AS with most parts of the world, what started out as a health crisis has also turned into a humanitarian and economic crisis, writes Danesh Ranchhod*.
While Covid-19 infections rates have been relatively low on the African continent compared to the rest of the world, much of the region’s economies are being impacted due to the various forms of restrictions being imposed on citizens.
The International Monetary Fund (IMF) has forecast sub-Saharan Africa Gross Domestic Product (GDP) to contract by 2 percent in 2020 vs growth of 3 percent in 2019. Some of the oil-exporting countries such as Nigeria are likely to face a sharper contraction due to the lower oil price. Many current forecasts and outlooks could be rendered irrelevant given the highly uncertain nature of the Covid-19 infection and the variability of outcomes given different government policy responses. At the same time, there is a growing risk that the spread of the virus could still escalate to unmanageable levels. This is due to some additional challenges facing many African countries.
While the level of urbanisation is still low compared to many other frontier and emerging markets, urbanisation has actually been growing fast off a low base to result in high-density informal communities in larger cities. The nature of these living environments makes social distancing measures almost impossible to follow through in a government-ordered lockdown.
Healthcare resources are constrained, with facilities lacking the necessary equipment such as ventilators and high care beds to deal with mass volumes of patients that could get sick. A report from McKinsey & Company showed Africa has 1.4 beds per 1000 people compared to China which has 4 beds per 1000 people. Additionally, laboratory capacity is low implying that not enough testing is being done to collate a true gauge of active cases. Genomic sequencing of the virus in Africa is also the lowest globally. There is a risk that Africa may not be well represented in a potential vaccine; vaccines are typically developed on large and varied pools of sequencing data so that there is a good representation of strains that may have mutated.
Much of the continent’s economic activity is driven by informal businesses that are small in nature. A hard lockdown would result in many businesses having to close down and subsequently leaving staff and business owners without income. There is also not much to rely on in terms of savings pools, while insurance or fiscal support for loss of income is negligible.
In the developed world and many parts of Asia, governments have announced Covid-19 related fiscal support for citizens and businesses amounting to 7-10 percent of their respective GDPs. These far exceed support programmes at the time of the Global Financial Crisis. This quantum (relative to the GDP) of support is not possible in Africa due to fiscal pressures already faced. While the IMF and World Bank have been disbursing crisis funding to help with healthcare and related costs, it is likely that a lack of more broad fiscal support together with a hard lockdown could see African economies struggle to recover.
These challenges preclude many African governments from adopting some of the measures that are being employed elsewhere in the developed world and more formalised emerging Asian economies. Extended hard lockdowns in Africa are likely to have a more dire result due to a devastating economic environment that could see increased deaths from starvation.
To find a balance between containing the virus and maintaining a semblance of economic activity will require a different approach. While African governments may not have the fiscal capacity to rapidly increase hospital and equipment capacity, they can more easily at a lower cost increase widespread testing to get a true sense of active cases. The testing can be multi-level with initial screening doing a lot to filter patients that require immediate testing and care.
This together with mobile operators can introduce a form of smart contact tracing and awareness using mobile phones. As the level of cases will initially be low, infected patients can be housed in basic isolation centres that do not require high care in key areas to help alleviate pressure on hospitals and reduce the reproduction rate given it is hard to isolate in high-density informal areas.
Other soft lockdown measures such as border control and social distancing measures where possible can still take place to help flatten the curve. Most importantly having confidence around widespread testing and tracking will help to create more timely data on active cases and recoveries and assist in identifying hot spot areas that could then be considered for targeted lockdowns rather than national hard lockdowns. It can also allow economic activity to remain in some form allowing many informal businesses to continue to operate and giving much-needed income to large parts of the populace that have no social safety net in any form.
*Danesh Ranchhod, is vice-president and executive director at Franklin Templeton Emerging Markets Equity