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DR CHOONGWA: DOUBLE ECONOMIC STIMULATION

23/03/2022 08:07:00 Mmeli Mkhwanazi

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MBABANE – While the geopolitical tension continues to wage between Russia and Ukraine which also has possible effect of spilling over to other countries and economic regions, most African countries stand at crossroads to make strategic moves and trade effectively on the global market.

At the same time, these developing countries will have to quickly find alternative methods of sustainability due to the likely reduction in the flow of development aid from both the European Union (EU) and other stakeholders. This is according to Southern African Research Foundation for Economic Development (SARFED) Regional Coordinator Dr. George H. Choongwa. He mentioned that with the continued tension, most African countries would have no option but to pay the price via hard hit socio-economic imbalances across all societal levels.

“It is worth noting that for example, Africa has been one of the highest beneficiaries of the development aid from Europe in the form of ODA (Official development assistance), but since the advent of the COVID-19 pandemic, the continent experienced a considerable reduction. According to the Organisation for Economic Co-operation and Development (OECD) report in 2019, as aid to Sub-Saharan Africa totalled US$41.2 billion (E613 805 016 000), or 3 per cent less than in 2018, in real terms. This comes after a significant reduction in donor aid for Africa in 2018 with about - 1.4 per cent. Many of the main donors including France (-10.5 per cent), Canada (-9.2 per cent), the EU (-9.1 per cent), the UK (-7.8 per cent), and Germany (-7 per cent) registered significant drops in their aid to LDCs,” he said.

He went on to add by saying some of the immediate signs of the waging war caused by Russia and Ukraine in both South Africa and Eswatini were the constant increase in the cost of living as it has been characterised by high disposable income cost for average citizens in domestic commodity prices such as fuel, transport, gas and medicals. “We must understand that if South Africa lost its investment ties with Russia which was about R80 billion, equivalent to about USD $5billion, at the same time Russia, had about R23 billion investments in South Africa, if not mistaken. An abruptly lose or reduction of such sums of money would catastrophically challenge both monetary and fiscal policies for both Eswatini and its counterpart, South Africa, whose ultimate result could be that of worsened economic activities ever known in economic history,” stated Choongwa.

There are several short and long term related implications of reduced aid to Africa, as a result of what can be termed as a double impact on global economy which Eswatini and other African countries can take into consideration and put necessary safety nets in place before the going gets worse. One of the major challenges faced is actually the reduction of tax revenue to boost economic activities. Also, foreign aid assisted Eswatini and other developing countries in various ways which ranged from macro to micro economic activities. However, with the advent of various external shocks such as the spread of COVID-19 and geopolitical crisis between Russia and Ukraine, spillover effect is likely to negatively affect the revenue base for Eswatini and its African allies.

Furthermore, tourism has been one of the most affected sector. According to research, tourism contribution to GDP was at about 5.9 per cent in 2019, after having indicated high signs of fluctuations substantially in recent years. This negative trend is likely to worsen the situation as most European countries might be under strict travel regulations due to high levels of security threats as war continued between Russia and Ukraine. On a general trend, most African countries as they were also dependent on tourism, are likely to equally suffer economic hardship during the Russian and Ukraine war. Choongwa further recommended that in counter attacking the second oncoming global challenge beside COVID-19, Eswatini would need to ensure that it doubled its effect in stimulating its strategic domestic capacity.