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As the global pandemic spreads, Africa faces its own set of challenges 

The effects of the coronavirus (COVID-19) pandemic are proving devastating for many countries around the world, but Africa is facing very specific economic and healthcare constraints. 

In mid-June, the number of COVID-19 cases in Africa exceeded 240,000, with fears that this figure was accelerating. So far, the areas hardest hit by the virus have been in North Africa and the country of South Africa but it is unclear why this is the case, and whether it will remain so. 

Experts have predicted Sub-Saharan Africa will experience its first recession in 25 years

Many of the challenges faced by African nations are the same as those faced by other countries. After all, saving lives while preventing devastating damage to the economy in light of measures intended to limit the spread of the virus, such as full lockdown, is something a great number of the world’s leaders are grappling with. 

But there are major differences to consider; the main challenge may be the same, but the context is very different, even when comparing Africa with other emerging economies. 

Healthcare challenges

Despite recent economic growth, a large proportion of Africa’s population still lives in poverty and healthcare systems are generally ill-equipped and easily overwhelmed, particularly as many of them are already fighting other serious illnesses, including HIV, Ebola, malaria and tuberculosis. 

Worryingly, in some countries, a portion of the population relies on informal healthcare providers, most of which are incapable of responding to a pandemic. Poverty levels also mean more people are suffering from comorbidity factors with COVID19, including diabetes and high blood pressure. 

Healthcare systems are generally ill-equipped and easily overwhelmed

Through all this, developing economies are competing with the developed world for essential medical resources, such as ventilators and personal protective equipment (PPE). Mass testing and case-tracing, which many argue is necessary to ease lockdowns, is also challenging in some African countries due to low-testing capacity.

Economic challenges 

In addition to the numerous health challenges, Africa also faces serious economic hurdles. 

The weight of the informal economy is a major concern. A total of 42 per cent of African citizens rely on the informal sector for their daily income and this has been squeezed during the pandemic, owing to limited working hours and restrictions on movement. 

On top of which some of the sectors that have boosted growth in recent years, including tourism and exports, have been heavily impacted by the pandemic, with new trade agreements between Africa and Europe now on hold.  

A total of 42 per cent of African citizens rely on the informal sector for their daily income

Meanwhile, rising unemployment in developed countries has left many African migrants out of work and unable to send as much money to their families at home. In 2020, the amount of money being transferred to Sub-Saharan Africa by migrants in the developed world is expected to drop by more than 20 per cent. 

Experts from the World Bank predict the region will experience its first recession in 25 years. One of the knock-on effects of this will be people with very low incomes significantly reducing their consumption, including of agricultural products – often produced by other low-income workers. As a result, the estimated economic and social impacts are immense, with the situation expected to cost the region up to $80 billion in estimated output losses in 2020 alone.

Resilience, experience and innovation

Despite all these constraints, the story of coronavirus in Africa is, so far, a positive and hopeful one, especially when we compare it to the current situation on the American continent. The reasons for this positive response are not obvious. But unlike many other parts of the world, Africa frequently faces public health challenges and has learnt how to deal with them. Extreme economic distress, as well as extreme political uncertainty, are also not unprecedented situations.

The fact that African countries were the last to be hit also bought them some time to prepare, with most nations taking the threat very seriously. Mozambique, for example, started preparing for COVID-19 in January, as soon as the World Health Organization launched the alert. Over the years they have built up extensive experience in health screening and contact tracing. Their health systems may be limited but they are also resilient.

Resource constraints can also foster creativity and innovation to help overcome these challenges. Ghana has been using an innovative technique that consists of “pool testing”, in which multiple blood samples are tested and then followed up as individual tests only if a positive result is found. Meanwhile, Senegal – in collaboration with a UK-based company – is developing a COVID-19 testing kit that costs about $1 per patient. 

Africa frequently faces public health challenges and has learnt how to deal with them

From an economic standpoint, most African countries have implemented stimulus packages aimed at encouraging low-income households to continue to consume. Esther Duflo, the recent Nobel laureate in economics, has argued that this can only be assured through direct cash transfers to individuals. Although businesses in developing economies are certainly struggling to survive, the measures that have been used across the developed world in order to protect jobs would be insufficient in developing countries given the weight of the informal economy.

Taking all of this into account, while there are challenges ahead, many African nations are well-versed in resilience and strength in the face of extreme adversity. With that in mind, there is good reason to be hopeful that the continent will weather this storm as well, or perhaps even better than more developed parts of the world.

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Claudia_Custodio

About Cláudia Custódio

Associate Professor of Finance
Cláudia Custódio is a Professor of Finance at Imperial College Business School, London. Previously she was an Assistant Professor at Nova School of Business and Economics in Lisbon and Assistant Professor at Arizona State University.

Cláudia Custódio received her B.A. in Management in 2002 and a Masters in Finance in 2004 from ISCTE Business School in Lisbon, Portugal. In 2010 she received her Ph.D. from the London School of Economics and Political Science. At the London School of Economics she was affiliated to the Financial Markets Group, where she is now a research associate. Previously she has worked in financial auditing and management consulting.

Custódio’s research interests are mainly in corporate finance, including corporate diversification, mergers and acquisitions, capital structure and risk management.

She has taught corporate finance at the undergraduate and graduate levels in Portugal, Mozambique, the UK and the US. She is also the co-author of a Corporate Finance text book in Portuguese, “Finanças da Empresa”, which is the best seller book in this topic in Portugal since 2007.

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