In the wake of Covid-19, a devastating economic crisis is threatening all the countries affected. Inevitably, the decisions taken to limit the spread of the virus are having a serious impact on national economies. On the front line: the developing world where small and medium-sized enterprises (SMEs), are hard hit by the effects of lock-downs and restrictions of movement aimed at limiting the medical fallout. In Africa, entire sectors of the economy are currently shut down and SMEs (which alone account for 60% of formal employment) are facing major cashflow problems.
Across the continent public authorities foresee further declines in economic activity, with growth forecasts halved. “This situation is also anticipated by the International Monetary Fund (IMF), which forecasts the first recession in Sub-Saharan Africa in 25 years”, reports online finance magazine, Financial Afrik.
In the Regional Economic Outlook for Sub-Saharan Africa, entitled, “COVID-19: An Unprecedented Threat to Development”, released in mid-April, the IMF forecasts a recession of 1.6% in Sub-Saharan Africa this year compared to a growth rate of 3.1% last year. It also warns that: “[The region] is facing an unprecedented health and economic crisis. One that threatens to throw the region off its stride, reversing the development progress of recent years”.
The World Bank goes even further, to say: “Growth in Sub-Saharan Africa has been significantly impacted by the ongoing coronavirus outbreak and is forecast to fall sharply from 2.4% in 2019 to -2.1 to -5.1% in 2020”.
Supporting Local Financial Systems
It is therefore crucial to support African economic players, especially SMEs, which are essential for employment and post-crisis recovery. A number of financial players are providing this support – banks, investment funds, microfinance networks and institutions – which Proparco is financing under the Choose Africa initiative. This initiative aims to earmark €2.5 BN via the tools of Agence Française de Développement Group – to finance African start-ups and SMEs for the period 2018-2022.
In South Africa, FirstRand Bank has launched the SPIRE (SA Pandemic Intervention and Relief Effort) initiative to support Government and its partners in the fight against Covid-19. The objective of this financial tool is to support the medical companies responsible for providing testing and producing front-line protective tools. In 2018, Proparco allocated a US $50 M senior credit line to FirstRand Bank to finance its SME portfolio, as well as a $50 M loan in 2019 to support the bank's development in “the agricultural transformation”.
Local financial systems also aim to facilitate access to credit for their clients in difficulty or suspend their repayment maturities. At the outset of the pandemic, ABI made various donations to different ministries and solidarity funds to help cushion the health shock. In Botswana, African Banking Corporation Botswana (BancABC) – a new partner of Proparco – has implemented measures for companies affected by the pandemic, such as a 3-month moratorium on loan repayments and a 25% reduction in online transaction fees).
Ad hoc “SOS Covid” course at SIBC 2020
This year, the Social and Inclusive Business Camp (SIBC), a program devised and incubated by AFD’s Development Campus, is working with entrepreneurs operating in Africa to deal with the Covid-19 crisis.
To strengthen their capacity for growth and resilience, SIBC is offering the program’s candidates an ad hoc “SOS Covid” course available in English and French. Each entrepreneur that validates their application will have free access (market value of €7,500) to a crisis business management kit developed with African Management Institute. They will be able to exchange during a collaborative webinar, access management tools on the AMI platform for 2 months, and thereby join a community of qualified peers to accompany them during this uncertain period.