COVID-19 panic: Africa’s road to recovery

In late March, I did an opinion piece for the South China Morning Post on the impact of the coronavirus disease (COVID-19) on Africa. The bottom line was the shutdown of the global economy and suggestions that Africa, in doing the same, was a price the continent couldn’t afford to pay.

I said that for fundamentally two reasons. One, extreme poverty and the size of the informal economy across the continent that would leave too many people vulnerable.

The poverty rate across Africa is about 40 per cent.

The range of the informal sector runs from 40 per cent to 85 per cent, depending on the country.

If those folks don’t work, they don’t eat. It’s that simple. A shutdown of the economy for almost any length of time is literally life-threatening.

A shutdown’s impact on African stock markets and bond markets would be just as devastating.

For example, when I arrived in Johannesburg in February, the exchange rate was R15.4 to the dollar, today it’s R18.3.

For a country already struggling with foreign debt, the cost to borrow will be higher and the cost of repaying already accumulated debt will increase as well. Some version of this horror show is being played out all across the continent.

The long and short of my argument was that one could not expect better health outcomes in Africa by creating poorer people and poorer countries.

Recently, the World Bank (WB) released its report on Africa and COVID-19; that report echoes the main thrust of argument I made a month ago.

Considering all factors, the WB calculates the costs of the COVID-19 crisis for Africa at between $37 and $77 billion, from now until the end of the year.

Question

Now the critical question is – what’s next for Africa as it moves from strategies to contain the virus to how it corrects the economic contagion caused by the virus? At the top of the list is the need for a cooperative and coordinated recovery effort.

One of the irrefutable truths underscored by this crisis is, viruses and economic contagion don’t respect boundaries or borders. Given that reality, “go-it-alone” approaches won’t work.

Likewise, given the new African Continental Free Trade Area (ACFTA) Treaty, single country solutions for recovery run counter to the open border approach to free trade, which all believe is critical to secure Africa’s economic future.

What then are the things African countries need to incorporate into their policy and strategic plans to rebound from the COVID-19 crisis?

Meetings

There are, at least, three meetings African governments need to initiate. First, the regional blocs – the Southern African Development Community (SADC), the East African Community (EAC) and the Economic Community of West African States (ECOWAS) – need to meet immediately to discuss follow-up strategies on the varying initiatives to deal with the outbreak and flesh out strategies to jump-start member country economies.

The second meeting might be best initiated by the African Union. Africa’s BRICS allies (Brazil, Russia, India and China) need to be engaged. BRICS countries account for 40 per cent of the world’s population and 30 per cent of the global economy.

This strategic alliance needs to be mobilised so that member states can cooperate and coordinate respective efforts toward recovery.

Then, there should be meetings with the leaders of the G20 and multilateral institutions. Jump-starting the global economy requires a global agenda. African leadership need to angle to ensure that the global response is not a top-down approach.

Everything from debt forgiveness to fiscal support needs to be on the table in these discussions. Up until 2001, African countries were growing at an enviable clip. Since then, there have been three major shocks to the global economy – 9/11, the 2008 financial meltdown and now, the COVID-19 crisis. None of these was Africa’s fault, yet the continent has had to bear a disproportionate share of the burden.

Not fair

The WB is proposing a $14 billion fast-track fund to shore up immediate containment efforts and $160 billion over the next 15 months to assist with the overall recovery of the continent. While these numbers sound big, it’s a drop in the bucket by world standards.

The United States recovery package of $2 trillion translates to overall benefits of about $6,000 for every man, woman, and child in the country. The WB commitment to Africa calculates to approximately $160 per person. That’s not fair, it’s not right, and it’s not enough.

Multilateral institutions, as well as bilateral aid from the US, UK, EU, China, Russia and the Scandinavian bloc need to be substantially increased to help Africa dig out of this hole which it didn’t dig.

Beyond budgetary support, there is also the issue of debt. Debt relief is not enough, debt forgiveness should be the primary point of conversation.

Not only that, but going forward, Africa’s bond and sovereign credit ratings should be calibrated based on the strength of their economies before 9/11.

That’s fair and it also represents the best shot for Africa getting back on track.Africa’s leaders and its people have done their part to stem the tide of the virus. They shouldn’t have to bear the burden of their recovery alone.

What I’m suggesting is the sort of progressive agenda that will ensure that Africa and the rest of the world will be ready to withstand the next pandemic outbreak.

It is this sort of progressive agenda that will ensure that Africa will truly be on the road to recovery.

The writer is the Chairman of the Pula Group, a US based company that invests in Africa.