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Long-term Africa business risks compounded by Covid-19, but new opportunities exist

27th May 2021

By: Schalk Burger

Creamer Media Senior Deputy Editor

     

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Africa faces a host of problems that carry risks for businesses during this year and into the medium-term.

These include debt, healthcare, dependence on commodities and digital access challenges, and have been compounded by the Covid-19 pandemic.

However, commodities are expected to provide a short-term boost before prices moderate and, if digital access gaps can be closed, digital education can help to develop skills, while the Africa Continental Free Trade Area (AfCFTA) could provide sustained growth and contribute to the growth of new industries.

These were some of the views expressed during a 'What the future holds for businesses in Africa' webinar presented by financial services multinational Alexander Forbes chief economist Isaah Mhlanga and Alexander Forbes multinational consulting executive Craig Bentley this week.

Mhlanga, in setting the expected economic context for the next few years in Africa, said the continent significantly lagged behind its global counterparts in terms of Covid-19 vaccination rates.

However, non-vaccine methods of reducing spread and infections are well embedded and adhered to in most economies, he stated.

"This matters a lot for how the economy unfolds into the future. Health policies on Covid-19 are tending to become economic policies, as economic policy depends on how the pandemic is managed, which will also determine the transition of economies from Covid-19 to post-pandemic."

The continent's economies remain reliant on commodities, and coal and oil prices declined significantly during the pandemic, but iron-ore and precious metals prices rose. The expectations for the short term are that almost every commodity's price will improve, except for gold, which could see a decline this year.

"A lot of African countries export commodities and stand to gain significantly this year. However, beyond 2022, the growth rates of all commodity prices are expected to remain relatively flat."

Additionally, remittance and foreign direct investment (FDI) flows into the continent have moderated.

FDI flows have been moderating since the end of the 2008/9 global financial crisis and only Central Africa has seen a recovery in FDI, largely linked to commodity exports and trade.

With the collapse in commodity prices, FDI declined significantly and, while it is expected to recover moderately, it is not expected to be sustained.

Countries can expect to benefit from one to two years of commodity exports, but, beyond that, the expected flat growth of commodity prices means there is a need to reform and diversify away from commodities to ensure the continent can cushion itself from a potential decline in commodity prices, said Mhlanga.

Further, unsustainable debt-to-gross domestic product ratios are a cause for concern, especially when debt reprieves during the Covid-19 period end. The impacts of the pandemic will persist into the continent's post-pandemic economy, while debt will slow economic recovery.

However, AfCFTA can potentially reduce intra-African trade tariffs by up to 90%, which will benefit the agriculture and food, petrochemicals products, metals, transportation and equipment and machinery sectors.

Expectations are that global trade costs will reduce by 10%, potentially providing a further boost to these sectors, said Mhlanga.

However, Africa has limited manufacturing capacity, as evidenced by the lack of vaccine production on the continent, and does not have a proper base from which to enable the export of manufactured products.

Nevertheless, as Africa builds its manufacturing base, it will get significant benefit from AfCFTA.

Bentley, meanwhile, highlighted the increased use and importance of digital technologies and the impact of digital inequality.

These have the potential, over the short term, to disrupt industries and impact on employment and youth. Given the continent's young population, digital inequality is significant and a concern that can contribute to economic stagnation, if not addressed, and carries health implications, he noted.

The level of access to the Internet at homes in Africa is about 28% in urban areas, but well below the global average of 57.4%. However, mobile penetration is much higher and is the main means of accessing the Internet.

The percentage of Africa's population that has third-generation (3G) or better mobile connectivity rose dramatically over the past six years, from 51% to 77.4%, but this still lags global averages, where 93.1% of people have 3G or better coverage.

"This essentially indicates that about 23% of the population in Africa does not have access to broadband networks. While the rollout of 4G grew by 21% in 2020, this highlights the significant risks for the continent and particularly youth employment. Companies will be looking for new skills to adopt and are facing an evolving work environment and world of work," said Bentley.

Surveys indicate that about 40% of the young population between 15 and 24 years old regularly use the Internet, below the 69% average for youth worldwide, which points to challenges for learning and working remotely in Africa, as well as challenges for multinational companies on the continent.

The importance and priority of digital education and progression must be at the forefront of companies and countries' agendas. If not, the continent will be left behind as the rest of the world moves on, he said.

Edited by Chanel de Bruyn
Creamer Media Senior Deputy Editor Online

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