Eurasia Group | Amid pandemic, Africa shows resilience

Amid pandemic, Africa shows resilience

26 June 2020
A passenger at Cape Town International Airport in South Africa during the coronavirus pandemic. REUTERS. A passenger at Cape Town International Airport in South Africa during the coronavirus pandemic. REUTERS.
Nearly six months into the coronavirus pandemic, countries and regions around the world are restarting economic activity, though with varying degrees of success. One surprising bright spot is Africa. Commentators and policymakers had initially feared that developing countries would be especially vulnerable to the coronavirus crisis given their relative lack of resources, weak governance structures, and a high reliance on commodity exports. Those are all real structural weaknesses, but the conventional wisdom overlooks the flexibility and resilience of populations used to living with adversity. So while it is true that weak healthcare systems make African countries highly vulnerable if there are new surges in Covid-19 infections, their economies will likely rebound more quickly than those of many developed countries.

Rural and less inter-dependent economies

Most African countries are largely rural, with substantial agricultural and informal sectors, where shutdown orders were less widespread and more difficult to enforce. Large East African countries such as Kenya and Ethiopia are nearly 80% rural (which has probably also contributed to the lower spread of the coronavirus there compared to West and Southern Africa). Though higher levels of informality generally result in lower levels of formal employment, it is easier for informal and agricultural workers to resume activity once demand picks up, given the relative absence of contracts, credit, and insurance.

Two important corollaries to higher levels of informality—lower levels of credit and of inter-dependency among different sectors of the economy—make African societies less vulnerable to a sudden change in economic or financial conditions. According to the IMF, private sector credit amounted to just 11% of GDP in Nigeria, 28% in Kenya, and 12% in Ghana. That compares to 187% of GDP in the US, where overall higher debt levels can magnify the pain of an economic downturn. For example, an American middle-income family that loses its income may default on mortgage and car loan payments, as well as cancel all sorts of subscriptions and contracts. In contrast, most middle-income African families (a much smaller number than in the US) own their homes and cars, and generally have very little or no formal debt, owing to poor credit data and low levels of financial inclusion. For many in the US, healthcare also depends on employment; thus widespread job loses will likely cause significant deterioration in access to care systems, whereas most Africans are already accustomed to managing without health insurance. Even in South Africa, which has the region's most developed financial sector and the smallest informal sector, 57% of the population already earned less than $5 per day, and unemployment before the pandemic was 30%, according to a narrow definition. Those realities make the scale of new pandemic-induced economic dislocation relatively small compared to pre-existing conditions. For example, economists estimate that unemployment has increased by about 10 to 20% in South Africa, compared to a nearly 300% increase in the US.

Lower expectations of governance

In part because of the relatively fewer ripple effects caused by the pandemic, the existing political equilibrium is also less likely to be altered. African voters across the region are already accustomed to dealing with significant (and frequent) economic and health shocks without meaningful assistance from governments. In the context of a global pandemic that has challenged rich countries such as the US and Italy, even modest assistance offered by African governments will be welcomed. For example, inhabitants of a South African township recently thanked the pandemic for prompting the government to provide clean water. Many others accustomed to avoiding expensive formal healthcare appreciate African governments' provision of free care for individuals who test positive for the coronavirus.

The relatively lower standards African governments are held to mean there is less risk of uprisings or other threats to African political systems than is commonly thought, particularly given that most restrictions on economic activity have been lifted. African voters are also used to large fiscal deficits, significant financing gaps, and considerable debt burdens, all things that will likely drive painful political debates in advanced markets over the next several years when the bill comes due for pandemic fiscal and monetary stimulus.

The "new normal"

Because African countries had put in place fewer limitations on economic activity than those with more advanced economies and had already started easing the most severe of those restrictions in April, these countries have had a bit of a head start in returning to some semblance of normality. Today, it is a slower and masked version of life as usual. Businesses that can do so continue to encourage staff to work from home, even where government regulations allow a return to offices. Those that cannot, such as banks and retail shops, are limiting hours or taking steps to avoid crowding. Most urban business establishments now require temperature checks and/or provide handwashing and sanitizing facilities on site. Many government agencies are staggering employee schedules—for example, by rotating which units work on a weekly basis—and requiring lower level staff to stay at home. Middle-income families are also staying at home as much as possible. But many of the informal sectors that account for a large portion of African economic output continue to offer their usual services, though amid depressed levels of demand from the formal sector and middle classes that they largely depend on. This will probably be the new normal for the next several months.

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Eurasia Group Africa Practice Head Amaka Anku.
Amaka Anku leads the firm's Africa practice, directing its analysis of regional trends and the interaction of politics, policy, and markets. Her own work focuses on political and economic trends in West Africa, particularly in Nigeria, Ghana, Cote d'Ivoire, and Senegal.