A new report from the United Nations Conference on Trade and Development (UNCTAD) has forecast a nosedive in global trade by up to 40 percent due to the ongoing coronavirus pandemic. The resulting recession is predicted to be much worse than that of the 2008 financial crisis, with foreign investment in Africa set to drop below $35 billion.
“International trade is likely to remain below the levels observed in 2019,” says Pamela Coke-Hamilton, director of international trade at UNCTAD, “but how far depends on the pandemic’s evolution and the type and extent of the policies governments adopt as they try to restart their economies.”
South Africa is staring down the abyss
Indeed, many countries are already at the verge of being pushed over the edge, and have been acting quickly to counteract this trend. South African President Cyril Ramaphosa, for example, has urged the “business community and international investors” to honour the investment commitments made – of which the country had several important ones in the pipelines, particularly from international mining groups.
Indeed, the mining sector is being called to act as a bulwark against South Africa’s “job loss tsunami”: Britain’s Rio Tinto and its South African subsidiary Richards Bay Minerals pledged more than $373 million in funding last year. Meanwhile, Australia-based Orion Mineral is on the hook for close to $230 million and Canada’s Ivanhoe Mines has made commitments amounting to more than $57 million at recent events.
At the same time, policymakers are launching large-scale development projects in a bid to invite cash injections. Pretoria has announced a plan to attract more than $133 billion in new infrastructure investment in the coming decade in the hopes of creating more than 1.8 million jobs and revive the country’s battered economy. As many as 276 housing, transport, water and energy projects are currently under consideration, with funding ostensibly secured for 55 of them.
How Mauritius’ road to recovery just got steeper
While South Africa is in the somewhat privileged situation to be able to demand that investment contracts be honoured, other countries are facing unexpected, and devastating, headwinds from an entirely different direction – the EU.
When the EU announced its financial blacklist in early May this year, it had added several African countries, including Mauritius, Botswana, Ghana and Zimbabwe. These countries were appearing only on a grey list of countries which had made political commitments to the international anti-money laundering watchdog – the Financial Actions Task Force (FATF) and were being monitored by it. The decision is ill-timed. Owing to the Covid-19 crisis, investor confidence is already at an all-time low, and being placed on the list at a time of crisis makes business dealings only more difficult. Being put on the EU black list will erode confidence further, while making countries ineligible for EU funding.
It’s clear that the road to recovery will be a long one, so the consternation felt by Mauritius is understandable – particularly so considering the fact that Mauritius was actually commended last year for its progress on fighting illicit financial transactions. According to a recent report by the Financial Action Task Force (FATF), Mauritius’ rating was raised across the board on a number of technical measures, following a string of positive assessments, with only 5 outstanding issues out of 59 Recommendations. At the same time, the country’s finance minister stressed in his budget speech on June 4 that “ensuring compliance of our jurisdiction with recommended international best practices and norms”, including the FATF recommendations, is “our utmost priority.”
Mounting social fragility and debt
Meanwhile, Botswana is facing a social crisis of critical proportions as a result of being put on the same EU blacklist. The listing threatens the country’s multi-million dollar pension fund, currently heavily invested in the EU.
In addition to tackling the public health and economic challenges wrought by COVID-19, Botswana’s policy makers now face a scramble to provide for the country’s elderly. The side effects of the EU’s actions are thus threatening to undermine the financial security of an entire generation as collateral – something that without a doubt appears hugely unjust.
In fact, with the pandemic having not only dried out FDI flows, but reduced global trade to a trickle, the country’s credit rating was recently changed from positive to negative by Moody’s, citing “increasing risks of lower growth, higher budget deficits.” If the negative outlook persists, Botswana might have to join the growing ranks of countries forced to request debt relief as they struggle to regain their footing.
The Ivory Coast was among the first to have requested entry to the Debt Service Suspension Initiative (DSSI), a mechanism endorsed by the World Bank and G20 Finance Ministers through which low-income countries can concentrate their resources on fighting the ongoing COVID-19 epidemic. If the request is granted, the Ivory Coast will benefit from debt relief until the end of 2020. This could turn out to be a vital step for the government to prevent companies, particularly small- and medium- sized enterprises (SMEs), from going bankrupt and thereby maintaining the foundations upon which to slowly rebuild the economy.
Tough times ahead
With the number of COVID-19 cases in Africa fast approaching 300,000 people, the coming economic crisis may be the worst the continent has ever had to tackle. Amid an unprecedented fall in FDI and ill-timed political maneuvering that will affect countries’ access to international funds, many African countries will have a steep hill to climb if the worst of the worst is to be avoided. As the entire world is preparing for a slow recovery, global leaders must ensure that the most vulnerable countries are not left without support.