If people can agree that the five-sided crisis of the Covid-19 pandemic – public health, environmental, social development, political and economic – is the biggest test facing the world for a century, far fewer concur on the way forward.
For some, it should be the opportunity for revolutionary change. Indian writer and activist Arundhati Roy put it most evocatively, writing in the Financial Times: ‘Historically, pandemics have forced humans to break with the past and imagine their world anew. This one is no different. It is a portal, a gateway between this world and the next.’
This new world could embrace radical change in the international system and in national policies, with big consequences for Africa. Without a doubt, the pandemic has exposed the weaknesses of inter-state cooperation.
READ MORE The long and short of post-Covid Africa
Carlos Lopes, the Africa Union (AU)’s high representative for partnerships with Europe, predicts a global shake-up: “After the Second World War we had to create Bretton Woods [institutions], after the 2008-2009 financial crisis we had to create the G20. So now we need to create something that is going to regulate the world differently.”
Others, such as Ian Bremmer, president of the Eurasia business intelligence group, told the IMF that the crisis would accelerate the era’s key geopolitical trends: “De-globalisation, a shift away from global just-in-time supply chains.
As economic difficulties mount, the growth of nationalism and ‘my nation first’ politics will push companies to localise business operations that favour national and regional supply chains. China’s geopolitical rise has been more than three decades in the making. While China has successfully transformed itself into an economic and technological superpower, no one expected it to become a ‘soft power’ superpower.”
As a continent straddling East and West, both geographically and economically – Africa’s western seaboard looks across the Atlantic towards the Americas and its eastern flank looks across the Indian Ocean to the hyper-economies of China and India – its diplomatic agility will be in demand.
Against some dire forecasts, African countries have dodged the worst of the Covid-19 medical emergency. “This has been a year where Africa was tested like never before in institutional capacity,” says Abebe Selassie, director of the IMF’s Africa department.
“What has really impressed me is the decisiveness of governments in the measures they took, telling people to stay at home […], if you think about how hard these were in the West, you can imagine how much harder they were in Africa.”
While the youthfulness of Africa’s population helped keep the percentage of mortalities down, the “quick response of African governments” should be saluted, says UN assistant secretary general Ibrahima Cheikh Diong. Airports closed quickly and health protocols learnt from other illnesses such as Ebola were swiftly enacted.
Tough times ahead
That same youthfulness makes it imperative for Africa to deal with Covid-19’s difficult second act – the ravaging of economies worldwide.
“I think there will be a reversal of the past 10 years’ progress that we have made in terms of growth and fighting poverty,” says Paolo Gomes, co-chair of the AfroChampions initiative and a former executive director at the World Bank.
The crisis hit just as the continent was due to launch its continental free trade area agreement (AfCFTA) and many countries were pushing ahead with wide-scale industrialisation and infrastructure plans. Africa’s finance ministers have found themselves trying to conjure money out of thin air. While Organisation for Economic Cooperation and Development economies spent an average of 20% of their national incomes on stimulus programmes, in Africa it was about 2%.
Aligned to the global wind, there has also been a gust of authoritarianism across the continent. The Mo Ibrahim Foundation traced a decline in governance standards across Africa over the past decade. Its concern is that the response to the pandemic could amplify that pattern, says executive director Nathalie Delapalme. Nigeria’s governance deficit was exposed when the security forces shot unarmed protesters at the Lekki Toll Gate in Lagos in October during the #EndSARS protests against police brutality.
In Kenya, James Mwangi, CEO of Equity Bank, recalls a mindset change among the wealthy in March 2020 when airlines were grounded and they were forced to use hospitals at home rather than jet off to clinics in London and Dubai.
“That realisation that class has not shielded any of us, wealth has not shielded any of us […]. I have seen people wake up to the reality that we had better create better institutions for all,” says Mwangi.
Ibrahim Sagna, a director at Afreximbank, agrees that the real lesson of Covid-19 has been one of African self-reliance: “The continent is realising that it is crucial to have solutions from the continent – to stop trying to find health solutions by going overseas, stop getting manufacturing products from overseas: the resolution for sustainability is intra-African trade.”
Winners and losers
It is not just idealism. Beyond it lies a stark reality of accelerating social, economic and political change. As they chart a path for industrialisation and national production alongside exponential growth of the digital economy, Africa’s economic policymakers will have to make some tough decisions. They have to deal with the shrinking of traditional export markets and the ebbing of capital flows as well as facing a raft of political pressures at home.
Some of the biggest winners and losers from the crisis already stand out. The oil price has dropped and is set to stay low. The US Energy Information Administration forecasts oil to stay at $40/barrel through the end of 2020 and average $47 through 2021. UK oil firm BP says humanity’s need for oil will never be the same again, and that peak demand was in 2019. For Africa’s top exporters – Nigeria, Algeria, Angola – this has meant frantic adjustments to budgets.
Consumers also face some shocks in 2021 because of the impact of lockdowns on planting and harvests. “When you look at the price of various grains right now in the market, it is really, really scary. You wonder how people are managing,” says Dimieari Von Kemedi, founder and managing director of Alluvial, a farm collective in Nigeria.
“Paddy rice is over N200,000 ($525) per tonne, up from about N120,000 last year.” More than 20 million people in the Sahel face the worst food crisis in a decade, say experts.
Tourism, a big earner for countries such as Kenya, Mauritius and the Seychelles, has collapsed. It contributes nearly 20% of Tanzania’s GDP. While tourists trickled back in the high season, the Bank of Tanzania reported a fall of over 50% in foreign-exchange earning from the sector, from $2.5bn in 2019 to $1.2bn this year. A vaccine cannot come soon enough for hoteliers and restaurant owners who depend on foreign visitors.
In all three cases – oil, agriculture and tourism – far more can be done to build up domestic value chains. Some of those countries are looking inwards, focusing on local tourism, for example, to bridge the gap. E-commerce company Jumia’s report on Africa’s internal tourism reckons it was growing at 30% a year before the pandemic and is now accelerated.
“This is really an inflection point for the region,” says the IMF’s Abebe. “We’ve had 20-25 years of really strong development progress. Now I think we have another generation that can move things forward.”
It will be a monumental challenge, he says: “Rejigging development strategies […], thinking about climate change, investing as much in digital networks as road networks, making spending transparent, convincing people to pay more tax.”
Battles over public spending priorities, tax rates and the management of state companies are playing out across the continent. Reformers in Nigeria have made two fundamental changes: deregulating power prices and removing the fuel subsidy. They were nudged by the IMF, to whom Abuja went for an emergency loan of $3.4bn in April.
“There is no provision for fuel subsidy in the revised 2020 budget, simply because we are not able to afford it if reasonable provisions must be made for health, education and other social services,” President Muhammadu Buhari told Nigerians. “We now have no choice.”
Freeing up reforms
Goolam Ballim, chief economist of Africa’s largest bank, Standard Bank, argues that the pandemic has helped fiscal reformers in South Africa: “That has been an area under former President Jacob Zuma that was untouchable and [President Ramaphosa’s finance minister] Tito Mboweni is willing to engage vociferously with the public-sector wage bill in a manner that no one else has been able to do.”
Others argue that with the arrest of African National Congress (ANC) secretary general Ace Magashule, Ramaphosa is finally tackling malfeasance in the governing party.
Moeletsi Mbeki, deputy chair of South Africa’s Institute of International Affairs, foresees an epic fight in the party: “The arrests of Magashule and others may embolden Ramaphosa’s rivals – and such is the pervasive corruption within the party, it is still in their interest to stop him or bring him down.”
Touching both the political and economic spheres, Africa’s digital acceleration marks another route out of the crisis. Its growth is visible in our yearly ranking of Africa’s Top 500 companies; communications and telecoms companies now comprise a third of the index, compared to less than 15% a decade ago.
Digital payments make up much of this – Africa has half of the world’s mobile-money accounts. During the Covid-19 crisis, governments forced or nudged operators to drop fees for mobile transfers in Kenya, Mozambique and Rwanda. In Morocco and Madagascar, the government sent people social grants through their phones.
“We’ve seen an uptake in a lot of businesses asking for digital methods of payment because they simply can’t go to a bank branch in person and get a payment done,” says Sukhi Srivatsan at AZA, a non-bank currency broker.
The purchase of Nigeria’s Paystack by US payments giant Stripe for $200m was a shot heard by investors around the world. In 2020, African start-ups had raised $906m by the end of November. In comparison, South-east Asian start-ups raised $2.7bn in the first six months of the year; given the scale of the regional economies, Africa is doing well.
Successful companies have adapted with tremendous speed. Network International in Dubai was about to buy Kenyan payments company DPO when the coronavirus lockdown hit. It is a serious player and had a sale price of $288m and annual revenue of $25m. But it operated in the payment ecosystem for airlines and tourism.
“And guess what? The deal was done at exactly the same valuation expected before,” says Miguel Azevedo, the head of investment banking in Africa for Citigroup. “But the business was fundamentally different and it was changed in two or three months.”
Coordination and action
Some countries have used the latest technology to roll out ambitious social safety nets. Morocco’s Special Fund for the Management of the Covid-19 Pandemic, launched with a royal appeal, mobilised and distributed more than Dh30bn ($3.3bn) through digital channels. In under two weeks, it achieved what three successive governments could not: the organisation of direct and targeted aid to the poorest.
Those countries that have had a ‘good crisis’ are often those which co-ordinated their public and private sectors closely. The UN’s Diong points to a ‘mirror cabinet’ of business and political leaders in Senegal that met regularly during the crisis.
This helped innovations get off the ground quickly, such as facilities offering rapid and cheap virus tests in Dakar. Kenya has something similar, and companies quickly built manufacturing centres for personal protective equipment. The mirror cabinet “is one of the things that I hope we keep after the crisis,” says Diong.
Africa still has large investment needs. “From 2006 to 2015, there was a huge infrastructure investment boom, and that’s not going to be able to continue now. Debt levels have to stabilise. I think Africa’s looking at a very long stretch of fiscal austerity and that actually pre-dated Covid,” Benedict Craven, chief economist at the Economist Intelligence Unit, told CNBC.
This is going to mean more pressure to raise internal revenue. “We’ve seen this year some priority for social safety net programmes to reverse the spike in poverty. More investment in human capital would make sense,” says the IMF’s Abebe. “A lot of attention is going to be needed, building a social contract over the next four to five years, to expand the tax net gradually to capture more and more people.”
Economists such as Carlos Lopes predict a gradual return of capital to Africa towards the end of 2021 drawn by some bright opportunities, but investors will be more discerning than before. Countries with a clear plan to use the money will benefit.
Côte d’Ivoire, despite the unrest linked to President Alassane Ouattara’s election for a third term, has been able to tap the bond markets – the first African country to do so since the pandemic began. It raised $1bn at 5%, five times over-subscribed, mostly from UK and US institutional investors.
New ways to raise funds
Other countries have trimmed their ambitions: Angola and Benin are postponing plans to go to the market. Many countries are looking at national strategies to raise finance, says Lopes: “They’re looking into their pension funds, increasing incentives for remittances, introducing new mechanisms to fund small and medium enterprises […], trying to survive while not compromising their major projects.”
Some countries are looking at debt buybacks, he adds: “They are making the calculation that for some of the infrastructure-related debt they can buy the equity of the foreign investors at a sale price, very cheap. You’re not going to have another opportunity like this.”
African officials are also cultivating a long tail of new ‘entrants’ on the continent to boost investment flows, from Turkey, to Finland, to South Korea.
According to Cobus van Staden, senior China-Africa researcher at the South African Institute of International Affairs, those African states that bolster ties with Asia’s faster-growing economies will do better. Many Asian countries – from the Gulf to India, Association of Southeast Asian Nations (ASEAN) countries and Japan – are able both to profit from ties with China’s mega-companies and to manage Beijing’s political pressure.
“Having strong ties on both sides of the Japan-China or India-China or Vietnam-China ravines will only strengthen Africa as a whole,” says Van Staden.
South Africa is the first sub-Saharan country to strike up a new diplomatic relationship with the ASEAN group of countries, with Morocco and Egypt already members. Ethiopia brings both Japan and China into its development plans; while Djibouti’s balancing act between the Gulf and China has become lop-sided, leaving it less room for manoeuvre.
Wiggle room is important. Kenya’s Chinese-built and -funded Mombasa-Nairobi railway – one of the most costly rail projects in the world – is not earning enough revenue to repay its debts. A bigger problem is officials’ failure to ensure the project connected Kenya to a wider African rail network with links to Uganda and through to the Democratic Republic of Congo.
Might that change with a genuine push to deliver workable free trade across the continent? The African Continental Free Trade Area (AfCFTA) is a genuine success in pan-African diplomacy. It may boost national production and open new trade routes at the same time. For example, finding ways for Nigeria to encourage its domestic industry while opening borders and lowering tariffs.
Growing, feeding, exporting
In previous years, Abuja favoured the carrot approach, with subsidies for rice farmers. Under Buhari, it was the economic nationalist stick of protectionism. Neither seems to be working. Will Abuja see itself as part of a wider West African market, able to sell its cement to Benin and buy its rice from Ghana? That is the AfCFTA dream.
Yewande Sadiku, chief executive officer of the Nigerian Investment Promotion Commission has one of the toughest jobs in Abuja, advocating for improvements in the business environment and countering those fiefdoms that seem to exist to block business and extract fees.
“People ask me: ‘How many millions have come in this month?’” says Sadiku, but her job is pedagogic. “The pressure is heightened, and that is helping change the minds in government,” she says.
That pressure is prompting companies and governments to search harder for domestic opportunities and foreign finance and technology.
Africa’s agricultural potential is still the big draw, Andrew Alli of SouthBridge Capital recently told an audience of Brazilian investors: “[Investors] probably have more money today than they can actually invest […]. What we need in [Africa] is expertise to unblock things. And that is what Brazil has in abundance, they are top producers in everything from soy to chicken.”
Farmers make up well over half of Africa’s 1.3 billion people. With the right approach, the continent can use its landmass, the world’s biggest, to scale up its agricultural ambitions, end malnutrition and become the global food-exporting power that it should be. Along with its green energy and trail-blazing digital initiatives the potential is there to be unlocked.
This article is available as part of the print edition of The Africa Report magazine: ‘Africa in 2021 – Who will be the winners and losers of the post-Covid era?’
