9%, -12.2%, -13.5% and -8.0%, respectively (WTO, 2020) (see Тable 2).
Since there is a casual link between exports and growth, using the pessimistic scenario, all the regions, that is, North America, South and Central America, Europe, Asia and other regions are anticipated to shrink by -9.0%, -11%, -10.8%, -7.1% and -6.7%, respectively (WTO, 2020) (see Тable 2).
Overall, the WTO (2020) observed that global economy is expected to bounce back in 2021 as both exports and imports are expected to recover thereby sparing economic growth.

Review of the Economic Impacts of COVID-19: Evidence from Africa
Because of globalisation, Africa has found itself integrated with the global economy through international trade as well as migration. This therefore makes Africa vulnerable to the COVID-19 pandemic. In this regard, Africa suffers from both exogenous and endogenous effects of the pandemic (African Union, 2020).
The exogenous effects, which are external factors, are as a result of decline in trade flows between Africa and other continents which subdued supply of tourists; remittances, official development assistance, foreign direct investments and other financial flows.
With respect to endogenous effects, the African continent witnessed slowed economic activities as a result of internal factors which are caused by spikes in the spread of the virus and the restrictions which were pursued by various governments with a view to containing it. For example, the lockdowns which were applied by most African governments resulted in serious disruption of economic activities resulting in decline in domestic demand and tax revenue. Subsequent sections present the impact of COVID-19 pandemic on the tourism sector, commodity prices, exports, economic growth and external funding.

Loss of Activity and Jobs in the African Tourism and Travel Industry
Because of worldwide application of travel restrictions and lockdowns, the African tourism sector, which is one of the backbones of African economies, suffered massive losses as a result of sudden decline in tourist arrivals. Specifically, IATA notes that air transport alone in Africa which is estimated at US$55.8 billion represents 2.6% of African GDP and supports 6.2 million jobs. Although at this stage it is difficult to quantify the potential impact of COVID-19 pandemic, the travel restrictions negatively affected international airlines including African top airlines such as Ethiopian Airlines, Egypt Air, Kenya Airways, South African Airways, etc.
The IATA noted that, because of COVID-19 pandemic and subsequent travel restrictions, 80% of the bookings were cancelled while international bookings in Africa in March 2020 and April 2020 declined by 20% (IATA, 2020). Likewise, domestic bookings fell by 15% in March 2020 and 25% in April 2020. Sadly, between February 2020 and March 2020, ticket refunds shot up by 75% in 2020 compared to the same period in 2019 (01 February-11 March), resulting in loss of revenue by US$4.4 billion by African airlines (IATA, 2020).
Nigeria, Ethiopia, South Africa, Kenya, and Tanzania. Tourism employment comprises more than 20 percent of total employment in Seychelles, Cape Verde, Mauritius and Zimbabwe are amongst African states whose economy is significantly driven by the tourism sector, that is, both directly through foreign exchange earnings and through the value chains and downstream industries (African Union, 2020). Specifically, from a job creation perspective, the tourism sector absorbs more than a million people in each of the following countries: South Africa, Kenya, Nigeria, Ethiopia, and Tanzania (African Union, 2020). In Seychelles, Cape Verde, São Tomé and Príncipe, and Mauritius, the tourism sector employs more than 20% of total employment (African Union, 2020).
During the recent crisis, that is the 2008 global financial crisis and the 2014 commodity price shock, African tourism experienced losses of up to US$7.2 billion. Building on this, under the average scenario, African Union (2020) argues that the tourism and travel sector in Africa is likely to lose at least $50 billion as a result of theCOVID-19 pandemic and more than 2 million jobs.

African Exports
Recent statistics from the UNTACD shows that for the period (2015-2019) total Africa trade averaged at US $ 760 billion per annum which represents 29% of Africa's GDP. In the same UNCTAD report, because of low levels of industrial transformation, infrastructure, limited financial and monetary integration and existence of rampant tariff and non-tariff barriers, intra-African trade accounts for only 17% of total trade of African countries. With 83% of African trade being traded outside the African continent, makes African economy vulnerable to the exogenous shocks such as the COVID-19 pandemic.
Interestingly, Africa's major trading partners are the United States, European Union and China. Ironically, as noted in Table 3, total imports in North America, South and Central America, Europe, Asia and other region are expected to plummet by -33.8%, -43.8%, -28.9%, -31.5% and -22.6%, respectively (WTO, 2020). Although it is difficult to quantify the exact impact of fall in exports from African economies as a result of massive decline in imports from these major trading partners, it is undeniable that Africa will witness а sharp decline in exports in 2020.
From exports of crude oil perspective, as noted in section 2.1, the price of crude oil has drastically fell to below US$30 per barrel, which has a direct impact on export receipts for countries such as Algeria, Angola, Cameroon, Chad, Equatorial Guinea, Gabon, Ghana, Nigeria, and the Republic of the Congo (African Union, 2020).
In addition, there was a general fall in demand for crude oil, which resulted in some African exporters getting stuck with their product. For example, as on 4 March, about 70% of the April 2020-loading cargoes of crude oil from Angola and Nigeria were still unsold whilst other oil exporting countries from Africa such as Gabon and Congo had difficulties getting buyers. South Sudan and Eretria, in particular, were affected by the collapse of trade and broken supply chains in China (United Nations Economic Commission for Africa (UNECA), 2020). This is particularly so because China imports account for 95% and 58% of all of South Sudan's and Eritrea's exports (UNECA, 2020).
This double tragedy of reduction in crude oil prices as well as sudden shocks from plummeting demand have far-reaching implications on African oil exporting economies.
However, the impact of reduced foreign currency earnings as a result of fall in prices of crude oil has different implications on African economies. For example, in South Africa, oil exports represent 3% of GDP and as such, even though it is significant considering the fact that the country is already in recession, its overall impact is marginal. However, for countries such as Nigeria and Angola, whose oil exports represents 90% of total exports and contribute more than 70% of the national budget, the fall in prices of crude oil by more than 54% is likely to be catastrophic to these economies (UNECA, 2020).
Rightly so, the UNECA (2020) estimated that the expected losses related to the collapse of the prices of crude oil are around US$65 billion, of which up to US$19 billion of the losses are expected in Nigeria. Ironically, Nigeria, it its current national budget, it was prepared under the assumption that crude oil prices was anticipated to be averaging around US$67 per barrel. Since the price has fell by more than 54%, it therefore forces countries which are backed up by oil exports to reduce their revenue forecasts and cut expenditure for at least two quarters (OECD Development Centre, 2020).
However, this has a net effect of reducing the foreign exchange reserves of the oil exporting countries and as well as their capability to implement their development programmes aimed at easing the impact of the COVID-19 pandemic.
Outside trade in crude oil, Africa's imports were observed to have been adversely affected by the COVID-19 pandemic. Because of disruption of production and trade, a number of African countries which include South Africa, Zimbabwe, Ghana and Rwanda, for example, witnessed a sudden fall in imports which resulted in shortages of basic commodities which are traditionally imported from China thereby causing a surge in inflation in these countries (African Union, 2020).

Africa's External Financing
Over the years, a number of countries in Africa heavily relied on external financing in financing their current account imbalances. These external sources of finance, inter alia, include remittances, foreign direct investment, official development assistance, external debt and portfolio investments. Nevertheless, because of expected recessions or economic meltdown in source countries, the supply of remittances, foreign direct investments, portfolio investments, external debt and official development assistance to Africa is likely to be elusive (African Union, 2020).

(а) Remittances
Remittances, which for the last ten years have consistently contributed about a third of total external financial flows to Africa, are expected to fall drastically because of subdued activities in most advanced and emerging economies which host the African diaspora.
The studies by Mugano (2018) and African Union (2020) show that the contribution of remittances as a share of GDP exceed 5% in 13 African countries while in some countries range as high as 23% in Lesotho and more than 12% Comoros, the Gambia, and Liberia. Ironically, when combined, Egypt and Nigeria account for 60% of Africa's remittances inflows. These countries are anticipated to face serious shocks and vulnerabilities as a result of fall in diaspora remittances.
(b) Foreign Direct Investment UNCTAD (2019) noted that foreign direct investment to African economies witnessed an upward increase by 11% notwithstanding the fact that globally FDIs took a nosedive. This increase was mainly contributed by increase in investments into natural resources and economic recovering in South Africa. As noted by UNCTAD (2019), the top 5 recipient countries were in 2017: Egypt ($6.8 billion, -8.2%);South Africa ($5.3 billion, +165.8%), Congo (4.3 billion, -2.1%), Morocco ($3.6 billion, +35.5%), and Ethiopia ($ 3.3 billion, -17.6%). Now, with the uncertainties over the length of the COVID-19 pandemic and with general consensus centred around a scenario of the spread of the pandemic expected to run throughout 2020, FDIs are expected to drop by between -5% and -15%. This is particularly so because signals from statements issued by top 100 multinational enterprises (MNEs), as noted by OECD, indicated serious desire to slow down capital expenditures as part of mitigation measures against reduced earnings as a result of the COVID-19 pandemic (UNCTAD, 2020).
In addition, African economies such as Nigeria have already large-scale capital withdrawals. For example, the All Share Index in Nigeria registered its worst performance in the last ten years March 2020 as overseas investors pulled out. Based on the foregoing discussion, experts project that Africa may lose up to 15% of the FDI inflow into the continent as a result of the COVID-19 pandemic.

The Impact of COVID-19 on Economic Growth in Sub-Saharan Africa
Sub-Saharan African economies are expected to shrink by 3.2% in 2020 as a result of the adverse effects of COVID-19.As noted by the International Monetary Fund (2020), in 2020 Sub-Saharan African economies will have a GDP that is US$243 billion smaller than projected in October 2019. The major downward revisions are mainly driven by tourism dependent economies such as Tanzania, Zimbabwe, Comoros and Mauritius as well oil exporting countries which are largely dominated by Nigeria and Angola (IMF, 2020).
Interestingly, countries such as Côte d'Ivoire, Rwanda, Senegal and Uganda, which are more diversified, are expected to withstand the adverse impact of COVID-19 and are expected to remain positive in 2020 (IMF, 2020).
A closer review of major economies in SSA shows that South Africa, Nigeria and Angola are in recession.
South African economy is expected to contract by 8% mainly as a result economic shutdown which was enforced in April-May 2020 with a view to containing the COVID-19 pandemic. Likewise, real GDP per capita is expected to shrink by 9.4% in 2020, as result of disruption of business (see Тable 3). However, in 2021, as a result of improvement of business activities and confidence, the South African economy is expected to rebound by 3.5% (see Тable 3).
Nigeria, because of loss of foreign exchange on the back of the tragedy of reduced economic activity, reduced global demand of crude oil and crude oil prices, is expected to contract by 5.4% in 2020 (see Table 3) (IMF, 2020). The country is expected to register a 2.6% growth rate in 2021 on the back of rising global demand and prices of crude oil.
Like Nigeria, Angolan economy is anticipated to contract by 4% as a result of fall in global prices of crude oil and demand, reduced domestic activities as a result of the lockdowns and tight credit conditions (IMF, 2020). Likewise, real GDP per capita in Angola is expected to shrink by 6.8% in 2020 (see Table 3). On the back of firming oil prices and improvement in business activities the Angolan economy is anticipated to grow by 3.25% in 2021.
Overall, in Africa the COVID-19 pandemic is expected to shrink real per capita GDP by 5.4% in 2020 which will bring the per capita GDP back to its level in 2010 (IMF, 2020). As the IMF put it: "The crisis impact is set to wipe out almost 10 years of progress in development in Africa� "

Conclusion and Policy Priority
The COVID-19 pandemic undoubtedly brought economic and social hardships across the globe. In as much as it is a global pandemic, African economies, because their over-reliance on export of few lines of commodities, limited intra-Africa trade and weak macroeconomic environment, have been severely hit by the pandemic. To make matters worse, external sources of financing in the form of FDIs, remittances, portfolio investments, official development assistance and external debt were found to be elusive in Africa in this current year as result of the coronavirus.
This therefore leaves most Sub-Saharan African economies with limited policy choices as compared with developed and richer economies. In view of this, the following policy measures are suggested: • As argued by the IMF (2020), because Sub-Saharan African economies have a weak health system, preservation of health and lives remain a priority. This will help African governments to reduce pressure on public health and personal protection equipment. • In view of worsening unemployment and increasing poverty levels since the majority of the households who are in informal sectors are extremely vulnerable when governments institute lockdowns measures, there is need for provision of safety nets in the form of cash transfers for the vulnerable people. • From a monetary policy perspective, as suggest by the IMF (2020), African Central Banks, where inflationary pressures are limited, must remain accommodative. It is important that, where possible, Central Banks provide liquidity to banking sector with a view to ensuring timely processing of all payment transactions and settlements, withdrawals and remittance transfers. In dealing with COVID-19 related shocks, within the macroprudential frameworks, banks must be encouraged to use capital buffers and flexibility to restructure their loan portfolios. • In line with the recommendations from the African Union, there is need to immediately waiver all interest payments on corporate bonds, trade credits and lease payments.
• In order to minimise the impact of COVID-19 on businesses, countries must endeavour to create fiscal space with a view to providing both tax deferrals and suspension as well as fiscal incentive packages. • In order to provide lifeline and safety nets for small businesses, African governments must provide tax exemptions to SMEs. • In line with the IMF (2020) suggestions, as soon as the COVID-19 pandemic has subsided, Sub-Saharan African economies must, in a sequenced and strategic manner, implement both fiscal and structural reforms which are consistent economic recovery and debt sustainability. • International assistance, in view of constrained policy and resource space, African countries, in 2020 alone require more than US$110 billion to mitigate against the COVID-19 pandemic (IMF, 2020). Although there has been tremendous support from various developmental partners such as the IMF, World Bank and G20 through various financing schemes such as debt relief, debt service suspension, Rapid Credit Facility (RCF) and Rapid Financing Instrument (RFI), which has created more financial space for African economies, there is still a funding gap of US$44 billion that must be financed. This calls for the need to scale up support for African economies.