Covid-19 deals big blow to East African services sector

July 10, 2020 in Business, Trade & Industry, Travel & Tourism by Editor

The tourism sector represents 8.5 percent of the continent’s GDP, but the Covid–19 outbreak has brought the sector to a standstill, along with associated economic activities around hospitality, entertainment, and logistics.

East Africa’s economies have been slowly shifting from agriculture to services as the main GDP contributor, but the coronavirus pandemic has hit the sector hard and at a critical time.

In midweek, the African Development Bank (AfDB) released The African Economic Outlook 2020 Supplement Amid Covid-19 to highlight the impact of the pandemic that exploded in late March around the world.

According to the report, the contribution of agriculture to the region’s GDP went down from an average of 33.4 pc at the turn of the millennium to 28.3 pc in 2018.

This was against an increase in the contribution of services to GDP from 44.6 pc in the early 2000s to 53.8 pc in 2018. This movement is more prominent in Seychelles, Eritrea, Kenya and Rwanda where services contribute 80,67, 60 and 47 percent of GDP, respectively.

However, services are not the higher value-added activities in the region to trigger the desired structural transformation. In line with this shift, the International Labour Organisation (ILO) had estimated that the number of employment opportunities in the region’s service sector would have more than doubled to 40.8 million while those in agriculture would have increased at a slower pace from 56.7 million to 97.6 million in 2020.

These estimates are no longer tenable given the ongoing supply and demand shocks related to COVID-19-business disruptions have lowered production while the loss of income, fear of contagion and heightened uncertainty has made people to spend less, thus lowering aggregate demand with the service sector being hit the hardest.

Tourism-dependent, oil-exporter, and other resource-intensive economies are expected to be hardest hit due to the worldwide travel restrictions and collapse of commodity demand and prices, notably for oil.

For countries in these groups, growth in 2020 is expected to contract, on average by more than 4 percentage points. Less resource-intensive economies, thanks to more diversified economic structures, are expected to be more resilient to the shock.

Between 2017 and 2018, the travel and tourism sector in Africa grew by 5.6 percent, compared with the global average of 3.9 percent. The sector contributed about $194.2 billion to Africa’s GDP in 2018, employing an estimated 24.3 million Africans, or around 6.7 percent of total employment.

The International Air Transport Association has estimated that the fall in travel in 2020 due to the coronavirus outbreak could translate into an 11 pc worldwide passenger revenue loss— equal to $63 billion if the spread is limited and up to a 19 pc loss of $113 billion if the spread continues. African tourism and travel sectors will be affected, particularly in countries where the tourism industry’s contribution to the economy is large.