EDITORIAL: East Africa needs shield against Covid-19 economic shocks

Saturday March 14 2020

 hand washing units

Several hand washing units have been installed in the main commuter parks in Kigali. PHOTO | CYRIL NDEGEYA | NMG 

The EastAfrican
By The EastAfrican
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The confirmation of a coronavirus infected person in Kenya and Rwanda should be a wake-up call for a coordinated response to the disease across East Africa.

In light of the weaknesses of our economies and the dismal capacities of our health systems, the expanded travel bans announced this week make sense.

China’s experience has demonstrated that lockdowns actually work. For East Africa and Africa, limiting exposure (and spread, in Kenya’s case) of Covid-19 is the best shot. At the very least, such measures will contain any potential outbreak within the limited capacities of existing health systems. That will possibly stave off the devastating effects of an uncontained spread of what has now been declared a global pandemic.

Yet the interconnected nature of the global economy means that there will be financial and economic penalties. Governments need to be creative in the way they respond because they have a responsibility to protect people from contracting the disease, and businesses from the economic fallout.

Already, frontline industries such as air transport have taken a direct hit from cancellation of global events, suspension of routes and postponement of travel plans by the public.

While impacts on industries such as air transport are predictable, the knock-on effect on other sectors, in our setting of limited data, might be more difficult to predict in precise terms. Yet sooner than later, more impacts will be felt as business activity grinds to a halt and shortages of imported goods begin to set in.

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It is only a matter of time before businesses that rely on imports, mainly from China, start to report shutdowns. Regional trade will also be impacted as commodity dependent economies such as South Sudan and Tanzania become the transmission path for the impact of falling commodity prices in international markets.

The Covid-19 crisis is a double-whammy for the regional economy because it affects both the domestic and external sectors of the economy. A slowdown in trade will impact export earnings while tax revenues will suffer from a dip in imports.

As businesses recoil from the coronavirus disruption, so will governments. With a high dependence on trade taxes for revenue, governments in the region will face immense pressure to keep budgets on track

Shallow levels of external reserves mean that the region will likely be on its knees within the next two months if the crisis does not abate. That will require governments to tame their appetite for consumption and engage measures that stimulate economies.

It will be necessary for governments to forego short-term revenue targets for the sake of supporting internal production and consumption. Sectors that need immediate tax relief should be identified. The most affected countries, including China and the US, have already announced economic stimulus packages.

The region should not be shy to emulate what countries, such as China and the US, have done by laying out our version of economic stimulus packages. So far, Kenya has announced a $5 million package to support the tourism industry.

With economies that are heavily dependent on agriculture however, the region needs to act in concert by setting up economic assessment teams that will design and roll out stimulus packages across the region before it is too late.

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