Post Covid Recovery – A Focus on Africa

Introduction

The COVID-19 pandemic has led to unprecedented global health, social and economic crises. In comparison to other regions, such as Europe, Asia, and Latin America, Africa has so far been spared the worst of the Covid-19 pandemic in terms of health outcomes related to the virus. As of November 29^th, 2021, the continent had 8.8 million cases and 223,365 deaths[1]. Still, according to UNICEF, as of September 2021, Covid-19 vaccines had reached just one in every 100 people living in Sub-Saharan Africa, highlighting ever-growing inequality since the rise of the pandemic.

However, while incidents of the disease have been fewer in Africa than in other regions of the world, the economic and social impact has been disproportionately higher. The COVID-19 pandemic has led to the worst underperformance on record for Sub-Saharan Africa, with an economic growth rate of -1.9%, and approximately 32 million more citizens are slipping into extreme poverty[2]. It is estimated that average incomes in Sub-Saharan Africa will not return to pre-pandemic levels until at least 2025, while the risk of losing hard-earned development gains increases exponentially with each passing day.

Essential services, such as healthcare, education and other social services, have been severely disrupted, as have the economic viability of many MSMEs who have had to shut their doors due to lockdown to prevent the spread of the disease. While most regions of the world have relaxed fiscal constraints to make unprecedented funding available to their populations and businesses and support their recovery policies, most African countries lack the flexibility and capacity to follow suit.

Post-Covid needs for African countries

There are three types of needs to be addressed for Africa due to the pandemic: a) response with vaccines, b) economic recovery and c) building resilience for the future.  There is also a need to spark a meaningful dialogue at the global level for an inclusive and sustainable recovery of African economies.

Response with Vaccines

Getting vaccinated against Covid-19 remains the most critical tool to save lives, sustain livelihoods and put an end to the pandemic. However, African countries continue to significantly lag behind the rest of the world in vaccination rates. Preliminary studies by the World Health Organization (WHO) shows that as of November 2021, only 27% of health workers in Africa are fully vaccinated against Covid-19. This means that a significant portion of frontline workers remain unprotected from the virus against which they are fighting[3].

The low vaccination rate is attributable to the region’s lack of vaccination facilities, insufficient vaccine supply and vaccine hesitancy. While health agencies and governments are improving supplies and educating populations on the benefits and side effects of vaccination, there is considerably more that can be done, especially in the coordination and delivery of vaccines to rural areas of the continent.

Economic Recovery

The fiscal space for African countries to support their nation’s pandemic and post-pandemic needs is severely limited. To address the desire for an inclusive and just recovery, there is a need to bolster the MSME sector to ensure business continuity and access to finance. While in many developed countries, direct financial transfers to businesses, low-interest loans and support to move enterprises online has helped soften the brunt of lockdowns on small businesses, on the African continent, companies have simply had to shutter their businesses suffering acute revenue declines.

Building Resilience

Resilience for many African countries needs to include health care, education, infrastructure, and any other sector associated with achieving the United Nation’s 17 Sustainable Development Goals (SDGs). However, a significant challenge for Sub-Saharan Africa is the high debt levels that pre-dated the pandemic. In many countries, government spending on debt service is much higher than spending on education, health, and social protection combined.

The lack of available resources to meet the region’s SDGs leads to an additional financing gap to the tune of USD 425 billion over the next 3 to 5 years[4]. Significant investment is needed to address this financing gap. While USD 33 billion has been reallocated from the IMF’s Special Drawing Rights towards African countries, this amount remains small compared to the region’s needs.

Opportunities for recovery

Africa’s pandemic recovery opportunities are immense, as support is galvanized globally, and there is an acute focus on regaining economic standing to pre-pandemic levels. The importation of vaccines and projects contributing to infrastructure development are expected to remain the highest priorities within the region.

Governments in many African countries are improving trade and accelerating local production by incentivizing the private sector to strengthen their economies to pre-pandemic levels. For example, Egypt is increasing its investments in renewable energies, while Rwanda is leveraging technology, and Nigeria continues to push for the development of its agriculture industry, amongst others. Opportunities for recovery are available but require substantial investments to be successful.

Role of the insurance sector in post-Covid recovery

The path to economic recovery from Covid-19 for Africa is both expansive and expensive. During the pandemic, several African nations depleted their national purses to keep their citizens and businesses afloat, causing a significant decline in national reserves. As the continent recovers, it is faced with the task of replenishing its reserves without increasing its national debt burden. Private investments are a critical element of the approach for many governments.

One critical reason for the lack of private investment in developing countries is the high levels of political risk. The economic impact of the COVID-19 pandemic is magnifying these risks because of increasing unemployment and widening inequality, putting critical investments in jeopardy, and threatening to undo many years of socio-economic development. Political Risk Insurance (PRI) is designed to help mitigate perceived risk by protecting against negative political impacts on otherwise sound commercial investments.

The Islamic Corporation for the Insurance of Investment and Export Credit (ICIEC) was created to provide investment and export credit insurance solutions to strengthen economic relations between its member countries, many of which are in the African continent. The Corporation offers insurance solutions that can help protect its member country’s economies while allowing them to take initiatives for growth and development. ICIEC offers several political and credit insurance solutions that provide the needed cushion for institutions wishing to make investments that can help to revive their economies.

PRI is one of the many insurance products offered by ICIEC for its member countries. ICIEC’s PRI policies allow firms to expand in regions perceived as a higher risk but with otherwise attractive investment opportunities, as seen with many African countries. ICIEC’s PRI also mitigates the risks involved in cross-border trade, providing support to exporters and banks to facilitate trade between member countries and the rest of the world.  ICIEC also aims to stimulate, promote and increase intra-OIC exports, encouraging businesses to take advantage of the diverse resources within the region.

ICIEC’s Covid Response

The Covid-19 pandemic has presented member countries with unprecedented challenges to the health of their citizens and economies. ICIEC and its partners have been working throughout the pandemic to provide aid and solutions to these member countries, coordinating to find innovative responses to sustain imports of strategic commodities, protect investments, and minimize volatility.

IsDB Group has allocated US$ 2.3 billion of aid to its member countries under the Strategic Preparedness and Response Programme (SPRP) to combat the health and socio-economic effects of COVID-19, including USD 770 million for ICIEC’s insurance support.

As part of an update to the original SPRP, ICIEC contributes to the IsDB Group Vaccine Initiative (IVAC), supporting Member Countries in accessing the Covid-19 vaccine. For its part, ICIEC is providing risk mitigation solutions to international financial institutions through its insurance solutions, facilitating additional resource mobilization from the global market.

To encourage trade and investment during the Covid-19 pandemic, ICIEC and IsDB jointly launched the Covid-19 Guarantee Facility (CGF), an innovative program to support the financing of trade and investment. The CGF also supports SMEs in sustaining activity in core strategic value chains and ensuring the continuity of necessary supplies, mainly to the health and food sectors, including vaccine procurement.

Additionally, ICIEC and the Islamic Solidarity Fund for Development (ISFD) have collaborated to create the ICIEC-ISFD Covid-19 Emergency Response Initiative (ICERI) program, a rapid Covid-19 response that employs an innovative financial structure, providing more confidence to suppliers, investors, and financiers of Covid-19 related transactions and extends some relief to the member countries on their borrowing costs. To date, USD 271 million worth of trade transactions has been supported by the ICERI program in the food and other essential commodities sectors, using only USD 1 million of the subsidies funded by ISFD.

ICIEC’s Focus on Africa

ICIEC demonstrates its support for African member countries through the many response initiatives the Corporation is contributing to or leading in Africa.  ICIEC has provided insurance support for many import transactions across Africa, supporting the governments of Egypt, Senegal, and Nigeria, among others. These transactions have allowed the countries to receive critical commodities, such as foodstuffs and health supplies needed to tackle the outbreaks of Covid-19.

Thanks to ICIEC’s EUR 142 million cover for a Deutsche Bank investment, the citizens of Côte d’Ivoire will have greater access to hospitals and healthcare services. Two new hospitals with a collective capacity of 400 beds have been built in the south-eastern towns of Adzope and Aboisso, bringing state-of-the-art equipment and facilities to the otherwise underserved region. The two hospitals will employ around 600 local people and foster the development of a micro-economy in the areas surrounding them.

Additionally, the project will finance five new medical units in existing hospitals across the country. The project EPC will be conducted by a Moroccan contractor, supporting the export of services from another ICIEC member country and facilitating intra-OIC trade of services and human capital between Cote d’Ivoire and Morocco. The support from ICIEC will help Côte d’Ivoire achieve its National Development Plan targets for 2016-2021 while also improving the Republic’s ability to contain the Covid-19 pandemic.

While there is some hope that the spread of vaccines can help bring an end to the health crisis, Africa’s economic recovery will require continued and sustained focus and effort. During this time, ICIEC will continue to make its insurance solutions readily available to member country governments and businesses.