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Can the AU Help Africa’s Private Sector Survive COVID-19?

Trade & Development

As the COVID-19 pandemic continues to rage unabated, Africa seems set for a major economic crisis owing to the restrictive measures to combat COVID-19, the fall in commodity prices, the disruption in global supply chains, and restrictions on international travel.

The African Union (AU) has drawn up a range of scenarios on the impact of COVID-19 on African economies. While key sectors (oil and gas, tourism, transport) are already severely affected, the slowdown in the informal sector will compound unemployment rates. With the   informal sector the largest source of employment for many on the continent, the socio-economic impact of this is likely to be devastating.

SMEs the Hardest Hit

While some large companies operating in sectors on the frontlines of the COVID-19 response (mostly telecommunications, agribusiness, personal hygiene and pharmaceuticals) are reaping the benefits, most small and medium-sized enterprises (SMEs) are heavily impacted by this crisis. The slowdown, if not total interruption, of operations, cash flow issues and challenges in meeting overheads are among the major challenges.

The consequences for SMEs could range from salary cuts and retrenchments to bankruptcy. The appointment by the AU chairperson, South African President Cyril Ramaphosa, of five special envoys to mobilise international financial support for Africa’s efforts in fighting the effects of COVID-19 indicates how the anticipated economic crisis is likely to affect the continent’s recent growth gains. This appointment was followed by the announcement by some of Africa’s public creditors (G20) of a moratorium on Africa’s debt. Though controversial, this is a laudable effort that will presumably translate into increased capacity to manage the health crisis. A sizable portion of the money made available in this manner should be invested in saving private businesses from bankruptcy. This is a particularly daunting challenge on a continent where access to credit remains a privilege, tax systems are tenuous and transparency challenges are rife.

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