By: K.Y. Amoako
While the pandemic has not hit Africa as hard as Asia, Europe, and parts of the Americas from a health perspective, it continues to severely strain African economies, threatening to undermine decades of progress and jeopardize long-term goals, including economic transformation. For the first time after 25 years of continuous economic growth, the continent is facing a recession, with a possible decline of GDP of between -1.6 percent and -3.4 percent, per the African Development Bank. Some of the more severe projections forecast a possible job loss of up to 50 percent and a 20 to 30 percent decline in government revenues due to collapsing demand for commodities, massive currency devaluations, and a drop in foreign direct investment and remittances.
To ensure Africa’s transformation agenda is not permanently derailed, African governments and their development partners must leverage the urgency of the COVID-19 crisis to make meaningful policy changes that will not only help in the short term but also strengthen Africa’s long-term recovery efforts.
To that effect, the African Center for Economic Transformation (ACET) published a policy brief in June 2020 highlighting key transformative policy priorities for Africa in the aftermath of the pandemic. These actions are not necessarily new recommendations; in many cases, they are ones that needed to be taken well before the current crisis. But if pursued now, they can act as economic “rebound” measures that will help position countries for a more rapid and sustainable period of growth in the years ahead.
For example, creating fiscal space through efficient resource mobilization and management is critical to allow for an adequate COVID-19 health and economic response. With the collapse of industry in most countries and the extra burden of tax forgiveness related to COVID-19 response packages, revenue generation will become significantly more difficult. Governments should move swiftly to close tax loopholes and eliminate exemptions and concessions, particularly for global corporates and wealthy individuals. This would include taking steps to prevent tax-base erosion and profit shifting by companies from one jurisdiction to another. Complementing this could be medium-term measures to increase tax revenues by simplifying VAT policy, extending tax collection to the informal sector, and improving enforcement and collections through credible inspections and professional audits.
On the expenditure and governance side, increasing transparency and efficiency will help ensure COVID-19 emergency packages are well-governed and effective. COVID-19 recovery plans should focus on eliminating overlapping government initiatives, streamlining implementation, and addressing bureaucratic bloat. It is critical to improve budget management by line ministries, with special attention to waste and fraud. This would include vigorous vetting of government projects based on sound economic, technical, and financial criteria. The capacity of the auditor general should be strengthened for rapid and robust audits and reviews. Where applicable, results-based budgeting should be introduced. Lastly, this is an opportunity to re-examine national development strategies and ensure that they have adequate financing to serve as implementable roadmaps to economic recovery.
Lastly, this is an opportunity to re-examine national development strategies and ensure that they have adequate financing to serve as implementable roadmaps to economic recovery.
A sustainable post-pandemic recovery will not be possible without improving the business and investment environment in Africa. To sustain the business sector, for example, some African governments are instituting new policies related to taxes, labor, access to credit, and debt services. In most countries, these actions include support to businesses and individuals as a response to temporary job cuts. Moving beyond the short-term, extraordinary efforts should be taken now to pave the way for easy and rapid private sector activity, including the establishment of new firms, corporate expansion, and improved company registration and taxation policy.
According to Doing Business 2020, Sub-Saharan African economies raised their average ease of doing business score by just 1 percentage point in the last year; such an entrepreneurial environment will not enable businesses to grow and thrive—or create much-needed jobs. Governments must also move quickly to foster investment in key sectors after the crisis, particularly in infrastructure and manufacturing. This coupled with improving the ease of doing business can help Africa tap into a very large latent capital base looking for bankable projects globally, despite the crisis.
Long-term economic recovery and growth in Africa require accelerating digital economies and fostering broad innovation. In seeking investments, African governments should actively encourage venture capital funding to encourage entrepreneurship and advances in technology and innovation. African digital startups mobilized a mere $1.1 billion in funding in 2018, compared to $7 billion in India and $70 billion in China. Crowding in more venture capital will help African countries spur business and economic activity, especially in technology. Countries should also prioritize a more robust and interconnected innovation ecosystem between entrepreneurs and tech hubs, funders and development partners, and policymakers and other government actors. These efforts to drive innovation and entrepreneurship would be served well by a comprehensive national innovation policy that aligns with national development priorities and highlights sectors that will support job creation.
Lastly, these or any policy initiatives will only go as far as country leaders are willing to take them. COVID-19 has created deep and potentially catastrophic economic challenges across the continent, and the implementation of the type of measures outlined here will require sometimes painful trade-offs for policymakers. In that context, transformative political leadership—having clarity of vision, governing selflessly, building trust among citizens, maintaining political will—is going to be more important than ever. To their credit, many African leaders and heads of state reacted swiftly to contain the spread of the pandemic and save lives. They must show the same fortitude to save economies and ensure the eventual success of Africa’s transformation agenda.