Failure to come up with a package to help Africa through the COVID 19 pandemic will condemn everyone to a second or third wave of the disease, writes Brian Caplen.
COVID 19 is not the only crisis that requires a global response. With challenges such as climate change and illegal migration, a failure to resolve matters in the emerging markets, and particularly in Africa, mean that these problems cannot be properly fixed. But with these issues, the nature of both the problem and the remedy is so broad and the time horizon so unclear that it is easier politically for developed country governments to just let things fester.
The difference with COVID 19 is that as long as the disease exists anywhere it will inevitably find its way back to the countries currently dealing with the first wave and deliver both a second and subsequent outbreak. This makes it imperative that a solution is found for Africa and the emerging markets.
Current projections on the potential impact of COVID 19 on Africa make grim reading, with McKinsey estimating that the jobs or incomes of 150 million people or one-third of the labor force (both formal and informal) are vulnerable. But so far African countries are mostly proposing fiscal stimulus packages of 1% to 1.5% of GDP, compared with the 3% announced in developing countries such as Malaysia and Colombia and 10% in the US.
It is clear that a lot more measures will be needed than the current G20 initiative to freeze bilateral government loan repayments with a call for the private sector to follow suit. Without tough action, there is bound to be a wave of sovereign defaults among emerging markets. This is one time when governments and multilateral agencies need to strong-arm the private sector into coming on board collectively over debt relief. The message is loud and clear – if private creditors do not comply, their losses will be greater in the long run.
But helping Africa and other emerging markets will require more than money. It also requires assistance from multilateral organizations and other bodies, both private and public, in designing health and other programs and providing medical as well as fiscal resources. When a vaccine does finally arrive, its effective rollout in Africa will be key to ensuring that COVID 19 is finally defeated.
Brian Caplen is the editor of The Banker. Follow him on Twitter @BrianCaplen