The outbreak of Covid-19 has left Africa facing the prospect of its first recession in 25 years, with countries dependent on oil exports or struggling with political instability on the frontline.
Recent World Bank analysis predicts growth in Sub-Saharan Africa could fall to -5.1% this year, a sharp drop from last year’s figure of 2.4%. It forecasts that Covid-19 will cost the region US$37bn to US$79bn in lost output.
That has prompted consultancy firm EXX Africa to upgrade its risk ratings for the continent. Executive director Robert Besseling says around three quarters of African countries now fall above their usual elevated average as a result of the crisis.
“We hope and expect this to be temporary, at least for three to six months,” he said during a GTR Africa webinar on Wednesday. “But for now at least, we do seem to have a real emergency in many African countries.”
Generally speaking, Besseling said the region faces four main problems: “First, a disruption of trade and value chains, mostly because of the disruption to supply chains in China. Second, a disruption of financing flows and remittances. A particular fear here would be that much investment committed or pledged to infrastructure projects will drop out.
“Third, and perhaps most serious, is the risk of a lengthy public health emergency. Fourth, there is still a concern over the implementation of lockdowns and curfews across the African continent.”
The problems are particularly acute for countries that were already suffering political instability – Besseling cited Somalia, Sudan, Burundi and Swaziland as examples – as well as for those reliant on oil exports, such as Nigeria, Angola and Equatorial Guinea.
Onyebuchi Memeh, Standard Chartered’s head of trade for South Africa and Southern Africa, added that he expects South Africa and Kenya to be among those countries “which, from an economic point of view, will be most impacted”.
South Africa had its sovereign credit rating downgraded to ‘junk’ by Moody’s late last month, and though its nationwide lockdown has been eased to facilitate the export of metals and minerals, the region’s mines remain closed or operating under significant restrictions.
In Kenya’s case, Memeh says the country is significantly exposed to China, with US$5bn per year in bilateral trade under threat.
Digitisation and logistics
In some cases, the spread of the virus has actually increased demand for certain products.
Antonella Da Cunha, group risk manager at fresh fruit supplier Capespan, said during the webinar that demand – and prices – for certain citrus fruit have risen substantially since the outbreak, perhaps in part due to attempts to increase consumption of vitamin C.
And Louw van Reenen, chief executive of South African meat producer Beefmaster, said that importers in China “are actually buying more from us, since some of the other countries can’t export there”.
However, that has given rise to other issues. For van Reenen, Beefmaster has encountered problems around logistics, including issues maintaining access to shipping containers and to ports in China.
“We are really having a major difficulty vessels on time to be able to load the containers,” he added. “That is a challenge because we’ve got a shelf life on the product that’s mandatory in those countries under law.”
Another logistical problem that has arisen since the outbreak is a slowdown in the movement of paper documents, prompting pressure on exporters and banks to increase their usage of electronic signatures.
Standard Chartered’s Memeh said it is “very difficult to talk about upsides given the circumstances”, but that increased digitisation could be a beneficial side-effect.
“When you look at something like documentary trade, even if you digitise it within your own institution, the macro environment is very important because we have to present physical documents to declare goods at the ports,” he said.
“I think this is an opportunity for reset, for governments and regulators to realise that they buy into digitisation. I think this will make them look at this with much more seriousness. We will have a stronger conversation around it, about better investment in digitising, and this should create efficiency around the continent.”
Significant efforts to keep African trade moving have already been undertaken by export credit agencies (ECAs) active on the continent, as well as by global organisations such as the International Monetary Fund and World Bank.
But for Angelica Adamski, director of the board at the Sweden-Africa Chamber of Commerce, there are other steps that ECAs in particular could consider taking to bring some relief to African exporters.
For instance, she suggested more ECAs should consider extending coverage to short-term credit and trade receivables. “A lot of the ECAs around the globe already do this, but for the ones that are not doing this it is an equally important thing to think about,” she said. “How can we cover short term trade?”
Adamski said other options could be to extend coverage to sub-suppliers, helping supply chains disrupted by Covid-19 to rebuild, and to extend ECA cover to 100% rather than the usual maximum of 85% – echoing calls from UK industry groups hoping to maintain trade in developing markets.
Another possibility could be to cover working capital facilities, she suggested. Once trade restarts, Adamski said buyers may face liquidity issues that delay payment to suppliers, which in turn, would then struggle to pay their own suppliers.
Again, she said some ECAs are already covering working capital programmes, but for Adamski “we need to put more emphasis on this”.
“It’s for the banking system, with the aid of the ECAs, to see what they can do about this,” she added. “This is urgent. This is not something that can wait. It needs to be addressed immediately.”
April 17, 2020