Kathy Gibson reports – Businesses in Africa face an unprecedented crisis as a result of Covid – as well as social and economic impacts that will be felt long after the world returns to some form of normal.
Isaah Mhlanga, chief economist at Alexander Forbes, points out that the pandemic has had a major effect on sub-Saharan Africa’s economy.
“We are still very much with Covid, particularly in Africa,” he says. “A lot of the global north has progressed well with vaccinations, but Africa does lag behind.”
Africa has seen the lowest rate of Covid-19 infections, which Mhlanga says probably indicates a lack of data and testing, but is also a result of mainly closed borders which result in less movement of people.
A third wave, if it results in a further lockdown, will have a negative impact on slowly recovering economies, he adds.
However, the continent also lags in vaccinations, with just over 2% of African people having received at least one dose of a Covid-19 vaccine – compared to Europe and North America at over 30%, and close to 60% in some countries.
“This is going to matter a lot in terms of how the economy can evolve going forwards. Health policies on Covid are now economic policies overall, because a lot of economic activity depends on health policies, and how authorities respond. And this what will determine the transition of economies from the Covid to the post-Covid world.”
African economies are still dominated by commodities exports, Mhlanga adds. “It is obvious that there are no counties the export electronics or manufactured products and machinery. So commodities play a big role in Africa’s economic trajectory.”
Last year, commodity prices plunged, with almost all commodities seeing big drops. Going forward, most commodities – with the exception of gold – are expected to gain. But the growth rate will be relatively flat going forward, with some significant declines.
In addition, Africa currently has the second worst remittances, with a slow recovery to look forward to. In many countries, remittances are a significant source of revenue that remain at risk due to Covid-19.
Foreign direct investment (FDI) flows, which saw an uptick after the 2008 financial crisis, but declined significantly in 2020 – and any gains we see now are expected to be temporary, Mhlanga adds.
Overall, the major impacts of Covid on Africa have been in trade, aid, FDI and remittances. “And these are in addition to the healthcare issues,” Mhlanga says. “This means a lot still needs to be done for Africa to start gaining from strong global growth that we are seeing.”
Sub-Saharan Africa is experiencing a recovery in 2021, but it still lags the rest of the world. “Growth of just about 4% in Africa is much slower than the more than 5% globally.”
One of the issues that is now a big discussion point, with no easy resolution, is the debt to equity ratios, Mhlanga says. “Credit risk is going to be an issue in many countries, and the issue of debt is now top of mind for many African countries.”
The credit ratings have signaled that a restructuring of debt will constitute a default and result in downgrades to countries that take up the opportunity to restructure their debt.
In 2021, the number of countries at risk of moderate or high debt distress has increased – with some African countries now having debt to equity ratios of above 100%.
Solutions that have been proposed include debt repayment suspensions, temporary debt standstill and even debt cancellation – which is unprecedented and unlikely.
Much of Africa’s lending is from the China Development Bank and the Export-Import Bank of China, and they are in discussions with some countries in terms of rescheduling debts.
The African Continental Free Trade Agreement is now in place and could help to mitigate against the Covid downturn, Mhlanga says. This will help sectors like food, fuel, metals, transport, machinery and equipment, to perform better going forward.
African corporates are not standing still while the economic risk unfolds, though.
Craig Bentley, executive: multinational consulting at Alexander Forbes, points out that the World Economic Forum has indicated that the top risks facing people’s employment and livelihood are infectious diseases and also technology.
“Any company operating in Africa will be acutely aware of these challenges.”
In terms of technology, Africa is still lagging significantly in terms of Internet access or access to computers.
“As the world moves into reskilling and digital progression, automation and learning, this is a fundamental concern facing Africa.
“We all acknowledge that the primary access to the Internet is no longer a computer, but mobile phones, but see that Africa still lags in at least 3G coverage. In fact, 23% of the population doesn’t have access to mobile broadband networks at all.”
A more significant statistic is that just 40% of African youth use the Internet – well under the 69% of youth globally. “This means that learning and working remotely is still a major challenge for Africa.
“Digital progression should be at the forefront of our efforts, or we are going ot be left behind as the world moves forward.”
A major impact of Covid comes from disruption to health infrastructure, which experiences a 90% disruption in supply and demand, with routine health interventions missed or deferred.
There were also employment losses during Covid. A massive 90% contraction was seen in informal workers, while one-third of working people stopped working – with women mostly impacted.
This led to a big increase in poverty levels, with 34,4% of the African population now considered to be living in extreme poverty.
When it comes to education and learning, at least 100 to 200 schooldays were lost, and there were also challenges with virtual or remote learning, which failed to plug the gap.
“Within this framework and environment, multinational companies are being more proactive,” Bentley points out. “Some industries were able to adapt and were positively impacted as a result of the business models and ability to move.”
Where before, many multinational companies allowed companies to run autonomously, we are now seeing a move to companies shifting to a focus on benefits strategies, Bentley adds.
This starts with a benefit strategy across the global while ensuring they are inclusive and well-known, and extend int wellness and mental health conditions. Benefits need to be aligned and standardised, with consistent effectiveness and co-ordinate benefit management, reporting and efficiencies.