Covid fightback still priority for AfDB in 2021

African Business sat down with Khaled Sherif and Vanessa Moungar of the African Development Bank to find out their views on the past year, their predictions for 2021 for Africa, and the bank’s priorities.

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How has the bank reacted in 2020 and where is Africa as a continent today?

Khaled Sherif, VP for Regional Development, Integration and Business Delivery: Undoubtedly, Covid has had a major impact. The big six oil producing countries depend for about 75% of their total revenue on the commodity. They are looking at fiscal deficits that they had not obviously anticipated. Other countries faced similar challenges. Most countries depend on two or three primary exports, and many countries are highly dependent on one or two sources of income such as tourism, which has obviously taken a massive hit. The bank effectively stopped its lending and put together a $10bn crisis relief facility, to give countries some fiscal space to deal with this setback. It’s important to note that the fiscal crisis has been the biggest threat that many African countries have faced from this pandemic.

$10bn is small when you look at the stimulus that Western countries were able to put into their economies. Are you working with the other development institutions to look at new instruments?

Khaled: If you look at where the African continent is, it basically needs something in the neighbourhood of $130bn to get through this crisis. We are all trying to pool resources but this is an exercise that is much bigger than just the multilaterals. Bilateral negotiations need to take place, specifically with China, the largest single creditor on the continent. Through entities like the African Legal Support Facility we are also trying to make sure that we’re helping our client countries negotiate appropriately to ensure we don’t solve a short-term problem by creating a bigger one in the future. Creditors including China have shown an absolute desire to help African countries in every way they can, so if anything I think there has been a show of good faith for the struggles of the continent.

How has Covid changed your gender work priorities?

Vanessa Moungar, Director of Gender, Women and Civil Society: Women are disproportionately affected by global health crises. From a social perspective women are truly bearing the brunt of the economic and social fallout in general of the pandemic.

When you’re looking at the economic side of things, Covid-19 has been exacerbating the lack of access to markets, finance, inputs and other productive resources because of the disruptions in global value chains and their reductions overall in purchasing power and mobility.

In Africa, 89% of our employment is estimated to be informal, and 92% of women are employed in the informal economy. They can only be disproportionately affected and all small businesses have been struggling to survive. We conducted a study in July, across 30 African countries, collecting primary data on the direct impact on women entrepreneurs. It revealed that 80% of female small and medium-sized enterprises had to temporarily or permanently shut down due to restrictions from the pandemic.

The bank launched the Covid-19 response facility to support African governments and the private sector. All operations funded under this facility incorporated gender considerations in their design and outcomes, focusing on impact, on reducing women’s vulnerability, enhancing their safety and economic resilience. Within the packages you could see interventions specifically supporting women entrepreneurs by directing support to informal workers and the hardest hit women-led businesses in the form of cash transfers, subsidised loans or tax exemptions.

We also looked at expanding basic social protection in some countries, specifically targeting female health workers to ensure they exercise in a safe environment. In many of our countries they represent over 60% of the labour force in the health sector.

Are we seeing new fault lines in fragile states?

Khaled: They have definitely been seriously negatively impacted. We are beginning to see a dangerous pattern across the African continent where consumption is beginning to taper off. When consumption tapers off, does that translate into additional unemployment? That is going to be a much more dangerous phenomenon in fragile states, where typically unemployment can be 20, 30 or 40%, and that is basically the norm.

We are concerned about what is happening in fragile states. Not to paint too much of a gloomy picture, but if you look at a country like Sierra Leone which is a gold exporter and a net oil importer, they should be in a better position vis-a-vis most, but they’re not, because we’re seeing consumption taper off in countries across the continent as a whole and that is very concerning.

On gender, how will you build back better for 2021?

Vanessa: First, it is really about mainstreaming gender into all the bank’s operations and projects.

We also recognise the need to have specific targeted interventions in areas where we feel we have a strong comparative advantage and this is where the AFAWA Initiative was born. AFAWA stands for Affirmative Finance Action for Women in Africa. The bank looked at its strength and its ability to really influence the financial sector to increase access to finance and private sector participation for women entrepreneurs. It’s not just access to finance, it’s access to markets, information,  training and also the existence of the right enabling environment.

In terms of business delivery for 2021, what are the bank’s prior­ities?

Khaled: Our priority for 2021 is to make sure we build back better. That basically means that we continue to provide budget support to ensure that countries can withstand the shock of a curtailment of their exports. In 2021 we will be looking at a series of budget support operations and crisis relief operations, since we don’t want to lose the gains that we’ve made, particularly in infrastructure. To make sure we don’t lose the gains for regional integration, and in light of the AfCFTA, we are obviously focusing our ability to lend to new operations on anything that regionally integrates markets – that will allow for cross-border exports to prosper and to develop infrastructure that connects countries.

We’re also beginning to see cases of currency devaluations, but the fundamental laws of economics are being broken, and currency falls are being accompanied by a fall in exports. Many industries, such as in North Africa, are assembly and dependent on intermediate inputs from abroad, and so anybody who’s in the assembly business is being priced out the market because their intermediate inputs are becoming more expensive. A lot of work is going into making sure that our industries become less dependent on intermediate inputs from abroad so they can withstand these kinds of shocks in the future.

What are the positives from this pandemic?

Khaled: I would say there are five positives. One, you have not seen economic meltdown, to a degree because of the support of the multilaterals and the bilaterals. Two, there have been no political meltdowns or significant social unrest, which is actually a positive sign given that Africa has a net import bill in excess of $35bn, a figure that could rise to $110bn if current trends continue. We have seen social safety nets play a role in supporting the poorest, and in some countries that meant putting them in place in record time. Fourth point, civil service salaries continued to be paid and then five, we haven’t seen major defaults so far from the countries affected by the pandemic. So Africa has shown it can withstand a shock of this type and we go into 2021 with the hope that we can build back better.

Vanessa: We’ve been very flexible and adaptable despite a very constrained environment and reacted as quickly as we could to support countries and really play our role as a development financial institution of the continent.

Secondly, the pandemic highlighted entrenched inequalities which helps bring them to the fore of the conversation. More than ever we’ll be putting people at the centre of our interventions when we think about developing any sort of projects.

Lastly, we’ve enhanced our engagement with civil society organisations, and they played a critical role in the immediate response to the crisis.

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