The impact of COVID-19 on African trade
he Coronavirus (COVID-19) has resulted in mass production shutdowns and supply chain disruptions due to port closures in China, causing global ripple effects across all economic sectors in a rare “twin supply-demand shock”. As China is one of Africa’s biggest trading partners, the effects of COVID-19 are already being felt in the continent.
Africa is now feeling both the humanitarian and economic impact of the virus and plans to control and manage the challenges of COVID-19 are underway across the continent. Economically, the effects have already been felt in that demand for Africa’s raw materials and commodities in China has declined and Africa’s access to industrial components and manufactured goods from the region has been hampered. Adding to the supply chain challenges are the travel restrictions that have been imposed by several African countries, including most recently South Africa, on citizens from high risk countries. This is causing further uncertainty in a continent already grappling with widespread geopolitical and economic instability.
In South Africa, President Cyril Ramaphosa imposed travel restrictions, banning citizens of high risk countries from entering South Africa and imposing compulsory checks on others. The president did not stop the import and export of goods from any country into South Africa, only the arrival of citizens from those countries. However, the supply chain is expected to be further impacted by the travel restrictions as skilled people from high risk countries who work in the trade industry in South Africa will not be able to enter the country. For example it could restrict entry for transport crews and those working in logistical operations at ports of entry, such as the loading and offloading of cargo and machinery operations. This will be further exacerbated by those working in the trade and transport sector having to take time off and isolate themselves should they become ill with the virus.
A number of African countries, including Namibia, Zambia, Angola and Egypt, have also imposed some sort of travel restrictions, with more expected to follow suit. The timing is not ideal - with China’s ports having just begun to reopen, further bottlenecks are now expected at African ports.
"Countries such as the DRC, Zambia, Nigeria and Ghana are significantly exposed to risk in terms of industrial commodity exports, such as such as oil, iron ore and copper, to China and other countries."
Over three quarters of African exports to the rest of the world are heavily focused on natural resources and any reduction in demand impacts the economies of most of the continent. Countries such as the DRC, Zambia, Nigeria and Ghana are significantly exposed to risk in terms of industrial commodity exports, such as oil, iron ore and copper, to China and other countries. However, it is also expected that once COVID-19 is brought under control it could lead to an increase in demand for raw materials.
The impact of COVID-19 will also be felt in the manufacturing sector. Because China is part of the global supply chain, factory closures raise the risk of supply chain disruptions for multinational companies with delays, raw material shortages, increased costs and reduced orders affecting manufacturing plants around the world, including in Africa. Further supply chain disruptions will impact the import of manufactured goods into Africa from other parts of the world as well, including Europe.
According to research from Baker McKenzie and Oxford Economics, African imports from outside the continent reveal that industrial machinery, manufacturing and transport equipment constitute over 50 percent of Africa's combined needs. The most important suppliers in this regard are Europe (35 percent) China (16 percent) and the rest of Asia, including India (14 percent). As such, disruptions due to the impact of COVID-19 will lead to a decrease in the availability of manufactured goods imported into Africa.
With the widespread nature of the virus, it is difficult to envisage how supply chains could be adjusted rapidly to meet demands. The obvious choices of Vietnam and Indonesia where supply chains were re-routed as a result of the US/China “trade wars”, are almost at full capacity and may not necessarily be able to meet the demands if China is unable to produce. Moreover, these countries may have to deal with further challenges caused by COVID-19 themselves: both countries have recently reported increased cases of the virus.
This article was first published by Baker McKenzie.
(Main image: A woman rides a motorbike while wearing a face mask as a preventive measure against the spread of COVID-19 in Ouagadougou, Burkina Faso on 16 March 2020 - Olympia de Maismont/AFP via Getty Images)Insert block
The opinions expressed in this article are those of the author(s) and do not necessarily reflect the views of SAIIA or CIGI.