“African stakeholders must take active steps to create an investment supportive environment”
By Yariv Cohen, Angaza Partner. Published on The New times
If you ask doctors who are currently dealing with COVID-19 what they fear the most, you’ll likely get similar responses. The biggest apprehension among the medical community is that the virus will change, mutate, and become more contagious and deadly. While humanity is already dealing with the virus and starting to show signs of containing it, the true impact is only now beginning to show.
The stringent lockdown policy and the resources invested in enforcement resulted in relative control of the virus spread, and low numbers of patients and deaths across the continent. The horror images that came from the world’s epicenters skipped Africa, hopefully for good. But now, in addition to the medical challenge that has already become somewhat familiar, the economic crisis is becoming increasingly significant, and might be even harder to contain.
A global epidemic’s collateral damage
The decisive policies adopted by many countries across the globe were essential to stop the virus from spreading across the continent. But those measures, had and still have significant implications, most notably the widespread economic damage, impacting the lives of hundreds of millions in various levels.
At the first and immediate level, many businesses and companies face substantial cash-flow difficulties. The ease of lock-down in some countries has allowed business to resume, yet customers have less money, and cash flows are dwindling. At best, those businesses will have to streamline and significantly reduce their workforce. In the worst-case scenario, companies will collapse, and thousands of employees will be jobless. With the US at a record unemployment rate with almost 15 per cent (up from only 3.6 per cent a year ago), in sub-Saharan Africa, where the unemployment rate in 2019 was already over 6 per cent, we can expect a sharp increase of up to 5 times within a year, which could take a decade to recover.
At the second level, millions of consumers and users across the continent will be negatively impacted. Many of the most basic needs of African residents such as electricity, water and medical services, are provided by private companies that are not immune to the recession. If they get hit or shut down, millions of customers may not get the most basic services.
At the third level, the effects of the global recession may affect the volume of investments in local companies and projects. During a recession, more investors have Home Bias, causing them to invest more in domestic equities (“invest in what I can see”), and investors (both private and institutional) tend to exhibit flight-for-safety – become more cautious and avoid, “risky” investments. Without massive government assistance, Africa may remain an “alternative” investment option, and innovative projects may suffer significant cuts.
Time to take action
Now that the signs of the economic recession are spreading throughout the world just like the virus itself, Africa’s leaders need to reassess and assign both resources and efforts to meet the new challenge ahead.
For business leaders, key actions would be focusing on what customers really need. Now is not the time for luxuries and “nice to have” products, but for basic needs and “must have” solutions.
Affordability, affordability, affordability: Now more than ever, customers have to make though choices with limited income. Ignite’s latest Extreme Affordability program, providing rural customers with solar power for less than 1 USD per month, is not only surviving but growing during the COVID-19 outbreak, proving the need for affordable and sustainable solutions.
Stay lean: now is the time to focus on the basics, including each business core value and specialty. New, ambitious projects must be built slowly and gradually, minimizing the risk while constantly assessing the new, changing reality.
Don’t stop innovating: the same changing reality brings with it tremendous opportunities for innovation, impact and scale. Business leaders must allocate resources to innovative products, services and strategies to meet the growing demand and potential in the continent.
For public stakeholders, there are some essential steps we can (and should) take, immediately include allocation of resources to support the business sector:
African stakeholders must support the business sector to help companies and businesses affected by the crisis. The best way is by supporting households and clients to access services with Grants, zero-interest loans to consumers, while lines of credit can help those companies survive the difficult period and continue their growth in the future.
Investment support policy: As mentioned earlier, while many investors may reconsider their investments in companies and projects in the region, host governments must take active steps to create an investment supportive environment, and even provide risk-sharing support for investments in specific sectors, such as electricity and water.
Encouraging collaborations: A recession highlights the need for collaborations, especially between the business and public sectors. Thus, companies will be able to gain high-value deals and provide reliable solutions to the needs of the public sector at a lucrative price.
Many African governments have demonstrated leadership and responsibility in recent months, resulting in relative control of the spread of the virus. With an underdeveloped health sector and a lack of medical technologies, the importance of the measures taken so far is tremendous, and so is the continued enforcement and constant monitoring of further outbreaks.
Now, the governments are facing a new threat, a “collateral damage” of the global epidemic. The expected economic crisis might be difficult, and without proper management and leadership, it might erase years of growth in the region, and directly affect the lives of hundreds of millions. Governments must recognize the changing risks and respond accordingly, with both determination and speed, to continue and lead Africa to a more sustainable future for all.