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African economies

Cushioning coronavirus impacts

by Aenne Frankenberger

In brief

Gas and oil companies were particularly affected by the COVID-19 crisis: workers of the Nigerian National Petroleum Corporation in December 2020.

Gas and oil companies were particularly affected by the COVID-19 crisis: workers of the Nigerian National Petroleum Corporation in December 2020.

The COVID-19 crisis severely affected Africa’s private sector last year. Many countries suffered economic recessions. According to a paper published by the KfW development bank and its French counterpart Agence Française de Développement (AFD), the worst hit sectors were oil and gas as well as tourism. The support programmes that African governments offered paled in comparison with those launched elsewhere.

The report assesses the measures African governments took in support of struggling businesses, particularly in regard to compensating lost revenues. Governments lowered water and electricity tariffs, the authors write, but they were also lenient in regard to debt servicing. In middle-income countries, governments offered loan guarantees. Moreover, some central banks reduced interest rates and boosted the banks’ liquidity. According to the report, however, Africa’s banking system is weak and a World Bank survey showed that only few companies received governmental support in the pandemic.

African stimulus programmes amounted to an average of 2.5 % of the region’s GDP. The comparative share was up to three times higher in advanced economies, according to the two European development banks. Moreover, government aid was not distributed evenly across Africa because many firms

  • did not know about the opportunities,
  • did not get what they applied for or
  • found the application procedures too burdensome.

The authors point out that e-commerce enabled firms to remain in operation during lockdowns. Especially businesses in African middle-income countries benefitted from this possibility. With the exception of South Africa, however, the share of e-commerce is still comparatively small in Africa.

During the pandemic, household incomes fell and customers spent less money. Many businesses thus had to cope with decreasing demand. Many managers reduced working hours and wages, but did not fire staff. The report authors point out that business leaders apparently hoped the situation would improve soon. Nonetheless, employment fell 8.5 % in Sub-Saharan Africa in 2020.

According to the report, many African companies still face serious risks so stimulus programmes are needed. Pointing out that governments’ fiscal space is shrinking due to growing sovereign debt, the authors emphasise that states need strong and viable taxation systems. On the other hand, governments should consider carefully which businesses and sectors deserve support as not all will be needed in the future.

As anywhere in the world, teleworking increased in Africa during the COVID-19 pandemic. However, it only affected 12.5 % of African businesses. According to the report, this is the smallest share among all developing regions. Due to poor telecommunication infrastructure, a mere seven percent of Africa’s workforce could work from home. The authors state that infrastructure investments could stimulate growth and boost the teleworking ratio. Reliable power supply and high-quality internet access are said to be particularly important.

The paper concludes that African governments should support the private sector by increasing the scale and scope of their stimulus programmes. Moreover, the authors want the international community to offer financial and technical support to the African private sector, arguing that governmental development finance institutions should ensure that these resources are used in accordance with the Sustainable Development Goals (SDGs).


Link
KfW, AFD: The African private sector in the COVID-19 crisis: impacts, responses and perspectives
https://www.kfw.de/KfW-Group/Newsroom/Latest-News/News-Details_664448.html


Aenne Frankenberger is a student of English and business administration at the Justus-Liebig-University in Giessen. She is currently an intern in E+Z’s/D+C’s editorial office.
[email protected]

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