Africa’s first recession in 25 years seen on back of COVID-19, but offers investor opportunities

Charles Abuede

Risks experts say 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.

Jacques Nel, head of Africa Macro, NKC African Economics, revealed during the launch of the fifth edition of the Africa Risk-Reward Index held via zoom, that for many African economies, economic recovery will have to be driven by their private sectors, which were already weak and have only become weaker during the pandemic.

At the event monitored by Business A.M. and tagged “Reshaping realities:  Africa’s post-pandemic recovery is likely to be prolonged and uneven, but could also be transformative”, Jacques, who spoke on the impact of the pandemic and the outlook for Africa’s recovery, disclosed that African governments, though faced with a volatile landscape, have a pressing need to develop downstream manufacturing, regional supply chains and domestic capital markets, as there are indications that large portions of the workforce are entering the formal economy to access government financial support and cope with pandemic containment measures.

“The economic impact of COVID-19 will be varied but the recovery will be even more so. 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,” Jacques said.

Similarly, Vincent Rouget, associate director at Control Risk, one of the panellists, posited that the COVID-19 pandemic has undoubtedly eroded the overall improvement in risk-reward scores seen across the African continent in recent years, but this should not deter investors. Africa’s recovery may be prolonged and uneven, but it could also be transformative.

“The COVID-19 pandemic is a global crisis, but Africa’s recovery will be slower and more uneven than most. However, this recovery will be an opportunity for governments across the continent to address structural constraints and promote new solutions. We are already seeing signs that they are doing so, and for investors, this opens up some interesting opportunities.”

According to Rouget, the pandemic’s huge economic cost has triggered a universal drop in our reward scores, but the impact on risk scores have been more varied, asserting that Ethiopia has seen the largest ratings drop as COVID-19-induced challenges combine with escalating ethnic tensions in the context of a delayed election. 

Also, 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. 

For Patricia Rodrigues, a Control Risks analyst based in the company’s Nairobi office, who spoke on “Hostile Narratives: Reputation and African geopolitics in the age of influence operations,” said Africa has always struggled to set its own narrative and get past generalisations that cast the entire continent as beyond redemption or the next economic powerhouse. This struggle is becoming more acute as internal and external actors actively push false narratives, through influence operations and disinformation campaigns.

According to Patricia, “Foreign investment is frequently the subject of political debate in African countries, and when that debate is distorted by external actors, individual companies face significant reputational risks. Not only that, but disinformation campaigns have been used by militant groups for recruitment and to cause peaceful protests to escalate into violence, and posing security threats to commercial operations.”

According to her, the risk posed by influence operations in Africa should not be overstated, though the trend is growing as social media is adopted more widely across the continent.

“Just as grasping the political and business landscape can help investors avoid pitfalls and maximise their chances of success, understanding the information landscape – what the narrative is and who is seeking to influence it – will become increasingly important,” he said.