Certain measures can help support the economy through this trying time, with the aim of preventing the temporary crises from permanently hurting people and firms. So far, many countries have taken initiatives to reduce movements and public gatherings – while this is the 1st critical step, it only buys the country time to avoid overwhelming the health sector.
In managing the economic effects of COVID-19 outbreak in Africa, the following priorities are also essential:
1. Keep as many people as possible healthy and safe: Governments need to divert funds in the budget to the health sector – this should be the 2nd priority after halting movements and public gatherings. Funds should be used to provide personal protective equipment, screening and diagnostic testing kits, and additional hospital beds and equipment. Despite the uncertainties, private companies and philanthropists can support in providing the equipment to give back at this critical time. For example, Telsa has bought over 1000 ventilators from China and delivered to Los Angeles. This is a great opportunity for stakeholders to come together to revamp the health sector of many African countries.
2. Implement social welfare stimulus --tax relief, cash transfer, and wage subsidies: To help reduce the negative effects on citizens and businesses, targeted cash transfers, wage subsidies, and tax relief can be initiated. For example, Italy has prolonged deadlines for company tax in affected areas and are providing income support to workers that have been laid-off. Korea has introduced wage subsidies for small traders among other measures. The South African government has also made R200 million available to assist the most affected small- and medium-size enterprises (SMEs) in tourism and hospitality sectors. The private sector and charities can also support these efforts, for example: PwC Foundation has committed $2.85 million to provide meals for low-income individuals and support people most at-risk, among others.
This step is important for African countries which houses some of the poorest people in the world with little or no insurance or government support. Any social welfare package must be distributed in a transparent and automated manner that prevent diversion of funds by officials.
3. Grant more credit and loan extensions to support businesses: Central Banks in Africa countries could allow commercial banks keep a higher percentage of their funds (i.e. provide liquidity), especially for banks that are lending to SMEs to ensure more money in the system. Interest rate cuts or asset purchases can also help increase business confidence and support financial markets. Financial system regulators can also encourage the extension of loan maturities. Governments can also offer temporary credit guarantees to the most severely hit businesses. For example, Korea has widened lending for businesses and provided loan guarantees for affected SMEs.
4. Regional and international bodies should coordinate efforts: As several African governments are constrained by falling commodity prices and poor health infrastructures, regional and international bodies such as the African Union (AU), United Nations Economic Commission for Africa (UNECA) a,nd the International Monetary Fund (IMF) need to play a great role. Coordinated response in the logistics and delivery of testing equipment for the most hit countries is essential. African finance ministers are calling on their governments to wave interest and principal payments on corporate debt, leases, extended credit facilities, refinancing schemes and guarantee facilities for the fragile private sector in 2020 – for this to be honored, international support is required.
Article Credit: Precious C. Akanonu (Editorial)