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Friday, October 09, 2020 / 03:30 PM /by FBNQuest
Research / Header Image Credit: UNOWAS
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?.
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