Fri, Apr 24, 2020

Social and Economic Impacts of COVID-19 Across Sub-Saharan Africa

As African countries follow the rest of the world into comprehensive lockdown, Kroll’s Africa specialists Alexander Booth and Oliver Stern share some local perspectives.

In the closing days of March and first days of April, many of Africa’s key markets had responded to the threat of the coronavirus by adopting stringent lockdown conditions to match those already imposed in East Asia, Europe and North America. The regional heavyweights of South Africa, Nigeria and Kenya were some of the earliest countries to announce social distancing policies, lockdowns and blocks on international air travel. It is becoming increasingly clear that the social and economic costs of the COVID-19 crisis are likely to be severe across the Sub Saharan Africa region. While the crisis has come to fruition in many parts of the world, over the coming weeks and months we are likely to see the political and economic frailties associated with SSA markets becoming starker.  

It is not yet clear what the human impact will be in SSA. Health data tracking infections and mortality is unlikely to be generated in much of the region. While Africa’s youthful population could lead to reduced mortality rates overall, living conditions for many of Africa’s poor, especially in informal districts around major cities, make social distancing unrealistic and could cause higher rates of infection.  Whether in Alexandra Township in Johannesburg, the sprawling Kawangware in Nairobi or in hundreds of similar low-income locations across Africa, settlements are crowded and population densities are extreme. Interpersonal contact is unavoidable. In such conditions, the lockdown approach may prove to be at best unenforceable, and at worst entirely unworkable. In rural areas where density is not a problem, the infection may be spread by people returning from employment in urban centres. In Mozambique, for example, rural health services are rudimentary at best and access to testing and treatment will be near impossible.  

Development economists have long claimed that aggregated macro-economic figures and high growth rates in many SSA markets mask inequality and fail to include the economic activity of the vast informal sector. In Kenya, for example, the World Bank estimates that the informal sector employs some 80% of the national workforce. This sector—comprised of subsistence farmers, informal traders, street vendors, car washers, pavement barbers, etc.—is the most severely impacted by lockdown and reduced freedom of movement in and out of city centres. The enforced inhibition of the informal sector in Kenya and elsewhere will adversely impact an already precarious economic position, and threaten basic living standards for millions of wananchi or ordinary citizens.

The ability of state institutions to step in and provide much needed support is unlikely to materialise at the point when economies and governments are facing crisis. If lockdown measures break food supply chains and access to services, then the likelihood of unrest increases and pressure on leaders to act decisively will grow. As donor countries face their own crisis, it is unlikely that ‘development partners’ will be able to step in to provide the hands-on support that will be required. IMF debt relief will be welcomed but will not lead to adequate health services in the coming weeks and months. 

It remains to be seen how governments will respond but maintaining fiscal discipline and stability of the investment climate may fall down the priority list. For most of the SSA region, the policy tools and resources to deal with the situation are minimal or non-existent. Few countries have announced policies—such as income assistance, welfare support, essential services or other remedial measures—that can compensate for the reduced earning potential of their workforces.  

For business operating in country, there is an increased chance of currency depreciation and debt vulnerability and a lack of stability in the investment environment. Human rights issues may well become a concern in agricultural or mining operations where personal protective equipment is limited, and vulnerable communities are left stranded with no access to paid work and no state safety net. In working-class districts of Nairobi and Mombasa, Kenyan riot police have fired tear gas and rubber bullets at commuters struggling to return home before the curfew, undermining the popularity of the lockdown policy and exacerbating instinctive community distrust of central government.   

There are some glimmers of hope. In some areas of Africa—perhaps most notably Guinea, Sierra Leone and Liberia, which suffered a serious outbreak of Ebola in 2014—local healthcare systems may have accumulated useful experience in monitoring and containing infectious diseases and in communicating effective response strategies to local populations. The World Health Organisation has also stepped forward to play a coordinating and information-sharing role across Africa—not least in corrective several “fake news” narratives in circulation—and serving to fill a communications vacuum left by the some of the less publicly responsive governments.

Against this backdrop, as the COVID-19 crisis unfolds across Africa and operating conditions become increasingly precarious, it is essential to stay informed. The wellbeing of employees, the welfare of local partners, the financial position of investee companies and the postures and attitudes of host governments will all be in a state of flux. Similarly, even the most well-entrenched of compliance controls, accounting procedure and environmental, social and governance policies may prove vulnerable to compromise as managerial attention is focussed on the immediate practicalities of the health crisis. Perhaps now more than ever, it is critically important that investors and businesses active in the region remain clear-sighted about the true situation on the ground in their market. 

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