We followed an interesting webinar on ‘Africa’s Economic Headwinds’ last week. Organized by a London-based business platform for the continent, it brought together prominent speakers such as Benedict Oramah, president of Afreximbank; Daniel Mminele, group CEO of ABSA and a former deputy governor at the South African Reserve Bank. We will share some of their comments on COVID-19 and the prospects for the African Continental Free Trade Area (AfCFTA).
The experience of Ebola added to the preparedness for COVID-19 in some countries but the consensus was that the continent did not have “enough firepower” and faced its first recession since 1992. It had become too dependent on one country supplier and COVID-19 had not yet peaked in some jurisdictions. Mr Mminele felt that Ghana, Kenya and Uganda were holding up reasonably well. It saw the South African economy contracting by -9.7 per cent this year.
Infections were still rising in South Africa, but the government was pressing to open up the economy. We have noted this dilemma in a previous column. There comes a point where governments, whatever the trajectory of COVID-19, ease their restrictions because the safety net in place, if any, is too shallow and/or because they fear the economy would suffer permanent damage if they maintain the controls. On this subject, one of the speakers made the pointed remark with Nigeria presumably in mind that border closures were warranted for COVID-19 but not as a permanent policy.
The three speakers did highlight a few “silver linings” from COVID-19 although they were heavily outnumbered by the negatives. The obvious positive was the increase in IT and digital skills as a result of mandatory working from home. The crisis has also brought better collaboration between the public and private sectors, an example being the easing of regulatory controls for business and banks. A third lining has been the work in some quarters on strengthening regional supply chains.
This last is essential if the AfCFTA is to function according to plan and therefore a priority for its policymakers. Professor Oramah gave an update on the area, set for launch on 01 January 2021 after a six-month delay forced by COVID-19. The secretariat was being appointed. A payment system for agriculture was delayed on account of travel restrictions but would probably be completed by September. Oramah indicated some success in the pooling of medical supplies to tackle COVID-19 and noted ongoing work on the creation of a repository platform for due diligence.
It had been a struggle to develop regional supply chains in the absence of standardized tariffs and standards. The paucity of good trade information had been another constraint. Ghanaian business had a poor feel for what Egypt, for example, produced. This can be easily solved in our view. We are talking about the work of a chamber of commerce, a trade association or the trade unit of a well-funded embassy.
Afreximbank will be a central player in the AfCFTA, we understand, by running the clearing house for intra-African payments. It was also to part-fund a loan scheme to compensate members for the loss of customs revenue on tariff harmonization. Mr Mminele called for policymakers to inject urgency into the area’s current negotiations on several fronts, and suggested that, given the development of greater general expertise in these COVID-19 months, the protocol covering e-commerce became a priority.
Head Macroeconomic and Fixed Income Research, FBNQuest