Besides addressing the daunting emergency health needs caused by the COVID-19 pandemic, governments are also taking economic responses to address the socio-economic impacts of the outbreak. Governments have announced the revision of the 2020 budget, prioritizing spending and diverting resources to the health sector. the fiscal space is further constrained by the fall of revenues because of economic contraction, lower commodity prices, capital outflows, lesser remittances, etc. Only Cameroon decided to maintain the level of investment envisaged in the 2020 budget to protect growth and Tunisia endeavoured to create an investment fund. The African economic and social response, which is largely in line with the IMF recommendations, comprises a mix of more than 30 fiscal and monetary measures.
The fiscal measures provide cash and in kind income support and tax relief and subsidies. The monetary measures allow for increased bank liquidity, credit and relief to distressed businesses. With the exception of Algeria, no country has taken measures on only Egypt is targeting exporters. very few countries are using the exchange rate in their economic and monetary response. Morocco has broadened the fluctuation band of its currency. Mozambique has depreciated its currency against the dollar and introduced a foreign currency credit line for institutions participating in the Interbank Foreign Exchange Market. Nigeria has adjusted the official exchange. Zambia has revised the rules governing the operations of the interbank foreign exchange market. Zimbabwe has moved from managed floating exchange rate system to a fixed exchange rate management system.
More than 10 countries African countries have taken measures to encourage e-payments and the use of electronic documents. Such measures include raising the limit for electronic payments via mobile phones, waiving or reducing of charges on digital transactions through commercial banks, mobile banking and e-currency. Cameroon is encouraging the use of electronic communications and digital tools for meetings of more than 10 persons. The Central Bank of West African States (BCEAO) decided to conduct negotiations with electronic money issuing companies in order to reduce transaction costs and encourage people to make greater use of digital means of payment.
History tells us that emergency aid is mostly inefficient and may have negative side-effects. It seems that, all in all, African countries are not seizing the opportunity presented by the COVID-19 pandemic to adapt their social and economic development model. The same support measures taken separately are just band-aid solutions, but framed in a medium to long-term development vision, they can contribute to the economic and social transformation of Africa. This is particularly the case for formalizing the economy, social protection systems and value chain development. It does not take much to see the nexus between these areas!
Understandably, African countries cannot maintain a growth policy amid the current international environment and the pandemic, but it is unwise not fight the huge capital outflows, large reduction in foreign direct investments, plummeting remittances and fall in export revenues. It is not wise not to begin turning around the structural problems, such as the significant decline in returns on investment and overall productivity. It is not wise to rely on unsustainable foreign aid and commercial borrowing. Yet, the use of the exchange rate to discourage imports, realign relative prices, encourage capital inflows – notably remittances – and incentivize exports to the extent possible.
Côte d’Ivoire is the only African country that has decided to support public entities in the transport and port sectors to ensure continuity in supply chains. Burkina Faso sought to secure adequate stocks of consumer products and to strengthen surveillance of prices. Botswana seeks to build up fuel and grain reserves, medical equipment and to improve water supply. Mali wants to replenish the national food security stock. Apart from these intentions to secure supply chains, Africa is missing an opportunity to leverage the African Continental Free Trade Area (AfCFTA), coordinate response efforts and secure and promote regional value chains.