Prospects that the record-breaking vaccine development and distribution plans will start to counter the political and economic devastation of the pandemic have opened this year with a blast of hope and goodwill. It will be short-lived unless there are credible efforts to launch a new social contract.
‘Africa must tap the incredible opportunity before it’ – Sayeh
COVID-19 has disrupted our lives and livelihoods at a pace and scale not seen in living memory.
The pandemic threatens to wipe out almost a decade of development progress in Africa, as the effect of weaker health systems, lockdowns, commodity price drops, trade collapse, evaporating tourism and shrinking remittances hit the region – all at the same time.
The IMF’s projections for 2020 are sobering: a contraction of 3.2% in sub-Saharan Africa and 2.5 % in North Africa. The human costs are immeasurable.
Africa will account for about a third of the global labour force by 2050.
Policymakers in the region responded swiftly by increasing healthcare spending, supporting vulnerable households, cushioning the impact on small businesses, and relaxing monetary policies.
The IMF provided financing assistance to 37 countries in the region as well as immediate debt service relief to 23 of the poorest, most vulnerable countries in Africa. We have also worked with the G20 to suspend debt service payments to official bilateral creditors.
However, the pandemic has exacerbated pre-existing challenges. Even before the crisis, substantial reforms were needed to lift growth, create jobs and meet the 2030 sustainable development goals. The governments’ ability to fund budgets was already limited; debt had steadily grown over time.
To secure a sustainable long-term recovery, leaders must make the right policy choices and mobilise investments in the region.
Right policy choices
In the near term, health spending must be maintained across the board. Countries with greater ability to spend should continue to provide support to vulnerable people; those with limited ability should reprioritise spending to focus on measures with the largest impact. Countries facing unsustainable debts should seek to reprofile or restructure them.
Once the crisis begins to abate, Africa must tap the incredible opportunity before it. Just the way the 2008 global financial crisis led to reforms that made banking systems more resilient, we have an opportunity today to put in place measures that promote an inclusive, green and smart recovery. Securing a return to ‘normal’ is not enough.
- (i) Greater investments in health, education, digitalisation and infrastructure that improves access to social services and expand social safety nets.
- (ii) Raising revenues through simplified tax systems and curbing ineffective spending such as subsidies that mostly benefit the rich.
- (iii) Eliminating barriers for private sector activity and supporting low-carbon, climate-resilient and job-rich growth.
- (iv) Improving transparency and governance in public institutions by strengthening public financial management systems and bolstering anti-corruption frameworks.
Africa cannot do this alone. Without external financial assistance, countries will find both near- and long-term prospects diminished. International institutions such as the IMF and World Bank will continue to help on that front. But Africa needs more than external assistance: a concerted effort to increase investments in the region.
Why invest in Africa? Put aside the moral argument of ensuring that the region—home to half of the world’s poor and the largest number of fragile countries—is not cut off from the benefits of a global recovery. Such investment is very much in the interest of the world – Africa will account for about a third of the global labour force by 2050.
As the continent continues to develop, Africa’s youth will power demand and serve as an engine of global growth in the decades ahead. In contrast to older advanced economies facing a savings glut, the higher returns on investment in Africa present an attractive opportunity for foreign investors seeing mediocre returns in their own countries. Consider the pension funds that need to maintain payouts to aging cohorts of retirees.
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Africa needs to do its part to attract such investments. Policy choices now will dictate both the path and sustainability of development in the long term.
As a former finance minister, I recognise these are not easy choices in normal times, let alone under such trying circumstances. But we are at a historic moment: our choice is between reversal and renewal – either going back to pre-crisis models of growth or building a new, more sustainable and inclusive model that can deliver even greater development gains in the long run.
The consequences of limited economic and institutional reform within Africa—and a poor global response to the continent—will only force outcomes on future generations that are far worse. Helping Africa realise its immense potential is in everyone’s interest.