Reflections on The Africa Debate
Reflections on The Africa Debate
'Connect. Invest. Trade' was the theme of this year's Africa Debate and inevitably, COVID-19 featured heavily in discussions.
When the virus first landed in Cairo back in February, many around the world expected the worst for the Africa's 1.3 billion inhabitants given its rudimentary healthcare facilities. Yet with 20 per cent of the world's population, Africa's case-fatality ratio is around four per cent. This pales in comparison to the USA, which has a 25 per cent case-fatality ration when accounting for just four per cent of the world's population. In fact, Africa's case-fatality ration has consistently remained lower than the global figure and African nations have regularly confirmed fewer cases per capita than more developed countries. This has been attributed to a number of factors including: the continent's experience in preparing for and dealing with infectious diseases such as Ebola, Dengue Fever and SARS; its youthful population (the median age is 19.4); and quick government responses to stem transmission.
But it has been the indirect effects of the pandemic that have crippled Africa. Its growing tourism industry has ground to a halt, foreign direct investment has decreased as governments have reallocated budgets internally, and there are USD liquidity shortages in many nations. The focus must now be on trying to rebuild economies, beginning with trade.
Trading from within
Crucial to improving Africa's self-reliance is the effective implementation of the highly anticipated African Continental Free Trade Area (AfCFTA). Although trading under the AfCFTA Agreement has been postponed to 1 January 2021 due to COVID-19, enthusiasm remains over what will create the largest free-trade zone in the world, covering 55 nations and 1.3 billion people with a combined GDP of $3.4 trillion. The agreement removes tariffs on 90 per cent of goods and is hoped to stimulate industrial production, manufacturing output, and intra-African trade with the objective of reaching 50 per cent by 2030. Currently only around 18 per cent of exports from Africa reach African nations, compared to roughly 59 and 69 per cent for intra-Asia and intra-Europe exports, respectively.
There will still be a crucial need for strong external partnerships too. Given Brexit, the UK's Minister for Africa, James Duddridge emphasised the UK's ambition to be a key European partner for African countries, beginning with the reduction of trade tariffs with African governments post-Brexit.
The debt question
It was clear from discussions throughout the conference that Africa's dire debt situation has become particularly acute during the pandemic. Falling prices of raw materials, recession, and now COVID-19 have reinforced the need for further debt relief for ailing nations. The G20 are expected to enhance their existing debt-relief initiative when they meet in November but buy-in from private creditors and China is needed in order to be truly effective. The Red Dragon accounts for around 63 per cent of bilateral debt service payments due from the world’s poorest countries in 2020.
Zambia's recent default on its foreign debt has brought further scrutiny of the terms and structure of loans with China. Before debtors commit to restructuring Zambia's debt, many Western institutions want to know if they will be treated equally with Chinese state and private lenders and want guarantees that their money will not go towards paying off Chinese debt. It's a situation that could hinder restructuring and aid efforts.
The role of private creditors in providing debt relief to African nations was also hotly debated. This followed the IMF's call that private sector participation is essential if debt-relief efforts are to succeed. It remains to be seen how beneficial the inevitable restructuring of African governments' existing debt will be for each country's development needs.
The future is African
In order for African nations to decrease their reliance on borrowing from abroad and shed their mercurial reliance on commodities, discussions highlighted the need for governments to focus on enabling small and medium-sized enterprises (SMEs) to thrive.
SMEs account for 90 per cent of all businesses in Africa. They play a critical role in the economic development and social mobility of millions of people through the provision of public goods and services, and the creation of jobs.
But the large majority of SMEs cannot access the necessary financing to scale their operations. Without this lifeline, SMEs will remain stunted and unemployment, poverty and other development challenges will worsen.
It is the perennial equation of risk versus reward for investors. The opportunities are there, after all.
There is a rising tide of well-educated, business savvy African entrepreneurs returning to the continent that are looking to harness Africa's digital potential and drive change. By 2025, the size of Africa’s internet economy could be worth $180bn. Therefore, it will likely be the continent’s tech start-ups that provide the much-needed solutions to increase access to education, healthcare, and finance. That being said, large-scale financing and investment are required to provide sufficient digital infrastructure to process the data of a surging online population.
Africa's underdeveloped urban infrastructure also needs critical financing attention. Around 44 per cent of Africans live in urban areas and that figure is expected to continue to rise. The question remains, how will this be financed?
The road ahead
The pandemic has accentuated the vulnerabilities of many African economies and the path to recovery and ultimately growth, is far from clear. African governments need to harness partnerships, private sector investment and blended finance methods in order to address the funding gap. Export credit agencies, development finance institutions and non-bank lenders will play a prominent role in the road ahead and robust financial centres such as Mauritius, UAE and Jersey are uniquely positioned to facilitate trade and investment into and out of Africa.
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