Mapping Sub-Saharan Africa’s post pandemic path

Tusekile Kibonde and Kefa Muga from ATI explore the prospects for post-pandemic recovery for Sub-Saharan Africa and look at how robust recovery can be further assisted

As the global economy begins its slow and uneven recovery from the worst pandemic in a century, the onset of subsequent waves of the COVID-19 pandemic in at least some African countries is threatening the continent’s rally from the worst of the crisis. Countries such as Kenya and South Africa, which had removed much of the emergency measures imposed to stem the spread of the disease, are having to reconsider the complete re-opening of their economies in the face of an impending third wave, fuelled by a variant of the virus that is more contagious than previous ones. As of March 2021, reported cases in Africa exceeded four million with South Africa, Egypt and Morocco leading and Angola, Kenya, Namibia, Ethiopia and Uganda displaying relatively higher positive rates.

The return of lockdown measures considered by various countries further complicates attempts to put the continent back on the path of economic and social advancement. In several countries, economic activities had begun to pick up and strong recovery in growth was expected from mid-2021. Loss of economic activities resulting from containment measures has been one of the major effects of the pandemic on the continent, hence the speed of Africa’s turnaround will be influenced by the degree to which economic and social restrictions are eased, among other things.

Consensus on recovery

There is nevertheless broad consensus that the continent will recover from the pandemic in 2021 and consolidate this recovery in the medium term. The African Development Bank has projected an optimistic rebound of Africa’s GDP growth at 3.4% at the end of 2021 although the recovery will be uneven across the various regions. Recovery will depend on economic sophistication/diversity and on the strength of economic policy frameworks of respective countries. The World Bank’s baseline projections in late 2020 assumed a marginal economic recovery beginning 2021 with the continent’s GDP expanding at 2.1% (still below the 2019 growth of 2.4%). These projections were however predicated on an end to COVID-19 outbreaks that do not lead to national lockdowns; and governments striving to boost business and consumer confidence.

Economic costs and debt burdens

Economic costs of the pandemic on the continent have been quite profound. Exports revenues have fallen as a result of border closures and supply chain disruptions while foreign tourism earnings have been whittled away for some countries. Countries dependent on commodity exports and remittances have seen general reductions in income flows. Foreign direct investment, and private capital have also slowed down, further exacerbating individual countries’ fiscal situation.

In the face of these circumstances, African governments have found themselves in the middle of very severe fiscal pressures and debt vulnerabilities. This essentially compounds the situation for many African countries which were already grappling with large budget deficits and huge debt burden prior to COVID-19. Development institutions projected that the Sub-Saharan Africa (SSA) region’s level of public debt would increase from 58.5% of GDP in 2019 to 63.1% of GDP in 2020, rising further to 67.4% of GDP in 2021, with levels being higher in Eastern and Southern Africa.

The answer to Africa’s challenges in the midst of this pandemic requires multi-dimensional approaches, some of which are already in place. Most countries are taking actions and implementing policies which should help them cope with the near to medium social and economic ramifications of the pandemic. Initiatives by the IMF, which include fast tracking emergency programmes such as the Rapid Credit Facility and Rapid Financing Instrument; will assist in temporary requirements, notwithstanding that these facilities will not provide the magnitude of resources needed to address policy and fiscal challenges.

Some debt headroom

On the debt side, the G20 Action Plan, which involves time-bound suspension of loan repayments of both principal and interest, is providing debt standstill for one year with the possibility to extend by an additional year. This has created headroom to enable the 28 eligible African countries respond to immediate fiscal burden related to the slowing down of the pandemic. Not all qualifying SSA countries are however participating in G20’s Action Plan, due to sovereign rating implications as well the possibility of breaching existing financing contracts that could jeopardise their ability to raise funds for budget support in the private market at a future time.

Clearly, the effects of COVID-19 will also be long term and while some governments are doing what is possible to create conditions for future sustainable growth, in form of fiscal and monetary interventions, a comprehensive solution that supports the involvement of private and public sectors as well as multilateral institutions, provides the best chance of durable recovery.

There are mixed signals coming from different SSA countries in terms of commitment to fiscal consolidation and prudent management of debt, especially in countries that have high exposure to the private lending and bond markets. While some countries are returning to the bond markets to meet debt obligations that are falling due, others are reviewing their strategy with a view to balancing further commercial debt accumulation with revenue mobilisation, the ultimate objective being to meet the bulk of their needs with tax resources. Some countries plan to limit recourse to Eurobonds so as to reduce foreign exchange risk, as well as the cost of new borrowing, and to minimise portfolio risk.

Some necessary longer term actions will include:

• Devoting more attention to intra-African trade so as to reduce the risk of supply chain disruptions of both consumer and intermediate goods
• Diversifying economies away from commodity export dependence and creating investment environments that encourage private sector development in agriculture and services such as transport, power, and ICT
• Increasing health spending will ensure that countries build capacities to handle the present and future potential pandemics.

This multi-dimensional approach to addressing Africa’s challenges in the face of COVID-19 should include exploiting all available instruments that support trade and investment, including recourse to insurance. A number of multilateral institutions such as ATI; as well as export credit agencies, are playing a key role in helping governments manage fiscal and debt vulnerabilities. ATI, partnering with private reinsurance market mostly in Lloyd’s of London and commercial and multilateral lenders like AfDB, Afrexim, TDB etc, has for instance provided de-risking solutions, enabling African governments to obtain development funding for strategic projects.

In a number of countries, ATI has worked with Ministries of Finance to help manage growing debt levels by re-profiling costlier and riskier debts (that are performing) and replacing them with longer term, cheaper debts from top rated international commercial lenders. This has not only resulted in improvements in institutional framework for debt liability management, but also brought significant cost savings and lowered debt ratios.

In the face of future uncertainties, such innovative solutions should help African countries manage the longer term effects of the current and future potential shocks.

Generally, Africa has shown considerable resilience in weathering past crises, from the 2008 global financial crisis to the commodity price collapse of 2014- 2016. The present pandemic provides the continent with another opportunity to further enhance its ability to navigate shocks, build strong health systems and accumulate fiscal buffers to meet future challenges.