Covid-19 gives Africa opportunity for transformation

The Covid-19 pandemic has undoubtedly eroded the overall improvement in risk-reward scores seen across the African continent in recent years, but this should not deter investors. Africa’s recovery may be prolonged and uneven but it could also be transformative, suggests the Africa Risk-Reward Index. The report, compiled by Control Risks and NKC African Economics, reveals that the pandemic’s huge economic cost has triggered a universal drop in reward scores, but the impact on risk scores has been more varied. Ethiopia has seen the largest ratings drops, as Covid-19-induced challenges combine with escalating ethnic tensions in the context of a delayed election. Egypt’s risk score has remained relatively steady, but its reward score has been badly hit by the triple blow of the pandemic, low oil prices and plummeting tourism revenues. Algeria’s risk score has improved since the mass protests and landmark elections of 2019, but challenges for its oil-dependent economy have still dragged down its overall score. Barnaby Fletcher, associate director at Control Risks, explains: “The Covid-19 pandemic is a global crisis, but Africa’s recovery will be slower and more uneven than most. “However, this recovery will be an opportunity for governments across the continent to address structural constraints and promote new solutions. We are already seeing signs that they are doing so, and for investors this opens up some interesting opportunities.” The immediate impact of Covid-19 will see Africa experience its first recession in 25 years, states the report, but more worrying is the lack of fiscal headroom available to African governments to engage in stimulus spending. For many countries, economic recovery will have to be driven by their private sectors, which were already weak and have only become weaker during the pandemic. Jacques Nel, head of Africa macro at NKC African Economics, explains: “The economic impact of Covid-19 will be varied but the recovery will be even more so. “The optimists will hope to see a race to the top as governments undertake desperately needed reforms, while the pessimists will see a continent set back more than a decade. The reality will be somewhere in between, with each country finding a unique spot on this spectrum.” However, there are already indications that the scale of this crisis is prompting some welcome reforms. Faced with a volatile global landscape, African governments have a pressing need to develop downstream manufacturing, regional supply chains and domestic capital markets. There are also indications that large portions of the workforce are entering the formal economy to access government financial support and cope with pandemic containment measures. Investors that stay with Africa despite the current downturn will not only have an important role to play in its recovery, but will also see some exciting changes and opportunities, concludes the report. Investment into African tech has reached record levels in recent years. This is likely to fall in 2020. However, the report suggests, any such decline should be viewed as an opportunity to reset expectations and approaches, not as an indication that the affected sectors are becoming less attractive. Digital and tech are set to play a far greater role in post-pandemic Africa than they ever did before. The wave of informal workers and companies entering the formal economy will need access to basic financial and legal services, which are likely to be provided through online or mobile platforms. Digital solutions may also help facilitate the growing push to build regional supply chains. Looking at the geopolitical picture, the report notes that foreign powers engaged in such tactics are motivated by the geopolitical competition over Africa, which has steadily intensified in the past decade. African governments are also building their own capacity to mount such campaigns. Investors should not assume that such activities impact only governments. Foreign investment is frequently the subject of political debate in African countries and, when that debate is distorted by external actors, individual companies face significant reputational risks. Not only that but disinformation campaigns have been used by militant groups for recruitment and to cause peaceful protests to escalate into violence, posing security threats to commercial operations. The risk posed by influence operations in Africa should not be overstated, though the trend is growing as social media is adopted more widely across the continent. Just as grasping the political and business landscape can help investors avoid pitfalls and maximise their chances of success, understanding the information landscape – what the narrative is and who is seeking to influence it – will become increasingly important, concludes the report.

Covid-19 gives Africa opportunity for transformation

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