top of page
Search

Africa - Out of a Pandemic and into Technology


Even now, coming up fast on two years after the COVID-19 virus was first introduced to the world, the globe remains in the pandemic’s grip at least to varying degrees. Add to this the looming threat of climate change, and it becomes patently clear that the international community must vastly improve on their global dialogue and cooperation. Sub-Saharan Africa (SSA) remains the world’s least vaccinated population but has some of the most renewable energy potential, while harboring some of the world’s most critical ecosystems. So, how is it faring and where is it headed?


Positives and Negatives


According to the International Monetary Fund, SSA’s economic forecast for 2021 is set to expand by 3.7%. And, through 2022, will expand further by 3.8%. The region saw a sharp contraction in 2020, although this is hardly a surprise for obvious reasons. However, the pandemic does not appear to have struck the region in the same way as it has many other parts of the world. As shown by Brookings in data taken from Our World in Data in September 2021, SSA accounts for 15% of the world’s population. In contrast, the region accounts for only 3% of the world’s COVID-19 cases and only 3% of COVID-19 deaths. The apparent reason for this is due to either the comparative youthfulness of the area’s wider community and/or the speedy preventative lockdowns that many countries there employed in March 2020. Lockdowns may well have curtailed disease transmission and saved lives, but it has also left a financial legacy that the region must now reconcile. African governments have been forced to increase their debt to offset the support given to teetering businesses, vulnerable groups and infrastructure, and healthcare.


On the whole, SSA has seen an increasing trend in borrowing in recent years. Before the pandemic landed, debt management was already a concern for many countries in the region. Where debt has risen, so too has the expense to service it. But countries within SSA have failed to develop their abilities to finance their fiscal liabilities. Even without the dark cloud of coronavirus waiting in the wings, the anticipated consequences have been the degrading of credit ratings, increasing pressure on reserves of foreign exchange, and the cheapening of the domestic currency. Reputational erosion within the international marketplace is inevitable.




The legacy of coronavirus is both exacerbating, and will likely continue to affect, the region further. Brookings states how SSA has loaded on an extra 4.5% of ‘pandemic debt’ (liability above and beyond projections before COVID-19 infection). Equally, and as shown by Trade for Development News, the flow of global foreign investment waned during the pandemic (at least everywhere other than Asia). Perhaps a happier picture is the fact that SSA realized only a 16% decrease in foreign investment compared to the likes of Europe and Latin America which saw decreases of 80% and 45% respectively.


Agreements in Trade


Before COVID-19, the African region was under an economic revolution. Currently, and discussed in another article by Brookings, the continent is transitioning from colonial demarcations to commercial entrepreneurialism via the African Continental Free Trade Agreement (AfCTA). The divided Africa of old is evolving from a bric-a-brac of scattered economies into a robust and thriving trade market driven by over 1.2 billion people. Now that the pandemic is gradually being beaten back, this year saw the rebooting of the AfCTA.


Delays now firmly in the past, the African Export-Import Bank (Afreximbank) has been working with the African Union (AU) and the AfCTA secretariat to expedite the deployment of the agreement in its entirety. In the last four years, Afreximbank has provided around $20 billion for African trade and is set to double this amount in attempts to close the trade finance gap that exists in the region that is estimated by the International Chamber of Commerce to be somewhere between $110-$120 billion. There are also estimations that the removal of trade tariffs has resulted in the loss of in excess of $4.1 billion in the region in the short term. Afreximbank (with the AU) then, has been working to provide $5 billion of financing in the form of an AfCTA Adjustment Facility – defined as compensation – to assist member countries in adjusting to the impositions of the trade agreement.


The Facility is intended to offset broader short-term monetary losses as well as medium-to-long-term production operations. It is hoped it will put many countries in the region in a position to exploit the anticipated opportunities generated by the trade agreement itself.


Payments


SSA is seeing a surge in the rise of fintechs. The trend is a global one, but the African region seems to have embraced this aspect of the sector in particular. More specifically, the technology in payments is booming, and as pointed out by The Economist, four of the continent’s fintechs have registered billion dollar valuations (and doubled Africa’s ‘unicorn’ number in the process).


These companies include Opay (a mobile payments company), Wave (a mobile money network), Chipper Cash (a peer-to-peer payment platform), and Flutterwave (a platform that simplifies payments for businesses). The African region is an attractive bet for fintech investors since they perceive technological start-ups can pioneer their way through the region’s financial issues with greater affect than existing legacy firms might. Where large swathes of the population of SSA are digitally literate and have ready access to mobile technology, they do not necessarily have banking privileges. They are, as the phrase goes, ‘unbanked’. It is in this sort of lopsided climate that fintechs can make an indelible mark.


In September, the Global Trade Review (GTR) reported how Africa has gone live with its first ever continent-wide digital payments system, called the Pan-African Payment and Settlement System or PAPSS. The system allows for the processing, clearance, and finalization of intra-African trading and commerce.


It is described by GTR as ‘leveraging a multilateral net settlement system’. Previously, intra-African or cross border payments were reliant on a secondary currency, such as the dollar or the euro. This enabled economies and currencies that were at odds with one another to interact more readily, but the disadvantages were higher costs and fees, and longer transaction times. The PAPSS makes it possible for parallel currencies within different markets to transact instantly. In turn, this simplifies the interaction and removes any reliance on hard cash.


Ultimately, GTR indicated that, according to Afreximbank, $5 billion in costs will be saved every year, and growth in trade through the AfCTA will be more quickly realized. Such a system should help introduce a freer flow of information between markets, paint the SSA region as a more attractive place to do business to the global international community, and create new business opportunities, not the least of which will be in the trade finance space.

12 views0 comments

Comments


bottom of page