NAIROBI — In January, the African Development Bank projected that the growth rate of extreme poverty would decline slightly both this year and next. But now as COVID-19 grips the continent, the bank has upwardly revised its estimates to predict up to 37.5 million additional people entering extreme poverty in 2020, and that this could reach 49.2 million by 2021.
This is the first time in the bank’s history that it has revised its flagship annual African economic outlook report.
Efforts to reduce extreme poverty could be “wiped out” in the absence of adequate measures to mitigate the pandemic’s impacts, according to the report. This will push many countries away from the U.N. Sustainable Development Goal targets of eradicating extreme poverty by 2030.
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For about 60% of African nations, economic growth has not led to substantial reductions in poverty and inequality, according to the African Development Bank.
Before the pandemic hit, the bank estimated that the number of people living in extreme poverty, defined as people living on less than $1.90 per day, could reach 425.2 million this year. But it revised that number to between 453.4 million and 462.7 million — an increase of up to 37.5 million.
Next year, that increase could range from 34 million to 49.2 million. As the pandemic and measures to control it damage African economies, gross domestic product rates are expected to fall below population growth rates, leading to these increases in poverty rates.
Two of the continent’s most populous countries — Nigeria and the Democratic Republic of the Congo — could see the largest increases in people entering extreme poverty. Nigeria could see an increase of 8.5 million to 11.5 million this year and DRC could see an increase of 2.7 million to 3.4 million, the report said.
About 60% of the people newly entering extreme poverty are expected to live in West and Central Africa.
Extreme poverty is slated to increase at higher rates in oil-exporting countries than in oil-importing countries, as well as other countries dependent on commodity exports — which have been affected by declines in prices. Tourism-dependent countries would also be more affected. In Mauritius, for example, extreme poverty is expected to nearly double this year.
This year, between 24.6 million and 30 million jobs are expected to be lost — impacting mostly the working poor. The pandemic is expected to not only impact the number of jobs available, but also the quality of those existing jobs, reducing the social protections attached to those jobs.
If the economic impact of COVID-19 is confined to the first part of this year, real GDP is projected to decrease by 1.7% this year, which is a drop of 5.6 percentage points from the pre-COVID estimates made in January. But if it continues beyond the first half, there is an expected contraction of 3.4%, which is down 7.3 percentage points from the original estimates.
GDP losses this year could range from $145.5 billion and $189.7 billion. Next year, the losses could range between $27.6 billion and $47 billion.
Inflation is also on the rise, in some cases by more than 5% in the first quarter of this year — caused mainly by disruptions of food supplies and energy.
“These countries have become exceptionally vulnerable to shocks to remittances caused by COVID-19, especially in high-income economies where migrant jobs and incomes are threatened.”
— African Economic Outlook 2020 - SupplementAs countries respond to the pandemic with increased spending on health, unemployment benefits, wage subsidies, cash transfers, tax cuts, and deferrals, deficits are expected to widen. This year, deficits are also projected to double to between 8% and 9% of GDP.
The pandemic has also heightened the likelihood of a “widespread and far-reaching” sovereign debt crisis, according to the report, if debt is not managed properly. Many countries are already suffering from high burdens of debt.
Remittances, which account for a large percentage of foreign financing for many African economies, are also expected to drop. In some countries, remittances account for more than 10% of GDP. This includes Cabo Verde, Comoros, Gambia, Lesotho, Liberia, and Senegal.
“In turn, these countries have become exceptionally vulnerable to shocks to remittances caused by COVID-19, especially in high-income economies where migrant jobs and incomes are threatened,” the report says.
Official development assistance could also be “constrained by the impact of the crisis on advanced economies.”
The report recommends policy measures that governments can take to lessen the economic damage of COVID-19, including specific responses governments can take to protect people from slipping into extreme poverty. Some of these responses include extending eligibility and coverage of social safety net programs, such as unemployment insurance and social security, as well as the distribution of food rations, vouchers or cash transfers.
“Policies need to really focus on targeting these vulnerable groups. Making sure there are well-targeted cash transfers and social safety nets that can protect the livelihoods of these vulnerable groups would be key,” said Hanan Morsy, director of the bank’s Macroeconomic Policy, Forecasting and Research Department, during the report’s launch.
“We want to make sure that this crisis does not leave scarring effects on the society and the economy,” she added.
