corona 2019 ebr

What Coronavirus Mean for Ethiopia?

The world is once again in shock with the spread of the deadly novel coronavirus, which has killed around 3831 while infecting close to 110,625 people as of March 9, 2020. With the number astonishingly rising every day, confirmed cases of the virus have been reported in around 90 countries, despite travel bans and several other restrictions put to prevent its spread. The outbreak has also disrupted supply chains across the world. Ethiopia is not immune to the problem. Over the past two months, trading businesses are suffering from supply shortages. Construction projects have been halted due to raw material shortages. Hotels are also reporting a decline in occupancy rates as the cancellation of meetings and visits have become common. EBR’s Samson Berhane probes into the matter.

In the beginning, the coronavirus, with still no cure or vaccine, was just a problem in China. As the number of confirmed cases of new infections soared, the central Chinese government, which at first had turned a deaf ear to the virus when it was reported almost two months ago, attempted to control the outbreak by locking down one of its biggest commercial cities, Wuhan, where 11 million people are living, including Ethiopians.

The Chinese government, in an unprecedented manner, even went as far as constructing 1,000-bed hospitals within a matter of days. As it kept doing so, the whole world wasn’t just watching. Several countries, including neiboring Kenya, responded with travel bans and restrictions to ban citizens of the most populous country in the world.

However, such measures had not been successful to stop the spread of the virus. Of the over 110,625 confirmed cases reported in around 90 countries as of March 9, 2020, a handful of them are in Africa, including Nigeria, Senegal, Algeria and South Africa. Until March 9, 2020, from close to 66,228 closed cases across the world, 94Pct are recovered, while the remaining six percent have died.

While both unaffected and affected countries are preparing to face more unfortunate outcomes, the economic damage of the virus is alarmingly growing across the world. With China being severely impacted, the virus has become the “greatest danger” to the world economy since the financial crisis of a decade ago. Ethiopia is no different.

Even at the beginning of this month, Sileshi Bekele, Minister of Water, Irrigation and Electricity, in a press briefing held at the Prime Minister’s office, told journalists that the construction of Grand Ethiopian Renaissance is being impacted by the deadly virus. “We are facing difficulties in importing important construction materials,” he said. This is delaying the construction of the biggest landmark project of the country, according to him.

Not only the biggest project of all time for all Ethiopians is being impacted by the virus. The construction industry, already suffering severely from the forex crunch, is once again experiencing a downturn as delays and disruption of projects have become common because of the shortage of raw materials, the lion’s share of which is imported from China. Several state- and privately-funded large construction projects already awarded to both local and Chinese contractors are feeling the pinch as accessing materials and bringing professionals from abroad has become a daunting task. Already ordered products are forced to be rescheduled.

“As China has been the leading supplier of many construction items to Ethiopia, it has become very difficult to import items for the last two months. Many of our partners in China tell us to wait until the virus is put under control,” said one construction items importer who wants to remain anonymous. “We also don’t have the confidence and the courage to go there and bring the needed items as travelling to China is now very risky. So many of our customers are being challenged as important products are missing from our shelves.” In response, Lia Tadesse, State Minister for Health, who is leading the government’s task force tackling the virus also encourages citizens to stay put and avoid international travel to affected countries.

Meanwhile, the virus keeps spreading across the world with no end in sight. Economic recession is already on the horizon in China, Italy, Iran, and other severely impacted countries, while many countries dependent on China are already bearing the brunt of the economic damage brought by the virus. The story is no different in Africa where over 20 confirmed cases of coronavirus are reported.

As per the projection of the Economist Intelligence Unit, which estimates that coronavirus could take 0.5Pct to one percent of China’s GDP growth, Chinese demand for items from African countries is declining, the majority of which are agricultural items and easily substitutable goods. Given that the productivity of the Far East giant will decline, China has already started cutting imports of petroleum and food items from African countries, likely leading to a widening of their balance of payment deficit and an economic slowdown as a result, according to experts.

Should Chinese demand fall by one percent due to the outbreak, low- and middle-income countries, including Ethiopia, could lose four billion US dollars’ worth of exports and USD600 million of tourism receipts, according to the Overseas Development Institute (ODI), which estimates that the virus could cost the global economy up to USD360 billion. Even more, if oil prices fall by five percent amidst lowering global demand, sub-Saharan African countries could face a three billion US dollar reduction from their mineral fuel export revenues, the Institute says.

Economically speaking, from sub-Saharan countries, the country with the most to lose is Angola, which exports 60Pct of its goods to China, followed by Congo, Sierra Leone, Lesotho, and Zambia, according to ODI. Although not listed, Ethiopia, which has thus far no reported confirmed cases, is already suffering from the outbreak. Since the last five years, Ethiopia has annually shipped goods worth almost USD200 million to China, making it one of the top export destinations for Africa’s second-most populous country. This accounts for almost seven percent of the country’s annual exports.

Import bills paid to China are significantly higher than receipts secured even from the nation’s total exports. For the past five years, Ethiopia’s annual imports from China have averaged almost four billion dollars (ETB115 billion), making it Ethiopia’s biggest trade partner. The amount is almost one-fourths of the country’s total import bill, equal to a third of the country’s annual budget, and close to six percent of Ethiopia’s GDP. These figures make it clear that China has a big hand in Ethiopia’s economy.

Bearing the influence of the world’s most populous country in mind, it is public knowledge that Ethiopia, given its current status, is not immune to the economic damage brought forth by the coronavirus. This is further evidenced by recent experiences of traders, including Seid Ahmed, a Wholesaler and Importer based in Merkato, the biggest open market in Ethiopia. “I used to travel to China at least every month, if not, bi-monthly. However, after the outbreak of the virus, I have not gone there, fearing I would be infected,” Seid said. Although I tried to contact my partners in China, they are not willing to export items I wanted as they have suspended operations. The price of items, particularly clothes, is rising because of a shortage of supplies, which is worrying as inflation is already mounting throughout the country”

Reports indicate that production lines in China are standing still, while workers are quarantined or huddling in their homes, in fear of the spreading virus. Shipping containers with raw materials are reportedly stuck in China’s ports and there is no transportation to deliver finished products from factories. This has disrupted supplies to factories in Ethiopia and beyond. “People travelling to China are falling sharply after the outbreak of the virus,” according to the Embassy of China to Ethiopia.

Thus far, importers of pharmaceuticals, clothing, shoes, machineries, and construction items are severely impacted. Frustrated, few are forced to look for partners in countries like Turkey, although this is tiresome and costly for language constraints and expensiveness of items. “Making new deals is very difficult in a country where one does not have any previous presence; it is very difficult and it takes time. Plus, Chinese products are very cheap, making them preferable by the majority of consumers in Ethiopia. This is unlike the situation in Turkey where items are very expensive, though the quality is better,” a clothes Importer told EBR.

Keeping the impact on trade activities aside, the outbreak of the virus has also disrupted the aviation sector. Ethiopian Airlines (EAL), for instance, reported that demand for its services has dwindled by 20Pct due to coronavirus. “It is a big shock,” said Tewolde Gebremariam, CEO of the Airline, during the fifth Africa Aviation Conference held earlier this month at Skylight Hotel Addis Ababa. By the same token, African airlines, including Ethiopian, have lost USD400m in revenues after the outbreak in China and are expected to register USD40 million in losses this year, according to the global airline industry body.

The loss is largely attributed to the halting of flights to China by Airlines like South African Airways, EgyptAir, RwandAir and Kenya Airways. Meanwhile, Ethiopian continues flying to five Chinese cities weekly, despite the spread of the virus. “Not flying direct to China doesn’t mean we will stop the novel coronavirus, because passengers from China can travel to African countries including Ethiopia through various other hubs. That’s what the interconnected world means,” said Tewolde.

Yet, even though EAL keeps pushing in its efforts of connecting the country to the world and thereby spurring the tourism sector of the country, tourists are shying away. As countries continue to push their citizens to refrain from travelling abroad, the number of tourists visiting Ethiopia is dwindling. Many international organizations are cancelling meetings in fear of spreading the virus, which, in turn, adversely impact the business of hotels, currently reporting a fall in their occupancy rates.

Meanwhile, over 20 potential vaccines targeting at stopping the virus are under development across the world, according to the World Health Organization (WHO), but many scientists insist that it will take at least a year before any vaccine is proven effective and given the green light for wide distribution. “Viruses can have a more powerful consequence than any terrorist action,” Tedros Adhanom, Chief of WHO, warned. “We have to do everything today using available weapons.”

Arkebe Oqubay, macroeconomic Advisor to Prime Minister Abiy Ahmed (PhD.), on his part, said COVID-19 is a sharp reminder that epidemics can quickly wipe out economic advances. “Moreover, the difficulty of measuring the full impact of such outbreaks makes the global economy more vulnerable,” Arkebe underscored in his commentary published on Project Syndicate, earlier this month. “Governments and international organizations therefore need to implement recovery measures that have the least negative economic impact, and support the poorer citizens and small firms that ultimately will be most affected by any outbreak,” he concludes.EBR

9th Year • Mar.16 – Apr.15 2020 • No. 84

Samson Berhane

Editor-in-Chief samson.b@ethiopianbusinessreview.net


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