As the global economy slowly rises to its feet, Africa faces reduced growth and looming debt, while the race for a Covid-19 vaccine risks leaving African economies out in the cold.
In 2020 Covid-19 looked set to largely spare Africa as it cut a deadly swath through other regions. No longer. In late January Zimbabwe’s foreign minister died from the virus, less than a fortnight after four top Malawian politicians had succumbed to it within 24 hours.
As the death toll spiralled in Lilongwe, the capital of Malawi, one graveyard was so overwhelmed it deployed heavy machinery to bury the dead. The nation of 19m is the only country in the world where human rights and democracy improved in 2020, according to US think tank Freedom House. But the sudden spike in coronavirus deaths since the beginning of the year paints a darker picture of a continent whose leaders can’t even save themselves.
After an impressive early response to coronavirus, the situation is deteriorating across Africa. The continent’s coronavirus case fatality rate stood at 2.5% in late January, higher than the global level of 2.2%, John Nkengasong, head of the Africa Centres for Disease Control and Prevention (Africa CDC), told reporters.
Earlier in the pandemic, Africa’s death rate trailed below the global average. Twenty-one countries on the continent have a death rate of above 3%, raising the spectre of further rounds of lockdowns throughout 2021.
But as grim as the human tragedy is becoming, the economic toll could prove to be just as destructive.
Recession and recovery
The economic damage has been even more startling. The IMF says that African GDP contracted 3% in 2020. Free trading under the African Continental Free Trade Area (AfCFTA), which was originally scheduled to launch last year, only began in January. The pandemic has put “a decade of hard-won economic progress at risk,” in Africa, said the World Bank in April 2020, warning that as many as 43m people could be pushed into extreme poverty.
As Africa wakes up to the prospect of a deadly second wave and a looming economic and debt crisis, the Bank’s October prediction that the continent will grow by 2.1% in 2021 could prove optimistic.
While the situation appears desperate, there may be light at the end of the tunnel. Vaccinations are on the rise, with millions of doses administered across the world, according to data collected by Bloomberg.
Meanwhile, the election of Joe Biden as US president has prompted hopes that the superpower trade war between the United States and China, which sucked in emerging markets such as Africa, may begin to ease.
Charlie Robertson, global chief economist at Renaissance Capital, says that Biden’s January inauguration transformed the outlook for emerging economies.
“Now you have a president who doesn’t believe in trade wars, tariffs and protectionism. As the trade war story ends, people are going to put money to where the best gains are to be had. To where the good value wages are, which means that money goes back into emerging markets, and the Chinese currency starts to strengthen. And when China’s currency starts to strengthen, everyone starts to strengthen with it in emerging markets.”
As the world economy unsteadily rises to its feet, commodity prices in emerging markets have also seen a lift. Iron ore prices have spiked this year, and copper is at a seven-year high as Chinese demand resumes in line with its strengthening economy (for further information, see our special report on mining).
“It’s suddenly a really good time to start being in emerging markets again,” says Robertson. “The world is more underinvested in emerging markets than it has been in about the last 20 years. So, we expect there to be a big surge of cash, potentially trillions going into emerging markets in the next few years.”
A borrower’s market
Even if the external economic picture looks less gloomy, Covid-19 has cast the liquidity woes and the debt problems of many African countries into striking relief.
An African Union study on the economic impact in April 2020 showed that African governments could lose up to $500bn in tax revenues, forcing countries to borrow heavily for emergency budgetary spending.
Faced with the choice of paying creditors or using the money to buy up vaccines to save lives, many African governments have turned to the G20’s Debt Servicing Suspension Initiative (DSSI) on the advice of the World Bank and IMF.
A total of 31 African countries have signed up to the DSSI since its launch in May 2020, but the programme will only account for 15% of total annual debt service payments owed by African countries to their external creditors this year, Afreximbank warns.
What’s more, the initiative is costly and time-consuming, says development economist and former UNECA executive secretary Carlos Lopes: “Nobody should underestimate the amount of effort it took the IMF and others to mobilise the G20’s DSSI original package [in 2020] as well as the extension obtained in December for a further six months in 2021. [But] it all translates into a mere $5bn for Africa, which looks like a joke in relation to the liquidity problems African countries face.”
China, Africa’s largest bilateral lender, is also working on debt relief efforts. In January, China postponed Kenyan debt repayments due over the next six months, a week after a similar offer from Paris Club creditors. The country had been scheduled to repay $245m between January and June.
While such bilateral agreements are a welcome start, they only represent the tip of the iceberg for Chinese debt on the continent – Johns Hopkins University’s China Africa Research Initiative calculates that the Chinese government, banks and state-owned enterprises lent some $152bn to the continent between 2000 and 2018, only some of which has been repaid. The World Bank estimates that China accounts for 17% of African debt.
Towards debt cancellation?
With five African countries in debt distress before the pandemic struck, and the average debt burden for the region forecast at around 64% of GDP in the near-to-medium term by Moody’s, some form of debt cancellation should be considered for Africa, says Alex Vines, head of the Africa Programme at Chatham House.
“France and Germany have signalled that during the UK’s G7 presidency and Italy’s G20 one in 2021, they will push for a broader discussion of Africa’s debt burden,” he says.
Multilateral institutions will continue to lead the way with financial support. 2020 saw Africa’s key economies Nigeria and South Africa bailed out by the IMF, with $4.3 bn in emergency funding approved for South Africa in July and $3.4bn to Nigeria in April. With a Biden administration in the White House, a renewed push should be made to increase the IMF’s precautionary reserves, or special drawing rights, Vines adds.
“It is also really important that both the G7 and G20 are effectively lobbied by African governments and the AU this year,” he says.
Additional private funds may also be available. As global central banks slash interest rates to near zero and go on a spending spree to manage the fallout of the pandemic, it ought to be cheaper than ever for African governments to borrow.
But governments will face a difficult choice over whether to increase their debt pile by borrowing more at cheap rates to meet emergency funding needs, thus kicking the debt can further down the road. Sensible spending decisions will be key to getting the balance right, says Charlie Robertson
“We’re in for a very interesting period. The opportunity to borrow cheaply is great, but investors need to be paying attention to how the money is being spent. Is it going on the electricity, ports, roads and infrastructure that can allow so much of sub-Sahara to industrialise like the east Asia story, or is it getting wasted on tuna fishing boats like Mozambique did six or seven years ago?”
The vaccine race
Nowhere is the need for additional funds starker than in healthcare, where an investment deficit has rendered Africa particularly vulnerable to a global pandemic.
Years of underinvestment left Africa’s hospitals and welfare systems ill-prepared for the emergency, with limited beds, oxygen and respirators across the continent. It has been estimated that African governments are spending five times their health budget on debt repayments.
2021’s healthcare challenges are particularly acute. The mass rollout of vaccines in the next three years will be crucial to allow Africa to get back to normal, but the continent needs an estimated $9bn to buy and disperse enough vaccines to immunise 60% of its 1.3bn population, Afreximbank estimates.
The institution has so far guaranteed $2bn to procure vaccines from manufacturers on behalf of its 51 member states. By late January, the African Union had secured 670m shots of coronavirus vaccine from Pfizer, Johnson & Johnson (J&J) and AstraZeneca, which will be distributed according to countries’ population size.
Together with doses made available via the Covax scheme, an equitable vaccine distribution initiative that 40 African countries have signed up to, this brings the total for Africa to 1.27bn, enough to inoculate nearly half the population.
Ensuring that the vaccine reaches far-flung regions and villages, many of which don’t have the infrastructure in place to store and deliver the vaccines, is a key challenge. The continent lacks the ultra-cold storage capabilities to maintain some of the vaccines, including the Pfizer candidate.
Experts say there are ways around this – Pfizer’s thermal shippers can be used as temporary storage units for up to 30 days if they are refilled with dry ice every five days, a laborious but not impossible task, says Professor Greg Hussey, chair of South Africa’s National Advisory Group on Immunisation and director of the Vaccines for Africa Initiative.
Aspen Pharmaceutical may be able to fill and finish vials of J&J’s vaccine in South Africa by the end of March, pending approvals, but no other plants in Africa yet have deals or the capacity for the part-manufacture of a Covid-19 vaccine.
Egypt and Senegal are the only countries with facilities to manufacture vaccines, while Cape Town’s Biovac Institute also has a fill and finish plant where they hope to make vaccines soon, Hussey says. For now at least, Africa is dependent on sourcing vaccines from elsewhere.
“The continent doesn’t have the capacity and I think that’s an aspirational goal,” says Hussey. “The Covid-19 pandemic has highlighted the need for indigenous vaccine development.”
A time for change
While global growth gains speed as trade tensions ease and vaccines take root, the continent finds itself partly looking to international lenders to navigate 2021.
As the second wave of the pandemic rages, Africa’s policymakers are facing up to debt and health crises years in the making alongside the urgent need to oversee a coordinated vaccine rollout.
Leading institutions – including the African Union and the continent’s multilateral lenders – will need to draw on their diplomatic experience to marshal support from a wide range of actors and work closely with the continent’s governments to shelter their citizens from the worst of the crisis.
Whether on debt or vaccines, the outside world should stand ready to offer generous support and assistance, especially as things improve elsewhere.
2021 will undoubtedly be a year of reckoning. Nevertheless, African leaders must not allow the crisis to go to waste, or squander the opportunity for the economic and health reforms that have been avoided for so long. If they can seize the moment for change, 2021 may yet prove crucial to righting the course of Africa’s future development.