This article first appeared on the FSD Kenya blog on September 6, 2020.
As COVID-19 continues to ravage economies across the world, a key point of emerging macroeconomic focus is its variated impact at sectoral level. From a bird’s eye view, results of GDP Q2 were stark in Africa, including in its two largest economies; South Africa’s GDP contracted by 51%; and Nigeria‘s by 6.1%. Kenya is yet to release its Q2 GDP figures, but results will likely be grim. However, even as the economic fallout continues, signs of recovery are beginning to emerge, unsurprisingly driven by a few sectors. In light of this, tracking performance at a sectoral level is important. We see four main sector performance paths as outlined below:
COVID Impact-Recovery Quadrant (Illustrative)
1. New Winners (Γ shaped recovery): Sector performance improves notably due to the pandemic and continues on a growth path.
2. Hibernate (V/W shaped recovery): The sector suffers a sharp but brief period of decline followed by a strong recovery (V); or the sector declines, recovers with a short period of growth, then falls back into decline before finally recovering (W).
3. Lengthy Recovery (U shaped): The decline is longer than a V-shaped decline, and only slowly returns to trend growth.
4. Managed Decline (L Shaped): The sector has a severe decline and does not return to ‘normal’ levels for many years, if ever.
To illustrate the point above, export performance for key Kenyan exports have been volatile, but on the general trajectory of quick recovery. The Brookings Institution points to a record monthly peak in export revenues in March, followed by a sharp drop in April/May; but by July, domestic exports were 12.7% higher than in July of the previous year. And although cut flowers have not yet fully recovered, seasonal exports of tea, fruit, and vegetables have been resilient. But those are all in one portion (export-oriented), of one sub-sector (plant-based agricultural commodities), in one sector (agriculture). The story is different in other sectors. Tourism has tanked, the Kenyan government expects international arrivals to fall by 90%. Business tourism in particular may struggle to recover to pre-COVID levels given the new normal of video conferencing, webinars and virtual meetings. On the other hand, ICT has emerged as a bright spot. I have already discussed how COVID-19 is spurring digitisation making it a ‘new winner’, and what ought to be done to ensure this trend is inclusive.
What is obvious but still needs to be stated, is that sectoral recovery is not economic recovery. The economic recovery from this pandemic will be multifurcated. Thus, while support from government and non-state actors can be gradually pulled back from sectors demonstrating resilience, other sectors will require continued support. COVID-19 has made it clear, again, that there is no such thing as an effective one-size-fits-all approach to fostering recovery, especially in African economies which are highly informal.
Gendered impact and recovery of COVID-19
In addition, there are specific demographic segments that have been more deeply affected by the economic fallout of COVID-19, women and girls being the most obvious:
UNDP and UN Women’s COVID-19 Global Gender Response Tracker assessed gender-sensitive government responses given the surge in violence against women and girls, the unprecedented increase in unpaid care work, and the economic insecurity caused by the large-scale loss of jobs, incomes and livelihoods. They found that in Africa, in terms of social protection and labour market measures, only 16% are gender-sensitive and only 2% address unpaid care. In terms of fiscal and economic measures to help businesses weather the crisis, only 19% aimed to strengthen women’s economic security by channelling resources to feminised sectors. In short, in addition to varied sectoral recovery pathways, even if there is eventual broad-based economic recovery, the risk is that women will not be as economically empowered and productive as they were previously, if focused attention is not directed to them.
The complexity of the economic impact of COVID means that African governments cannot finance everything. Governments continue to make tough calls on what interventions to finance, and what sectors to prioritise even as revenue generation prospects become grimmer in the short to medium term. So, although there may be inklings of recovery in some sectors, considerable extra-ordinary fiscal and monetary policy support will be required to continue to mitigate the economic fallout of the pandemic. This is a deep point of concern for many African governments because, i) most African governments do not have the fiscal space for deep and sustained support, and ii) monetary policy has limited transmission to real economy players, mainly because formal finance has a limited interface with MSMEs and the informal economy where the bulk of Africans earn a living. Therefore, the question is how to use very limited resources, in as efficient manner as possible, in a highly unpredictable environment.
Thoughts on the way forward
Clearly the impact-recovery pathways of sectors will continue to be variated and interventions will require continuous calibration to ensure scare resources are optimally directed. Thus, it is crucial that economic activity is tracked by sector, sub-sector, gender and even (in)formality as this will lead to a practical understanding of the nature of the shifts in economic activity. This point may seem obvious, but many data generation capabilities, capacities and styles of African governments are generally not fit-for-purpose for tracking COVID impact. This is leading to deep data gaps and limiting the understanding of the shifting economic landscape. Development partners can play a crucial role in providing technical and financial resources in this area.
Secondly, in devising fiscal and monetary policy, being cognisant of sector volatility, resilience and performance will provide key pointers on where to deploy deeper support, direct revenue generation efforts or support positive economic changes. In particular, the economic, financial and business needs of women ought to be front and centre in the design and targeting of interventions.
Finally, the need for collaboration between the public and private sector is more crucial than ever. National and sub-national (county) governments ought to be more deliberate in reaching out to private sector both large, national-level formal corporate bodies, as well as smaller sub-national business associations. This is a key means through which government will get a good sense of whether national or localised interventions are appropriate, responsive and effective