The economic impact of COVID-19 on African cities likely to be acute through a sharp decline in productivity, jobs and revenues, says ECA
Addis Ababa, 15 April 2020 – As part of its analysis to inform COVID-19 policy responses, the Economic Commission for Africa, is calling for adequate consideration of the vulnerability of city economies as African governments consolidate efforts and define stimulus measures to mitigate national and regional economic impacts.
“As engines and drivers of economic growth, cities face considerable risks in light of COVID-19 with implications for the continent’s resilience to the pandemic,” states Thokozile Ruzvidzo Director of the Gender, Poverty and Social Policy Division of the ECA.
Africa’s cities are home to 600 million people and account for more than 50% of the region’s GDP. This is even higher at more than 70% for countries such as Botswana, Uganda, Tunisia and Kenya. Nearly a third of national GDP (31%) comes on average from the largest city in African countries. As such, the economic contribution of cities in the region is far higher than their share of population.
COVID-19 employment effects are likely to be severe in urban areas. With urban-based sectors of the economy (manufacturing and services) which currently account for 64% of GDP in Africa are expected to be hit hard by COVID-19 related effects, leading to substantial losses in productive jobs. In particular, the approximately 250 million Africans in informal urban employment (excluding North Africa) will be at risk. Firms and businesses in African cities are highly vulnerable to COVID-19 related effects, especially SMEs which account for 80% of employment in Africa. These risks are compounded by a likely hike in the cost of living is expected as shown for example by some initial reports of up to 100% increase in the price of some food items in some African cities.
Additionally, urban consumption and expenditure (of food, manufactured goods, utilities, transport, energy and services) is likely to experience a sharp fall in light of COVID-related lockdowns and reduced restrictions.
“Africa’s cities drive consumption with their growing middle class with per capita consumption spending in large cities being on average 80 per cent higher at the city level than at the national level. COVID-19 related decline in urban consumption will thus impact domestic value chains, including rural areas,” notes Ms Ruzvidzo.
Further, with the per capita expenditure of African local authorities being the lowest in the world at $26, many local authorities are poorly resourced and less able to contend with the onslaught of COVID-19. Alarming also the likely fall in revenue streams for local authorities due to COVID-19 curtailing their already limited ability to respond to this crisis. Intergovernmental/national transfers which account for 70 to 80 per cent of local authorities’ finance are likely to be reduced due to immediate national response and recovery requirements. Own source revenues which are already low at only 10% of local authorities’ finances with city level lockdowns and restrictions leading to reduced economic activity.
Yet, local authorities are frontline responders to such shocks and crises. Given the proximity to their constituencies, local authorities are well positioned to and already do lead responses to some of the immediate effects, and doing so have a better understanding of needs and necessary measures, and enable higher transparency of accountability.
In light of these circumstances, ECA is proposing specific support to city governments to mitigate and respond to the economic effects of COVID-19, in addition to the immediate health and humanitarian focus. Disaggregating the analysis and identification of priorities and responses at the sub-national and city scales is a first step.
Proactive measures are also needed for urban economic recovery including through measures to boost finances and capacities of local authorities as first responders, short-term bailouts and exemptions for SMEs to limit productivity and employment losses, social protection for those in informal urban employment while anticipating the potential of labour intensive public work programs for job creation in the medium term. In this regard, Ms. Ruzvidzo emphasizes that “local governments must be supported because they are better able to respond to local needs including in coordination with community-based structures”.
In the longer term, the acute vulnerability of city economies calls for efforts to revitalize and enhance the productivity of Africa’s cities through adequate investments to address the substantial deficits and barriers they face. With more than half of Africa’s population expected to live in cities in just 15 years, the risks of poorly planned and managed urbanization are considerably high, rendering millions vulnerable to the effects of future shocks.
Economic Commission for Africa
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Tel: +251 11 551 5826