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Coronavirus: Counting the economic costs on Sub-Saharan Africa

Alex Booth
By Alex Booth
Associate Managing Director, Kroll

Alex Booth is with the Business Intelligence and Investigations unit at corporate investigations and risk consulting firm Kroll

Oliver Stern
By Oliver Stern

Associate Managing Director, Business Intelligence and Investigations at Kroll, a division of Duff and Phelps

Posted on Tuesday, 7 July 2020 12:36

Virus Outbreak South Africa
A man wearing a face masHsells Hsks and gloves in downtown Johannesburg, South Africa, Friday, March 20, 2020. (AP Photo/Themba Hadebe)

Over the course of the past few months, many of Africa’s key markets responded to the growing threat of COVID-19 by adopting stringent lockdown conditions. What’s become increasingly clear since then is the economic costs of the crisis are likely to be particularly severe across the sub-Saharan Africa (SSA) region.

While the crisis has already wreaked havoc in many other parts of the world, over the coming weeks and months we are likely to see the political and economic frailties associated with SSA markets becoming starker and the true costs of COVID-19 becoming clearer.

Restricting the informal economy

Many Africans in the SSA region rely on the informal economy for both employment and income. While many SSA markets are witnessing a boom in the corporate sector and macro-level development, the value and importance of the informal sector has long been underappreciated.

READ MORE Coronavirus: Now is the time to build a future for Africa’s informal workers

Indeed, development economists have long claimed that aggregated macro-economic figures and high growth rates in many SSA markets mask inequality and fail to include the economic activity of the vast informal sector.

In Kenya, for example, the World Bank estimates that the informal sector employs some 80% of the national workforce. This sector—comprising of subsistence farmers, informal traders, street vendors, car washers, pavement barbers and many others—is the most severely impacted by the lockdowns and by reduced freedom of movement in and out of city centres.

READ MORE Nigeria VS Coronavirus: Hardest hit least helped, informal workers

The enforced inhibition of the informal sector in Kenya and across the region will adversely impact an already precarious economic position and threaten basic living standards for millions of ordinary citizens.

In other parts of the world, governments have taken action to protect people living and working in this kind of situation, through income support for the self-employed and the reopening of small businesses, along with the relaxation of movement restrictions.

It is essential that governments in the SSA follow this lead to re-energise this vital pillar of economic activity.

Challenging circumstances for corporations

Higher levels of the economy are also feeling these ripples, with many large organisations facing their own issues.

African-based and African-run businesses are facing reduced consumer spending appetite, and indeed spending ability, pressuring profit margins and creating serious questions around revenue and resources.

READ MORE Coronavirus: Health and economy to gain from boost in Africa’s mobile payment

For example, in the mobile payments sector, the lack of lower-level economic activity is reducing income raised from transactions. This is an issue in the more developed SSA nations, but they are better placed to absorb the costs. For those in less-developed countries, the implications are more severe.

Furthermore, for many foreign businesses operating “in country,” there is an increased chance of currency depreciation, debt vulnerability and a lack of stability in the investment environment.

READ MORE Nigeria VS Coronavirus: Cutting naira’s umbilical dependence on oil 

Human rights issues may well become a concern in agricultural or mining operations where personal protective equipment is limited, and vulnerable communities are left stranded with no access to paid work and no state safety net.

A bleak bigger picture

For most of the SSA region, the policy tools and resources required to deal with the situation are minimal, severely constrained or non-existent. Few countries have announced policies—such as income assistance, welfare support, essential services or other remedial measures—that can compensate for the reduced earning potential of their workforces.

The ability of state institutions to step in and provide much needed support is unlikely to materialise at the point where economies and governments are facing a crisis. If lockdown measures break food supply chains and access to services, then the likelihood of unrest increases and pressure on leaders to act decisively will grow.

READ MORE South Africa VS Coronavirus: Exports keeping agriculture afloat 

Furthermore, the development-led economic investment into many SSA countries has already been affected. As donor countries face their own crisis, it is unlikely that development partners will be able to step in to provide the hands-on support that will be required. IMF debt relief will be welcomed but will not lead to adequate health services in the coming weeks and months.

Governments are also facing social issues, with unrest beginning to increase. In working-class districts of Nairobi and Mombasa, for example, Kenyan riot police have fired tear gas and rubber bullets at commuters struggling to return home before the curfew, undermining the popularity of the lockdown policy and exacerbating instinctive community distrust of the central government.

“Glimmers of hope”

While the region is undoubtedly facing its most significant economic challenges in years, there are some glimmers of hope.

In some areas—perhaps most notably Guinea, Sierra Leone and Liberia, which suffered a serious outbreak of Ebola in 2014—local healthcare systems have accumulated useful experience in monitoring and containing infectious diseases and in communicating effective response strategies to local populations.

LISTEN Coronavirus: 5 key lessons from the 2014 Ebola outbreak

The World Health Organisation has also come forward to play a coordinating and information-sharing role across Africa—not least in correcting several “fake news” narratives in circulation—and serving to fill a communications vacuum left by the some of the less publicly responsive governments.

These steps will have a material impact on the ability of economies to rebound and rebalance at all levels—this is first and foremost a health crisis, and for other areas to improve, we have to see improvements in tackling the spread of the disease.

Against this backdrop, as the COVID-19 pandemic unfolds across Africa and operating conditions become increasingly precarious, it’s essential that businesses stay informed.

The well being of employees, the welfare of local partners, the financial position of investee companies and the postures and attitudes of host governments will all be in a state of flux for some time to come.

Similarly, even the most well-entrenched compliance controls, accounting procedures and environmental, social and governance policies may prove vulnerable to compromise as managerial attention is focussed on the immediate practicalities of the health crisis.

Bottom line

Perhaps now more than ever, it is critical that investors and businesses active in the region remain clear-sighted about the true situation on the ground in their market. The pandemic is not over for sub-Saharan Africa, but if the right steps are followed, the economic impacts of the pandemic can be managed, mitigated, and minimised.

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