Agriculture, not tourism or oil, is key to economic recovery in Africa

Tuesday November 24 2020

Economists project that countries with sizeable agriculture sectors and low exposure to tourism will recover quicker from the economic crisis fuelled by the pandemic. PHOTO | FILE | NMG


African countries that heavily depend on the tourism industry face a difficult recovery period after Covid-19, which continues to wreak havoc on global economies.

Economists at the International Monetary Fund (IMF) and Renaissance Capital are projecting that countries with sizeable agriculture sectors and low exposure to tourism will recover quicker from the economic crisis fuelled by the pandemic.

According to the IMF, the largest impact of the Covid-19 crisis on economic growth has been for tourism-dependent economies such as Mauritius, Seychelles, Cabo Verde, Comoros and the Gambia although commodity-exporting countries have also been hit hard as well.

For tourism-dependent economies, the sector represents about 18 percent of gross domestic product (GDP) on average and plays a crucial role in supporting livelihoods, and makes up about 25 per cent of total employment.

Tourism is also an important source of fiscal revenue, making up 18 per cent of income in the Seychelles; while foreign exchange averaged more than 46 per cent of export receipts.

Despite a global recovery across many sectors, tourist inflows are not expected to return to 2019 levels until 2023.


“Growth in more diversified economies will slow significantly, but in many cases will still be positive in 2020,” the IMF said in its Economic Outlook report for sub-Saharan Africa released in October.

“Oil exporting countries have also been hit hard, with an average contraction in 2020 projected at negative four per cent, while non-oil commodity exporters are expected to contract by negative 4.6 percent.”

Lockdown reimposition

Growth in more diversified economies such as Côte d’Ivoire and Rwanda will slow significantly, but will still be positive in 2020.

“We think the Kenyan economy remains on track to grow by 1.5 percent in 2020 due to agriculture’s strong growth and the easing of Covid-19 restrictions in the second half of the year. We believe significantly lighter restrictions and the unlikely re-imposition of lockdown will support a pickup in growth to 4.2 percent in 2021,” economists at Renaissance Capital said through their Macroeconomic update report for sub-Saharan Africa dated November 2020.

According to Renaissance, countries with sizeable agriculture sectors, low exposure to tourism and those with fiscal and household buffers will be quick to recover from their economic crises, though downside risks such as political risks in Ethiopia and Zambia and debt sustainability challenges in Angola could dampen short-term economic recovery in these countries.

According to Renaissance, the agriculture sector, particularly with smallholder farmers not are growing cash crops — cocoa, coffee, cotton, sugar cane or tobacco — will be one of the sectors most insulated from the economic impact of the Covid-19 crisis largely due to the fact that it is not highly integrated with global supply chains and the banking system.

“If a country has good rains and agriculture is a sizeable sector, that economy should see growth in 2020 despite the Covid-19 pandemic,” they said.

The IMF projects that the economy for sub-Saharan Africa could contract by negative three per cent in 2020 and pick up modestly by 3.1 percent in 2021 buoyed by improvements in exports and commodity prices as the world economy recovers, along with a recovery in both private consumption and investment.

According to the IMF, the resurgence of new coronavirus cases in many advanced economies and the spectre of repeated outbreaks across the African region suggest that the pandemic will likely remain a very real concern for some time to come.

“Nonetheless, amid high economic and social costs, countries are now cautiously starting to reopen their economies and are looking for policies to restart growth,” said the IMF.

“With the imposition of lockdowns, regional activity dropped sharply during the second quarter of 2020, but with a loosening of containment measures, higher commodity prices, and easing financial conditions, there have been some tentative signs of a recovery in the second half of the year.”

The current outlook is subject to greater-than-usual uncertainty and hinges on both the persistence of the Covid-19 shock, the availability of external financial support, and the availability of an effective, affordable, and trusted vaccine.
Other risks include political instability or the return of climate-related shocks, such as floods or droughts.

According to the IMF, limited resources will mean that policymakers aiming to rekindle their economies will face some difficult choices as both fiscal and monetary policies will have to balance the need to boost the economy against the need for debt sustainability, external stability, and longer-term credibility.