Op-Ed

Post-Covid-19 crisis pathways: Choices for Africa’s enduring economic recovery

By Nina Callaghan and Mark Swilling 30 April 2020

A Kenyan woman and her son wear face masks on Easter Sunday as churches remained closed, forcing most worshippers to stay home in Mathare slums in Nairobi, Kenya, 12 April 2020. (Photo: EPA-EFE / Daniel Irungu)

Covid-19 is now an irrevocable part of living and dying and it seems disingenuous to imagine a ‘post’ coronavirus era.

Nina Callaghan and Mark Swilling

Virologists suggest that this virus will need to be folded into the way we “do life” from now on (Preiser, 2020). So what does that mean for African economies, considering the ways countries have responded so far to navigate a health and economic crisis?

Africa is poised to lose 30 million jobs, while a third of the continent’s countries are at risk of debt distress (Ikouria, 2020). The United Nations Economic Commission for Africa (Uneca) estimates the continent could lose half of its GDP growth, down to 1.8% from 3.2% as a consequence of disrupted value chains, stagnant exports and shrinking investment. This estimate embraces the immediate impact of the Covid-19 crisis, even before the continent faces the exponential curve of infections. The World Bank has gone further to model two scenarios of economic decline in Africa for 2020. Figure 1 below plots a severe crisis in blue and a catastrophic crisis in orange, while the green is a reference value for growth modelled before Covid-19 (Calderon, Kambou, Zebaze et al. 2020).

Figure 1: Effect of COVID-19 on Sub-Saharan Africa’s Growth Rate (real GDP annual growth rate, %), 2020. Aggressive measures to slow and prevent the spread of the pandemic have included lockdowns, curfews and travel bans, adopted by many African nations as infection rates steadily increase on the continent. The logic is that flattening the curve reduces the pressure on health systems and buys time to better prepare for later spikes in infections (Ramiah, 2020). This time is being used to bolster stocks of medical equipment, and to adequately resource facilities and healthcare personnel. African leaders are appealing for help in this effort, requesting debt relief, emergency funds and high levels of cooperation between international finance agencies. Embedded in these requests is the appeal to break with orthodox, punitive lending policies in the hope of getting through the worst of the pandemic on the continent and emerging with resources enough to cope with the aftermath.

This article will consider some of the options that will not flatten the economic curve, like scaling up welfare systems, reimagining lockdown regimes, negotiating debt and loans from international agencies – all a very delicate balance between crisis responsiveness and long-term sustainability in an era of coronavirus. What is becoming abundantly clear during Covid-19   is that business depends on a healthy society that is not subject to the brutality of inequality and poverty. This brings into sharp focus the need for a robust welfare system to buoy a very unstable global economy.

Social protection

The most resounding cry by social justice activists across many African states has been the demand for a universal basic income grant (UBI) and increases to existing social protection schemes in the face of the coronavirus crisis. Social protection measures include conditional and unconditional cash transfers, school feeding schemes, public works programmes, subsidised micro-finance, fee waivers, market price controls and policy changes (UNDP, 2014).

Shoring up household poverty and food security is the primary driver behind these calls. The effects of stringent aversion behaviours to contain Covid-19 have been devastating for loss of income and the collapse of the informal sector where 66% of working Africans are employed (Makhubela, 2018). Food prices have also climbed during this period due to unscrupulous retailers as well as higher value chain costs. Researchers in South Africa estimate that food poverty rates could more than double over a three-week lockdown period for households dependent on the informal labour market (C19 People’s Coalition, 2020). The burden of malnutrition and social unrest is not viable for longer-term economic prospects. Social justice organisations across South Africa, Namibia, Lesotho and Kenya are advocating for greater social protection to achieve two primary aims:

  1. Support social distancing measures; and
  2. Support families to emerge and recover from the Covid-19 crisis.

As economies contract, the need to ensure income rises and the argument around a UBI becomes stronger (Gentilini et al. 2020). Income is crucial when we acknowledge consumer spending is a central determinant to a country’s gross domestic product and keeping companies profitable by creating demand, even if just for essential goods and services.

UBI is part of fiscal policy, a permanent welfare intervention that is financed through a host of sources – which means it is going to cost the fiscus. This kind of social protection is very different to helicopter money which is part of a monetary policy designed to inject a cash supply into the economy, a temporary stimulus. One such example is a once-off income payment that Namibia has implemented. It is intended to support households that have lost income due to Covid-19. Helicopter money is usually once-off, financed by printed money and in some instances has a destabilising effect over the long term, especially in a crisis environment where all the usual elements won’t “return to normal” for a while (Gentilini et al. 2020). Helicopter money also has the potential to raise beneficiaries’ expectations that the cash injection will become a permanent feature, which in some cases it has become, but there is no guarantee (Gentilini et al, 2020).

As of 10 April 2020, 126 countries across the world have introduced or adapted their social protection programmes in response to Covid-19, including both helicopter money and extended benefits to existing grants. In sub-Saharan Africa, 22 countries have made changes to their welfare programmes, largely driven by fee waivers for utilities (almost all 22), in-kind transfers (seven countries) and cash transfers (five countries). The illustrations below show how countries across the globe have embraced social well-being as central to their economic concerns, reflecting nutrition, health and work as having economic value.

Source: Gentilini et al, 2020.

Ethiopia, Rwanda, South Africa, Kenya, Lesotho, Namibia, Malawi, Mozambique, and Mauritius all have strong social protection infrastructure (UNDP, 2014). Since biometric and other verifications are not possible during lockdowns and other social distancing restrictions, increased benefits can be channelled to already registered beneficiaries. No extra investment is needed to reach the countries’ most vulnerable, just the political will to extend social support on existing grant systems (Hall, 2020). South Africa has substantially increased the child support grant and added a marginal top-up on all other grants for the next six months in an attempt to address hunger and financial distress for at least 13 million citizens (Ellis, 2020).

Mauritius is one sub-Saharan country with a high investment in social protection, allocating 9.3% of GDP, compared to the region’s 4.5% average (Blin, 2020). Only Lesotho, Djibouti, Botswana and South Africa spend more than 6% of GDP on social protection (Blin, 2020). Mauritius looks to be one of the African countries that could weather the coronavirus crisis more successfully than others thanks to its broad social coverage and timely policy responses. African countries that depend on commodity exports for national revenue and that have limited cash transfer programmes in central and western Africa will be the hardest hit by the Covid-19 economic downturn. These nations would most likely be the first candidates for international funding and aid (Blin, 2020). 

The World Bank’s forecast of a sharp decline in growth is not an even one across the continent (Calderon, 2020). Figure 3 below shows how African regions are likely to be impacted by Covid-19 this year. Oil exporters are clustered in Central Africa including Chad, Republic of Congo, Cameroon, Gabon and Equatorial Guinea. This region looks to be the hardest hit, as well as for its lack of social relief and quality of health services. East Africa is the least affected sub-region thanks to more intra-regional trade, extensive social protection programmes and is a net importer of oil (Calderon, 2020).

Figure 5, Impact of COVID-19 on Africa sub-regions, 2020.

Social protection builds more resilience to weather the crisis and makes for a more enduring recovery. Studies by the Economic Policy Research Institute show that South Africa’s social grants reinforce developmental impacts, improving household nutrition, education, health, and access to vital services (ODI, 2006). Traditional economic theory suggests that social grants may undermine labour force participation by reducing the opportunity cost of not working. Evidence from South African social grants shows that households receiving social grants is correlated with a higher and faster success rate in finding employment (ODI, 2006). 

The logics of lockdown for Africa 

The economic and social fallout is a direct consequence of the severe measures that many African countries have taken to curb the pandemic. South Africa, Ghana, Rwanda and Kenya have acted decisively but the suitability and effectiveness of those decisions are being criticised for not being contextual enough. Researchers, some health workers and economists say the measures are commensurate with international experience but are not sensitive to the structural features of African economies. 

The International Labour Office puts informal employment in sub-Saharan Africa at 89.2% of all employment (ILO, 2018). These workers do not receive benefits like paid leave, health and unemployment insurance. A lockdown or severe social aversion can effectively decimate the subsistence of their households. The suggestion is not to save lives or jobs, but for African leaders to implement measures that achieve both, because academics argue, they are not trade-offs but part of a coherent whole (Valodia, Veller, Sachs, 2020).

While Valodia, Veller and Sachs embrace the imposition of an initial lockdown, they say evidence shows that low infections due to initial containment is only temporary and that cases rebound if there is not a strict regimen of community screening, isolation for positive cases and quarantine for contacts. An abrupt end to severe containment is therefore not a wise option, but short- and medium-term risk-based public health and economic strategies are an alternative, while returning to some economic activity in sectors that present a lower risk for infection. These would include highly automated factories and less-vulnerable populations like child-care facilities (Valodia, Veller, Sachs, 2020). This is best described by Scenario 3 in the table below, which suggests relaxing containment and protecting the most vulnerable until 60% of the population achieves community immunity (Trauer et al. 2020). This phased approach is being advocated as a more sustainable fight against coronavirus by German researchers (Abele-Brehm, Dreier, Fuest, et al. 2020) as well as academics in the Indian state of Kerala.

Table 1: Typology of interventions and risks

These researchers believe a phased approach to achieve majority community immunity while increasing testing is better than a generalised lockdown as it protects healthcare professionals and reduces stress on the healthcare system. It also allows space for other healthcare services like maternity, vaccinations, HIV and AIDS and other potentially neglected comorbid diseases. Increased livelihood opportunities, access to food and education are also more possible while the economic costs are less. (Abele-Brehm, Dreier, Fuest, et al. 2020; Valodia, Veller, Sachs, 2020).

Flatten the debt curve

Scaling up welfare systems and Covid-19 health responses within a short time-frame is not within the scope of all African countries to do. This is an acute reality as tax revenues fall during the pandemic (Strohm, 2020) along with national earnings from commodities like oil and minerals (SET, 2020). The continent currently has a total external and domestic debt stock of $500-billion. Debt was a problem across all middle and low-income countries before Covid-19, and the pandemic exacerbated the problem. The International Monetary Fund (IMF) is projecting that gross public debt for these countries (both domestic and external) would reach an average of 55.7% of GDP in 2020 (Gelpern, Hagan, Mazarei, 2020).

Figure 4, General Government Gross Debt by Currency Composition across Sub-Saharan African Countries, 2019 (% of GDP).

Figure 4 shows that the share of public debt in foreign currency is larger in nearly half of African countries. This makes them even more vulnerable to sharp exchange rate fluctuations. South Africa’s public debt may be in domestic currency but is often held by foreign investors who participate in local securities markets. This could precipitate a sudden outflow which would depreciate the rand against major currencies (Calderon et al. 2020).

Building regional solidarity has been a top priority for African leaders. The African Union has announced a team of special envoys from Rwanda, Nigeria, South Africa and Ivory Coast to solicit support as pledged by the EU, G20 and international finance institutions. The African Union chair and president of South Africa, Cyril Ramaphosa, made it clear that the continent needed the help of the international financial community on generous terms.

“In the light of the devastating socio-economic and political impact of the pandemic on African countries these institutions need to support African economies that are facing serious economic challenges with a comprehensive stimulus package for Africa, including deferred debt and interest payments” (Ramaphosa, African Union, 2020).

In response the G20 has agreed to freeze at least 76 poor countries’ debt repayments while the IMF committed to a six-month standstill for 25 countries, most of them in Africa (IMF, 2020). IMF managing director Kristalina Georgieva says, “… I am pleased to say that our executive board approved immediate debt service relief to 25 of the IMF’s member countries under the IMF’s revamped Catastrophe Containment and Relief Trust (CCRT) as part of the fund’s response to help address the impact of the Covid-19 pandemic.” 

The IMF has been approached by more than 90 countries for emergency relief during the Covid-19 crisis, illustrating that this is not an African problem, but a much bigger debt crisis (Kharas, 2020). In March the IMF pegged the financial needs of developing countries at a conservative $2.5-trillion, a burden that will hamper the fight against the pandemic. Figure 5 below shows just how constant the debt burden has been for developing countries over the past 20 years, with a decidedly upward trend (PIIE, 2020).

Figure 5, Gross government debt in emerging-market and developing countries, percentage of GDP.

IMF chief Georgieva says they have $1-trillion full lending capacity available (IMF, 2020). But before any of that money is released, IMF policy dictates that judgments must be made about whether the country’s debt is sustainable or not – a hard enough task when there is no pandemic. Criteria for judgment include a country’s record of repayment, economic performance, fiscal policy and political capacity to implement reform (Gelpern et al. 2020). If the IMF determines that a country member’s debt is unsustainable, it insists on conditions that eventually force the model to churn out a “sustainable” verdict by initiating a debt restructuring programme (Gelpern et al, 2020). 

It is these very conditions around loan repayments that constrain a country’s ability to make decisions in the interest of its development. While it remains beholden, the result is tighter austerity. It is these conditions that some economists blame for many African countries’ socio-economic problems in the first place, pre-coronavirus (C19 People’s Coalition). Repaying loans they can ill afford has led to cuts to social spending and health for many African countries that will prove disastrous in the face of the pandemic. Austerity measures have hurt Mozambique in the wake of Cyclone Idai in 2019. The country was in debt distress and having to rebuild after the natural disaster but calls for debt forgiveness went unheard (Inman, 2019). Activists, economists and even some African leaders recognise that to acquiesce to IMF loan conditions will reinforce neoliberal policies and further entrench the export of austerity when African economies hard hit by Covid-19 would need to restart. 

Debt freezes allow African countries to support the private sector, especially small and medium-sized enterprises which are more likely to keep the wheels turning. Heavily indebted state-owned enterprises that are coloured by corruption, siphon money away from a more generative economic cycle and squeeze the state purse for Covid-19 responses. Social justice activists in South Africa are calling for the annulment of loans that state-owned enterprises have incurred with international agencies, amounting to more than $3-billion dollars(C19 People’s Coalition). Servicing debt does not save jobs, without which we don’t have an economy, which would erupt in political and social instability – a scenario that will prove far more costly. 

Collaborations and coalitions

Major sectors like tourism, mineral exports and trade with China have decimated jobs and crippled entire hubs of economic activity. Oxfam predicts that half a billion people will be plunged into poverty in sub-Saharan Africa. It is unlikely that measures to contain Covid-19 will be relaxed substantially for several months in Africa – so the AU cannot wait until the crisis is over to mobilise its resources for a more resilient emergence post-crisis. The unknown timeline as to when and how much will be resumed after social aversion measures are relaxed is more reason for Africa to look to itself for answers to mitigate a continent-wide economic fallout. 

The African Continental Free Trade Area (AfCFTA) presents an opportunity to forge greater economic relations between African nations with a focus on inclusive and sustainable growth (Mayaki, 2020). The agreement has been signed by 54 African nations to date. The envisioned tariff-free, intra-continental market would boost business growth, industrialisation and create jobs. Currently, intra-Africa trade accounts for less than 16% of total continental trade. Figure 6 below illustrates the benefits the AfCFTA could have, stimulating industrialisation and the extension of value chains (Mayaki, 2020). Trade between European nations sits at 69% while intra-Asia trade is at 59%, showing just how underdeveloped African trade cooperation is (Routley, 2019). 

Gains through the AfCTFA. (Source: UNCTAD, 2018)

Trade requires infrastructure of all kinds, transport, telecommunications and finance. The African Development Bank estimates an extra $40-billion annual investment to set the initiative in motion (Makhubela, 2020). One of the first priorities is for African business to speed up its digital transition to improve connectivity and access to virtual market platforms. Relaxing trade tariffs was initially planned over a five-year period but the urgent need for economic regionalisation, brought into acute focus during Covid-19, highlights the need to accelerate these kinds of barriers. 

AfCFTA could be a shock absorber in a global recession, making the continent an attractive proposition when the global economy turns around, but African leaders would need to consider “inclusive and sustainable” growth beyond preferential procurement and the ability to pay back loans. Low-carbon industries and energy, smart and innovative resource use, gender equity, agroecological farming and urbanisation trends are the kinds of issues that must be considered if future generations are going to survive crises yet to come.

Conclusion

In the pandemonium of the pandemic, so many considerations come to bear on decisions African leaders make now. Incurring new debt, entering into onerous lending conditions or stretching the fiscus beyond its capacity does not make for a resilient reality post the Covid-19 crisis.

It must be noted at this point that pandemic response measures that will prove the most effective mid- and post-crisis will be fiscal measures. While it’s going to be a strain, investing in health infrastructure, social protection and protecting small business now could offset these costs (Calderon et al, 2020; Hall, 2020).

Pre-Covid-19 , the overly financialised business sector preferred a state that didn’t interfere in the market or impose regulation that disciplined capital; now, in the midst of a crisis it’s a very different story. State leadership and directionality is key to keeping the economy afloat (Swilling, 2020). Now is the time for the government to shape policy that invests in people, labour, research and wages – the tenets of real value in an economy that a shareholder business culture has occluded to an obvious detriment in the wake of the coronavirus (Mazzucato, 2020). Economist Mariana Mazzucato is insistent that fiscal support must come with conditions. One of them could be a zero retrenchment policy for companies receiving state bailouts or a commitment to building skills. Denmark and Poland have provided a fine example of conditionalities and of disciplining capital by refusing to support companies registered in offshore tax havens (Bostock, 2020). DM

Covid-19 is not the only crisis facing the planet, we also face ecological collapse due to resource depletion, climate change and ruthless development. Imagining a post-pandemic world means we are cognisant of this imminent threat, and preparing to build resilient systems that are just.

From: AFRICA INSIGHTS 2nd edition, research by Nina Callaghan, Centre for Complex Systems in Transition, Stellenbosch University in collaboration with Bowmans.

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