Study on the Socio-Economic Impacts of Covid-19 Pandemic in COMESA Region Completed

COMESA Secretariat has conducted a study on the socio-economic impacts of the COVID-19 pandemic in the region. The study is expected to help Member States in developing policies to address the impacts of the pandemic on their economies.

According to the study, only six Member States: Egypt, Ethiopia, Kenya, Malawi, Rwanda and Uganda are projected to have positive growth rates post COVID-19 pandemic. The resultant contraction in economic growth in countries is likely to hit hard countries that are resource intensive, oil exporters, and tourism dependent. Non-resource intensive countries will be more resilient.

Specifically, the fall in commodity prices affected COMESA oil and mineral products exporters thereby leading to sharp declines in export earnings and balance of payment challenges , according to the report.
The study identified the services sector as the most affected due to travel restrictions and lockdowns. These include business services, air transport, road transport and tourism. Comoros, Seychelles, Mauritius, Kenya, Ethiopia, Egypt and Madagascar, which heavily rely on services sectors have been the most affected.

“Available data pointed to a double-digit reduction of 22% in the travel and tourism sector during the first quarter of 2020, with arrivals in March down by 57%,” the report stated. “This translates into a loss of 67 million international arrivals and about USD 80 billion in receipts. Current scenarios point to declines of 58% to 78% in international tourist arrivals for 2020.”

A brief on the study was presented to the 41st meeting of the Council of Ministers last week. In their decision, the ministers urged Member States to fast-track implementation of the protocol on free movement of persons and easing regional movement. Specifically, they cited the movement of professionals like medical personnel, engineers, technicians, essential goods and services across borders and the development of a regional strategy to encourage and promote domestic and regional tourism.

The study found that financial services were more resilient due to digitization including the use of the internet and mobile banking. It recommended greater liberalization of financial and telecommunication services to help reduce costs of services provision which are currently high.

On inflation, the study found that the regional rate increased from 31.6% to 60.4% in the first of 2020, with some countries registering double digit month on month inflation.

“Inflation was largely driven by drastic changes in consumption of housing, water, electricity, gas and other fuels (89%), health (78.3%) and communication (69.6%) due to supply shortages and confinement measures,” the report says.

However, many economies experienced increase in nonperforming loans (NPLs) especially in the following sectors: tourism, restaurant and hotels, transport and communication, trade, real estate, personal/household, building and construction and manufacturing sectors.

In addition, there was a cut down in remittance inflows in the region, attributed to shut down in economic activities in key source countries including France, Italy, Spain, United States, United Kingdom, Middle East and China. These account for a quarter of total remittances to Sub Saharan Africa.

Steep declines in foreign direct investment (FDI) were noted with delays in approved development projects linked to external financing mechanisms, and an increasingly high risk of financial sector contagion due to the decreased ability of businesses and individuals to meet their financial obligations.

Expansionary policies undertaken in combating the COVID-19 pandemic worsened the fiscal deficits and external debt situations in most countries. Increased spending was notable in health and support to businesses and vulnerable populations.

Despite the challenges, the pandemic created opportunities for firms to innovate, develop new strategy and products, for example, through repurposing production lines to produce COVID-19 essential products.

Following the study, the Council on Ministers directed speedy digitalization of trade instruments which include electronic trade (e-trade), e-logistics and e-legislation under the COMESA Digital Free Trade Area initiative. The Council urged Member States to enhance investments in internet infrastructure and penetration to promote online supply of services and reduce costs of communication – mobile, internet and financial services to increase/expand the benefits of digital technology.

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