The Economic Battleground Of The Coronavirus War In Africa

On the front-line, in the fight against the corona virus in Africa, many health-care givers have been infected with the virus and some have paid the ultimate price of death in the defense of the African hinterland against an invincible enemy which we have been made to believe is vicious and lethal. This has been the same story in other parts of the world, and I would like to join humanity to express my immense gratitude to all health workers risking their lives and working around the clock at these crucial and challenging times in the history of mankind.

However we need to give accolades to additional combatant units also engaging this atrocious virus and the vicious invincible enemy which has taking mankind by the jugular, without plans of letting go. As we battle the virus we are also fighting fear, despair and cruel despots; men who are taking advantage of our collective misery to expand their individual gains and unreasonable aspirations.

In Africa, the lock-down of major cities persists and economic activities have been crippled to enormous extents. Majority of the African population have been pushed into an economic warfare and a race for survival. The sources of income of most people in urban and rural areas in Africa are closed and the individual financial responsibilities are creating concerns as they continue without any reasonable palliative or subsidies from government.

A great percentage of the African hinterland is a subsistence economy of farmers, artisans and small scale producers. The informal economic sectors are way larger than the formal economy. Even though in the last two decades  positive advances in financial inclusions and growth of the formal economic sectors, the informal economic sector accounts for over 75% of all employment on the continent.

The priorities of African governments and policy makers of the global community should be methodologies to cushion the effects of the extensive economic lock-downs. It is the responsibilities of African governments to protect the vulnerable from the absolute impact of the crisis and also to offer basic services to people who are quarantined.

  

It is obvious that African countries do not have equal financial capacities compared with more developed countries in Europe, Asia and America to offer extensive financial and economic palliatives to alleviate the impact of the pandemic. The wealthier countries have a wider range of policy options for allocating palliatives and income substitution to residents of their countries. However since most African countries do not have the financial muscle to substitute lost incomes, there must be an alternative option to alleviate living conditions of vulnerable people from government imposed economic and social restrictions.

The majority of Africans live in pseudo - urban and unadorned rural settlements that are deprived of basic amenities like access to portable water, constant electricity, basic healthcare and many facilities and amenities for a suitable standard of living. It is therefore obvious that in normal times most of African communities are already in a broken state and therefore it would be cruel to lock-down this communities without making a functional plan for some forms of income substitution and social protection programs.   

     

Sadly the main tool for the enforcement of the lock-down in most parts of Africa is the use of brutal force. This approach is the cheapest but with very heavy costs. The risks of this approach are very high as we have seen in many instances across the continent. For example Nigeria has lost more people to police brutality while enforcing the lock-down than it has from the coronavirus. 

The South African police are investigating at least 50 cases of unlawful police action during this lock-down season which includes at least 10 deaths. Kenya police have killed more than 12 people by direct actions of brutality while enforcing restrictions. Much more have died as a result of the curfew and the fear that the police force pedals.

The response to social welfare and stimulus to coronavirus related restrictions and lock-downs across different places in Africa has been wide-ranging and diverse. It has been exemplary in some countries and in other countries it’s been deplorable. In Rwanda a social protection plan is been implemented which includes food delivery to over 20 thousand households. Even though this is not enough to adequately compensate people for the interruption of their regular economic activities and tackle food insecurity during this coronavirus lock-down.

  

It is commendable as a positive action that can grow further. In Tunisia the government is distributing 450 million dinars, about 155 million US dollars in financial aid to poor families and Tunisians who have lost their jobs due to the corona virus pandemic. Ghana who is the first African country to loosen economic and social restrictions has deployed 1.2 billion Ghanaian Cedis, about 210 million US dollars to cushion the effects of the virus on households and businesses, out of which 280 million Ghanaian Cedis, about 49 million US dollars is been used to provide food and water. The Ghanaian government is also subsidizing electricity bills by as much as 50% in some cases.

There have also been massive donations by individuals, corporate organizations, and Churches to governments and sometimes directly to the vulnerable and the mostly affected by the economic and social restrictions that is common with the corona virus pandemic. These donations raise another set of concerns especially in cases where it was donated through governments. There are suspicions that most of these donations have been transferred to private wallets and cronies of political office holders. 

These suspicions could be assumptions in a lot of cases and it could also have some grounds of proof as we saw in the case of a Nigerian Senator who alleged that the committee set-up to distribute palliatives to Nigerians was only distributing the relief funds amongst themselves. The authorities have denied these allegations and even called the senator a discontented politician. However the burden of proof lies with the Nigerian authorities to explain how 100 billion Naira, about 263 million US dollars was distributed through a method where receipts of funds cannot be verified.    

  

It’s an act of irresponsibility for any government to impose economic and social restrictions without making provisions to absorb a fraction of the impact the restrictions would have on the residents. African governments should have been proactive to initiate palliative regimes that would have stopped rents, interest, penalties and utility bill payments to cushion the effects of the lock-down. 

The major concerns of our collective humanity in times of great agony are essentials of life such as food, water and medicine and in times like this any demands from creditors of payments of interests or penalties and rents is also a great concern to our humanity. It’s an issue of great concern that demands from creditors are not going on holiday when economic activities are stalled

The Economic, Financial and Developmental Aid Africa Needs.

After the Second World War about thirteen billion US dollars worth of economic and financial aid was able to lift a broken and war ravaged Europe from levels of social devastation and economic deprivations into a virile society and an industrial power bloc. The value of thirteen billion dollars at that time is above one hundred billion dollars today. However just across the Mediterranean, Africa has received approximately over one trillion dollars worth of economic development aid since 1960 but incidentally she continues to grow in social despair and poverty.

The African story seems to be a sarcasm and reverse of the European experience with economic and financial aid. While Europe saw development aid as an opportunity to enhance growth, Africans considered developmental aid as an entitlement, a form of payback for the cost of colonialism and as such their prerogatives for a virile economy are been squandered deliberately. 

However it is pertinent to look at the scenarios and premise upon which developmental aid was received in Europe and Africa, because our supposition might be able to give donors and recipients of aid a better understanding of the workings of economic and financial hand-outs.

Firstly the post-world war two Marshal Plan’s economic and financial interventions in Europe had a diminutive tenure, it was intended to produce rapid results and turnarounds and it was targeted at definite results - The Marshal Plan Interventions were equivalent to business-grade loans. The developmental aid to Africa has been giving without a definite tenure in most cases, they often bear a striking resemblance to an endless obligation to humanity, the need for personal responsibility by the receiver is not adequately spelt out and the receiving countries don’t seem to bear the responsibility for her providence and collective fortune of majority of the disadvantaged in the hinterland – people who should be the major beneficiaries of the economic or financial intervention. Majority of Africans have been excluded from the benefits of developmental aid. 

Secondly post-war Europe was a tragedy of men that were keen on rebuilding a communal success to correct the pursuits of repugnance after their humanity had been broken to desolation. On the other hand an emergent Africa from colonial rule has been a playing field of tribal revulsions, ravenous self-indulgence and incessant corruption. There are important question both receiving and donor countries should be asking one another and one of such questions is why a country that operates  a sensible structure of governance  would seek  survival  from economic or financial aid from another country instead of a mutual form of trade agreement or a reasonable financing and exchange of  commodities and services. The basis of aid to countries that doesn’t demand extensive responsibility on the part of the receiver should be principally on the premise of the event of a humanitarian disaster.

Thirdly the intentions of both the donor and receiving parties need to be questioned extensively. Is economic and financial aid a noble and humane act or is it an instrument of further exploitation of a vulnerable society? It was in the interest of both American and European partners that the ignition of the industrial powerhouse in Europe be turned on. On the other hand donor countries to Africa don’t seem to have an interest of an industrially developed Africa. There is a surmise that an under-developed Africa will extend the frontiers of neo-colonialism. The intents of economic aid to Africa can be summarized by a scenario that was reported by Dambisa Moyo ‘In Zaire – known today as the republic of Congo – Irwin Blumenthal (whom the IMF had appointed to a post in the country’s central bank) warned in 1978 that the system was so corrupt that there was “No (repeat, no) prospect for Zaire’s creditors to get their money back.” Still the IMF soon gave the country the largest loan it had ever given an African nation.’

John Perkins in his book; Confessions of an Economic Hit Man, gave an analogy of his career life with a private consulting firm. He claimed that while working for this consulting company he was actually recruited by the National Security Agency (NSA) of the United States of America to generate reports that justified lucrative contracts for American companies which mostly made vulnerable countries to be plunged into irresponsible debt situations. Perkins claims cannot be verified but he claimed he convinced governments of vulnerable countries to adopt economic policies and take loans that put their countries in disadvantage while enriching a tiny local elite. According to his exposition if the leadership in the country refused such debilitating proposals, the jackals were called in to eliminate such leaders. Mr. Perkins wrote this book about twenty one years ago and he believes that there are more Economic Hit Men and Jackals today who undermine democratic institutions and push vulnerable countries into debt and despair for the benefit of corporations and the tiny elite.

Economic aid to Africa appears like a scheme to make an arbitrary extraction of African wealth possible. It has giving legitimacy to looting and environmental degradation by transnational companies in several instances. A lot of developmental aid comes to Africa on pre-conditions whose consequences amplify the impoverishment of the majority. And in most cases it is obvious to the donors that the financial aid they give would open up paths to looting by national elites. Corruption in Africa has been funded extensively by aid givers, and a major percentage of participators and collaborators in economic, financial and developmental aid to Africa cannot be exempted from guilt.

Africa is indeed a continent in dire need of support; however the focus of developmental aid to Africa should be based on the priorities of Africans. There is also an urgent need to metamorphose the leadership models on which African countries are administered. The major requirement for enduring development in Africa is positive leadership and until African countries are endowed with the right leadership, foreign aid would not have any tangible impact on the development and the teeming population of Africans who are impoverished and who in reality require aid and support. 

Withdrawal of foreign aid to Africa will not reduce exploitation and corruption I Africa and giving further developmental aid to Africa would not guarantee growth either. 

Africans have a responsibility to yearn for progressive leadership structures – not the progressives by nomenclature as we have in some African countries, where politicians branded themselves as progressives to plunder the commonwealth of their nations like it’s never been done previously and further gave tactical support to terrorist groups, in the form of ransoms, rehabilitation and freedom for active terrorists captured in the theatre of war and denying their military essential Intel and logistics – No – but progressives in ideology and positive actions, capable of transforming the rustic and unproductive compositions of the native African society into prolific urban communities that will participate as dependable partners in the global economy.

However in the interim, donors who are sincere to reach the real disadvantaged people in Africa should consider policies of reaching directly to the African people without the recourse of middle-men or governments as intermediaries. This policy direction is not a new archetype. It seems to be the only methodology employed that has actually been beneficial to underprivileged and deprived peoples in Africa. Take for instance early education in Africa owes an insurmountable debt to Christian missionary societies who pioneered schools in the African hinterland. A large percentage of educated elites are beneficiaries either directly or as a result of the legacy formed by the intervention of Christian missionary societies.

Olugbenga Ojo is a Senior Economist at Businessmail and Velocity Markets

How the Novel Corona Virus Pandemic is Affecting African Economies

Beyond the talk of the spread of the novel corona virus in Africa, there is a major concern people of Africa should be talking about, and it is how African economies and businesses will survive the economic scourge of the virus. The spread of the pandemic around the world is generating economic and financial ripples and storms that are very likely to do a lot of damage to businesses and economies on a scale that might be beyond the measurements of the Richter scale. The fatalities African businesses and economies are exposed to are very severe.

The major risks businesses and economies in Africa are exposed to come from deficiencies that are arising from supply chain challenges caused by restrictions and mandatory quarantines in major industrial centers around the world and a drop in demand for raw materials from the more developed world. It also extends to restrictions that affect businesses on the African homeland. Moreover all this issues are escalated by impending issues that have been raging for a while in the backgrounds of the scheme of things and daily workings of the economy. This makes it very challenging to respond to the adverse scenarios the after-shocks of the pandemic poses to Africa.

The risks the virus creates for African economies include;

11 .      Direct economic impact of reduction in global production

22 .      Shortage in supply through supply chain challenges

33 .      Economic impact of behavioral changes of consumers and businesses

44 .      Downsizing of business operations and a higher unemployment rate

55 .      Capital and money markets shock effects

Policy makers in Africa don’t have sufficient tools to respond to the adverse effects of the Covid-19 virus pandemic on their economies because for a long time they have ignored completely or where lackadaisical in their approach to pressing economic issues. Many African economies have been chronically sick for a long time without proper medication; the corona virus will only add more damage to the injured economies.

Most African economies are like identical twins, having similar challenges of fiscal rascality, carrying irresponsible debt burdens, with a weak tax collection base, absolutely depending on revenue from commodities, afflicted with an addiction to foreign produced consumables, adopting policy patterns that lead to further under-development and genuinely lacking the will to start large scale manufacturing but wallowing in archaic sentiments and throwing pity parties without enough booze. 

It is without doubt that the corona virus pandemic would plunge the world economy into a global recession; firstly because the economic costs of the virus cannot be envisaged in view of the fact that it’s uncertain for how long the pandemic would persist, secondly because the financial costs to tackle the scourge of the virus is massive. Economic activities will remain muted globally till the world wins the war completely on the corona virus. Another uncertainty is the speed of recovery of business sentiment after the tide of virus has been stopped completely. We would be wrong to predict a definite timeline for recovery at this time. We are also uncertain of the volume of damage the virus will do to businesses globally before its tenure is terminated.

The impact of the virus is already touching down on commodities and financial markets. WTI crude has touched below $20 while Brent Crude was seen below $30. WTI Crude opened at $60 this year and was still seen at $53 in February. The economies of Angola, Nigeria and few other African countries run on crude oil sales and there will definitely be severe budget deficit in these countries. South Africa which is experiencing a second recession in two years has a lot of companies who might not survive the carnage of the Covid-19 pandemic especially those in the tourism industry. South African Airlines which is under a bankruptcy protection is one company that has received bigger blows than many others.

African equities have been hit due to foreign investors drawing down on their investments in African exchanges and indiscriminate panic selling of share holdings across African exchanges. The Nairobi Stock Exchange lost Sh120 billion in market capitalization in one day and will still lose more value. In South Africa, the FTSE/JSE Africa all share index lost about 11% in one day. In Nigeria the NSE All Share Index lost 4.28% in one week. 

Risk assets have been extremely volatile since the outbreak of the corona virus pandemic; it has completely lost investor appeal as there is a flight to safe havens globally. Investors don’t seem to trust the effectiveness of individual government responses and this is causing a sell-off in sovereign debt. Sovereign debt spreads are therefore widening considerably and this is a further stretch to the debt metrics of many African countries that are already bearing excess debt burdens. A sovereign debt debacle has begun with downgrades in debt quality. South Africa’s government long-term foreign-currency issuer ratings were downgraded by Moody from Ba1 to Baa3. This means South African debt is now classified as Junk. Additionally many African countries would require emergency loans to combat the corona virus pandemic and this in addition to revenue losses would cause an unsustainable debt situation.

 Dollar shortages arising from the global economic panic caused by the corona virus pandemic is driving down Emerging Market currencies in a crazy fashion. The corona virus is responsible for the free falling Zambian kwacha; it’s the reason why the South African Rand is testing all time lows almost hitting  ZAR18 to $1.The Nigerian case seems to be the worst as her policy makers are still head strong on keeping an artificial exchange rate. The Nigerian Central Bank just devalued the Naira and set a peg at N380 to $1 while the black market rates have started diving further. The ripple effects of a multiple exchange rate system might be the funeral of the Naira.

Mostly, African economies live in a consumer centric environment and the fall in value of their local currencies is already causing a cost-pull inflation. Consumers are beginning to feel the pain of accommodating higher retail prices. Economies and businesses who depends on imports from China and Europe are also having supply challenges as their supply chains have been broken completely due to travel restrictions and shut down of factories. Uganda and Mozambique are facing inflation induced by scarcity because business operators have been left in the cold without supplies.

While the corona virus pandemic might be a trigger for deflationary risks in the more developed world it brings inflationary risks to many in underdeveloped Africa. Once the corona virus pandemic is defeated, there is a high probability of a sluggish recovery with dawdling growth in global output and commodity prices rising softly. This implies we expect a period of stagflation at the end of the corona virus crises. Commodity prices will remain low and subdued for an extended period of time and this will bring more pain for Africa. Growth will be negative for a prolonged period of time in Africa. Prevalent metrics in Africa are flawed and need to be adjusted through progressive policies and drastic behavioral changes.

Egypt, who had made progress with new economic reforms in recent years, could see all his gains wiped out in the weeks ahead. The largest threat to Egypt is a global trade downturn which will reduce traffic and revenue on the Suez Canal, a massive drop in tourism revenue and a fall in crude oil and natural gas prices and demand. South Africa’s mining industry is bracing to take a severe blow, the mining industry in South Africa which contributed 8.1% to her GDP in 2019. Over 400,000 people are employed in the mining industry directly.  With commodity prices diving and demand also dropping, there would be a major loss of revenue and jobs.

African economic prospects will remain subdued and uncertain with the bias on the downside majorly due to the fact that the corona virus impact on the global economy will definitely lead to a global recession and the size of the recession is likely to be bigger than the post Lehman brothers recession of 2008, the situation is also more apprehensive because Africa is much more involved in the global economy than it was involved ten years ago. Most African countries are also lagging behind in accommodative fiscal and monetary policies to bolster production and trade and any emergency policy decision would do little or nothing to ease the pain the corona virus pandemic brings.

 When we recover fully from the corona virus pandemic, there would be much more serious challenges to confront, the severity of which would be determined by the duration and intensity of the corona virus pandemic. The adverse effects on trade, commodity prices and employment could be worse than imagined and more extensive has we project global GDP to remain negative for an uncertain period of time and a new downside set to materialize in economic perception. A major risk would be degenerating credit quality. How much the deterioration will be is still vague for now but many African countries would have their debt downgraded to non-investment grades and credits would be more difficult and expensive to access. The constraints on monetary policy that Africa would encounter, post-corona virus pandemic should be a wake-up call to African countries to adopt a rapid, vigorous and significant fiscal and socio-economic response which would have enough discretion to start an industrial and thriving economic hub. A new world will emerge at the end of this scourge and it will be an opportunity for Africa to redefine his position in the global economy. The developed world may desire to diversify production away from China and Africa would be a prospect for new industrial centers. It’s pertinent that Africa takes maximum opportunities this new world presents

Olugbenga Ojo is a Senior Economist at Businessmail and Velocity Markets