Like many regions, Sub-Saharan Africa (SSA) has been severely hit by the coronavirus, posing significant challenges to businesses there. As the pandemic continues to disrupt the economy and debt levels rise, Atradius analysts predict an economic contraction of 4.6% in 2020 due to the disruption in trade, a drop in commodity demand, and worldwide travel restrictions.

This development is especially troubling for vulnerable economies heavily dependent on oil exports, such as the Republic of Congo and Angola, and countries dependent on tourism like Cabo Verde, Mauritius, and Tanzania. However, diversified economies like, Ghana, Uganda and Senegal will see a stronger recovery because they had a better starting point before entering the recession.

The Pandemic Rages On

At the onset of the pandemic, African governments acted decisively and restrictive measures were taken across the region as borders closed and partial lockdowns began. In SSA, the number of infections and fatalities is relatively low compared to other regions. Of the five countries accounting for more than 75% of all confirmed cases, South Africa has the most confirmed cases, followed by Ethiopia and Nigeria.

The challenge with SSA is that the virus spreads faster in impoverished and densely populated areas because social-distancing measures cannot be adhered to easily.

Although government actions averted a massive health crisis in the region, the economy has paid a price. In countries where many people work in the informal sector, pandemic-related restrictions had the most severe economic impact.

Debt Levels Continue to Worsen

In 2020, the composition of the region’s debt has shifted toward more commercial and foreign currency-denominated debt, a dramatic change from previous years. Rising fiscal deficits throughout the region are making for a worrisome situation. Zambia, Angola, Ghana, and other countries had concerns about debt sustainability even prior to the Covid-19 pandemic. In addition, many countries, especially commodity (particularly oil) exporting countries, have seen currency depreciation.

Sub-Saharan African countries that have previously relied on foreign borrowing are struggling to finance their deficits. That said, there are some plans to bring these countries relief in the form of the Debt Service Suspension Initiative from the G20. This initiative allows the poorest countries to suspend debt service payments to official bilateral creditors and has been extended to mid-2021, giving some African countries breathing room in this economic crisis. Additionally, the region is calling on commercial creditors to participate in the initiative to help countries like Zambia and Angola that have high commercial foreign currency debt.

Opportunity Ahead in 2021?

The extent and duration of the economic impact of the global pandemic remain uncertain, but post-Covid-19, governments in SSA are prepared to step up their efforts to make countries more resilient in the face of external shocks.

Opportunities exist on the other side of 2020 in the form of renewable energy in solar and wind. This will not only help the region achieve climate goals, but it also creates economic opportunities for bigger countries like Kenya and South Africa.

Another opportunity for SSA lies in manufacturing, which is still low across SSA exempting Ethiopia and South Africa. The implementation of the African Continental Free Trade Area, introduced in early 2020, will provide significant opportunities for manufacturing companies across the region. Due to Covid-19, however, the expected implementation in July 2020 was delayed. Once it is implemented, which will likely be in January of 2021, SSA will be one of the largest free trade areas in the world.

For businesses operating in SSA, one of the risks presented during the global pandemic is the exchange rate risk, especially since the currencies of commodity exporters have depreciated. Businesses can mitigate these risks by minimizing currency mismatch. Paying attention to contracts with public buyers will also be important moving through SSA’s economic recovery because government finances have deteriorated for many countries throughout the region.

The SSA region is headed into a challenging year filled with uncertainty and economic vulnerabilities. The most affected countries – those reliant on tourism and oil exports – will see a particularly slow recovery over the course of 2021. Cote d’Ivoire and Uganda, which have been recording high growth rates before Covid-19 hit, will see a strong recovery after the pandemic.

Covid-19 has had a tremendous impact on short-term economic growth and as long as governments expenditures throughout the region can be prioritized and used towards much-needed infrastructure, there is a silver lining for the region. Still, vulnerabilities remain and the pace and strength of any recovery is dependent on the containment and end of Covid-19.

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Afke Zeilstra is a Senior Economist at Atradius, a global trade credit insurer. She is responsible for country risk analysis and advice on countries in Africa. She holds an M.A. in Economics.