Professor of Economics, University of Exeter, and Director of Tax Administration Research Centre (TARC)
Researcher at The African Tax Administration Forum (ATAF)
The COVID-19 pandemic has had a devastating impact on the health and social fabric of society and the economy of countries across the globe. Nearly all countries to date have reported COVID-19 infected cases, but they have followed different trajectories as their exposure to the virus, their response and level of preparedness have differed. Europe and the US have been under a COVID-19 siege, while confirmed cases in Africa are lower but rising, albeit at a slower pace.
As of 21st May 2020, all 54 African countries had reported a collective total of 95,482 cases of COVID-19, with South Africa (18,003 confirmed cases) being top of the list closely followed by Egypt (14,229), then Algeria (7,542). The pandemic is affecting life significantly everywhere, but in Africa, the impact can be more long-lasting and devastating. Africa’s health infrastructure is the least developed in the world. As of April 2020, Central African Republic, for instance, with population of around 5 million, had just three ventilators. Sierra Leone, with a population of 7.5 million and Burkina Faso with a population of 19 million, each had less than twenty. Infant and maternal mortality are significantly high too, signifying the underlying challenges and the pressure on the health system.
African countries are predominantly agriculture-based economies, where populations engaged in agricultural activities live hand-to-mouth, with limited access to sustainable income. Estimates show that Africa has the highest rate of informality in the world, at 72 percent of non-agricultural employment, and that 94 percent of workers with no education are informally employed. Walking long distances to access basic amenities like water, firewood, and food makes lockdowns impractical in rural Africa (Madagascar, Malawi, Ethiopia and Kenya for example). In a March 2020 campaign to boost access to water in developing countries, the World Vision estimated that women and children in rural Africa walk an average of 6 Kilometers just to access safe water! A prolonged pandemic will also affect crops and therefore food prices. For instance, in Malawi, one of the top three most impoverished countries in the world, food contributes slightly over 45 percent towards headline inflation. Under these circumstances, informal sector workers may hardly appreciate the importance of social distancing rules and global impact of COVID-19.
Revenue mobilization has been an urgent issue over the years, but now with the pandemic it becomes more even more challenging, as governments announce relief measures to ease the impact of the pandemic. Kenya, for example, reduces the standard VAT rate from 16 percent to 14 percent, Malawi offers a 6 month tax amnesty and South Africa provides a tax subsidy of up to R500 per month ($26,60) for the next four months (from April 2020) for those private-sector employees earning below R6 500 ($346).
Whatever measures a country takes, inevitably there will be a loss in production and much-needed revenues. The Africa Purse (2020), for example, estimates that COVID-19 will cost Sub-Saharan Africa (SSA) between $37 billion and $79 billion in output losses for 2020. This is due to a combination of effects, ranging from trade and value chain disruption, to disruptions caused by containment measures. Further estimates suggest economic forecast for SSA will fall sharply from 2.4% in 2019 to -2.1 to -5.1% in 2020 due to the impact of COVID-19. This will have a significant impact on the 2030 Agenda for sustainable development which is the most comprehensive blueprint to date for eliminating extreme poverty, reducing inequality, and protecting the world at large. The anticipated recession of Africa economy due to COVID-19 will surely delay meeting the 2030 Agenda targets.
Lack of containment of COVID-19 (and the uncertainty surrounding the behaviour of the virus itself) could also cause displacement of people and increase the migration flows from Africa into Europe. And it will surely worsen poverty and inequality, due to large numbers of fatalities in poorer communities.
World Bank data shows that debt service in 2018 was approximately 2.1% of regional GDP. To service this debt and simultaneously provide for a policy stimulus by redirecting expenditure on health will be nearly impossible. The challenge has prompted discussions in international institutions (World Bank and the IMF) for a bilateral debt standstill, to soften the impact of COVID-19. The G20 too have recognized that coordinated effort is required to support Africa in dealing with the economic and social consequences of COVID-19.
While these are welcome discussions, care of course must be exercised in making sure that the funds are directed for their intended purpose. In some countries, where elections are coming up, diverting funds towards electoral campaigns might be very tempting According to a 2015 report released by the African Union’s (AU) high-level panel on illicit financial flows and the UN Economic Commission for Africa (UNECA), Africa is estimated to be losing at least US$50 billion annually to illicit financial flows, including fraud, tax avoidance, offshore investments and siphoning of billions of dollars meant for the poor. At the time when the whole world is facing a crisis and the G20 trade some of their stimulus off to Africa, the best way to give back is to enforce the utmost levels of good governance in handling the relief or funds. Beneficiaries must ensure that the stimulus is solely directed towards mitigating the impact of COVID-19.
Recently, 18 leaders signed a letter (see ‘Only victory in Africa can end the pandemic everywhere’, FT 14/04/2020) arguing for a stimulus package of at least $100bn so African countries have enough fiscal space for health expenditure (including, procurement of medical supplies and equipment, building diagnostic capacity and training and improving the health screening of people) but also for mitigating the economic and social consequences of the pandemic. The arguments are well justified. This is not an economic crisis, but a crisis caused by a global pandemic. The world should collectively take bold actions.