COVID-19: How new lockdowns are impacting economic recovery in SSA

As countries in sub-Saharan Africa struggle with the second wave of COVID-19, many are resorting to lockdowns and curfews to control the spread of the virus. Economic Analyst, Johnson Rukundo, highlighted in an interview with CNBC Africa that these measures are not impacting all businesses equally. Large-scale enterprises seem to weather the storm better than small and medium enterprises, which make up about 90% of businesses in the region. The effects of lockdowns on these businesses have a significant impact on the economic growth of these countries. Rukundo pointed out that almost every sector has been affected by the lockdown measures. Industries such as mining, tourism, construction, and food processing have all felt the adverse effects. However, food production has seen some relief as people continue to consume food, albeit at reduced prices due to challenges in transportation and imported goods. The restrictions in place have led to increased costs and subsequently higher prices for consumers. The economic fallout from the lockdowns is far-reaching and is negatively impacting the macroeconomic recovery of these countries. Small and medium enterprises, which contribute significantly to government revenue through taxes, are struggling to stay afloat. Many have had to lay off employees, leading to reduced tax income for governments. This, in turn, forces governments to seek internal or international borrowing to make up for the revenue shortfall, further increasing national debts. Despite the optimism surrounding the rollout of COVID-19 vaccines in sub-Saharan Africa, Rukundo cautioned that the road to economic recovery will be long and arduous. Even with widespread vaccination, businesses will take time to revive, especially given the loss of markets and challenges in standards and exporting for many SMEs. Rukundo suggested that true economic recovery may not be seen until 2022 when businesses have had time to regain their footing and markets have stabilized. The International Monetary Fund (IMF) projects a slowdown in economic growth for the region, with a reduction of 1.6% in growth rates. This downgrade indicates the scale of the challenges facing these economies as they strive to recover. Access to finance will remain limited, as financial institutions are cautious about lending to businesses with uncertain prospects. Rukundo emphasized the need to focus on building capacity, improving access to finance, and addressing the various challenges that hinder rapid economic recovery. With developing countries increasingly relying on borrowing to offset fiscal deficits and sustain livelihoods during the pandemic, concerns about mounting debt burdens have emerged. Rukundo acknowledged that the debt incurred may become a long-term burden for these countries, particularly if the borrowed funds are not directed towards productive investments. Investing in projects that stimulate economic growth would be crucial in mitigating the negative impact of the debt on the overall economy. As sub-Saharan Africa grapples with the economic fallout from COVID-19 and subsequent lockdowns, the path to recovery remains uncertain. The resilience and adaptability of businesses, coupled with strategic government interventions, will be key in navigating the challenges ahead and setting the stage for a sustainable economic resurgence in the region.