Reshaping realities around Africa's post-pandemic recovery

The COVID-19 pandemic has undoubtedly eroded the overall improvement in risk-reward scores seen across the African continent, but this should not deter investors. Control Risks and NKC African Economics have just launched the fifth edition of the Africa Risk-Reward Index, which captures the evolution of the investment environment and risk landscape in major African markets.

The index offers a comparative snapshot of market opportunities and risks across the continent. It provides a grounded, longer-term outlook of key trends shaping the investment landscape in major African economies, which should inform the strategies of organisations looking to invest in or grow their business in Africa. Investors seeking to minimise risks and maximise rewards are cautioned not to focus on headlines, but rather on specific country, sector and project contexts.

While Africa’s recovery may be prolonged and uneven, it could also be transformative.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.

A RECESSION LIES AHEAD

The immediate impact of COVID-19 will see Africa experience its first recession in 25 years, 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.

“The economic impact of COVID-19 will be varied but the recovery will be even more so” says Jacques Nel, head of Africa macro at NKC African Economics. “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.”

EXCITING TIMES AHEAD

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.

Figure 1: How fiscal space impacts recovery time (Source: Control Risks/Oxford Economics/Haver Analytics)

Some of these trends were set in motion before its outbreak, but COVID-19 seems to have accelerated them. Investors who 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.

THE GREAT ENABLER

Investment into African tech has reached record levels in recent years. These are likely to fall in 2020, a consequence of both recent high-profile sector struggles and the impact of COVID-19 on external finance. However, 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.

The pandemic has served to emphasise the need for tech and digital solutions across the continent. It has sparked the development of healthcare apps to help fight the pandemic, e-commerce platforms to facilitate life under lockdown, and new payment and microinsurance systems. •

Click here https://bit.ly/3hwa13P to download the 2020 Africa Risk-Reward Index.

Control Risks – www.ControlRisks.com

NKC African Economics

www.africaneconomics.com