The international media have picked up on the theme that “Africa has done all right” in the fight against COVID-19. This is understandable in terms of the number of cases and deaths: 1.3 million cases out of 35.8 million globally and 37,000 deaths out of 1.0 million globally according to the EU’s European Centre for Disease Prevention and Control. As many as 680,000 cases and 17,000 deaths have been reported from just one country (South Africa).
We hear the rejoinder that the data are suspect and that the number of cases for Africa appears low because the scale of testing has been relatively low. The release of data has been fiercely contested in advanced economies due to different methodologies. The point about testing is more valid. In the past month airports, schools, restaurants and places of worship have been reopened in many African countries. We can say that Africa has done all right if it is not subjected to a second wave (as much of Europe has).
Public resources were already stretched before the emergence of COVID-19 and have been hit since by the fall in tax revenue across the continent. Governments have not been able to throw money at the problem as the Organisation for Economic Co-operation and Development (OECD) states have done. However, they entered the crisis with some transferable expertise from combating Ebola in West Africa and in eradicating polio.
That said, the economies have taken a hammering from COVID-19. Taxes on spending, income and commodities have all plummeted. The support from multilateral agencies, led by the IMF’s conditionality-free facilities to tackle external shocks such as COVID-19, has not been adequate to cover the gap. The result is that worthwhile infrastructure projects, which are one of several proven routes out of underdevelopment, have often been deferred.
With a few exceptions such as gold, commodity prices are far lower than they were pre-COVID. Tourism, particularly at the high end, is vulnerable to changing trends. Expensive holidays in, for example, Namibia, Rwanda and Mauritius have become much harder to sell. We are talking carbon footprint as well as COVID-related fears.
Foreign direct investment (FDI) inflows are expected to decline by between 20 and 40 per cent this year according to the United Nations Conference on Trade and Development (UNCTAD). For remittances, the World Bank anticipated a fall of 20 per cent for emerging and frontier markets in March. In this uncertainty, these are brave forecasts but the multilaterals are expected to make them. Q2 2020 data for Nigeria show remittances down by over 30 per cent year-on-year although the picture is much better in Kenya. For foreign portfolio investors, there was initially a huge exit from all emerging markets, put at US$90bn in March alone. This is the estimate of the independent Institute of International Finance in Washington, which thinks that about half has been recouped.
There are some obvious winners in terms of industries for Africa as elsewhere. Payment platforms, mobile operators and e-sales in general spring to mind, and we should mention the opportunities for offshoring as multinationals identify the savings from moving back office functions to new and cheaper jurisdictions. Sadly, there are losers too, horticulture in Kenya being one of many.
We will feel more comfortable if Africa avoids a major second wave. The youth of the population may prove critical in this respect. The economic damage has been huge however, and the resources to drive a recovery are limited. This is the time for the settling of differences between states and the pushing of bold reforms. Where better to start than a grand project about which we have had many doubts, the African Continental Free Trade Area which is scheduled to become operational soon?.
Gregory Kronsten, Head, Macroeconomic and Fixed Income Research, FBNQuest