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Point of view: a detailed impact analysis in an Africa post-COVID19

Question 1: Can Africa afford lockdowns?

COVID-19 caught the world totally unprepared, with no proven and available medical response. Ad-hoc cocktails and learning-by-doing constitute the strategic package. In most Western countries, the cocktail of response has included a coterie of defensive measures including border closure; preparation of isolation centres and mobilization of medical personnel/facilities; implementation of “stay at home” orders or lockdowns, except for getting food, medicine, and essential services; campaigns for basic hygiene and social distancing; the arrangement of welfare packages for the vulnerable; and also economic stimulus packages to mitigate the effects on the macroeconomy.

Many African countries have largely copied the above template, to varying degrees. Piece-meal extensions of “stay at home” or lockdown orders, as in many Western countries, have also been copied in Africa. But the question is: Can Africa really afford lockdowns, and can they be effective? Put differently, given the social and economic circumstances of Africa and the impending ‘economic pandemic’, can Africa successfully and sustainably defeat COVID-19 by copying the conventional trial-and-error template of the Western nations?

Let us be clear: No one can blame African policymakers for the initial panicky copy and paste response some weeks ago. No public officer wanted to be blamed for doing nothing or not doing what others were doing. After these initial pilot schemes, it is now time to ask the deep question: Is this the right approach for Africa?

Africa faces two unsavoury options:

•Option A: Conventional template, including lockdowns

•Option B: heterodox (creative local) approaches without lockdowns

Both have risks and potential benefits. Sadly, people will still get the disease and die under both approaches: Option A & Option B. People will differ on the choice, depending on what is on their decision matrix: data, resources, subjective preferences, and interests, etc. I focus on which option (on a net basis) is achievable in the short-to-medium-term, consistent with our social and economic realities.

Our thesis is that lockdowns in Africa suffer a time-inconsistency problem, without a credible exit strategy; it is unaffordable and could potentially worsen the twin pandemics — health and economic — in Africa. We call for Africa to press the reset button now, mainstream its collective, simple, smart learning-by-doing solutions that could, in the end, be the African solutions for export to the world. COVID-19 won’t be the end of techno-economic disruptions or health pandemics, even in this decade: This is an opportunity to think without the box — to engender greater self-confidence in our capacity to think through our problems, with authentic sustainable solutions.

This can be well explained by a strategy used by China; the same should be implemented in Africa:

“China isolated Wuhan, and kept Shanghai, Beijing, and other major economic engines open, and today, China supplies the world with medical equipment, face masks, etc., and is raking-in hundreds of billions of dollars). The idea of a lockdown (and border closure) implies that you will continue to do so (with extensions) until such a time that you are satisfied that the spread of COVID-19 has been arrested or is in the decline (with the possibility of imposing another round of lockdown if new infections occur). That is the catch: Lockdown for as long as required to stem the spread. The length of time required for such lockdowns to ensure “effectiveness” in arresting the spread would make it near impossible in much of Africa. If the strategy is to lockdown until infections stop/significantly decline or so, then we would have a suicidal indefinite waiting game”.

 

Question 2: What worst-case scenarios could lockdowns lead to?

  • A) African states cannot afford lockdowns. Many countries depend on budget support from bilateral and multilateral donors, and with an acute balance of payments problems. They do not even have legroom to simply print money. Most are now begging for debt relief and applying for urgent loans from the International Monetary Fund (IMF) and the World Bank. In Africa, both the governments and the people are begging for “palliatives”. The most that African states and their private charities can do is “photo charity” — with much fanfare, drop a few currency notes or grains here and there for some thousands, when millions are in desperate need, just to be seen to have “done something”. At a fundamental level, most African states do not have credible demographic data to identify and target the most vulnerable. In the Western societies from where we copied the lockdown/border closure, their citizens are basically paid to stay at home (by silently dropping monies into their accounts plus other incentives). Check out the trillions of dollars, euros, and pounds already given in support of the vulnerable and the stimulus packages. Despite these, check out the restiveness/protests in several of these countries and the unrelenting pressure to eliminate the restrictions (even in countries where thousands are dying each day due to COVID-19). Given that no government in Africa can seriously afford lockdowns, over one billion Africans are left to survive if they can or perish if they must.
  • B) Without government support, no more than 5 per cent of Africa’s 1.3 billion people could possibly survive any prolonged lockdown off of their own finances. Most of the others have no assets or savings to live off of any prolonged period, and there is no social insurance (welfare system). Without the pandemic, the African economic space is already in dire straits, with unacceptable unemployment rates (especially youth unemployment) as well as endemic poverty
  • C) With some 80 per cent of Africa’s population living from hand-to-mouth on daily toil and hassle, the complete lockdown would never be total and is almost impossible in our social settings. In most cases, the orders simply create opportunities for extortion for the security agencies: Those who pay, move about! Attempts to force everyone into lockdown for an extended period may indeed be enforcing a hunger/stress-induced mass genocide. More people could, consequently, be dying out of hunger and other diseases than the actual COVID-19.
  • D) Lockdowns worsen these as many of the victims of these now have little or no cash to attend to themselves. Soon the pharmacy shops will run out of imported drugs. Even local pharmaceutical manufacturing firms need imported inputs but cannot efficiently source them under lockdowns/border closure (even more so with restrictions in China and India). Soon local, adulterated ones may fill the gap. A summary point is that the millions of persons in the street, who are struggling between life and death each day with numerous other challenges do not, and will never, understand why so much additional hardship is being foisted upon them because of the novel coronavirus.
  • E) Commodity prices have fallen dramatically, and for oil producers, the situation is precarious. IMF predicts that aggregate Africa will fall into a recession this year (the first in over two decades) but possibly rebound next year. For oil producers, it all depends on what happens to oil prices in the coming months and how they creatively craft a plan to transition to the world with little or no oil. If appropriate measures are not taken quickly, some oil producers may slide into depression. But border closures/lockdowns that dramatically affect the labour market and supply-side (as well as demand-side) of the economy will only worsen the situation, especially with little or no room for effective fiscal/monetary stimulus. Government revenues will be severely affected.
  • F) Thousands of MSMEs will die under the weight of formal and informal loans, bills (rents, electricity, wages, interest, etc) that continue to accumulate under lockdowns, as well as low demand for their goods and services.
  • G) Millions of poor farmers will be hard hit. Their perishable products that need informal public transport to reach the cities will be wasted; while millions who need transport to their farms cannot do so. Agriculture in Africa is rain-fed and seasonal. Lockdowns during the planting season could threaten food security in months ahead. Inflation will shoot up in many African countries, and with critical food shortages later
  • H) Manufacturing firms need imported inputs, machinery, and spare parts. Countries under lockdowns are consuming their old stocks. Even after lifting the lockdowns/border closure, it may take months for normalcy to return in some countries.

“Each day that any of the major African economies stay under lockdown, it costs Africa billions of dollars in lost income, with debatable benefits. Given its financial and structural weaknesses, Africa does not have the luxury of using the same “conventional tools” of the Western countries in the face of the twin pandemic. At the minimum, Africa needs its full population (its most important asset) working at full throttle to have any chance of defeating the impending economic catastrophe”

 

Question 3: How should we overcome this problem?

  • A) African countries should urgently dismantle the border closures, as well as the stay at home/lockdown orders. Hopefully, some useful data were gathered, and lessons learned that will help in crafting simple, smart, and sustainable heterodox responses. Africa cannot afford lockdowns that will prove ineffective anyway.
  • B) Governments should lead in the mobilization, education, and possibly equipment of the people to take personal responsibility for their safety; mainstream the African spirit of community/collective action by mobilizing the churches, mosques and civil society organizations to lead in the public education and mobilization; and finally for the government to do its utmost best in providing public healthcare. An enduring lesson of this pandemic is that African countries must take public healthcare seriously. “The president of Madagascar is reported to have announced that his country has found its cure for COVID-19 and has ordered schools also to reopen. The West is still in a trial-and-error mode, and why shouldn’t we experiment as well? Africa fought and survived Ebola without lockdowns and we can do even better this time.”
  • C) Mandatory wearing of masks in public, basic hygiene, disinfection of all open markets every early morning and all places of public gatherings, practical social distancing tips, provision of handwashing facilities in public places, production, and use of hand sanitizers, gloves, etc. For example, all public transport vehicles — taxi, buses, trains, aeroplanes might require disinfection of the vehicle before use, and for all passengers to wear masks and with hand sanitizers. Can you imagine the thousands of jobs to be created in producing face masks, hand sanitizers, gloves, etc for 1.3 billion people? But this cannot happen under a lockdown. New opportunities! Everyone wants to live, and Africans will learn and adapt quickly. Staying at home will become a choice, not a compulsion.
  • D) Every African society has some local herbs that, to use President Trump’s phrase, “might help”. While the U.K. and others are experimenting with vaccines, you never know if an Africa herb might be the cure. Necessity is the mother of invention, and only those who dare, succeed! With enough education and mobilization, the infection rate will be drastically reduced without pausing the lives.
  • E) The focus should be on exploiting the opportunities offered by the crises to press the reset button. It requires a realistic diagnosis and admission that the existing business model has been rendered obsolete. Crafting a new business model that encompasses the whole range of institutional, technological, structural, macroeconomic, and even politico-governance arrangements take time and demands for disruptive thinking. It would require mainstreaming creative non-debt-creating financing options and new forms of economic partnerships.

Question 4: What countries need to do to protect their currency from devaluation against the dollar?

Many countries’ currencies are pegged to the dollar, mainly because of major revenue in US dollar where central banks are supposed to manage value with demand/supply of local currency and their dollar reserves. But in the current economic scenario, where all central banks are left with no other option but to increase liquidity to the next level, these currencies will assuredly be depreciated.
Considering all the factors above, how could currencies show their real worth?

A good example might be India, for instance, which is comparably less impacted by COVID and is a net beneficiary of oil prices but still has its currency depreciated by 6-8%, because of US dollar index and currently pays for less intervention by RBI.
My guess would be that there is a need for some new mechanism, the way LIBOR is shifting to SOFR with more reasoning.
For more insight into this shifting of LIBOR to SOFR (Secured Overnight Funding Rate), please refer to this Morgan Stanley report.

At the same time, major economies should bring regulations to make transactions mandatory in local currency to a certain extent, the way China might be doing in the future. It has already started in some of the countries in Africa. So why not have Africa shift from LIBOR to SOFR and do the transactions mandatory in Local Currency – for example the DRC where most of the local transactions are traded in US dollar.

Question 5: Which industries will boom up when the lockdown opens up?

After the current coronavirus crisis, people’s demeanour will change – they will develop a new buying/business behaviour, etc.
For example: people who always go for a meeting travelling to & fro will now shift to online @ zoom – they will get it done without wasting time and money in travelling, students who go to school won’t go to school but rather they will prefer an online way of learning the things via school, etc, so a lot of money and opportunities will flow to the online business model.

So after the main crisis wanes, there will essentially be 2 groups of people:

  • Group A: People who wanted to go out and spend money – going to malls, they will wish to travel, etc. So industries like travel, entertainment, retail will boom up suddenly. However, on the other hand, some businesses like restaurants will probably suffer a huge loss due to Covid-19’s impact, so they will have to drastically change their business model, i.e a Fine Dining restaurant turning to a Food factory – a cloud Kitchen concept with online delivery via Uber kitchen.
  • Group B: Due to this epidemic, some individuals started wearing masks as part of their regular habits. As there is fear among the general populace, industries like Insurance will boom up. Things are not likely to be the same as before. Most of the shopping will be done online, people won’t feel the need to touch and feel things before buying.

So in the end, the money will be online and opportunities will be in online business models.

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