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Africa is greatly challenged by COVID-19 pandemic

21 October 2020 Stellenbosch Business School (USB)

Although the world has been forced to its knees as a result of the COVID-19 pandemic, countries in Africa are facing a severe decline in future investments, high debt obligations and massive backlog of economic infrastructure.

Prof Meshach Aziakpono, a professor of Development Finance at the University of Stellenbosch Business School (USB) says African countries pre-COVID-19 had challenges of such nature, that their recovery is not going to be easy.

“The level of disruption brought about by the covid-19 globally is overarching and since Africa is not operating in isolation, how the pandemic affects the globe has a significant impact especially if you consider the problems the continent faced pre-COVID-19.”

“Before COVID-19, Africa was at the lowest level of income compared to other regions of the world. According to the World Bank (2019), only 1 African country from 80 countries around the world was identified as high income, and 23 out of 31 countries, in the low-income quadrant. Unemployment is between 33-55% affecting the youth which constitutes 70% of the population. Hunger, poverty, massive infrastructure backlogs, high-levels of debt and corruption, all stifles the growth of the continent.”

Prof Aziakpono says in South Africa, according to the OECD, 57% youth were unemployed in 2019. “The high level of income inequality and the growing proportion of those who have little, increases social challenges.”

“Most countries around the world are facing a recession and the impact on Africa cannot be stressed enough. Developed countries were able to through economic stimulus packages support their citizens with relief funds, grants, healthcare infrastructure and means stimulating the economy, thereby cushioning the impact on businesses and mitigating the adverse effect of the pandemic.”

“Although similar initiatives were adopted at different levels and degrees in developing countries, the number of people that could benefit were significantly limited.”
The informal sector, which makes up a vast majority of small businesses in Africa were significantly affected due to the fact that their businesses are not correctly documented making it impossible not only to identify them but for these businesses to access the relief that was offered.”

He says that the impact on Africa has already seen a decline in tourism, foreign direct investment, development assistance, a decrease in tax revenue, loss in revenue from natural resources, decline in exports and an increase in public expenditure.

“Government debt is at an all time high. The Daily Maverick estimates a R285 billion loss in revenue for South Africa with government loan response jumping to R95 billion.”
“In a response to offer relief, the ratio of Government borrowing to GDP increased significantly yet it will soon be impossible to borrow at a reduced cost. With the private sector constraint, the only option is for Governments to boost the economy, yet their capacity is limited.”

Prof Aziakpono says it is evident that the capacity to generate domestic resources is limited and COVID-19 has worsened the situation. “GDP per capital was already very low and if the recession turns into an economic crisis, the reduction will be even greater, spiralling the countries into further poverty. Developed countries are weathering their own storms, resulting in significantly lowering foreign investment and the flow of funds available for developing countries.”

With these real challenges Africa faces, a vicious circle is created, leading to the critical question of how does one recover an already failing economy?

Prof Aziakpono says one of the solutions is for Africa to look beyond individual country specific needs and solve the issues as a continent.

“Africa has a unique opportunity to mobilise and tap the huge trade potential within the continent. The Africa Free Trade Agreement needs to be implemented to unleash growth, instead of depending on import from other countries. Also, Africa governments need to approach lenders collectively for debt cancellation and in its absence, at least a delay in repayments and possible cancellation of interest payment.”

“Africa is in a unique position to embrace technology which can support and grow business-to-business transactions, boosting potential funding for SMMEs.”

He says proper mechanisms need to be put in place to fight corruption and to create policies that would protect an investors rights to enhance their confidence in investing in Africa. “No investor does so without the guarantee of improving their bottom-line and making profits. We are sending investors away and Governments and its citizens need to recognise the crucial role they play in attracting and retaining investors.”

As a final point, Prof Aziakpono says Africa needs to increase the culture of savings, even amongst the poor.

“Current policies cater for the rich but what if we made saving attractive to the poor? If we can implement a scheme whereby the poor are incentivised to save, this will have a significant impact on spendable income, foster a culture of saving and uplift the poor whilst the continent mobilises resources for growth and prosperity.”


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