African intellectuals are calling for a different discussion about how to respond to the COVID-19 pandemic. Isn’t this the right time to propel changes that have often been postponed? African leaders fall easily into response mode, not to the crises they face but to the advice they receive. Perhaps COVID-19 can herald structural transformation in the continent. Admitting this is too good a crisis to be allowed to go to waste, here are five reasons to use it to shift gears.
First, the China-US trade war that introduced turbulence in the world markets, followed by the Saudi Arabia-Russia oil prices war have foreshown that the 2011 end of the commodity super cycle could get much worse than predicted. With historical lows for Brent oil prices and US oil futures plunging below zero for the first time in history in April, there is little doubt left about the volatility of a commodity that represents 40% of African exports. Since 2007, the volume of Africa’s crude petroleum exports to the world has decreased sharply. China’s imports are shrinking, following decreases in exports to the US and others. With 7.5% of world oil reserves and 7.1% of gas reserves Africa will never be a big player capable of determining prices or occupy a premium place in this market. COVID-19 has driven this message home. Since 2007, the volume of Africa’s crude petroleum exports to the world has decreased sharply. China’s imports are shrinking, following decreases in exports to the US and others.
The prices of renewable energy production, on the other hand, are becoming more competitive by the day, often surpassing the fossil fuels matrices. This makes it the right time to shift towards a cleaner, low-carbon production and consumption base. Africa has the luxury of being able to accelerate its industrialization with greener solutions both in terms of energy and sustainable infrastructure. Extremely low prices for oil and coal (associated with depressed demand in some countries) translate into a unique chance to get rid of heavily subsidized fossil fuel consumption and the option to dismantle the byzantine tax systems plugged into the fuel in the pump.
Second, although not as dramatic as the fall of the oil and gas prices, the other commodities composing the bulk of African exports, be it metals and extractives or agricultural-related and fisheries, usually exposed to high levels of volatility, have all been driven south by COVID-19. Africa has 35 out its 54 countries in the highly export-commodity-dependent category (referring to countries with 80% or higher dependency). This colonial characteristic is responsible today for rent-seeking behavior and lazy domestic taxation efforts. COVID-19 has demonstrated the fragility of the African growth trajectory when a combination of low demand, low prices and limited fiscal space meet any economic storm, even more so with a perfect storm. COVID-19 sends a powerful message to African leaders: they need to adjust to a new normal.
With regard to food security, Africa is home to over 874 million hectares of land suitable for agricultural production. With less than 10% per cent of arable land currently being used for food production, there are windows of opportunities to expand this to increase local production of crops. Only 6% of the arable land in Africa is irrigated, yet the continent has the potential to irrigate nearly 40 million ha (10%), doubling agricultural productivity.
Looking at the potential offered by the establishment of the African Continental Free-Trade Area, the largest such endeavor by a number of countries and populations covered, there is an option to use smart protectionism to boost intra-African value-added tradable products. This is an opportunity to transform, starting with the immediate need for alternative food supplies provoked by the COVID-19 disruption of the existing value and supply chains. Time for love thy neighbor.
Third, the restrictions recently introduced by the US and European countries for exports of vital medicines, reagents, respiratory or personal protective equipment affect African countries heavily. It is a wake-up call to think about how the continent should deal with pharmaceutical regulation, health-related procurement and manufacture of medicines and products in areas that are critical for disease control and protect well-being.
Africa carries 25% of the world’s disease burden but accounts for less than 1% of global health expenditure. It manufactures less than 2% of the medicines it consumes. Over two-thirds of the world’s HIV cases and 93% of the deaths due to malaria currently occur in Africa. In addition, the continent bears 40% of the global deaths of children under five-years old, mainly due to neonatal causes as well as pneumonia, diarrhea, measles, HIV, tuberculosis and malaria. The tragedy is that these diseases are treatable: most related deaths could be prevented with timely access to appropriate and affordable medicines.
Africa’s capacity for pharmaceutical research and development (R&D) and local drug production is amongst the lowest in the world. Overall, 37 African countries have some pharmaceutical production, although only South Africa produces some active pharmaceutical ingredients. Where there is local production in Africa, normally there is a reliance on imported active ingredients. As a result, the supply of African pharmaceuticals remains highly dependent on foreign funding and imports. The production of health equipment and consumables follows a similar pattern.
COVID-19 has demonstrated a hidden capacity to produce masks, tests and other essentials throughout Africa. This capacity should be nurtured. This is the beginning of a shift towards greater reliance on African-produced health products, coupled with investments in R&D.
Fourth, Africa must get readier for the impact of new technologies in the world of work and production systems. After being praised for their leadership in mobile banking transactions, Africans should embrace more ambitious goals. Instead of perceiving technological advancements as threats, Africans can emulate the mobile banking experience to leapfrog infrastructure shortcomings as well as surpass outmoded bureaucratic processes that are hampering entrepreneurship and formalization of the economy. Without more modern forms of economic transaction, it will not be possible to significantly increase fiscal pressure in the continent—currently averaging 17% of GDP, against a world average of 35%. Such low pressure reduces fiscal space and exacerbates various forms of external dependency.
Fortunately, some of the best reformers in the World Bank’s Ease of Doing Business Index are African. The same impetus is needed for innovation. Africa’s industrialization and services transformation depends greatly on the continent’s capacity to tap into its position as the largest reservoir of digital natives. With the youngest population in the world it is in Africa that new technologies have the highest potential to adapt, provided they are not limited to being passive consumers of content and systems but rather participants as well. COVID-19 has contributed to the discovery of this potential. With 53 out of 54 countries closing their school system, countries struggled to not let an entire school year go bust. There is a realization digital platform usage can be accelerated for educational purposes. The same is true for services. Remote forms of work have now become increasingly popular and socially accepted. This is a chance to accelerate transformation and leapfrog.
Fifth, macroeconomic stability rules continue to be challenged across the globe. With the recession or depression distress signals becoming louder the monetarist orthodoxy of Milton Friedman is evaporating fast. The State is back, to salvage the market’s biggest disruption since the Great Depression. However, the small margin of manoeuver resulting from the instability prevailing since the 2008-09 subprime crisis does not allow recourse to the usual recipes. Enormous stimulus packages, shooting debt to GDP ratios way above 100%, deeply negative interest rates or monetized fiscal deficits have become acceptable policy. Economic neoclassical theory is turning on its head.
With stagflation or deflation replacing inflation worries, access to the printing machine is the new normal for those who can afford. With the current way debt is classified and its sustainability framework applied, African countries will never be able to get out of COVID-19’s long-lasting impact. Most of the reforms made in the last two decades in the continent, producing exceptional growth performance for about half of the countries, are seriously compromised. Calls for debt relief—or more timid debt service moratorium—are drops in the ocean. Something much more ambitious and radical should be envisaged. This crisis allows us to think big, and offers Africa an opportunity to exercise agency and embark on a more robust structural transformation process. Building on the gains of the last few years and the resilience of its population, there will probably be no better time to fast-track change.