Outlook for Africa

Issue 87 - summer 2020

African economist Tim Heinemann believes that the African institutions' crisis work to date has been successful. To master the long way out of the socio-economic misery, the European private sector is also needed.

Tim Heinemann, KfW
In Africa, millions are predicted to starve to death from the current crisis. Is this realistic? 

Heinemann: The situation is particularly tense in regions where there are military conflicts - we see this particularly dramatically in neighboring Yemen. In East Africa there is the problem of locust plague. If Corona continues to be ineffective, it could certainly be violent. In this case, however, the international community could react quickly. A fundamental problem is that many local markets are closed due to Corona or that the goods are not arriving due to the restricted mobility. This leads to local price jumps, but not yet to a hunger crisis. All in all, the African institutions, which in the past have not been assigned a particularly high level of competence, work well. The African Union is very careful. However, it remains to be seen how the situation will develop once the economies reopen. Because the development of the pandemic on the continent is delayed.

The pressure to open it is immense. Which economic aspects hit Africa particularly hard? 

Heinemann: What we are currently seeing are the direct effects of the past months and weeks. Border and business closures, the massive restriction of mobility - this has concrete immediate effects, as there is no income and products become more expensive. The worst comes with regard to the decline in exports. The African countries mainly export raw materials, so they are at the beginning of the value chain. The 2008 financial crisis took around one to two quarters to see the effects of the foreign trade crisis in Africa as well. Now China was affected in the first quarter of 2020, it hit Europe and the United States in the second quarter, and from Q3 Africa will have considerable effects from the global economic crisis. 

The IMF has already provided emergency funding to most of the African countries. The high debt burden of many African countries could further dampen growth in the coming years. How should Europe respond? 

Heinemann: The poorest countries will defer their debts until the end of the year. That should be extended to two years. There is also the idea of ​​a haircut, but many African countries are afraid of being cut off from the private capital markets. So it is particularly important to continue to provide capital to African countries. The African corona stimulus packages are only around one percent of GDP, and five to six percent in the OECD countries. This has something to do with the high debt. 

Europe has shown an increased interest in a partnership with Africa in recent years, at the moment everyone seems to be looking at each other. How will the European-African relationship develop in the coming years? 

Heinemann: I believe that Africa will continue to be an important issue. If the corona virus is not effectively combated there, it will also appear again and again. I also hope that the economic initiatives that started before Corona will continue and that European companies will show increasing interest in Africa again. The private sector will be even more important in the future. And the investment gap in Africa is still huge. 

Vielen Dank für das Gespräch!
Photo: KfW

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