While central banks and governments in North America, Asia and Europe have offered trillions of dollars to prop up businesses hit by lockdowns and provide a safety net for the swelling ranks of the unemployed, a lack of liquidity restricts African governments from providing similar relief.
South Africa, the continent’s most industrialised economy, announced a 500bn rand (£23.4bn) package, with less than half of that, or about 3 per cent of gross domestic product, that’s new spending. Ivory Coast came up with a support plan of $3bn (£2.3bn), or 5 per cent of the world’s top cocoa grower’s output. Direct fiscal support in Angola, Ghana, Kenya and Nigeria averages just 0.3 per cent of GDP this year, according to Bloomberg Economics.
That compares with stimulus worth 15 per cent of GDP in the US and 12 per cent in Canada. Japan’s stimulus, including existing measures, equates to 42 per cent of GDP.
“All these countries need is the will,” Senegal’s president Macky Sall said of richer nations’ pandemic responses at a New York Forum Institute webcast on 19 May. Others simply “cannot mobilise $2tn (£1.5tn) or $3tn (£2.3tn) to deal with the health crisis and its fallout”.
Multilateral lenders and country creditors have stepped in. More than a third of the nations who’ve received emergency World Bank support are African and the International Monetary Fund has approved more than $13bn (£10.2bn) in rapid funding for countries on the continent. The Paris Club suspended debt repayments for seven low-income countries under an initiative backed by the Group of 20 leading economies.
“Everyone’s impacted and all countries are trying to protect their most vulnerable households and businesses,” Yvonne Mhango, a sub-Saharan Africa economist at Renaissance Capital, said by phone on 21 May. “We don’t have the fiscal buffers and savings in Africa to put forward large fiscal stimulus packages like you’re seeing in the West.”
Years of poor fiscal discipline have made some African economies even more vulnerable to the crisis. Even before the pandemic, rising interest costs were crowding out crucial social and health spending.
The continent has averted worst-case health outcomes, recording fewer than 5,000 Covid 19-related deaths, less than 2 per cent of global fatalities, but like elsewhere, strict lockdowns have stripped many of their livelihoods. Three-quarters of Africa’s working population toils in the informal sector, according to a 2018 World Resources Institute report.
That means that even if governments did provide support, many workers would be out of reach of official government programmes, such as South Africa’s Unemployment Insurance Fund.
At the same time, the predominance of the informal sector could offer some protection and help African economies rebound more quickly than advanced counterparts, said Amaka Anku, Eurasia Group’s Africa head in a 22 May interview. They’re less leveraged and less interlinked, “so there’s not as much of a contagion effect,” she said.
But the economic shock could still be devastating on a continent that’s home to about half the world’s poor. Many African countries are pushing for a debt standstill to free up funds to focus on supporting citizens.
“The western world can print $8 trillion to support their economies in these extraordinary times and we are still being thrown a classical book with classical responses,” Ghana’s finance minister Ken Ofori-Atta said at a 3 June conference.
“The fiscal response Africa desperately needs has been tempered by varying combinations of high indebtedness, weak institutions and tightening financial conditions. Although the IMF and G-20 debt relief and concessional loans have helped, it is far from enough. This will make it difficult for most countries to lay the foundation for a swift recovery once the intense phase of the pandemic has passed,” said Bloomberg Africa economist Boingotlo Gasealahwe.