Agile policy shifts will drive Africa’s recovery
The World Bank believes that Africa’s road to economic recovery must be paved with sound economic policies, and that African countries need to reconstitute their fiscal space to finance programmes that can stimulate recovery, improve debt management and fight corruption.
However, the most crucial measure of African countries’ economic recovery will depend on how fast they can prioritise policy actions and investment that address the dual challenges of extreme unemployment and inequality.
These assertions are contained in the World Bank’s Africa’s Pulse: Charting the Road to Recovery report, which was released on Thursday and looks at the impact of the Covid-19 pandemic on the continent’s economies. The report also makes recommendations for how African countries can move towards recovery, both individually and collectively.
World Bank chief economist for the African region, Dr Albert Zeufack, said the Covid-19 pandemic had exposed acute macroeconomic vulnerabilities across the continent. He said most countries would emerge from the crisis with historically large budget deficits.
“Fiscal deficits in the region will widen by 3.5 percentage points of GDP in 2020. Debt burdens will be heavier. The risk of debt default has started to materialise for some countries in the region. Declines in export revenues, including from international tourism, have compounded the domestic impact of the Covid-19 shock in most countries,” said Zeufack.
He added that reductions in remittance flows, the slowdown in foreign direct investment and declining private capital flows had also tightened external constraints, leaving countries in the region with daunting debt challenges.
According to the World Bank, sub-Saharan Africa needs sound policies to lead the recovery. The report includes the “jobs and economic transformation agenda”, which provides a policy framework for the region to implement structural reforms, diversify trade, boost investments in non-resource-based sectors and accelerate digitisation.
Zeufack said South Africa was implementing the structural reform agenda.
“The recently announced sweeping reforms to address energy shortages and reduce the country’s dependence on the state public utility, Eskom, is one such reform.
“Private companies have been invited to submit bids to supply additional renewable energy, municipalities can directly procure electricity from private-sector renewable energy producers and businesses are allowed to produce electricity for their own use, thus ending the Eskom single-buyer model,” said Zeufack.
The World Bank report states that jobs and economic transformation are key to sustained, inclusive and resilient growth.
To achieve this, African countries’ policy priorities need to operate through three critical and interrelated channels – digital transformation, sectoral reallocation and spatial integration.
According to the report, African countries must expand digital infrastructure and make connectivity affordable, reliable and universal across the continent.
“A shifting of resources towards nontraditional economic sectors with higher productivity, lower volatility and greater value addition, as well as fully leveraging the African Continental Free Trade Area agreement, will be equally critical,” said Zeufack.
He said the fostering and reallocation of resources from less to more efficient jobcreating locations through enhanced ruralurban and inland-coastal connectivity would be key to economic transformation.
He added that African countries needed a regulatory environment so that they could provide the right incentives for fast digital technology adoption.
“More competition among mobile operators (including actions to attain universal, affordable access to high-quality communications services), support of critical services and high network resilience – cybersecurity – are critical. Digital skills, which rest on foundational human capital, are linked to better opportunities and will be crucial to prevent the exclusion of already marginalised segments of the population from the benefits of connectivity,” said Zeufack.