Coronavirus: Economic consequences to hit Africa hard

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By Eric Olander

There are growing concerns about the impact the Coronavirus epidemic will have on Africa’s economies

There was a broad sell-off that rattled global stock markets on Monday, due to growing investor anxiety over the fallout from the rapidly escalating coronavirus crisis in China. But it was especially acute in South Africa.

The Johannesburg Stock Exchange plunged by as much as 2.6% yesterday, the steepest decline in more than eight months.

Investors are clearly worried about the exposure that many South African companies have to China, the source of the deadly viral outbreak that threatens to slow economic growth in the world’s second-largest economy.

With the death toll rising in China and thousands more infected, there are mounting concerns that Chinese officials will be unable to stop the spread of the increasingly virulent coronavirus in the short term.

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While the potential impact on human health will be significant, possibly devastating, a contagion will also have severe economic consequences around the world. Africa is especially vulnerable given how most economies on the continent are dependent on exporting commodities.

Possible Economic Ramifications for Africa from the Escalating Coronavirus Outbreak in China

  • CHINA TURNS INWARD: If the 2003 SARS crisis offers any indication, China will become increasingly consumed by this crisis. Foreign economic policy, particularly issues that are not core national security interests, will fall down the priority list as China’s state-owned enterprises either turn their attention to the domestic crisis or just hunker down until the crisis passes.
  • GLOBAL INVESTOR FREAK OUT: Monday’s sell-off in South Africa provides a hint of what may be in store for the continent as global investors look at Africa’s reliance on the Chinese market as a significant liability. This could put significant pressure on many African currencies, particularly in Nigeria, Kenya, and South Africa.
  • CHINA’S STOPS BUYING WHAT AFRICA HAS TO SELL: China’s economy was already slowing before the coronavirus outbreak but now with tens of millions of consumers hunkered down in their homes, and worried about potentially bank-busting healthcare costs, consumer spending is widely expected to slow even more. This could have an immediate impact on demand for African agricultural exports like Namibian beef, Rwandan coffee, Kenyan tea and South African wine and citrus.
  • CHINESE TRAVELLERS WILL BE TOO AFRAID TO FLY: Flying during a viral outbreak like this is terrifying. Chinese leisure and business travellers will be among the first to halt all but the most essential trips, prompting what will likely be a significant downturn in passenger traffic between China and Africa. A number of African airlines have built up sizeable businesses ferrying students, workers, and tourists back and forth, and this could now be in jeopardy, at least for the remainder of 2020.

While the economic consequences of the coronavirus will no doubt be acutely felt in several African sectors, it’s also important to be circumspect at this early stage of the crisis.Daily newsletter: join our 100 000 subscribers!Each day, get the essential: 5 things you need to know Sign up Also receive offers from The Africa ReportAlso receive offers from The Africa Report’s partners

There’s still a lot we don’t know, especially to what extent African governments will have to battle the virus in their own countries, and what the impact of a possible contagion will be on Sino-African economic ties.

Africa is much more exposed to the China market than other regions around the world so this crisis could also be the impetus that prompts forward-thinking policymakers on the continent to expedite plans to further diversify their trade and investment relationships.