Is Africa Wasting the Pandemic-Induced Economic Crisis?
In many African countries, the economic response to the crisis so far appears to have been broadly less consistent than the health response. For mitigation measures to be stronger and more effective, and for sustained recovery to take place, governments, central banks, and regional institutions will need to make tough policy choices, promote coordinated and collaborative policy implementation, and embrace bold and innovative reforms.
It is said that a crisis is a terrible thing to waste. In the face of the severity of the crisis at hand, I believe that Africa has an opportunity to harness this shock and use it to its advantage.
Yet, perspectives on how effectively Africa has responded to the current crisis so far appear to vary according to whether one looks at it through a public health or economic lens.
Government response has consistently been counted among the various factors that helped contain the human toll of the pandemic on the continent. It did so notably by boosting health infrastructure investments; building capacities for diagnosis, prevention, treatment, and workforce training; and securing the supply of critical medical supplies and equipment.
For instance, WHO estimates that over 750 COVID-19 testing laboratories were implanted across the region by October 2020, up from only two in February when the first case was reported. Government awareness campaigns in the region have generally relied on fact-based communication about the pandemic, thus helping a country like Senegal rank second on Foreign Policy’s COVID-19 Global Response Index.
Against this background, it is not surprising that almost 80 percent of respondents in Africa express a willingness to take a safe and effective COVID-19 vaccine, according to a survey conducted by Africa CDC in partnership with the London School of Hygiene and Tropical Medicine (LSHTM).
Despite some shortcomings in COVID-19 health policy response, pandemic management facilitated by collaborative and collective effort at the regional level has been broadly laudable in a number of countries, with Rwanda ranking high among standout performers.
However, Africa is not yet out of the woods as many countries battle a more lethal coronavirus second wave and new variants of the virus. In recent weeks, new COVID-19 cases are reported by Africa CDC to have increased by over 25 percent in worst-affected countries, including South Africa, Egypt, and Nigeria.
But while many African countries have so far done an effective job in containing the human toll of the pandemic, their record in responding to the economic crisis remains mixed. At the onset of the crisis, many countries promptly rolled out resiliency plans, providing relief to vulnerable households and businesses, including loan guarantees, cash transfers, food distribution, utility bill payment assistance, deferral of tax obligations, and wage subsidies. In sub-Saharan Africa, the budgetary cost of pandemic response averaged 3 percent of GDP, which is relatively small by international standards but quite significant in view of limited policy space.
As the world entered the new year amid an increasingly fragmented trading system, the continent set the example by displaying a united front through the launch of the African Continental Free Trade Area, the world’s largest trade area in terms of participating countries.
But, a year into the crisis, and in sharp contrast with some other regions, a coordinated economic response at the regional level is still missing. At the country level, many post-crisis recovery plans face challenging implementation prospects due to a lack of adequate financing.
At the same time, a growing number of countries are bending under unsustainable debt burdens. Besides Zambia, which is the first country to have defaulted on its sovereign debt since the pandemic hit, six African countries are assessed to be in debt distress based on the IMF/World Bank debt sustainability analyses, including the Republic of Congo, Mozambique, Sao Tome and Principe, Somalia, Sudan, and Zimbabwe. Still, decisive steps are yet to be taken domestically and globally to develop an orderly debt workout mechanism. While the G20 Debt Service Suspension Initiative has provided some breathing space, it does not address solvency problems in debt distressed countries.
The crisis provided a technology leapfrog opportunity many policymakers have seized enthusiastically, notably in the provision of social assistance transfers for COVID-19 relief. Digital cash transfer programs like Togo’s Novissi have gained traction, thus contributing to increased transparency and efficiency in the provision of COVID-19 relief to vulnerable households. Still, many countries do not show any sense of urgency in leveraging digital transformation as a means to support job creation, entrepreneurship, and economic activity in the face of costly internet access, low broadband connectivity, and inadequate skills. Under a business-as-usual approach, this long-standing goal is most likely to remain unfulfilled.
Overall, economic response to the pandemic has broadly been less consistent and timely in many African countries compared to the health response. Even as several countries currently experience more severe second waves, containment measures are being promptly reintroduced by public health authorities, while economic policies amid limited policy buffers are yet to adapt to new circumstances to the dismay of struggling businesses and households.
Looking ahead, an effective strategy to bolster post-pandemic economic recovery will build not only a strong public health response, but also flexible and up-to-date resilience and recovery plans. Key will be bold and innovative steps to create fiscal space for programs and projects with growth potential, which requires unequivocal political commitment to overcome resistance from vested interests that weakens the mobilization of domestic revenue and the quality of public spending. Efforts by fiscal and central bank authorities to improve macroeconomic policy coordination will also be critical to optimize the impact of stimulus packages. While accelerating progress toward economic integration, pan-African institutions must be empowered to play their part in helping coordinate members’ policy priorities and mount a regional recovery strategy consistent with the public health response.
We are living in unprecedented times and policymakers in African countries, like their peers around the world, are navigating uncharted waters. But as painful as it may be, the crisis provides them with a historic opportunity to fundamentally change the course of their country’s economic development history.
This opportunity has not been fully seized yet, and the clock is ticking.