Africa’s economy was one of the hardest hit during the COVID-19 pandemic. This was however, precedented by certain regional challenges, from the locust plague in parts of East Africa, to the crash in oil price that affected oil-rich nations like Nigeria.
For East Africa, the period saw the biggest economic retreat in about seven years. With Africa’s economy falling to a negative for the first time in years, concerns about the continent have shifted from how it will survive the pandemic to how stakeholders can revive and sustain the economy.
This forms the crux of Hogan Lovells Business Leaders Series, with focus on each of the different regions in Africa. Hogan Lovells, a global law firm, champions the discussion examining Africa’s prospects as it strives to recover momentum following recent economic challenges. The series aims to advance resilient sustainable-led growth in Africa by exploring key sectors and industries projected to spearhead the continent’s economic recovery. Core members of the Hogan Lovells Africa practice are leading the discussions, which also features private sector experts and investors across the sub-regions. The ongoing series has to date successfully held the West, East and North Africa editions, and discussed key factors behind the region’s growth prospects before and during the COVID-19 rampage and resulting lockdown. The speakers gave insight into Africa’s economic outlook as they deliberated on the challenges facing the key sectors.
Prior to the pandemic, Africa had a promising economy championed by certain countries on the continent. This positioned Africa as one of the fastest growing economies in the world. According to expert insights shared at the Business Leaders Series, Kenya’s economy was tipped to grow by about 7% in 2020. But like many other countries where growth had been predicted, its economy contracted by about 0.1%. The ripple effect of the pandemic affected the economies of most African states, while some like Nigeria experienced a double whammy situation, in terms of the oil price crash which also affected Algeria and Libya. However, it was not all contraction in the continent. Guinea, for instance, was probably one of the fastest growing economies during the crisis with about 7%, largely inspired by its mining sector. The sector has also been active in Tunisia and Mauritania with smaller mining deals.
Examining the current situation, some African countries have begun to see a brisk recovery. Growth of about 2% is speculated for Nigeria and 4-5% for Senegal. The growth in terms of the macro recovery is dependent on various factors, the most notable being the vaccination programme. Africa has fallen behind the rest of the world in the vaccination race. The concern is that if the vaccine rollout is not sustained, restrictions will be reimposed. Recently, Kenya and Uganda reinstated some lockdown measures, and this implies stop-start in terms of activities and recovery in the region and broader African economy. Kenya, according to the World Bank, have recently secured $130 million for purchasing vaccines.
As the vaccination programme progresses across the continent, private sector development has resumed activity and is tipped to be among the strongest driving forces of Africa’s economic recovery. Recently, the African economy has been championed by private sector investments, thus introducing a new growth model that is more sustainable and equitable. Private sector investments into the technology industries have inspired immense growth, especially in Tunisia and Nigeria. This is also obtainable in other parts of Sub-Sahara where COVID-19 necessitated a paradigm shift with the digital economy in front of it. As such the “new normal” gave investors huge opportunities to invest in the digital space. In North Africa, technology seem to be influencing the economy as it revolutionises other sectors like education and health.
The private sector, however, cannot operate in silos. There is need for the government to support with policies and infrastructure. The recently implemented African Continental Free Trade Area (AfCFTA) will be crucial for boosting private sector investment, driving regional integration, and improving economic recovery in Africa. It will act as a vehicle for structural transformation, spurring intra-regional trade and building continental supply chains. The United Nations Economic Commission for Africa (UNECA) estimates that AfCFTA will boost intra-African trade by 52.3%, after import duties and non-tariff barriers are eliminated. With a successful implementation of this new trade initiative, there is potential for Africa’s manufacturing sector to increase from $500 billion in 2015 to about $1 trillion in 2025. This provides favourable conditions for economic recovery in Africa.
In the same vein, the local manufacturing sector remains a key determinant for strong economic recovery in Africa. This sector is currently championed by small and medium-sized enterprises (SMEs). Ultimately, the SME sector continues to serve as a driver of economic growth and long-term sustainability for emerging markets. According to an SME survey, SMEs account for 91% of businesses in South Africa, 60% of employment, and contribute 52% of total GDP. SMEs also contribute to 48% of national GDP, account for 96% of businesses, and 84% of employment in Nigeria. With this contribution, SMEs in Africa are key players in providing employment opportunities. The challenge, as highlighted in this series, is that about 89% of Sub-Saharan economic activities are in the informal sector.
One important point discussed was that the informal sector should be made formal by ensuring that informal businesses are registered, insured and they pay tax. This is so that in the case of a similar threat like the pandemic, economic activities would not be forced to stop. Due to lockdown measures informal workers faced a sharp drop in income as buyers became scarce. Since informal businesses could not work remotely, the containment measures disproportionately affected labour. And unlike the formal sector, this percentage of the population enjoyed little or no insurance arrangements prior to the pandemic, thereby making them more vulnerable to the outbreak.
The other sectors attracting positive outlook include the project infrastructure space where Arun Velusami, Partner at Hogan Lovells, predicts more mergers and acquisition activities in Nigeria. There is also the reviving oil and gas price and new activities in the sector in Uganda. Just recently, Uganda and Tanzania signed an agreement that will greenlight the construction of a $3.5 billion oil pipeline. This is crucial because of the employment and business opportunity the project is likely to bring. In Ethiopia, there is the new telecoms deal where a foreign entity has been licensed.
In as much as these sectors are important to Africa’s economic recovery, there exist some factors in Africa’s socio-political space that may limit the pace of recovery. In Nigeria, for instance, social unrest and insecurity is of great concern. There is the rising insurgency regarding Boko Haram in the North-Eastern part of the country, as well as skirmishes between the Fulani herdsmen and the settlers in the Middle-belt. Another issue is the death of Chad’s President that has raised concerns about security in West Africa, and particularly the Sahara region. In East Africa, there is the Tigray crisis where residents in the region now face mass starvation. There is a view that the crisis reflects an economy that has been hit hard. These issues might have some setback on the progress of the continent. However, African governments are striving to ensure that these challenges are resolved because it influences the performance of the economy and has a profound impact on the people. If these regions must achieve better economic growth, efforts should be made to find lasting solutions and imbed profitable economic measures.
Speaking on the progress the Hogan Lovells Business Leaders Series has made, Andrew Skipper, Head of Africa Practice at Hogan Lovells, said; ‘‘Hogan Lovells is excited to champion the journey to economic recovery and sustainable growth in Africa. The COVID-19 pandemic continues to impact economies around the world, so it is pertinent that discussions are held, and actions taken to restore Africa’s burgeoning economy. The insights shared from industry leaders have proven that Africa continues to increase its potential for growth. Dialogues like this help to build affinity between private sector leaders and investors while examining growth prospects for Africa.”
The Hogan Lovells Business Leaders Series continues with the Southern Africa event on November 11, 2021. It will welcome private sector leaders operating in tourism, hospitality and FMCG to draw a plan for economic recovery, as well as analyse the services sector in the region. The series emphasises Hogan Lovells’ contribution to Africa, its people and economy. The global law firm has operated across the region for over 40 years and partners with law firms in 50 African countries. Hogan Lovells remains committed to understanding, operating in, investing in, and respecting the continent.