As recovery from the economic fallout of the pandemic occurs, richer countries appear to be progressing faster than poorer ones–many of them in Africa, where 60 percent of the world’s poor live.
Asia, notably China, is leading the global recovery, followed by the United States and other advanced economies. Behind the brighter outlook for these economies is disproportionate access to vaccines and the use of massive amounts of fiscal and monetary stimulus, totaling trillions of dollars. Concerns have even started to shift from recession to the risk of overheating and inflation in certain economies because of the oversized nature of the stimulus measures–especially the United States, which recently adopted a $1.9 trillion package to fight the effects of COVID-19.
By contrast, most of the developing world, especially Africa, is consumed by uncertainty about the economic recovery. Because of its large population–1.2 billion people–developments in Africa will weigh heavily on the world. The recovery from COVID-19 in Africa will depend on three factors–vaccines, debt, and commodities.
Access to vaccines, both globally and in Africa will help determine when the continent can truly reopen for business–including the important tourism sector, which has been devasted. Recovery from COVID-19 in the travel and tourism sector, especially in Africa, will be slow. There is also risk of a resurgence of the pandemic due to new variants, including one that has spread from South Africa to its neighbors.
The international community must act on several fronts. It should limit the hoarding of vaccines by richer countries and frontload distribution through the COVAX mechanism, the multinational effort to provide vaccine to poor and lower-middle-income countries. At the current pace, Africa will not soon reach herd immunity–the point at which enough people are immune that the virus struggles to spread. That delay could allow new strains of the coronavirus to emerge, which might lead to an economic and humanitarian catastrophe. Advanced economies should stop opposing the temporary lifting of patents to allow for mass generic vaccine production. That would lower prices and increase vaccine supply, helping to ensure the pandemic will end and averting catastrophe.
African countries also must do their share to ensure maximum transparency and fairness in distribution of the vaccine–including enhancing logistics chains. Whether it is for vaccine distribution or other forms of relief, such as income transfers, COVID-19 has shown that ensuring government resources reach their intended targets through transparency and accountability of governments is a basic element required to build trust with citizens.
Debt distress is another hurdle developing countries, particularly in Africa, must clear to ensure recovery. Several African countries defaulted on sovereign obligations in 2020, including Zambia, and these defaults are likely to accelerate in 2021 because fiscal and monetary buffers are exhausted. Preventing unsustainable debt loads that preclude borrowing and ensuring orderly debt resolution are top priorities. The G20 Common Framework adopted in November 2020 provides hope for bilateral official debt relief, as well as private creditor relief on comparable terms for poorer countries. But coordination at the regional and global levels will be essential. Some rating agencies have warned countries approaching the G20 for help that they risk being downgraded. That is likely to reinforce the fear countries typically have of losing their access to capital markets by seeking debt relief. Historically, however, waiting too long to restructure debt has proven costly for the continent. Regional development banks can play an important role in coordinating and supporting individual countries trying to deal with debt burdens and reignite growth. But again, developing countries must do their share. Rebuilding strong governance systems, perhaps through fiscal rules and fiscal councils–at national and regional levels–to promote both discipline and solidarity will be crucial. Stronger governance would help reignite growth and align debtors’ and creditors’ incentives. Only economic growth can provide systematic and orderly resolution of debt.
Not everything is grim, however. Commodity prices are on the rise. A new commodity super cycle seems to be in the making–driven by a combination of factors, including a strong Asian recovery and a big US stimulus package on the demand side and pervasive shortages on the supply side due to the lack of investment since the 2014 collapse in oil prices. Such a super cycle might be the last one for oil, however, because major economies appear committed to replacing fossil fuels. An appropriate governance framework to manage proceeds from commodities in good and bad times is important to fostering the local private sector and creating much-needed jobs. Good governance is also important to rebalancing African growth drivers from external to internal ones, especially in the face of the new and growing risk of stranded assets.
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All in all, bold actions on governance by African countries will help reignite growth over the medium run. But to avoid a catastrophe in the short run, urgent action is needed by the international community on widening access to vaccines and debt relief.
Dr. Rabah Arezki is chief economist and vice president for economic governance and knowledge management at the African Development Bank, having served prior at the World Bank and the International Monetary Fund.