ECONOMICS | MARKETS
New world records have been set, not by athletes but by economies all over the world. Positive records one would wish, but sadly the new decade ushers in some of the lowest figures and worst crashes ever expected and we just got started. Yearly projections always make room for worst-case scenarios but none ever factored in a worldwide pandemic that would lack sufficient explanation from science. As major economies battle with limited health care equipment and personnel alongside overwhelming numbers of patients, the world’s weakest economies are starting to grapple with the same. The African continent is home to many of the world’s weakest economies and regular disease outbreaks that the World Health Organization (WHO) declares as emergencies of international public health concern making it of special concern at this time.
Although Covid-19 began in China, it has affected almost every country of the world with over 30,000 confirmed cases in Africa and over three million globally. WHO Africa region reports over 100 outbreaks amongst the 47 countries that are its members with Covid-19, Measles, circulating vaccine-derived poliovirus type 2 (cVPDV2), Cholera and Yellow Fever being the most widespread diseases placing pressure on the continent’s vulnerable healthcare. The effects of continuous outbreaks coupled with insecurity has continually hampered development across the continent but none will be as damaging as a novel virus that has brought the world to its knees. While some factors point to an almost non-existent future for the continent, there could still be hope for the youth-populated Africa. Some of the major concerns that will affect the continent’s future is the focus of the rest of this article.
SPENDING CONCERNS
Expenditure and revenue in all economies will not be business as usual for a very long time and the part of expenditure is very concerning. Chinese loans and public finance would have an effect on the continent that emerges in the coming years.
CHINESE LOANS
Protectionism has been on the rise in Europe and North America with Donald Trump’s election in the USA and Brexit in the UK, post Covid-19 will certainly see more. A yet to fully surface economic crisis means that loans will not be business as usual. With its huge infrastructure deficit and healthcare challenges, Africa relies heavily on loans plagued by mismanagement and sustainability issues. Loans are majorly from international organisations and more recently, China, with the latter raising scepticism amongst many with over $10 billion provided by it on a yearly basis since 2012. While loans from the West focus mainly on social programmes, loans from China are strong on infrastructure and less bureaucratic unlike those of the World Bank making it popular amongst developing countries.
China has had to restructure or write off debts for African countries with at least 140 instances since 2000 according to Sebastian Horn and his colleagues owing to debt sustainability issues by borrowing countries. In recent years, the terms of borrowing seem to reflect significant attention paid by China on the ability of African countries to pay back debts with small interest rates and long-term payment plans. A number of loans planned for FY2020 and beyond may come under downward review and affected will be Nigeria’s railway projects amongst many others owing to significant changes in the global economic landscape but that will not stop the borrowing. The pandemic might just be the nudge some of the top 10 borrowers from China need to take on more loans, and for others to slow down on their borrowing. David Dollar notes in his research paper that:
The borrowing countries are also quite diverse in terms of their external debt profiles. The 10 countries have an average external debt of 36.5% of Gross National Income (GNI), almost identical to the 37.2% for the rest of Africa. But the average masks very considerable variation. At one extreme, Angola, Kenya, and Nigeria have very low external debt. Angola and Nigeria are resource-rich countries with large Gross Domestic Products (GDPs) that can afford to take on significant foreign debt. Of the 10, Zambia is in the most worrisome position, with external debt of 65.8% of GNI.
Majority of China’s loans are in transportation, power, mining and water supply with most projects still uncompleted and halted due to social restrictions. A resumption of these projects after the pandemic will see major supply chains revived alongside businesses employed both directly and indirectly by these projects. The continuous reduction in the number of Chinese workers in Africa from an average of 9,473 in 2012–2014 to 8,523 in 2015–2017, points to an increasing number of local labour employed in the implementation of its projects, which would certainly offset the huge unemployment numbers expected post-pandemic by a considerable amount. Advanced economies touted Chinese loans as a debt-trap diplomacy and an agenda to spread its authoritarian governance model but numerous studies have proven it a house of cards, one of which is by Nathanaël T.Niambi. China might just move from being the continent’s biggest trade partner to becoming its salvation from a major economic crisis.
PUBLIC FINANCE
Projected revenues for 2020 by governments all over the world are already under review with experts racing to prevent possible recessions and raise new sources to meet expenditure. This means governments can no longer spend as they would have and this will be on for years after Covid-19 passes as spending patterns must reflect new economic realities. Africa cannot be any different.
Public office all over the continent is viewed as corrupt with poor performances on the corruption perceptions index (CPI). In the 2019 rankings, sub-Saharan Africa was the worst performing region with an average score of 32 out of 100. Somalia, South Sudan, Sudan and Equatorial Guinea form part of the bottom 10 leading over 30 African nations that score below 35. Since revenue will cease to be business as usual, spending must tow the same path with cost of governance reduced significantly. Bonuses and allowances must see heavy cuts for all arms of government to make critical amenities available. With the rise in online meetings during the pandemic, African governments must push for similar meeting styles for conferences and events usually held in Europe and North America to reduce travel costs significantly.
Budget passage and implementation must receive serious scrutiny if a soft landing is envisaged after Covid-19. Budget reviews must see removal of non-critical projects and slash in unnecessary expenditure while ensuring bureaucracy does not delay the passage. Governments must follow strict implementation procedures, as diversion of funds will have extremely dangerous repercussions since funds will be scarce. Legislation against erring contractors and inflated figures must be seriously addressed alongside enforcement by the judiciary. Any faulty arm will ruin the entire process.
Covid-19 has shown how extremely important governments are in the survival of any country. Individuals and businesses are seeking bailouts and loans with the government as the only direction to turn to. More of this will surface after the pandemic meaning central banks and finance ministries must urgently provide policies that fit well in their local context. Demand-pull inflation will hit hard as production levels are currently low and will take time to recover. This means that deflationary policies must be paid urgent attention to prevent a continuous decline in the value of money.
RELATION CONCERNS
Relations all over the world are already under strain and uncertainty looms, Africa is not excluded. The AfCTA would be getting attention alongside bilateral relations in the coming years as survival becomes pertinent for nations.
THE AfCTA
The African Union in all its years of existence has not been able to achieve anywhere near what the European Union, its supposed replica has attained in terms of movement of labour and capital. The average tariff on exports within the continent stands at 6.1% while tariffs are lower on export to countries outside of the continent. This formed part of the reasons for the proposal of the African Continental Free Trade Area Agreement (AfCTA) that would create the largest free trade area in the world. Extractive exports form the largest export volume from Africa to other countries, accounting for 75% of its total export while non-extractive exports are higher within the continent accounting for 65%.
Extractive commodities have seen continuous decline and instability in prices in the previous decade while long-term stability and a steady rise are not in sight in the coming years. Finding alternatives becomes pertinent and AfCTA is one being a flagship project of Agenda 2063. The agreement would lead to a surge in the volume of non-extractive exports all over the continent, providing a larger market for relatively more industrialized economies while less-industrialized economies provide raw materials to them. This would reopen old trade routes, create new ones and strengthen existing ones.
While some nations like oil rich Nigeria delayed in signing the agreement, others like South Africa seemed too eager to have the AfCTA working already. The agreement is clearly in the best interest of nations who have strong manufacturing base. With the continued instability in the prices of extractive exports upon which African economies rely due to their volatility, they will be under excessive pressure to find alternatives and fast. Price of western imports will skyrocket owing to scarcity of manufactured goods that has started since the pandemic began weakening the purchasing power of African currencies.
Protecting local businesses is mounting pressures on governments all over and the AfCTA provides an easy way out. Immediate implementation will provide quick wins and influence socioeconomic development. There will certainly be a push from economies like Egypt and South Africa for quicker implementation of the AfCTA but apathy and even possible withdrawal from those whose gains are lower looms, threatening the agreement.
BILATERAL RELATIONS
Protectionism is rising gradually in Africa and post Covid-19; it will see an exponential rise. Xenophobic attacks in South Africa have become regular in the news and no country has yet taken drastic measures against them. These attacks will see a possible surge as it provides an easy excuse for raid on stores and homes. The stakes on states taking strict sanctions on South Africa in an event of a recurrence are higher. This will threaten South African businesses abroad and bilateral relations all over the continent. This will also affect South Africa’s economy that supports those of its neighbours.
Some countries might impose quite strict sanctions on their neighbours to control importation, with the Nigeria-Benin border expected to see much longer closure. Having the continent’s largest GDP and population, Nigeria’s neighbours rely heavily on its economy and ports as Benin Republic and even faraway Ghana felt the heat of its border closure in 2019 in its bid to control rice importation. Such restrictions might increase all over the continent with the weaker economies bearing the brunt. Regional economic communities within Africa might see a number of regulations flouted, as nations take drastic measures to shield themselves from the effects the coronavirus pandemic holds that are gradually unfolding. Relations within the region is going to come under strain as pressures mount on governments after the pandemic subsides.
Humanitarian crises owing to insecurity still flood the region with numerous events monitored by WHO Africa Region. Internally displace people (IDPs) are increasing in number and countless healthcare facilities have been affected by insurgency leading to widespread malnutrition and even disease outbreaks. The situation in Niger is quite peculiar; it is facing attacks in areas bordering Burkina Faso, Mali and Nigeria. These countries are all insecurity hotspots with humanitarian crises; a spill over of their mismanaged situations has landed Niger in crises.
Uganda currently has to manage an influx of refugees from Democratic Republic of the Congo, South Sudan and Burundi due to security challenges in these countries. It is no longer news that insecurity in one country ultimately has effects on its neighbours. Of increasing importance is the realization that insecurity challenges need a regional approach as state-level approaches have failed terribly. This would largely contain the spread of insurgents and cut their supply chains.
CONCLUSION
Not many factors are in favour of the youth-populated continent, with its exponential rise in confirmed covid-19 cases. It has weathered many storms and must brace up for the many challenges it will face after the pandemic subsides. If the continent is to survive the oncoming post covid-19 effects, it must review as a matter of urgency all of its activities as a unit. Africans must deal with the unexplainable desire for foreign goods or be used by developed nations to revive their economies while it crumbles to pieces. Governments must protect local industries from foreign superiors, which will flood markets in the coming months, and be willing to stay disciplined to regulations it designs. The continent must intensify its economic diversification efforts if it hopes to survive the coming decade. Africa belongs to Africans and its survival is up to them, the power indeed belongs to the people.
