IMF’s post-COVID 19 economic survey raises hope for Africa

Strong indications are emerging that Africa may come out of the post-COVID 19 pandemic induced economic devastation better off than most other parts of the world, especially Asia, and particularly China from where it originated. This is because of the less impact the virus is expected to have on the continent in terms of widespread infections and mortality rate going by current statistics ceteris paribus.

Although the rate of testing has been limited, however, the corresponding ratio of inflexions to deaths is the least in the world. In other countries, the ratio is between two and four per cent, while Africa’s ratio is less than one per cent so far.

A recent report by International Monetary Fund, IMF’s, experts survey of the post-COVID-19 global economy reveals that Africa may be a potential beneficiary of the situation given its prospect for a faster rate of recovery and growth, as a result of the minimal damage the pandemic may likely cause the continent, unlike others. The outcome could be the potential to get the best from a seemingly bad situation.

“Africa seems to be suppressing the curve so far. It looks like it might escape the worst of the pandemic, but it will have to be cautious about it. There is a good chance of re-occurrence of the virus, which could see a possibility of regular lockdowns, but businesses need to plan accordingly”, the report said.

It said that capital will look for less battered countries. Western economies are badly battered while countries in Africa, etc are not so affected. Global capital could flow there if the continent can act efficiently to pull it. IMF anticipates an economic backlash against China, which might lead to the relocation of some western firms operating in the country, and this will affect it’s trading and export business with Africa; so there is need to develop other options by African economies.

“Businesses with supply chains passing through China will need to keep this in mind and insulate themselves and build alternatives. African exporters need to build trust. They need to live up to promises made. They need to deliver on time and deliver the promised quality. They shouldn’t make incorrect promises just to get more business”.

Africa is expected to witness extreme acceleration to a digital economy. As the lockdown has proved, the digital sector emerged the big winners, as telecoms, fintech and ISP were singing Halleluyia to the banks.

As the western economies are more battered and local economy is less battered so far, there will be more liquidity coming in from the worst affected economies. That’s why there is a rally in the stock market as funds move for profitable outlets. This scenario could change depending on the spread of the disease.

“There will be value destruction and value creation in different companies in the same sector. High Debt low margin companies will find it difficult. High Debt high margin companies could be rewarded, but caution needs to be exercised.  No debt high margin companies are best rewarded now”.

The report said that the economy was in poor shape even before COVID 19, and the government had little leeway to provide large stimulus. But he lockdowns have opened new business opportunities in the digital economy and new fund inflows will capitalize on it because it has the highest growth potential.

There are immediate challenges also for the governments especially Nigeria with its huge population and a massive army of the extreme poor, whose conditions have been further worsened by the pandemic, especially given the limited provision of palliatives on account of government’s funding constraints.

“Inequality has already sharpened. The gap between rich and poor has further increased. The government needs to concentrate on mass health and mass welfare. If not, 40 million people could sink into poverty”, the report stressed.

Although Africa and Nigeria will be required to make need adjustment and reorder its spending priorities, to take care of the most vulnerable and execute urgent infrastructure projects, there is high optimism even amongst the leaders of a better prospect and expectation going forward.

However, the negative effect on revenue as a result of the crash in oil price may be mitigated by the drive for economic recovery in China, India and Europe, which is likely to impact demand and prices positively in the immediate and short term, and consequently more dollar receipts. Thus this outlook is moderating the initial pessimism over the economy.

This is reflected in a recent McKinsey survey of entrepreneurs released a few days ago, with 67% of African entrepreneurs optimistic, while only 37% of Asian entrepreneurs are optimistic.

There are also concerns for job losses particularly in large firms and possibly government. With a drop in business opportunities and expected time-lag in economic recovery, businesses will be compelled to shed some of its cost content, and personnel cost is usually the prime target. It could worsen unemployment and poverty.

Also with a proposed plan by the Osinbajo Economic Stimulus and Recovery committee, to seek facility from the IMF, the inevitable conditionalities will require a reduction in government recurrent expenditure, which is a euphemism for right-sizing of public sector staff, removal of subsidy, privatization and possibly devaluation. Nigeria had been that route before and knows the implications

Medium and Small businesses will struggle awhile before recovery because they had used up most of their reserve cash during the lockdowns, and will need time to recoup. However, the various assistance-intervention policies introduced by the Central Bank of Nigeria, CBN, will go a long way to cushion their challenges if properly implemented.

“They have to work with thin capital reserves. Excess capital is taken out of the business and applied to personal expense. Small businesses spent their surplus personal assets instead of re-investing in the business. Because of this, they will be unable to meet the cash expenses of even the next month”, it said.

A major consequence of this new business environment is that people will be less loyal towards brands as other aspects will take over. People will switch brands faster due to various other concerns like safety, etc

For individuals, health and safety will become No.1 on their agenda from the 3rd of 4th place. There will be more spending on this area and reduction in other discretionary spending. The ticket size of spending will drop for a while. People will spend on cheaper goods than on expensive goods, or delay spending for a while.

Because of this, cafes and restaurants might see some increase in business. Many chains are implementing measures like social distancing like lesser furniture, etc, to build confidence to consumers. Avoid ad Costs such as unnecessary spending, and change traditional working methods. Don’t be emotional about non-core businesses. Concentrate on core business, it advised.

Share on facebook
Facebook
Share on twitter
Twitter
Share on linkedin
LinkedIn

Subscribe for more news from The Nile Explorer