African downturn and recovery paths to diverge - Capital Economics
Africa Economics

African downturn and recovery paths to diverge

Africa Economics Update
Written by Virag Forizs

Low-profile data suggest that the economic damage caused by lockdowns in some of the poorer economies in Africa will be more moderate than in higher-income countries. But the economic pain could be more protracted in the former group of countries as they struggle to contain the virus.

  • Low-profile data suggest that the economic damage caused by lockdowns in some of the poorer economies in Africa will be more moderate than in higher-income countries. But the economic pain could be more protracted in the former group of countries as they struggle to contain the virus.
  • We don’t have much data to go on to gauge the impact of social distancing measures imposed across Sub-Saharan Africa. One indicator that Google publishes for all of the region’s economies tallies the number of visits to retail and recreation outlets. The data clearly show a decline as containment measures got underway and consumers avoided public places. (See Chart 1.) But there is a large variation in the size of the fall, while in other EMs the range of outcomes tends to be more uniform.
  • The decline in activity in these sectors is largest in richer economies, such as South Africa and Mauritius, where visits are down 70-90%, and smallest in lower-income countries like Zambia, down 20-30%. There is a third group that includes Nigeria and Kenya in the middle, where visits are down about 50%.
  • There are two key factors at play. The first relates to the stringency of containment measures. In South Africa and Mauritius for instance, the authorities announced (and enforced) strict lockdowns. In contrast, the governments of Zambia and Mozambique imposed less severe restrictions.
  • What’s more, larger household sizes, limited access to sanitation and larger informal sectors where workers have insufficient savings and no social safety nets mean that containment measures are more difficult to enforce in lower-income economies in the region.
  • Second, consumers in poorer countries have less discretionary spending to cut back under lockdowns. One way to show this is to look at weights within CPI baskets, which are based on household expenditure surveys. In South Africa and Mauritius, foodstuffs (on which spending is unlikely to be cut back) makes up 20-25% of the CPI basket. The corresponding figure in Ghana is almost 45%. And the CPI weight for recreation and culture is two-to-three times larger in South Africa and Mauritius than it is in Mozambique and Kenya. (See Chart 2.)
  • One implication is that output in low-income countries will fall less sharply compared to relatively more well-off peers. Indeed, we think that GDP will still expand this year in Kenya, Rwanda and Côte d’Ivoire for instance (albeit only by a little), while we expect that the economies of South Africa, Botswana and Mauritius will contract sharply in part due to the severe hit to consumer spending. (See our full set of economic forecasts in our latest Africa Economic Outlook.)
  • While the economic damage from lockdowns will probably not be as severe in poorer economies, activity may stay weaker for longer. These countries may struggle to bring the virus under control and have to impose economically damaging restrictions for a prolonged period of time.

Chart 1: Retail & Recreation Visits
(% Change From 3rd Jan. – 6th Feb. Baseline)

Chart 2: Consumer Price Index Weights (%)

Sources: Google, Capital Economics

Sources: CEIC, Capital Economics


Virág Fórizs, Africa Economist, virag.forizs@capitaleconomics.com