African economies could lose 20 to 30 percent of fiscal revenues —estimated at $500 billion in 2019 — from the spread of coronavirus on the continent, according to a report from the African Union.
The African Union, which represents 55 African countries, examined the effects that several different COVID-19 scenarios could have on African economies in the coming months.
In a scenario in which the pandemic lasts four months, Africa’s economy could experience negative growth of 0.8 percent, equivalent to negative 4.18 percentage points of GDP, the report says. In a more dire scenario in which the pandemic lasts up to eight months, Africa’s economy is projected to experience negative growth of 1.1 percent, reducing GDP by 4.51 percentage points.
According to the report, released in early April, taxes on goods and services represent over 53 percent of tax revenues in African countries, with VAT accounting for over 29 percent. The report says that while African countries have greatly increased their tax revenues since 2006, the spread of COVID-19 threatens their largest industries: production and export of raw materials, travel, and tourism.
With exports and imports expected to drop by 35 percent from last year’s levels, the African Union estimates economies will lose roughly $270 billion and be forced to spend at least $130 billion more on health measures to combat the virus.
In countries that rely heavily on oil exports — like Algeria, Angola, Congo, Libya, and Nigeria — the economic crisis could hit particularly hard. Decreases in crude oil prices and production mean oil and other hydrocarbon revenues could drop by 40 to 50 percent, the report says.
With a projected drop in revenues, the African Union report says governments may have to turn toward international markets for funds, which could increase debt for individual countries. The report predicts countries will continue the trend of spending less during hard times, with infrastructural investment dropping by 25 percent as a result of decreased tax revenues and challenges in bringing in external resources.
To minimize economic impact, the report recommends that governments consider suspending taxes and waiving tax payments in critical sectors during the crisis, while providing fiscal stimulus for taxpayers and suspending interest rate payments on debt.
To fund healthcare services and prop up the economy, the report suggests countries borrow from international markets while the commercial interest rate is low.
Because of lockdowns, business closures, and the destruction of value chains, African countries could lose up to 20 million jobs in both the formal and informal sectors, the latter of which makes up between 30 and 90 percent of employment, the report says. The informal sector has been hit particularly hard by the coronavirus crisis and is largely left out of relief efforts, according to researchers.