Flattening the Curve or Flattening Bellies? Africa's COVID-19 DilemmaTags InflationGlobal EconomyTaxes and Spending
African governments have joined the global lockdown bandwagon as they press for an urgent halt to the spread of the COVID-19 pandemic. With more than ten thousand cases and hundreds of deaths to date, many on the continent believe that they are confronting the threat of an apocalyptic humanitarian catastrophe, potentially sparked by the virus's penetration of slums in congested cities and the mass onslaught on scattered and poorly supplied health facilities. The lockdowns also come as declining commodity export revenues and dwindling stocks of imported goods threaten Africa's fragile economies with imminent collapse and paralysis.
A worse dilemma could have hardly confronted African governments at this moment: although permitting normal economic and social life could spark an acute health crisis, keeping people indoors also risks a devastating economic malaise. The choice of the former by policymakers is a palpable gamble.
To date the lockdowns have elicited high compliance and only some misgivings, brutalities by security officials notwithstanding. The economic fallout is being doused with promises of relief and stimulus packages for households and businesses, including tax holidays, bailouts to businesses, and temporary releases from the payment of some utility bills.
Despite the good objectives behind the stimulus and relief packages, their effective administration and the ultimate relief of mass suffering is far from guaranteed. Rampant corruption means that business bailout packages carry the risk of unfair allocation and misapplication. Financial institutions with lean capital bases can also ill afford to suspend or cancel loan interest or principals, as they must also pay interest and meet other obligations to clients and investors. The promise of free utilities such as water in some countries even infuriated many when they were announced; people grumbled about how “free” utilities are only helpful to those who actually can access utilities from their homes. In a place such as Ghana, that’s hardly everybody.
Direct cash transfers appear to be more popular, and they could reach more of the population, but such transfers could sadly prove to be a catalyst of inflation, as steep declines in national production and hollow national treasuries may necessitate the printing of cash to make them possible.
As they strive to maintain domestic calm and manage the pandemic, African governments must still face the huge constraints that COVID-19 has further unleashed on their debt-servicing capabilities. Sub-Saharan governments alone owed around USD 583 billion in external debt as of 2018. Shortfalls in national revenues—due to tumbling commodity prices and unavailable domestic tax revenues—are set to whittle African governments' ability to diligently service national debts. Declines in local production and foreign exchange earnings also threaten local currencies with depreciation relative to major currencies, making it even more expensive to service national debts denominated in those foreign currencies. The costs and local prices of imported goods could also rise, potentially raising the cost of living and heightening the risk of social and political unrest in those areas. The recent plea for Chinese debt relief for Africa must have been triggered by an awareness of this dire economic spectre.
How should Africa avoid this grim outlook? Policymakers must take a critical look at the COVID-19-induced lockdowns. They must also turn their attention to calls for the imposition of lockdowns in Africa only in exceptionally grave cases, intensify public education on the pandemic, and increase testing and treatment.
Misguided lockdowns may only flatten bellies instead of flattening the curve.