The Covid-19 pandemic affected many economies after its onset in March 2020. Global economic supplies were hugely affected, transport networks were crippled, and companies shut down as their sustainability was compromised. The interconnectedness of the global networks meant that governments would experience a tough time, as key players were affected. On a broader scale, Africa experienced an unprecedented economic shock. Despite the efforts that many governments made to support their failing economies, the scope of measures employed was small, compared to recovery plays employed in other parts of the world such as China, the United Kingdom, Canada, the United States, and other developed countries. The recovery, therefore, is at the risk of becoming unbalanced, further widening the already monumental gap between Africa and the rest of the world. Therefore, there is an urgency to find a lasting solution to fund the recovery of African economies.
The good news for the recovery is that 2020 turned out to be better than the projections made after the pandemic struck. The African economy was expected to contract to 3% but only reached 1.9%. The International Monetary Fund (IMF) forecast shows that a substantial economic recovery of +3.4% is expected in sub-Saharan Africa. A myriad of factors will contribute to this recovery, on top of the government’s effort to progressively lift social distancing measures, curfews, and lockdowns. The resumption of operations in the global supply chain has been crucial and has contributed to the resumption of global trade. Improved terms and conditions for accessing credit will also play a significant role in ensuring that businesses across the continent revive their operations.
The continent nonetheless experienced its worst recession in 2020, and it will take some time for the consequences to dissipate despite the spirited efforts. The income per capita is not expected to return to pre-pandemic levels until 2022 and not later than 2025. This decrease in income has led to an increase in poverty level by 32 million people in the sub-Saharan region alone. In addition, education has been hugely affected, with most students unable to access distant and virtual learning. As a result, children in Africa have lost approximately 60 days of school, three times worse than students in developed countries. According to reports by the World Bank, school closures will cost African governments around $500 billion, not counting the long-term effects that the crisis will have on generations regarding learning and socialisation.
Across the continent, the hardest hit economies will take longer to recover and get back to normalcy. Countries dependent on extractive resources such as Nigeria and South Africa were severely affected following the significant drop in energy demand. The rise in a barrel of oil prices to the current levels of $81.31 in October 2021 gives hope of recovery to Nigeria, as the rise in the prices of metals has improved the recovery prospects of South Africa. Unlike these two economies, countries that are not dependent on extractive resources will come back more robust in the medium term. Likewise, countries whose tourism sector is key to their economy and were affected by border closures, the halting of international flights, and are subject to health protocols and restrictions are expected to rebound in the medium term.
Growth in other parts of the world could reach 6% in 2021 alone, which is twice the growth projections for Africa. The difference in the GDP of African countries compared to that of developed countries is increasing, affecting Africa’s efforts and path to convergence. The primary reason for this difference is the recovery plans employed in Africa and those employed in developed countries. Therefore, the efforts of the international community and partners through donor funding and related initiatives will play a significant role in the continent’s recovery. Substantial financing is needed to ensure that the effects of the pandemic and the losses incurred are compensated.
IMF estimations show that the need for additional financing Among the African countries to aid in economic recovery stands at $425 billion in the period leading up to 2025. A portion of this amount will cover vaccination costs, which has played a key role in the quick recovery of economies in the United States, United Kingdom, China, and other developed countries. The cost of vaccinating 60% of the population in some countries will mean raising the healthcare budget by 50%, which is significant, and require support from the international community to meet these vaccination-related costs.
While support from the international community will go a long way in supporting the recovery plans, African countries must look for new avenues to acquire financing. Eurobond issues, which resumed at the end of 2020, will help in covering the expenses incurred in response to the pandemic, and at the same time, provide needed funding for priority programs. Another possible source of financing is the planned $650 billion Special Drawing Rights (SDRs) allocation. This program will provide $23 billion for sub-Saharan Africa and $10 billion to North African countries. African countries also need support from the public and private banks and public-private partnerships to ensure a smooth running of recovery plans.
There was relative success in mobilising finances in 2020 to cushion African countries against the economic shocks of the pandemic, the coming periods are crucial in ensuring that Africa remedies the current social and economic crisis whilst making the necessary strides in environmental conservation. Thus, it will require a collective effort from the government, private organisations, the international community, and the citizens for the African economy to make a full recovery.
*James Woods is a Director at the Pan-African sporting entity, Rainbow Sports Global. He also specialises in strategic communications, reputation and crisis management. James previously worked in diplomacy and currently advises governments and business leaders across the globe helping them achieve long-term economic and political goals.