Covid-19’s dark cloud has silver linings for sub-Saharan Africa
Despite the gloom, there are opportunities for governance reforms in the region
Covid-19, and the world’s responses, portend a perfect storm for sub-Saharan African countries. As The Economist noted, we have about one doctor for every 5,000 people, compared with one per 300 in Europe. The average US hospital has more intensive care beds than most African countries.
Consequently, health systems are likely to be easily overwhelmed if R (the reproductive rate of the virus, starting at 0) begins to climb exponentially, a scenario from which the continent appears to have been spared so far. Simultaneously, the lockdown cure risks being no cure at all, and potentially worse than the disease itself.
Everyday life in the region is precarious. More than 400-million people live on less than $1.90 a day. The continent’s economies are highly dependent on global value chains, which accounted for about 80% of world trade in 2017. Global merchandise trade is projected to plummet by an estimated 13%-32% in 2020. Informal trade has also been heavily curtailed, placing subsistence livelihoods at risk. More than 80% of the region’s exports go to other parts of the world — intracontinental trade is minimal — and half of these are raw materials. Commodity prices were already volatile, and many were declining before lockdown.
Economist Nouriel Roubini has painted a less-than-rosy global picture of the coming Covid-induced winter. Bailout packages required to prevent immediate economic collapse will increase fiscal deficits, raising overall debt levels and default risks. Lockdowns have driven price collapses in oil and most industrial metals.
Resultant debt deflation is likely, increasing insolvency risk. Accelerated deglobalisation — a trend already in motion before Covid-19 due to increased nationalism and economic protectionism — raises stagflation risk: a combination of growth stagnancy and price deflation. It also does not help that the US-China trade war will further shrink markets available for African exports.
Opportunities for governance reform
Having painted that gloomy picture, there are significant opportunities for governance reform in sub-Saharan Africa. As Turkish economist Dani Rodrik notes, “the crisis has played out in ways that could have been anticipated from the prevailing nature of governance in different countries”. African countries now have a unique opportunity to forge a new governance future.
The fact that China’s economy is slowing and is less hungry for natural resources from the continent is arguably a blessing in disguise. The country’s move towards increased consumption and an orientation away from export-led manufacturing was already in motion before lockdown, and this forces African policymakers to think about how to become less resource dependent.
Then, when Covid-19 arrived, the world’s leading oil producers failed to strike a production-limiting agreement, rendering the world awash with cheap oil. No-one would have foreseen a negative oil price in our lifetimes, a long-run gain for African countries that are overly reliant on oil.
Consider that oil production levels tend to be positively correlated with poor governance indicators in weakly institutionalised contexts. Oil rents accrue to the governing elite, which in the absence of strong citizen-state accountability mechanisms deepens their power. This power is typically employed to suppress citizen demand for governance reforms. Aspirant dictators, too, may harness oil rents to eliminate internal political competitors to their rule instead of complying with power-sharing agreements within their governing parties.
Low oil prices for the foreseeable future considerably weaken this power. Future economic recovery for oil-abundant countries will depend on creating institutions that allocate secure property rights to all citizens, which decreases oil dependence and incentivises broad-based taxable revenue generation. This reconstructs the citizen-state accountability link and equips citizens with growing power to demand clean governance.
The other potential silver governance lining in the Covid cloud is for gold-abundant African countries. Given that we know so little about how the Sars-CoV-2 virus actually transmits, and that lockdowns will eventually have to end because they are unaffordable, high-frequency repeated testing will become part of the new normal. As US economist Paul Romer notes, economies cannot be reopened without credibly addressing fears of infection and resurgence. A vital part of tackling those fears is to lock down only those who are infectious, which entails a “test and isolate” policy — in the US context, the proposal is to test everyone once every two weeks and isolate those who test positive.
New role for gold
Gold is an irreplaceable ingredient in the most promising new wave of lateral flow assay (LFA) Covid-19 rapid antibody tests, which identify biomarkers from the body’s immune response instead of testing directly for the virus itself (though some do this too). Gold particles in LFA tests are used to detect a colour change in the blood and give a reliable result in under 20 minutes in any environment. They are inexpensive and easy to use.
With the exponential demand for testing kits that is already under way, gold producers stand to gain large windfalls. The gold price has climbed to current levels of close to $1,700/oz from $1,458/oz six months ago, as gold is typically a store of value in uncertain times. It now has another reliable future demand driver as LFA test production scales up.
Gold is also generally less lootable than oil. While also potentially susceptible to the resource curse characteristics described above, it requires established and responsible gold mining companies to extract it from refractory and often very deep ore bodies. Higher prices mean previously marginal mines can viably resume production. In the SA context this is especially good news as it combines with long-term currency weakening to generate higher export revenues. Taxes on these exports will help to plug the deficits created by the costly responses to Covid-19.
Black gold (oil) is likely to be left in the ground, which bodes well for climate change mitigation, but real gold may produce much-needed revenue that does not come at the expense of good governance. These may prove to be the silver governance linings in our forthcoming Covid-induced African winter.
• Dr Harvey is director of research & programmes, and Ngqwala a researcher, in the natural resources governance programme at Good Governance Africa.