Search for:

The Coronavirus (COVID-19) has resulted in mass production shutdowns and supply chain disruptions due to port closures in China, causing global ripple effects across all economic sectors in a rare “twin supply-demand shock”. With South Africa having just reported its first cases of COVID-19, Africa is beginning to feel its full impact and plans to control and manage the humanitarian challenges of the virus are underway across the continent. Economically, the effects have already been felt – demand for Africa’s raw materials and commodities in China has declined and Africa’s access to industrial components and manufactured goods from the region has been hampered. This is causing further uncertainty in a continent already grappling with widespread geopolitical and economic instability.

The number of cases is reportedly slowing down in China, increasing expectations that it will eventually reach a plateau and be brought under control. However, in early March the Organisation for Economic Co-operation and Development noted that “annual global GDP growth is projected to drop to 2.4% in 2020 as a whole, from an already weak 2.9% in 2019, with growth possibly even being negative in the first quarter of 2020”, with global markets plunging in the days thereafter.

Although Chinese growth will fall in the short term, it is expected to rebound quickly, some suggesting this could even happen in the second quarter of 2020 when the virus will hopefully be contained. In the meantime, central banks are implementing measures to mitigate the effects of the virus on the economy, cutting interest rates and injecting liquidity into the banking systems in some countries.

In early March, the World Bank announced it would commit USD 12 billion in aid to developing countries to help them to deal with the impact of the virus and limit its spread. The Bank said it would prioritise the most at-risk countries. The World Bank also introduced a pandemic bond in 2017, which, as part of the Pandemic Emergency Finance Facility intended to provide money to help developing countries in the event of a pandemic reaching certain thresholds and conditions. So far, these criteria have not been met and the bond has not paid out.

Uncertainty regarding the spread of COVID-19 is high and its impact on Africa is expected to be serious, given the continent’s exposure to China. So far, cases have been reported in Algeria, Cameroon, Egypt, Morocco, Nigeria, Senegal, South Africa, Togo and Tunisia. If there is a widespread outbreak of COVID-19 in Africa it could overwhelm already weak healthcare systems in the region.

According to ratings agency, Fitch, the Coronavirus outbreak will have a downside risk for short term growth for sub-Saharan African growth, particularly in Ghana, Angola, Congo, Equatorial Guinea, Zambia, South Africa, Gabon and Nigeria – all countries that export large amounts of commodities to China.

Merger & Acquisition Activity

Africa has come through a period of prolonged political and economic uncertainty, but signs of future economic improvement, were pointing to a modest increase in M&A activity in Africa over the next few years. COVID-19 is likely to hamper this predicted upturn and result in increased short-term uncertainty in terms of how it will affect investment opportunities in Africa, the continent’s productivity and consumer demand.

There are other transactional risks. If the virus spreads rapidly in Africa, countries might have to introduce similar measures to those taken in China where areas were locked down, factories were shut, quarantines enforced, and travel bans imposed. As such, these events could potentially be significant enough to trigger a change to the terms of an M&A transaction currently in progress, and deals could be delayed as a result. COVID-19 conditions could also cause delays to M&A due diligence, necessary for a transaction to progress to finalisation. Further, the virus could qualify as a force majeure event causing more delays or terminations. To find out more about how a force majeure event could impact your business, read our global insight.

We are hopeful the rebound from COVID-19 will coincide with the implementation of the African Continental Free Trade Area (AfCFTA) in July 2020, which should provide an additional boost to deal activity in Africa the coming years. The AfCFTA is the first continent-wide African trade agreement, with the potential to facilitate and harmonise trade and infrastructure development in Africa. This boost to the investment environment will be welcome after the additional uncertainty of dealing with COVID-19 impacts.

Capital Raising and IPOs

African issuers have been waiting several years for an improvement to political and economic instability in Africa before going ahead with any planned capital raising. As a case in point, Baker McKenzie’s Global Transactions Forecast showed that there were no IPOs in South Africa in 2019. Also eroding investor confidence were the numerous global trade tensions, with capital raisers watching for signs of resolution before launching IPOs. With Africa looking to benefit from new global and regional trade agreements, the forecasts had been pointing to a potential recovery in capital markets in the next few years, but this might be delayed as the uncertainty around the impact of COVID-19 in Africa reaches its peak. IPOs in the region are therefore expected to decline, not directly because of the virus as is the case with equities, but because COVID-19 will have an effect on the underlying business case for IPO companies, which will impact on their ability to raise capital.

Financial Institutions

Global financial institutions are currently assessing the impact of COVID-19 and reacting to its economic impact, ensuring they are able to adjust to new and unprecedented circumstances brought about by the virus. It remains to be seen whether the huge global economic downturn caused by decreased output in China will impact on African lenders and compel financial institutions on the continent to be more lenient towards borrowers and cut them some slack.

Local Markets

Since global economic growth is a key driver of commodity prices, local prices have been driven down by the virus’s global impact. The uncertainty of the impact of COVID-19 on local markets is expected to lead to increased risk aversion from investors who are waiting to see its potential impact in Africa. On the plus side, a temporary fall in share prices always provides opportunities for prudent investors.


Both businesses and individuals in Africa might find they are uninsured for any COVID-19 impacts as losses related to an epidemic or pandemic would usually not be covered in insurance policies, irrespective of whether the insurance covers business interruption, property damage, product losses or personal life and non-life insurance or even travel insurance. As COVID-19 is a new disease, it would not have been specifically listed in existing insurance contracts. Many business interruption policies will include clauses for extended damage, but it is unlikely that these extensions will provide coverage under the current circumstances. As such, the wording of policies should be carefully checked.

Some insurance companies who provide cancelled event coverage that specifically includes references to epidemics or pandemics could be impacted. Reuters reported that financial services firm Jefferies estimated the insured cost of the Tokyo Olympics to be around USD 2 billion – including television rights, hospitality and sponsorship.


China has long been a key partner in Africa’s infrastructure development. Baker McKenzie research with IJGlobal, A Changing World: New trends in emerging market infrastructure, showed that China has targeted sub-Saharan Africa in recent years, both in the context of its need for natural resources and as part of the Belt and Road Initiative (BRI). Chinese policy banks loaned USD 19 billion to energy and infrastructure projects in the region from 2014-2017, almost half of which was in 2017.

The effects of Coronavirus have already impacted activity around China’s BRI, a multi-billion dollar plan to link Asia, Europe and Africa. According to a new report by Baker McKenzie and Economist Corporate Network, sustainability must be at the heart of China’s Belt and Road Initiative if it is to remain a major force in global infrastructure development. The report notes that with immediate term setbacks and delays due to the ongoing spread of COVID-19 around the world, the definition of BRI sustainability is also by necessity growing to encompass a focus on protecting the health of those involved in BRI projects, including both workers and the wider local populations where projects are underway.

According to Ben Simpfendorfer, CEO, Silk Road Associates, the BRI will remain a priority for China, but the Chinese government’s short-term and long-term response to COVID-19, shortfalls in China’s health sector, and the economic fallout for the country’s financially challenged SME sector, will divert official attention and resources away from BRI over the 12 months and potentially longer.

“This may mean reduced investments into BRI’s smaller, less critical markets where the opportunities to connect such investments to the global supply are limited. Central Asia, Sub-Saharan Africa, and Eastern Europe will accordingly see a short-term dip in BRI related activity, relative to Southeast Asia. The exception to this view is where China seeks to share its valuable experience of battling COVID-19 with other BRI countries. Strengthening the health systems of low-income countries is a priority even if focused on soft processes rather than hard infrastructure. If so, China is likely to link these efforts as being a part of the BRI,” Simpfendorfer said.


COVID-19 is expected to impact China’s global trade for several months. As China is Africa’s biggest trading partner, the effects of COVID-19 are already being felt in Africa. With China having shut down its manufacturing centre and closed its ports, there has been a resultant decrease in demand for African commodities. Importers in China are cancelling orders due to port closures and as a result of reduction in consumption in China. Sellers of commodities in Africa are being forced to offload products elsewhere at a discounted rate.

Over three quarters of African exports to the rest of the world are heavily focused on natural resources and any reduction in demand impacts the economies of most of the continent. Countries such as the DRC, Zambia, Nigeria and Ghana are significantly exposed to risk in terms of industrial commodity exports, such as such as oil, iron ore and copper, to China. The Organization of Petroleum Exporting Countries (OPEC) has dramatically reduced its outlook for oil demand this year as a result of the virus.

The impact of COVID-19 will also be felt in the manufacturing sectors. Because China is part of the global supply chain, factory closures raise the risk of supply chain disruptions for multinational companies with delays, raw material shortages, increased costs and reduced orders already affecting manufacturing plants around the world, including in Africa.

Further, a look at African imports from outside the continent reveals that industrial machinery, manufacturing and transport equipment constitute over 50% of Africa’s combined needs. Currently, external imports from outside of Africa account for more than half the total volume of imports to African countries, with the most important suppliers being Europe (35%) China (16%) and the rest of Asia including India (14%). As such, disruptions due to the impact of COVID-19 will lead to a decrease in the availability of manufactured goods imported into Africa from China.

With the widespread nature of the virus, it is difficult to envisage how supply chains could be adjusted rapidly to meet demands. The obvious choices of Vietnam and Indonesia where supply chains were re-routed as a result of the US/China “trade wars”, are almost at full capacity and may not necessarily be able to meet the demands if China is unable to produce, and if these countries have to deal with further challenges caused by COVID-19. Both countries have reported cases of Coronavirus although Vietnam recently announced that all its 16 infected citizens had been cured and Indonesia reported only two cases so far.

Energy and Mining

China appears to have been more interested than any other big economy in investing in the African mining sector. According to China Mining 2018, in 2011, China investors controlled only about 10 mining operations on the continent and this figure rose to at least 24 in 2018. China’s interest in mineral resources in the African continent has been motivated, on the one hand, by its strong growth in power, construction and industrial manufacturing sectors, and on the other, by its declining internal mining production capacity year-on-year, due to declining ore grades, increasing labour costs and a more stringent regulatory environment. In return, China has one of the strongest infrastructure construction capabilities in the world and is arguably best placed to help Africa to address its vast infrastructure gap.

As such, the African mining industry faces an inevitable hit from China’s COVID-19 outbreak, although there is still much uncertainty as to how much and for how long the sector will be impacted. Reuters reported that China produced nearly 1 billion tons of steel in 2019 and consumed around 900 million tons due mainly to consumption in its infrastructure and construction sectors. Shutdowns have resulted in a decline in demand for steel and iron ore. African mining companies producing lithium, cobalt, copper and iron ore have already noted decreasing demand from China caused by production shutdowns and global supply chain disruptions.

Port closures, travel restrictions and manufacturing shutdowns are decreasing demand, causing oil importers in China to cancel purchases of African oil, forcing sellers to divert cargoes as they seek new buyers often at discounted prices. This week OPEC+ failed to agree on terms related to oil supply cuts to deal with demand challenges brought about COVID-19, starting an oil price war and causing oil prices plunge further. Demand has also decreased for Liquefied Natural Gas (LNG), with much of China’s total imports of the gas at risk of cancellation. China is the world’s second largest consumer of oil and one of the largest importers of LNG. However, it is also expected that once China has recovered this could lead to an increase in demand for raw materials.

In addition, significant outbreaks of COVID-19 in mining regions in Africa could affect workforce productivity, the availability of skilled technicians to travel from affected areas and the capacity of labour-intensive mining operations to produce raw materials. Mining companies in the region will be planning carefully to avoid such a scenario and ensure that they can effectively mitigate the spread of the virus.

Industrials, Manufacturing and Transportation

In the short term, China’s manufacturing sector has been significantly impacted by COVID-19 although the impact will be more limited in the medium to long term. There is uncertainty as to when production lines and factories will reopen in affected regions but once they do, both imports and exports will be further delayed by the resultant congestion and backlog. The manufacturing and industrial sectors in Africa are expected to be impacted by a decreased supply of key components from China (and other relevant countries affected by COVID-19).

In particular, construction companies will be impacted due to delays in the global supply chain and the resultant shortage of construction material. Construction companies have also noted a lack of access to skilled personnel from affected regions, who have been unable to travel to project locations due to travel bans, quarantines and self-isolation. African contractors are at risk as the resultant delays will affect the time taken to complete projects.

Further, the African automotive sector will feel the impact as the Hubei province, an epicentre of the virus, is a large centre for the production of automotive parts and supply of such parts to other regions has been affected by shutdowns and closures. In addition, consumer demand is expected to affect the sector already feeling the strain of existing market conditions, as the resultant economic downturn affects sales.

Healthcare and Pharmaceuticals

China has been Africa’s largest trading partner for some time and the interconnectedness between these regions means that African nations could have been exposed to COVID-19. A potential largescale outbreak is expected to put pressure on already strained public health systems on the continent and African countries are being vigilant in order to quickly diagnose and contain the outbreak. Detection of the virus in African countries might be a challenge due to lack of laboratory capacity and medical supplies. The WHO noted that it was equipping 36 African countries with virus testing kits, and it has also helped to train and provide personal protective equipment to health workers in Africa. Further, most African countries are identifying quarantine centres and stocking up on medication. Healthcare facilities throughout the continent will feel intense strain should the virus take hold.

COVID-19 has already begun to impact on the global pharmaceutical sector, with the prices of pharmaceutical ingredients manufactured in China rising or being unavailable after extended factory closures and supply chain disruptions. India’s Directorate General of Foreign Trade announced in early March that the country would restrict exports on 26 medical products and ingredients, including paracetamol and some antibiotics, which could lead to a shortage in Africa. India produces a large percentage of the world’s generic medicines.

In Africa, the Nigerian Representatives of Overseas Pharmaceutical Manufacturers, said recently that COVID-19 had impacted Nigerian pharmaceuticals as products manufactured in China before the shutdown had not been shipped and prolonged factory closures in China meant new products were not being manufactured. As a result, they were experiencing a shortage of medical products and supplies. Fitch expects the supply of medical devices to sub-Saharan African to be hindered by supply chain challenges in the short term.

Moody’s said healthcare share prices were also expected to fall because of China’s place in the global medical supply chain. On the plus side, demand for medical products such as masks, infection prevention kits, etc. would benefit some companies who produce these goods, as long as production demands could be met and they were not adversely affected by supply chain disruptions from China.

Technology, Media and Telecommunications (TMT)

The TMT sector in Africa was expected to attract high value investments this year, with many telecoms companies seeking to expand infrastructure as well as the booming e-commerce sector showing opportunities for M&A in the region. However, the uncertainty around COVID-19 means that expected investment could be delayed as tech investors wait out the uncertainty and recover from the short-term impacts.

Most of the large technology multinationals have said that the impact of reduced demand for their products in China and the effect of breaks in the supply chain for materials needed in the production of their products, have impacted their businesses negatively. Many have been forced to close stores, factories, manufacturing plants and offices and allow employees to work from home. Labour-intensive industries are the most affected by the virus and this this has impacted on planned projects, development and product releases in this sector. This is likely to cause a ripple effect and lead to project delays in Africa as well.

It is predicted that the global theatre industry might suffer if people stop going to cinemas for fear of picking up the virus, leaving the way open for traditional broadcasters and live streaming platforms to benefit from stay at home movie and tv watchers. It will be interesting to see what changes are implemented by film distributors to address this difficulty. One option could be to use transactional video on demand platforms for new releases. Whatever means are implemented, the impact is likely to disrupt the traditional reliance on theatres as the first release window and ultimately, the way of doing business in the film distribution industry could find itself forever changed as a result.

Wuhan in China is the largest producer of optical fibre and cable in the world, accounting for a quarter of the international market. A break in the supply chain for such products means that the African telecommunications industry and the quest to implement fourth industrial revolution technology infrastructure in Africa could be affected. Fibre optic cable is a necessary component of high-speed broadband, which is essential for 4IR technology and implementation.

South Africa is also likely to see an increase in online shopping as more and more consumers avoid public spaces. South Africa’s banks are also likely to start testing disaster recovery sites in order to secure ongoing trading and business continuity where operations are impacted by office evacuations due to COVID-19.

Tourism and Hospitality

There are around one million Chinese people living and working in Africa and many Africans visit China as students, tourists and business travellers. Now that China, and other regions affected by the virus, have restricted non-essential travel and banned events and mass gatherings to contain the virus, the impact on the Africa tourism sector will be notable. Globally, travel related business such as hotels, airlines, luxury and consumer goods have already suffered due to the travel ban into and out of China. Holidays have been cancelled and rescheduled in areas affected by the virus and people have stopped going out to entertainment venues and restaurants to avoid the risk of exposure. Further, the epidemic is threatening African airlines, with a considerable decrease in the number of flights to China from Africa. If the travel ban continues, it could have a detrimental effect on airlines that serve some of the world’s busiest air routes.

The Association of Southern African Travel Agents (ASATA) recently confirmed that leisure travel had been affected and that proactive measures were being implemented by travel suppliers to help those affected, such as waiving cancellation fees for those who can no longer travel.

On the plus side, there have been reports that changing travel arrangements could mean that Africa is seen as a potential alternative holiday destination for travellers who are no longer able to visit more affected areas. In a similar vein, the private jet aviation industry is said to be increasing in popularity as the wealthy seek to avoid more crowded transportation.

Consumer Goods and Retail

Consumption accounts for 70% of China’s GDP according to Franklin Templeton Emerging Markets Equity team. Travel, leisure, retail and select discretionary consumption will be directly impacted by COVID-19, decreasing consumption in the short term and leading to a decrease in demand for global consumer products.

Luxury brands, for example, are expected to take a hit as demand falls and priorities shift. Chinese consumers accounted for about 35% of global luxury goods sales last year, according to Bain & Company and Altagamma, and so the decrease in demand due to travel bans and movement restrictions will affect global luxury goods sector.

However, global panic buying has led to an increase demand for items such as foods with longer shelf life and household and medical products as people stock up in case they are quarantined.

Labour-intensive segments of the apparel supply chain have also been affected by the shutdowns in China and these are expected to affect the global supply chain, resulting in a shortage in retail stocks, including in Africa.

Online retailing is a notable beneficiary of COVID-19’s impact – the sector has experienced growth as people turn to online shopping to avoid crowded shops or because they are quarantined and unable to leave home. If the same situation arises in Africa, online retail might too receive a healthy bump in sales.

Retailers in Africa are preparing for the impact of a potential drop in sales due to constraints in both the supply of products and consumer demand, which will affect their liquidity and could lead to job losses. Strategies to increase and promote online retail sales might provide a solution.


Morné van der Merwe is the managing partner of Baker McKenzie's Johannesburg office and heads its Corporate and M&A Practice Group. He is recognised as a leading lawyer in South Africa by Chambers Global, Legal 500 and IFLR1000.


Wildu du Plessis is a partner and head of Baker McKenzie's Banking & Finance Practice Group in Johannesburg. He also acts as the office's Africa Head. Wildu is regularly ranked as one of South Africa's leading banking and finance and capital markets lawyers and is recognized by Chambers Global 2016 and the Legal 500 2016.


Virusha is a partner and head of Tax in Baker McKenzie's Tax Practice Group in Johannesburg. She has over 20 years' experience in tax matters relating to customs, excise and international trade.


Janet is a partner and head of the TMT industry group for the Johannesburg office. She has extensive expertise in the Telecommunication and Information technology sector, as well as the Media, Broadcasting and Entertainment industry.


Kieran Whyte is a partner in the Baker McKenzie's Johannesburg office. He has over 25 years' experience working in South Africa and Africa, with particular focus on energy and infrastructure projects. Kieran represents project sponsors, developers, contractors and lenders in complex greenfield and brownfield developments, advising on citing, permitting and regulatory concerns. He has advised on numerous first-in-kind projects associated with the South African government's Renewable Energy Independent Power Producers Procurement Programme. Kieran is experienced in all aspects of project development and is recognized in his field by legal directories including Chambers and Legal 500.


Mike van Rensburg is a partner in Baker McKenzie's Corporate and M&A Practice Group in Johannesburg.