Curfews, bars closed, limitations of movements… While new cases of infection multiply, most European countries take measures to curve the pandemic’s spread. The economic activity slows down in Africa’s first partner, and it will not be without any consequences for the continent already impacted by the Covid-19 crisis.
The world sneezes, and Africa gets a cold. The old proverb has never been more true. While the Covid-19 pandemic wreaks havoc in the United States, Europe, and a part of Asia, in India especially, Africa, which still copes on a sanitary level, sees their markets worry about a new economic slowdown.
In the US, all eyes are focused on the presidential election, and the spread of the pandemic, which already killed 200 000 people, doesn’t concern the current president. Still, European governments resigned to confine the population again, to face the number of cases’ increase.
In France, after a new record in the number of cases in 24 hours – the epidemic killed more than 36 000 people since the beginning in the country –, Emmanuel Macron, the president, decided to impose a new lockdown starting 30th of October. If schools are still open, travels are limited to workers or emergency cases.
Some other European countries took those decisions before. Ireland and Walls, among others, took similar restriction measures a week earlier. In Germany, where wearing a mask is obligatory for a few weeks, we prepare for a new lockdown. Same in Belgium. In the South of the continent, in Portugal, restrictions concern the most affected cities. Same in Italy, with a new curfew and a return of drastic measures.
Europe barricade itself, the economy slows down
After a slight recovery, the new lockdown will lead to a slowdown of the Union’s economy. In France, economic activity will plummet by 15%, announced Bruno Le Maire, the economy minister. Same predictions by the European Central Bank (ECB), which reported that the recovery of the euro area “lose steam.”
On the international stage, the same predictions. Some countries have been able to relaunch their economic activity faster than others, especially in North Asia (China, Taiwan, and South Korea). Still, the global economy is disturbed by the pandemic. The coronavirus crisis drives foreign direct investment (FDI) down by 49% during the first semester of 2020 compared to the same period last year and could drop by 40% during the year. The fear of a global recession is not helping those numbers to rise again, according to a report by the United Nations Conference on Trade and Development (UNCTAD).
“Global flow of FDI during the first semester of 2020 halved… It was more critical than what we were expecting for the whole year”
“Global flows of FDI (excluding offshore financial centers in the Caribbean) came under huge pressure during the first semester of 2020, due to the Covid-19 pandemic”, the report says. According to the UNCTAD, those cross-border investments reach 399 billion dollars, falling by 49% compared to 2019. The UN agency justifies this decrease by “the plant’s closing around the world, that forces companies to delay their existing investment projects and to postpone non-essential investments to keep some liquidity.”
“Global flow of FDI during the first semester of 2020 halved… It was more critical than what we were expecting for the whole year,” the Director of Investment and Enterprise, James Zhan, at the UNCTAD said during a press conference in Geneva.
The FDI’s flows toward Sub-Saharian Africa fall by 21%
Same slowdown on the African continent. Even if it still maintains good figures concerning the virus spread, less than 1% of the actual contaminations, the economic consequences can be seen. Tourism and event sectors are dying, leading to the loss of thousands of jobs, growths decelerate, and FDI decreases. The recession touching the European Union, the first commercial partner of Africa, confirmed that the post-Covid era is not here yet.
According to UNCTAD data, cross-border investment reached 16 billion dollars during the first semester of 2020. In North Africa, FDI’s total reached 3,8 billion dollars, a fall down by 44% compared to last year. For example, incoming flows toward Egypt plummeted by 57% to reach 1,9 billion dollars. On the other hand, Marocco sees incoming FDI rise by 6% and got 0,8 billion dollars, thanks to a diversified investment profile. The FDI’s flows toward Sub-Saharian Africa fall by 21% to reach 12 billion dollars. Incoming flows in Nigeria fall by 29%, reaching 1,2 billion dollars, due to the slowdown in setting up projects because of the closing of oil and gas industries. Investments toward Ethiopia stay “stable,” only decreasing by 12% to reach 1,1 billion dollars.
By contrast, FDI’s flows toward South Africa rose by 24% to reach 2,9 billion dollars. However, this increase is mainly due to intra-corporate transfers from foreign companies to their South African subsidiaries instead of real new projects.
And despite UNCTAD’s prevision of a 7 to 9% decrease of global commerce for 2020, even with a rebound in the third semester, the Chinese exception could help Africa. After a decline during the first months of the pandemic, the country’s exports stabilized during the second trimester and have grown by almost 10% during the third trimester. For example, China remains the first source of FDI of Addis Abeba, with 25% of new projects approved this year.
The AfCFTA, an opportunity to rethink the EU-Africa partnership based on fair trade
In this configuration, what about the new EU-Africa partnership? The EU rulers repeated their support to the continent with an “alleviation or an exemption of the debt as a lever to ease the financial strain of the sanitary crisis in Africa,” as Charles Michel said. The cap remains: to direct partnership with Africa on its economic transformation, simultaneously with the EU’s green and digital transition.
The EU is already the first partner of Africa concerning commerce, investment, and development and wants to extend possibilities to digital economy and knowledge, green energies, transportation, health, or agribusiness. Some practical announcements will be done during the coming summit between the European Union and the African Union, planned in December but postponed to 2021.
“The time has come for free-trade but also fair trade between the two continents”
Before that, “time has come for Africa to break with short-term thinking and the colonial structure of dependency. The time has come for free-trade but also fair trade between the two continents”, urged Kako Nubukpo, a Togolese economist, in a tribune published by Jeune Afrique. “This is why the African free-trade agreement (AfCFTA) is an excellent platform for real African products to supply African markets, based on strict origin and local content rules.”
An AfCFTA that could follow its path, not without any difficulties in the current situation, could be, according to the economist, an alternative for “the African continent that wants free-trade but also fair trade, and targeted support to obtain a win-win partnership with Europe.”
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