26 Mar 2021 / Article

Why Africa’s economic recovery requires a collaborative effort

More cooperation between regulators, political authorities and operators is needed for Africa to recover from the Covid crisis.

 

Following the unprecedented coronavirus crisis, the substantial downturn in economic activity has cost Africa at least $115 billion in output losses in 2020, the World Bank has said.

This is partly due to lower domestic consumption and investment brought on by containment measures to slow the spread of the virus. The situation could also push up to 40 million additional people into extreme poverty – erasing at least 5 years of progress in fighting poverty.

 

“Africa has taken fewer hits from a crisis point of view, but its economies are in more difficulty,” said Joshua Oigara CEO & MD, KCB Group.

“In my perspective, from what we see in the numbers today and in our case where we’ve spent over a billion dollars in restructuring facilities, our industry has done more than 45% and perhaps 25% of our restructuring facilities will continue into next year. But I believe we have a chance to recover between 50 to 75%,” he added.

In order to weather the crisis and meet the financing needs of African economies, there is a need for cooperation between regulators, political authorities and operators. Laurent Goutard, Head of International Retail Banking for Africa, Société Générale, believes all of this should be accompanied by the supply of liquidity to ensure that businesses succeed during these trying times.

 

“These last months, we took additional incentives to increase liquidity for our local banks to fund SMEs. For example, through a facility of 40 million euros opened from European investment banks at the end of 2020 and through that we have been able to boost our capacity to facilitate access to loans for SMEs in Cameroon, Congo and Chad,” he explained.

“We were also backed by a $50 million loan from the IFC in Ghana,” he added.

Global financial companies alongside Africa’s banking sector have continued to implement a selective and prudent approach in dealing with companies in need of funding or extra liquidity. For instance, some African central banks used their monetary flexibility to promptly lower interest rates by as high as 300 basis points as seen at the Central Bank of Egypt, while others have adopted a more gradual approach.

 

“Our role in the long run is to help the financial sector and behind that the economies, including SMEs and other players on the ground to go through a resilient and sustainable recovery. This long-term objective is very important as it means continued extra financing and advisory to the financial beneficiaries,” said Myriam Brigui, Head of the International Network Department, at Proparco.

Nonetheless, for a successful restart in Africa, commercial banks also have a strategic part to play. This would require an adjustment in the credit policies so as to benefit through meaningful cost management and profit. At the same time, mobile money players will do well to diversify into more micro lending to support the informal sector.

Another way to stimulate demand is through the facilitation of wholesale trade from the African diaspora, in addition to partnerships with international financial institutions to promote the acquisition of distressed assets.

 

Can the AfCFTA make all the difference?

Unlike many jurisdictions around the world, Africa does not have the monetary or fiscal policy space to provide large economic recovery packages. However, aggressive liberalization of the market has the potential to drive post Covid-19 recovery across the continent.

 

“My suggestion to African companies is now that we’ve opened the market, look beyond your region and country and expand into new markets,” said Wamkele Mene, Secretary General, African Continental Free Trade Area (AfCFTA) Secretariat.

“We know that Africa is a very dynamic market. In 2019, before the onset of the pandemic, of the 10 fastest growing economies in the world, 6 were in Africa. At the time our average growth was about 3.5 to 3.6 percent per annum,” he added.

Global financial companies also have a role in making sure that the standard of behavior and performance is such that they continue to attract global players to Africa. By connecting over a billion people and expanding the market opportunities that it represents, trust will be established between buyers and sellers across multiple geographical locations.This enabling infrastructure will allow Africa to fast-track and move forward.

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