As governments and health authorities across Africa attempt to limit Covid-19 infections, Director Andrew Musoke analyses the outlook for the continent's private sector and reiterates the importance of staying in contact with clients.
Rising numbers of Covid-19 cases paint a bleak picture in Africa. The World Health Organisation has warned that infections could rise to ten million in three to six months' time and overwhelm poor health service infrastructure. To compound this, the World Bank recently predicted that Africa will fall into its first continent-wide recession in 25 years as a result of the Covid-19 shock, which notably for Africa, hit commodity trading particularly hard. McKinsey estimate that the continent could lose anywhere between $90 billion and $200 billion in 2020.
What does this mean for businesses?
Operating in many of the continent's emerging sectors such as fintech and manufacturing, we have seen first-hand the initial implications of the pandemic on African-based clients. For many SMEs and the smaller entities we work with, the biggest impact has been the reductions in consumer and business spending and the consequent disruption to global supply chains. For example, both Africa's manufacturing and industrial sectors are suffering from a decreased supply of key components from China, Africa's biggest trading partner.
The widespread disruption will expose many SMEs to significant cost pressures which will threaten some with potential closure and bankruptcy. Add to this the major disruption to the tourism and hospitality sectors, and banks are likely to see a sharp rise in non-performing loans. However, on a slightly more positive note, the reduction of interest rates presents an opportunity for local banks to show leniency towards borrowers and provide them with financial assistance where possible.
Investment activity also stands to suffer. Many businesses and investment projects had renewed optimism in the second half of 2019, with the continent set to benefit from the implementation of the African Continental Free Trade Area. However, the pandemic's repercussions are likely to delay its progress. The sad reality is that many projects and start-ups are expected to see a drop in foreign direct investment, as investors redirect capital locally.
Collaborative solutions
Despite the current circumstances, we continue to operate as normal, working collaboratively with our global network of experts across the funds, fiduciary and corporate sectors. We are spending a lot of time with our clients and intermediaries, albeit virtually, discussing their primary concerns and assisting with the effective management and operation of their companies and structures.
For over two decades, we have supported companies and funds prosper in Africa and we are here to help them navigate these challenging times.
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