Africa ‘stuck in mud’ in spite of moving on from Covid-19 shocks

Covid-19 jab

A health worker prepares to administer Covid 19 vaccination in Nairobi on February 3, 2022.

Photo credit: Evans Habil | Nation Media Group

What you need to know:

  • Cost from Covid-19 losses and other recurrent problems likely to shape the future of investments.
  • Governments, like those of Kenya, may pay up to 30 per cent of their revenues to service loans.

Africa may have survived Covid-19 by limiting deaths beyond what was expected.

However, economists say the lasting impact of that pandemic will burden the continent for some time to come, piling on old problems that were already hurting.

This week, experts and government officials are gathering in Nairobi for the Annual Meetings of the African Development Bank (AfDB) to assess how countries can move out of the Covid-19 mud.

In a press briefing ahead of the AGM, which will be held from May 27 to May 31, the bank said discussions this year will not be about emergency funding to reboot countries or shield them from the shocks of Covid-19 as has been the case in the last three years.

Old problems

But officials suggested that the cost from Covid-19 losses and other recurrent problems, such as debt and climate change, will inform the agenda, and possibly the future of investments.

Since it was established 60 years ago, the bank lends exclusively to African countries.

“Africa needs transformation in terms of socioeconomic development… this is still work in progress,” said Vincent Nmehielle, AfDB General Secretary.

"A lot has been achieved but much needs to be done. What is the role of the African Development Bank in that whole transformation process?  [Relevant to that] is the international financial architecture, which was designed mainly to resuscitate Europe after the Second World War,” he added, referring to the post-World War II rescue plan for European countries that had been severely damaged.

Known as the Marshal Plan, the US transferred some $13 billion at the time to targeted recovery programmes for European countries. It worked for them. 

For Africa, it is not that economies haven’t grown. They just haven’t been sustained.

Nmehielle said most economists, including at the bank, now realise that despite sustained economic growth over the past two decades, “Africa’s economic transformation remains a work in progress with a lot more to be done.”

The theme of this year’s meeting is ‘Africa’s Transformation, African Development Bank Group, and Reform of the Global Financial Architecture.’

Insufficient financing

There are also discussions about historical problems, among them the lack of sufficient financing for projects that could raise Africa’s profile.

Most African countries have been forced to borrow externally, at high rates.

Between 2010 and 2022, Africa’s overall external debt rose from 21.2 to 38.6 per cent of their GDP (worth about $3.1 trillion).

Repayments have been about 6 per cent of the GDP, according to AfDB data, rising from 3.5 in 2010. It eats most of the revenues.

Governments like those of Kenya, for instance, may pay up to 30 percent of their revenues to service loans. Africa itself is spending 11.3 per cent of government revenues on servicing loans.

“It has made debt restructuring too complex to achieve, as debt restructuring process remains disorderly, protracted, and costly,” the bank said in a bulletin shared ahead of the meetings this week.

According to the bank, the problem with having expensive access to loans is that emergency funding to deal with problems such as Covid-19 or natural disasters still does not come cheap, or doesn’t come at all.

“It largely skews international emergency financial support in favour of developed countries that least need those resources,” the bank said.

Since last year, the AfDB has been asking to be custodian of Special Drawing Rights (SDR) usually allocated to developed countries but rarely used up.

SDRs are supplementary foreign exchange reserve assets defined and maintained by the International Monetary Fund. As units of accounts, they allow countries to draw some cash equivalents from the Fund for use on, say, emergency programmes such as dealing with Covid-19 shocks.

Of the $650 billion in Special Drawing Rights (SDRs) issued by the International Monetary Fund (IMF), Africa received just $33 billion. And of the $17 trillion spent globally to tackle Covid-19 between 2020 and 2021, Africa accounted for just $89.5 billion, the bank’s Economic Outlook report showed last year.

The bank has asked to be given custody of more SDRs for onward lending to Africa which it says will provide a cushion to African countries. 

The SDG problem

Many of the recent shocks have derailed the journey towards Sustainable Development Goals (SDG). 

The cost of achieving the SDGs by 2030 in Africa is estimated at about $1.3 trillion a year, equivalent to 42 percent of the continent’s GDP. 

By 2030, the gap to financing SDGs could reach $19.5 trillion, owing to population growth. 

Before Covid-19, Africa needed $170 billion annually to build infrastructure. 

Disruptions mean the bill is more now. It will need $213.4 billion to finance climate adaptation, the Bank’s Outlook showed last year.

Same old way

Africa may have had many of its economies among the fastest growing. But their structure has been the same since 2000, where agriculture, industry, and services sectors account for most of the GDP but have still been declining in output.

“As a result, the continent is off track in achieving almost all SDG targets by 2030. Extreme poverty remains the highest in the world (33 per cent) — compounded by both the Covid-19 pandemic and the Russia’s invasion of Ukraine.

“If no action is taken to reverse the poverty curve, close to 9 out of 10 (or 87 per cent) of the world’s extremely poor people will be in Africa by 2034,” the report said. 

Extreme poverty refers to inability of a person to get basic needs such as food, healthcare and shelter.

According to the bank, the first step is to reform the international financial architecture “to facilitate structural transformation and deliver the much-needed resources to finance the SDGs.”