Africa economies will in two years record cumulative loss of $409 billion due to the COVID-19 pandemic, African Development Bank President (AfDB) Akinwumi Adesina, said on Thursday.
The bank chief, who broke the news at the First National Tax Dialogue organised by the Federal Inland Revenue Services (FIRS) in Abuja, said the loss to Africa’s Gross Domestic Product (GDP) stood at N173 billion in 2020.
He added that the continent’s GDP is estimated to lose $236 billion in 2021.
Adesina, however, commended the concerted efforts being deployed by Nigeria at all levels, including by the private sector, to tackle the pandemic.
He said: “Before the pandemic, six of the 10 fastest growing economies in the world were in Africa. With the pandemic shock, growth plummeted.
“Africa’s GDP growth declined by 2.1 per cent last year, the worst in two decades. As economies went into lockdowns, people’s incomes declined, millions lost their jobs, trade volumes fell, and demand for goods and services declined. Cumulative loss to Africa’s GDP is estimated at $173 to $236 billion for 2020 and 2021, respectively.”
Continuing, he said Nigeria has not been spared. The economy shrunk by three per cent in 2020 on account of falling oil prices and effects of the lockdowns on economic activity adding that the pandemic has impacted on budgetary balances and increased debt burdens.
According to Adesina, Nigeria’s Debt-to-GDP ratio will push debt service payments beyond more than 60 per cent of federally collected revenues. He added that with shrinkage in oil revenues, debt service payments pose the greatest risk to Nigeria.
The AfDB estimated that Africa faces an additional financing need of $125-154 billion by the end of 2020 to respond to the crisis. The International Monetary Fund (IMF) estimates that Africa will need $345 billion in additional fiscal space by 2023.
On Africa’s rising debt, Akinwumi said: “Debt-to-GDP, which has been stable at 60 per cent, has risen to 70 to 75 per cent of GDP. The bulk of the debt has been for private bond issuances on the global capital markets — Eurobonds. As countries’ currencies devalued and external reserves plummeted, in the face of declined economic activity, many African countries face risks of debt distress.”
According to him, of 38 African countries for which Debt Sustainability ratings are available, 14 are in high risk of debt distress, while 6 are already in debt distress.
The AfDB boss said: “To put a human face on the pandemic effects, we estimate that 28 to 40 million people in Africa fall into extreme poverty, and 30 million jobs would be lost due to the pandemic. The African Development Bank has been very responsive in supporting Africa.
“The AfDB launched a $10 billion Crisis Response Facility to support African countries to meet the fiscal and economic challenges posed by the pandemic. The Bank provided $288 million in budget support to Nigeria to cope with the fiscal challenges posed by the pandemic.”
The bank also launched a $3 billion COVID-19 Bond on the global market, the largest-ever social bond in world history. It is now listed on the London Stock Exchange, the Luxembourg Stock Exchange and the Nasdaq.
Adesina commended the leadership of President Buhari, the state governors and the private sector for their roles in tackling the pandemic.
He said: “But let us not be deterred. Nigeria and Africa will overcome this pandemic. African economies are projected to recover this year. The African Development Bank projects that GDP growth will recover to 3.4 per cent for Africa, as economies open up, commodity prices recover, tourism bounces back, and global value chains recover their manufacturing capacities.
“We project that Nigeria’s economy is poised to recover to growth of 1.5 per cent in 2021 and 2.9 per cent in 2022, according to the African Development Bank’s soon to be released African Economic Outlook.”
He said building back will require a lot more resources. Taxes form a significant part of government revenue.
“It is crucial to ensure that the tax base expands. Given that over 60 per cent of Nigerians are in the informal sector, priority should be to support measures to move a large part of this from informal to formal sectors. Making tax codes simpler and reducing administrative burdens and formalities are important to move from informality to formality. Doing so will allow people to be able to better assess their tax obligations,” Adesina said.
He said the digitalisation of tax collection and tax administration remained critical to ensure greater transparency of the tax system, widening of the tax base, while mitigating compliance risks and encouraging voluntary tax compliance.
“The government should focus a lot on corporate taxes, and ensure full compliance. But it is important to ensure that such taxes do not discourage investments. Nigeria can learn from the case of Estonia, which taxes corporate incomes, but based on distributed profits. This allows corporations to re-invest their profits in expanding their businesses.”