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COVID-19 pandemic impact on Southern Africa

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COVID-19 pandemic impact on Southern Africa - Main channels

• Southern Africa has a diverse set of trading partners in which the EU and China are the main trading partners: Slower growth in these regions could reduce demand for many Southern Africa's export and import products (especially, intermediate). As the most industrialized African region, Southern Africa will be adversely impacted as factories are closing throughout the world and manufacturing (e.g. auto sector), mining and other commodity supply chains are being disrupted. Businesses in industries most at-risk could close to mitigate infection risk for employees and customers alike. Tourism, transportation, retail and restaurants are possible examples.

• As an exporter of diverse commodity products (e.g. iron ore, aluminum, chrome, manganese, copper, gold, diamond, palladium, platinum, coal and oil) countries will be impacted differently. For instance, a run for safe commodities will benefit gold exporters even if the metal makes a tiny contribution to the overall GDPs; and the sharp drop in oil will benefit most countries but hurt Angola (with 92.4% of export earnings from oil in 2018 and China being Angola's largest oil importer). For South Africa, China is a key market for chrome, iron-ore, manganese and metallurgical coal. Overall, as the global demand for both manufactured goods and mineral resources drops, economies in Southern Africa will suffer, with less diverse economies (e.g. Zambia and Botswana) even more so.

• As a major tourist destination (for nature, sport, recreation and conferencing), Southern Africa is already feeling the impact, with Seychelles, Mauritius, South Africa, Zambia and Zimbabwe recording sharp drops in tourist arrivals. PwC estimates that 1,000 tourism- related jobs in SA alone are threatened in a country with already close to 30% unemployment rate. In Livingstone and Victoria Falls, hotel occupancy rates are as low 30% as tourists have cancelled bookings, short-term/contract staff have been laid-off.

• In recent years Southern Africa has attracted most FDIs in the continent, but globally UNCTAD expects these inflows to fall by 5-15%. In South Africa the business confidence in all key sectors (manufacturers, building contractors, retailers, wholesalers and new vehicle dealers) has gone below 50 – i.e. negative – indicating that business conditions are deemed unsatisfactory.

• The Rand has weakened by 11% in the first 2 months of 2020, dragging down other SACU members’ currencies; and the rating credit agency Moody’s is expected to downgrade the country to a non-investment grade later in March 2020. The country had already slipped into recession in late 2019.

• Countercyclical policies are hampered by overall low growth (the region is growing the slowest of all African regions) and high levels of public debt. While central banks are expected to soften the pandemic blow, monetary policy alone will be ineffective in encouraging economic activity in the face of limited fiscal policy capacity. Also, countercyclical policies have limited ability to mitigate supply side impacts; for example they cannot make up for the absent workers dragging on the economy’s productive capacity.