Ten Africa’s soft spots most ravaged by pandemic
Tuesday, April 20th, 2021
The effect of the pandemic on the health sector is fragile in most low- and middle-income countries mirrors its consequences.
Private health firms have experienced reduced demand during the pandemic, difficulty in accessing personal protective equipment and other essentials, and a lack of public sector contracting to the private sector for Covid-19 treatment and diagnosis.
Despite calls to increase health system capacity globally, measures intended to flatten the growth curve of Covid-19 cases are decreasing demand for care, resulting in revenue losses for private healthcare providers and forcing them to scale back business and lay off workers.
The financial sector has taken a hit across most fragile economies, with an expected surge in non-performing loans.
Declines in loan demand and individual incomes are resulting in shocks in the financial system, including ballooning nonperforming loans, insolvency filings, asset fire sales, and unnecessary liquidations.
In housing finance, the loss of income will increase bad debts, reduce capital ratios, put pressure on secondary mortgage markets, and create liquidity challenges.
As capital markets are heavily impacted by Covid-19-induced global systemic shock, SMEs and firms with significant debt in foreign currencies are highly vulnerable.
The pandemic is affecting infrastructure sectors in fragile economies through two main channels.
Shocks to supply and demand for infrastructure services and spill over effects.
Covid-19 containment measures are contributing to lower demand for most infrastructure services, causing revenue losses for infrastructure utilities and risks to short- and medium term business continuity.
Global demand for electricity is projected to contract by five per cent in 2020. At the same time, several power distribution companies are halting payments to power producers.
Infrastructure utilities have prioritized operational and emergency response expenditures ahead of maintenance and capital expenditures to ensure continuity of supply.
4 Food security and agribusiness:
Fragile economies are among the most dependent on imports for basic food security, so they are particularly susceptible to food shortages, resulting from price and supply chains distortions.
The agribusiness sector has experienced increased supply chain disruptions with growing concern for smallholder farmers and access to inputs for upcoming seasons.
Informal jobs are highly prevalent in agriculture, and such jobs tend to be the most vulnerable to loss of employment and/or unsafe conditions.
5 Imports and exports:
The pandemic is expected to cause major disruptions to imports and exports affecting many firms and their employees.
According to a joint World Bank/IFC/United Nations Industrial Development Organisation survey of Somali enterprise for example, 71 per cent of firms experienced disruptions to their supply chains.
Small, informal firms are most vulnerable and have limited access to resources to mitigate the impacts of the crisis.
As a result, impacts on employment, both formal and informal, are expected to be severe.
6 Private equity:
Foreign direct investment (FDI) in the most vulnerable countries (mostly Africa) represents just 1 per cent of global FDI flows.
Where opportunities are already scarce, the pandemic is expected to slow private equity (PE) transaction volumes as capital will be deployed more slowly and prudently.
In a tighter lending environment, like this moment of Covid-19, private equity firms operate with a more conservative capital structure and reduce leverage.
The ability of the funds market to withstand the current economic crisis and the prospect of capital outflows remain largely untested in fragile countries.
7 Information technology and digital services:
The Covid-19 crisis highlights the important role that digital connectivity can play in building resilient companies and societies.
According to Bretton Woods institutions, digital transformation in Africa could add two percentage points to annual growth and reduce continent wide poverty by one percentage point.
But in fragile and conflict situation, the lack of digital infrastructure impacts the private sector’s ability to develop rapid solutions to meet growing demand by the quarantined populace.
8 Impact on employment:
As cases of infection increases, so does economic and social stress, however, restricted movement is impacting badly on women and girls who generally earn less, save less, and hold insecure jobs or live close to poverty, all of which increase their financial dependence on men.
Informal workers, most of whom are women and lack access to credit and social safety nets, account for more than two-thirds of the workforce in developing countries at least over 90 per cent in sub-Saharan Africa.
This as gender-based violence is increasing. Many women are being forced to quarantine at home with their abusers while services to support survivors are being disrupted or made inaccessible.
9 Socio-economic impact on vulnerable countries:
The confluence of the pandemic amid weak state capacities, a strained social contract, active conflict means the pandemic risks deepening societal tensions and inequality with relation to these groups.
In Cameroon, for example, a breakdown of inter-community trust is resulting in an increase in attacks on citizens suspected of carrying the Covid virus.
Somalia, Sudan, and the DRC — host a combined 17.3 million internally displaced persons.
10 Security and politics:
Security and political dynamics are volatile in fragile economies, with increased risk of instability.
What’s more, the interaction of Covid-19 and violent conflict could negatively impact private sector operations in fragile nations.
Under the impact of a combination of crashing global energy prices and imposition of Covid-19-related work and travel restrictions affecting personnel and supplies, energy projects in the region are experiencing huge delays.