All is not lost for Africa as pandemic unleashes opportunity

By Ebrahim Motala

Across Africa the effect of the COVID-19 pandemic has been particularly significant for countries that are dependent on tourism and commodity exports, and for those with limited policy space to respond.

Even as we emerge from what we hope was the worst of the pandemic, recovery is likely to be uneven and uncertain. This crisis has forced many African governments and the private sector to reshape their strategies when it comes to thinking about the long-term sustainability of the continent.

Many countries have had to rapidly rethink their commodity-driven growth models, and there is also a strong sense that the continent needs to become more self-sufficient to reduce its reliance on global markets. In fact, pre-COVID much of this thinking was already there, but the crisis has forced the continent to accelerate many of the plans that were in place.

The pandemic continues to exact a large toll on Sub-Saharan Africa, especially on Ghana, Kenya, Nigeria and South Africa. After the largest contraction for the region (-1.9 percent in 2020), growth is expected to rebound to 3.4 percent in 2021, with tourism-based economies facing particularly difficult prospects considering the expected slow normalization of cross-border travel.

But we remain optimistic. The huge infrastructure gap pre-COVID has been further exposed, and there are major opportunities for global investors to close it. Green energy has come into particular focus as Africa needs to be part of the global shift towards a cleaner environment. This will also help countries – especially in the Southern African Development Community (SADC) – to remove reliance on imports from an ever-more-expensive Eskom. A green infrastructure push, along with critical infrastructure such as road, rail and ports, could come to the fore as part of post-Covid infrastructure plans across the continent, ultimately reducing energy costs and improving self-sufficiency.

The intermittent lockdowns that have been taking place over the past year have also affected our intra-African trade. We are in negative economic growth rate territory, and sub-Saharan Africa is experiencing its first recession in 25 years. The landscape is challenging. But trade is critical to rebuilding economies post-COVID and the pandemic has laid bare its importance. The implementation of the African Continental Free Trade Area (AfCFTA) in January was a giant leap for the continent that will hopefully bear fruit in terms of boosting intra-African trade. If implemented successfully, it will bolster the sustainability of the continent in the long term.

Consistent with the projected global recovery, oil prices are expected to rise 30 percent in 2021, which will be 42 percent higher than the 2020 average. Oil prices persistently over US$60 a barrel may induce a production recovery of higher cost producers in Nigeria and Angola, where an improved revenue base could give the governments the much-needed leverage to attempt some of their huge infrastructure power and railway ambitions.

Metal prices are also projected to recover further in 2021, reflecting the rebound in economic activity in China. Base metal prices increased 30 percent between August 2020 and February 2021. The resurgent industrial activity in China and other advanced economies, coupled with optimism about the US fiscal stimulus, has boosted sentiment towards the metal.

The prices of copper and iron ore, used heavily in the construction and manufacturing sectors, increased 30 percent and 35 percent respectively. The strong demand for electric cars also pushed up prices of commodities such as cobalt and nickel that are used in batteries. Africa is a major producer of these metals.

At local economy level, demand for products that support working from home and the release of pent-up demand for durable goods have been key factors behind the global recovery since the second half of 2020. The pandemic created an increase in demand for communication and data services in every African country. Businesses that enable connectivity, digital services and other internet solutions are paving the way for the future, while also enabling the continent to catch up with the rest of the world.

There is also a sustained demographic tailwind as Africa’s population continues to grow. This presents a significant opportunity in sectors such as health care, pharmaceuticals, education and financial services, particularly digital financial services.

As the saying goes, “crisis is also opportunity”, and as a continent I believe we are now accelerating the opportunities that we have always known will drive our abundant growth prospects. According to the World Bank in 2018, out of the 10 fastest growing economies in the world, 6 were in Africa, with Ghana being at the top of the world ranking.

As difficult as the picture may seem at present, Africa is a place that is still buoyant with opportunity; the continent is very much open for business.

South Africa’s Ebrahim Motala is the Head of the Rest of Africa business at the Rand Merchant Bank (RMB). His brief includes developing and executing on the bank’s strategy, establishing corporate and investment banking platforms across key markets in Angola, Botswana, Ghana, Kenya, Lesotho, Mozambique, Namibia, Nigeria, Swaziland, Tanzania and Zambia.

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