Trade and the pandemic will shape Africa’s 2021

“The way African countries have joined forces, both creating a continental free trade area, and in the fight against COVID-19, to me, this is the new Africa - a continent working in solidarity to uplift the wellbeing of its people”, said Dr. Aloysius Ordu, Director of the Africa Growth Programme at the Brookings Institution, when he joined the group of distinguished speakers taking part in NABA and Norfund’s annual “Africa in 2021 - what to expect?”

H.E. Wamkele Mene, Secretary General of the Africa Continental Free Trade Area, Jean Devlin, partner of Control Risks, Lanre Akinola, Editor of Nurmara, Dr. Jackie Chimhanzi, CEO of the Africa Leadership Institute and Tellef Thorleifsson, CEO of Norfund, shared their perspectives.

Watch this summary video to hear the perspectives of our distinguished speakers.

Here are selected quotes covering five main topics by our speakers this year: 

1. The fight against the pandemic - a long way to go

- When looking at numbers, there will only be a small proportion of the overall population, also in the most affluent countries that will be vaccinated this year. Cost and supply of the vaccine are two of the limiting factors, said Jean Devlin.

- CDC (Africa Centres for Disease Control and Prevention) estimates that about 40 billion US dollars is required to vaccinate up to 60 percent of the African continent, so that we can achieve herd immunity, said Dr. Jackie Chimhanzi - who also pointed out that COVID-19 protocols create the perfect condition for unfair elections.

- In terms of governance, COVID-19 also provides the excuse for governments to become more authoritarian and we are already seeing a shrinking of the civil society space in the guidance of COVID-19 management rights, she said.

- The costs in terms of the economy were very clear last year with a recession on a scale that we had not really seen for a decade. This year we expect to see the political cost of the crises becoming more evident whether that is with more cycles of protests in urban areas where we have seen signs of lockdown fatigue, but looking at the events in Washington D.C last week, political stability is not a given, said Devlin.

-Some of the fastest growing emerging markets were on the African continent. Then COVID-19 happened, a black swan that has changed the world as we know it, the way we work, the way we travel, the way we trade, thankfully this situation is not going to last forever. The long-term prospect of the African continent is bright, said Dr. Aloysius Ordu.

2. The trading continent - Africa on the move

-Let’s be fair when we make judgement of the level of readiness of Africa to trade. The most important thing is that we have a legal commitment, we have countries that have started trading under AfCFTA rules, there will be differentials in custom procedures readiness, that is to be expected, said Secretary General Wamkele Mene - and highlighted that 34 countries have already ratified the agreement. An encouraging number!

-It shows that African countries take this very seriously, and it shows that there is political will and there is legal commitment for an integrated market on the African Continent. The objective is that by the end of the 15th year, 97% of Africa’s trade should be at zero duties and quota free, said Secretary General Mene.

Trade in services is also included in the continental free trade area:

-We have identified priority sectors for immediate liberalisation: financial services, construction, tourism, consultancy services and so on, says Secretary General Mene. By developing a common standard for market access, across the continent this will enable market predictability. You know exactly what regulations will apply to you, says Mene.

Secretary General Mene thinks the main challenge will be customs readiness and customs procedures.

-We are working day and night - to make sure that we have customs readiness - across the African continent, and in all countries that have ratified. The biggest challenge will be the capacity of customs authorities to implement the agreement, in a range of areas, including rules of origin. Within a few weeks we will publish the tariff book on our webpage, this will indicate to traders the sectors in which we have reduced tariffs, and sectors where tariffs will be reduced over time. The good news is that we have started, says Mene.

3. The debt issue continues

-With most governments having to seek debt relief and debt forgiveness, having to go back down more the aid route rather than worrying about getting investments and trade, it is going to be effectively impossible for most governments to mobilize the kind of spending that would be needed to be moving forward. That is a big deal - this was a problem before, and it is a serious, serious issue going forward, warned Lanre Akinola - and also pointed to governments’ need to focus on domestic revenue mobilization which is one of the biggest problems with debt in Africa. Akinola states that the debt issue with many African governments is that they can’t service the depth, they have very low tax to GDP ratios. 

Dr. Jackie Chimhanzi followed up on Akinola’s concern regarding the debt issue. 

-More and more countries have limited ability to service their external debt with a number of vulnerable countries being at risk of defaulting, said Dr. Jackie Chimhanzi - who further expressed concern around that a lot of African countries are spending more on servicing their debt with the IMF and World Bank than they do on health care. They have a vested interest to cancel the debt because none of us is safe, until all of us are safe. 

- We are also concerned about the longer term impacts of rural areas, because once you have governments with very little to go with, in a way of debt levels, and constraints of public spending, perfieries of countries are often the first to lose out when money stops flowing, said Devlin.

4. Leadership in times of crisis

-We need effective leadership to be able to put in place the right policies, but not just put them into place, implement as well, and we got a problem of execution on the continent, so it is about policy, implementing it, but it is also about policy consistency, policy coherence, it is about touchpoints. You almost manage a country like a brand, so it is every touchpoint, the investor must get the brand promise. So if you say you are “open for business” it should reflect in every single thing from the moment you land on the airport, how you are dealt with at immigration, the hotel you check in to, if you are looking for permits - everything must indicate that the country is ready to do business, said Dr. Chimhanzi. 

Asked about new US involvement in Africa, Dr. Ordu, thinks that the new Biden/Harris administration ought to listen more than they lecture.

-In Africa, I would caution honesty - that the new administration is honest and ready to listen to African in a modest way - the recent incident at the Capitol, only a few miles from where I am sitting, has not shown the best of America. This is not the time to lecturing African leaders, like Secretary of State Pompeo did. Europeans talk about the compact with Africa, before it used to be a compact for Africa. This is the new approach, said Dr. Ordu. 

5. Investing and creating jobs

- The outlook is tough, but it wasn’t great before. The pandemic has hit the acceleration button on a lot of things, which is a serious problem. But there were serious problems before. The last 12 months for me have underlined the seriousness of where Africa is, and the need to stop beating around the bush, and stop worrying about whether or not we feel good about the outlook and how we fix it, said Akinola.  

Norfund has seen headwinds in the countries they operate, especially in the countries with large service sectors, and in the urban areas. Tellef Thorleifsson had feared that African banks would experience more challenges than what they experienced so far.  

-Last year we committed more investments than ever before, and we took part in covid-related initiatives, like the funding of banks. We will continue investing counter-cyclical, because now the difference we can make is bigger than we can make in a more positive market, said Thorleifsson. 

Although investments within clean energy creates “win, win, win” - both in terms of accessing electricity that enables jobs, reducing local pollution and CO2 emissions, Mr. Thorleifsson points to job creation when asked about his “dream investment” on the continent this year.

-I would love to and want to invest in something that generates a large number of jobs, because that is needed in 2021, such as manufacturing, other labor intensive industries and production that can also produce import substitution, said Thorleifsson. 

- Africa has the minerals to facilitate the rest of the world in transitioning to a green economy. There is an opportunity for Africa to put into place appropriate investment frameworks so that all the minerals that we have actually starts to work for us. How do we change the narrative from the resource curse to resource blessing, said Dr. Chimhanzi

-Market integration, liberalization is a process, it is not an event that happens overnight. We want to position Africa as a destination for investment in the areas for e-commerce and digital trade. We believe that the rules that will be implemented will facilitate investments, said Secretary General Mene. 

-We do expect to see supply chains becoming more regionalised, lowering costs of doing business and ultimately supporting growth on the continent, as that capacity develops, said Jean Devlin. 

-FDI is the key to growth and development on the continent. Africa is open for business, concluded Dr. Ordu. 

Further resources: 

Brookings Institution launched “Forecasting Africa” on 28th of January - you can read it by clicking here.

You can watch the recording of the “Africa in 2021 - what to expect?” (120 minutes) by following this link.

World Bank, Global Economic Prospects, January 2021, Sub-Saharan Africa.

This year’s Africa in 2021 - what to expect? was co-hosted with Norfund.