EU foresees tough trading times between Europe and Africa

By Khulekani Magubane

Europe's sluggish emergence after an extended period of hard lockdowns caused by the Covid-19 pandemic is set to feed into subdued trade between the old continent and Africa.

Exports "...are set to drop considerably, whether in terms of commodity exports or manufactured and agricultural exports to the US, EU, UK, Japan and sub-Saharan Africa," European Union Ambassador to South Africa Riina Kionka said in an interview with Fin24.

The EU and its 27 members are Africa's largest trading partner, making up some 31% of the continents exports and 29% imports.

As of May, Kionka said the 28-year old union had not quantified in precise terms the full scope of the economic impact that Covid-19 but estimates showed that the euro area zone may contract by a record 7.75% this year. The euro area zone is made up of 19 countries that use the euro as a currency within the EU.

According to the latest statistics published by the SA Revenue Service, South African exports to the EU 27 have increased by 19%, in the first quarter of this year, but "...if trade in precious metals is taken out of the picture, the increase would be more modest, at four percent," said Kionka.

Countries around the world are grappling with the novel coronavirus, with nations at varying levels of combating the pandemic and at varying levels of economic recovery following the health crisis. African nations led by AU chair and South African president, Cyril Ramaphosa has called on a debt moratorium to allow room and resources to respond to the pandemic.

African economy and trade expert Diana Games said many African countries were already suffering from debt distress and this will be made worse with revenue contractions under Covid-19. A debt moratorium would certainly help, although the problem is further complicated by the fact that African debt is expensive and repayments crippling to some nations.

"The appetite for a moratorium is there, but some may worry about the move affecting their access to international capital markets, particularly as some of the affected countries are the same ones that were among the 31 African countries that accepted debt relief under the heavily indebted and poor countries programme in the 1990s, such as Zambia, Ghana and Senegal," she said.

Tutwa Consulting senior associate Azwimpheleli Langalanga said any subdued demand from the EU for African exports would be most pronounced in commodities.

"I think on the African economy, the impact of EU economic contraction would be seen in demand for commodities. There will be a dampening of demand for commodities from Europeans. That would be main impact," said Langalanga.

Debt freeze is just the start

Langalanga said the debt of African nations was unsustainable before Covid-19 and that giving African countries easy debt was been seen as risky by leaders in the first world.

"I think African countries need the moratorium on debt repayment so they can focus on more urgent issues. I don’t think it will affect African states' ability to borrow in the future because everyone understands the situation.

"Access to easy debt may then further indebt African countries which are already suffering from serious debt problems. Ramaphosa might speak on behalf of African states, he must also caution his peers against going on a borrowing spree," Langalanga said.

Games said the Covid-19 pandemic has highlighted the need for Africa to be more self-sufficient and resilient to exogenous shocks, but trading more with each other and build manufacturing, agricultural and health capacity as priority areas.

This article originally appeared on Fin24

Photo: PAWire