Ensuring Africa’s Recovery post-COVID-19

Africa must think outside the box in Covid-19 war

In Summary

•Africa needs to invest in vulnerable industries to reduce reliance on imported products

•The continent has heavily relied on imported medication and medical equipment which is one key institutional shortcoming.

The unprecedented disruption of global supply chains caused by the COVID-19 pandemic may herald the worst economic recession since the Great Depression of the 1930s. Indeed, financial distress signals are being issued by numerous global industries, including aviation, manufacturing, tourism and extractives.

This has necessitated governments, particularly in advanced economies, to offer massive trillion-dollar corporate bailouts with a view to support struggling industries during these challenging times. Case in point, the USA recently announced a series of aid packages amounting in excess of USD 3 trillion that included up to USD 1 trillion set aside to support business interests, including Small and Medium Enterprises (SMEs).

The rescue of struggling industries, especially in advanced economies, is laudable. However, it is also notable that the same may not be possible in the African context due to financial and institutional constraints. Simply put, African economies may not have the financial muscle to prop ailing industries from the worst economic impacts of COVID-19. However, other measures aimed at protecting African industries have been considered and implemented – for instance the reduction of tax obligations and the consideration of moratoriums with respect to debt obligations.

In the Kenyan context, the Tax Laws (Amendment) Act 2020, for example, aims, inter alia, to reduce the corporate income tax rate to 25 per cent to cushion corporations from the worst of COVID-19.

While the above measures will have a positive impact in the short and medium-term, it is necessary for global policymakers to consider proactive measures that will protect economies against the long-term effects of COVID-19. In the African context, this presents us with an opportunity to not only tackle institutional short-comings exposed by the pandemic but further strengthen Africa’s domestic industries and continental integration thereby making the continent less reliant on external support.

Among Africa’s key institutional shortcomings that have been exposed by the pandemic is Africa’s reliance on imported medication and medical equipment, primarily from India and China. Consequently, Africa’s health sector is highly vulnerable to external shocks.

A possible solution to this vulnerability is two-fold – on the one hand, Africa needs to invest in vulnerable industries to reduce reliance on imported products. Positive progress is being made in this regard, with locally developed medical and pharmaceutical products being put to market in order to combat the pandemic. For instance, Senegal is currently rolling out a USD 1 testing kit that is suitable for Africa due to its relative affordability. On the other hand, Africa may benefit from the moderation of “one country risk” in global supply chains in favour of diversification. This, in the long term, will protect the continent from export vulnerabilities and increase job opportunities.

Indeed, while COVID-19 has exposed significant vulnerabilities within African economies, it presents the continent with opportunities for growth provided we remain flexible in our approach against the virus. It is imperative that we tap into and exploit these opportunities with a view to forging a stronger and more prosperous continent post-COVID-19.

Karen Kandie – MD IDB Capital