Why Africa's COVID-19 economic response is lethargic

The COVID-19 pandemic has generated dialogue on economic instability and reveals the need for prepared institutions and timely policy responses. This is evidenced in the economic strategies for exiting the COVID-19 crisis that countries have embarked upon from 2020 till date. The World Bank’s baseline forecasts for 2020 envisioned an average contraction of 5.2% in global GDP [1]. The message was that the global economy was going to be hit hard and it was necessary to plan and implement economic measures quickly for a resilient recovery. While COVID-19 economic stimulus plans were similar globally, and were directed to those disproportionately affected by the pandemic, implementation across the world was, however, shockingly different. Economic responses to the pandemic in Africa have been, to an extent, ineffective. This is due to the approach and the implementation strategies adopted in various African countries.

The Coronavirus outbreak was declared a global pandemic by the World Health Organization (WHO) on March 11, 2021 and the rapid evolution of the virus saw policymakers scrambling to prepare appropriate macroeconomic policy responses. The pandemic led to declining consumer demand, supply chain disruptions, business closures and staff layoffs. In response, advanced economies announced support for businesses, households, and other vulnerable groups. African countries also came on board, with massive announcements of economic stimulus programs.

In responding to COVID-19's economic effects, developed countries announced various economic measures. In Canada, the Prime Minister announced a CAD $435.2 billion (19.7% of GDP) economic stabilization plan 7 days after COVID-19 was declared a global outbreak, on March 18, 2020 [2, 4]. On March 19, 2020, the “Coronavirus Aid, Relief, and Economic Security Act” or the “CARES Act” was tabled in the US Senate with an estimated US $2.3 trillion in planned spending (around 11% of GDP). The Australian government unveiled a series of economic and health packages, amounting to AUS $217.1 billion (11% of GDP) in March 2020. Germany also announced over €284.4 billion to address Covid-19 impacts (almost 15% of GDP) [3].

Similarly in Africa, the Namibian government launched an economic stimulus plan of 8 billion Namibian Dollars (4.25% of GDP), on April 1, 2020. The Nigerian House of Representatives passed a bill ‘the Emergency Economic Stimulus Bill’ on 24 March 2020 (N500 billion, 0.3% of GDP COVID-19 intervention fund). Ethiopia responded in March 2020 with stimulus packages of Br 5 billion (US $154 million or 0.15% of GDP), while Morocco announced in July 2020, stimulus packages of US $12 billion [4].

Overall, economic stimulus plans were announced in both developed and developing countries. However, the Approach, Institutions and Information, required to implement, differed.

Approach

While advanced countries' economic stimulus plans involved coordinated approaches from the lowest levels of governance up to the national level, with a huge focus on post-pandemic recovery, African countries were more idealistic and less concerned about post-pandemic recovery. A top-bottom approach centered on the national government dominated responses in Africa. Hence, most plans lacked sufficient detail, and were not realistic in incorporating current economic actualities on the continent.

The focus of interventions in Africa were on immediate relief and supplementary resources for sustenance. The term “palliative” became widely used to signify efforts to cushion the effect of COVID-19 on households through the distribution of food packages and household items. In Ethiopia, the initial Br 5 billion announced by the government lacked detail on the approach the assistance would take while Nigeria’s approach was to distribute food and financial payouts to her population. On the contrary, advanced countries like Canada planned for economic recovery not targeted at the pandemic alone but bracing Canada to ‘build back better’. Likewise, Germany focused on business recovery, venture capital financing and almost half of the €284.4 billion economic stimulus rolled out was for businesses affected by COVID-19 through the Economic Stabilization Fund (‘WSF’).

Many African countries' plans were reactionary, donor-centered and debt dependent. Niger’s COVID-19 response plan was presented to donors at a cost of 18.4% of GDP. Germany came to Namibia's rescue with over 70 tonnes of medical supplies, and other development partners were at the forefront of raising the N$8billion COVID-19 stimulus package in Namibia [5]. The Nigerian government initially waited on development partners like the EU, IMF, ADB and World Bank. Then roused ‘wealthy’ individuals, private banks and businesses to come up with millions of Naira to support the economic stimulus plan. Nigeria’s debt accumulation spree started with US$4.34 billion from the domestic stock market to finance emergency support without thinking of the impact of increased debt stock post-pandemic [6, 7] . The approach by African governments was to leave the economic fate of Africa in the hands of the rest of the world, without preparing for how the decisions during the pandemic painted the economic scene for post-pandemic recovery.

Institutions

Before a national plan is made, ideally, the state of institutions to facilitate implementation is considered. Interventions in advanced countries were built on existing socio-economic infrastructure and institutions. In Africa, though more than 45 countries on the continent have some social transfer program, such systems only account for a small portion of the population [8].

For cash transfer payments for instance, a social protection system and revenue agency are necessary. Canada’s integrated tax system became the bedrock for fiscal spending targeted at the populace. The Canadian Revenue Agency (CRA) was responsible for administering benefits and this went hand in hand with an efficient welfare system. Though South Africa can boast of an above average social protection system and a digitalized revenue agency in Africa, the country still met significant roadblocks in the implementation of COVID-19 economic stimulus/transfers. Transfers to South Africans were routed through the South African Social Security Agency (SASSA) and the South African Post Office (SAPO), both of which are well established institutions for delivering social protection in South Africa. However, challenges involved lack of sufficient payment points for eligible beneficiaries. Crowd control at payment points and the verification of eligibility slowed the transfer process [9].

In Nigeria, the federal government announced a staff retention tax rebate to organizations who retained staff between 1 March and 31 December 2020. This was to be administered by the Federal Internal Revenue Service (FIRS). Asides, the limited institutional capacity of FIRS, one might question why personal income tax paid by employees of businesses instead of salaries paid directly by businesses to their employees formed the basis of calculating rebates [10]. This meant SMEs whose employees are not registered on the FIRS database (which in the Nigerian context would be quite a large percentage) could not access this support.

Data and information

Lastly, a non-existent or non-functional information system plagued the implementation of COVID-19 economic stimulus in Africa. Developed countries benefited from having robust national information management systems and an integrated banking system. Only a few African countries can boast of a national identification system. In developed countries, plans were data-driven, eligibility for relief was tied to a social insurance number and associated tax records, and payment went directly to the associated bank account due to the integrated banking system. On the contrary, though Nigeria announced cash transfers to poor and vulnerable households registered in the National Social Register (NSR), as at 2020, the NSR had 2.6 million households registered (11 million individuals). To put this in context, Nigeria, a country made up of close to 200 million people, had only 0.055% able to access support through the NSR. This also applies in estimating the proportion of vulnerable Africans who were effectively denied access to COVID-19 support due to their lack of access to a bank account.

Conclusion

The COVID-19 pandemic has shown that innovativeness and thoughtfulness in policy design and implementation are necessary. The fact that most African countries had low COVID-19 infection rates masked some economic effects (Of the top 50 countries in the world with the highest COVID-19 infection rates, only two-South Africa and Morocco are African) [11]. Thus, while Africans rejoiced that COVID-19's health impact was minimal compared to other regions, the continent's economy was left unattended to. Little or nothing is done to hold African governments to account on the state of fiscal policy, which they had announced with much aplomb, and the implementation of the promised support for businesses, and vulnerable households.

As the pandemic progresses, the score cards would roll in. The realization would be that countries who had realistic, coordinated, well planned institutional mechanisms and implementation strategies would have a smoother and less chaotic exit from the pandemic. The question remains whether African countries will catch up and be counted among the success stories.

References

1. https://www.worldbank.org/en/news/feature/2020/06/08/the-global-economic-outlook-during-the-covid-19-pandemic-a-changed-world

2. https://www.canada.ca/en/department-finance/economic-response-plan.html

3. https://www.bruegel.org/publications/datasets/covid-national-dataset/#italy

4. https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19#C

5. https://www.ey.com/en_gl/tax-alerts/namibia-announces-economic-stimulus-and-relief-package-to-mitigate-impact-of-covid-19

6. https://centerforpolicyimpact.org/wp-content/uploads/sites/18/2020/06/Nigeria-National-Response-to-COVID19_FINAL-2.pdf

7. https://centerforpolicyimpact.org/wp-content/uploads/sites/18/2020/06/Nigeria-National-Response-to-COVID19_FINAL-2.pdf

8. https://blogs.worldbank.org/africacan/covid-19-africa-how-can-social-safety-nets-help-mitigate-social-and-economic-impacts

9. https://thedocs.worldbank.org/en/doc/268331597030696577-0090022020/original/WorldBankG2PxCOVID19SouthAfrica.pdf

10. https://www2.deloitte.com/content/dam/Deloitte/ng/Documents/tax/ng-COVID-19-economic-tax-and-other-fiscal-stimulus-measures-in-Nigeria-22042020.pdf

11. https://www.worldometers.info/coronavirus/

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Author's bio

Oluwatobi Ogundele's economics experience and interests have been in the areas of competition law and policy, health and migration. She has masters degrees in Economics and in International Public Policy with specialization in International Economic Relations and Global Governance.