Acha Leke Chairman, McKinsey, Africa Region

AFRICA COULD REBOUND FASTER THAN OTHER REGIONS

 

Acha Leke, Chairman of McKinsey’s Africa region, discusses the socio economic impact of the coronavirus on African countries and the need to establish greener initiatives to help strengthen the continent.

What are the long-term effects of Covid-19 on the continent?

So far, the African continent has not been as severely affected as some other regions have been. Although the loss of life from the pandemic is a human tragedy, Africa’s death rate has been relatively low at about 2%, compared to the 4% global toll. The fact that our peak came later than other regions meant that we could learn from them.

 

When considering the long-term economic effects, we have seen some immediate impacts. Africa is going into its first recession in 25 years, and we've already seen significant job losses. On the other hand, we also see some sectors that have been less badly affected, such as the telecoms industry – and some of the key economic players in Africa have announced that they've been quite resilient so far.

 

Africa could have an opportunity to come out of the crisis with less economic damage than other regions and rebound faster.

 

A lot of that is due to the policies and programs that governments have put in place. Though this may not be entirely enough – for example, there have been requests for additional support from development partners – we get a clear sense that the continent is unified in its response to the crisis. When you put all of this together, there is a chance that we could recover quickly, though it’s important to recognise that the situation is not predictable and remains very fluid.

Could the crisis become an accelerator for technology?

Indeed – and we must remember that, when the crisis struck, Africa was already in the midst of a far-reaching digital transformation characterised by rapid increases in broadband connections, mobile data traffic, and e-commerce.

 

The crisis could be a catalyst to accelerate digital transformation in sectors as diverse as financial services, retail, education, and government.

 

For example, in a McKinsey survey of consumers in key African economies during the crisis, over 30 percent said they were increasing their use of online and mobile banking tools. Executives of African technology firms tell us that they are seeing a massive acceleration in digital payments.

 

Leaders in the education sector say that the crisis raises fundamental questions about longstanding approaches to learning, and creates the opportunity to reimagine education.

 

If we look at it from a company standpoint, several leading African businesses have showcased digital advancement in their ability to get their employees set up to pivot to working from home quickly. They have had to meet the demands of their customers who moved to ordering online. We are seeing more African companies prioritising such digital transformations.

 

A lot of the work we are doing now is focused on helping our clients, in both the private and public sectors, think about how they can accelerate digitisation.

Could an outcome be an increased formalisation of the wider business sector?

There is an opportunity for this to happen. Today, Africa has 90 million MSMEs, of which only 15% are registered. We analysed how much SMEs across the continent would need to survive the crisis for 3 months, and the amount is close to $60 billion. We also looked at all the stimulus packages around to see how much was announced in support for SMEs, and the figure was roughly $20 billion. So, there's a big gap between what has been announced and what they need.

 

The second thing we uncovered by interviewing thousands of SMEs was that they have limited access to bank financing and a very small cushion to survive, making them probably the most vulnerable business segment. When you look at the programs that have been put in place by governments to support them, you quickly realise that these programs are focused almost exclusively on registered SMEs.

 

Most of the schemes lend money through banks, who won’t lend to those that are unregistered.

 

Unregistered SMEs receive little, if any, support. In countries that have provided dedicated support to SMEs, there is a huge opportunity to put in place a formalisation program.

 

If SMEs see that their government is able to support them during the crisis, they are more likely to be open to the idea of formalising.

 

Governments could launch targeted campaigns to formalise MSMEs and convince them of the broader benefits of formalisation, notably access to finance, markets, and labour. For example, if governments apply innovative elements such as favourable borrowing terms, multi-year tax holidays, and capability building programs, MSMEs will begin to see that the benefits outweigh the costs – and formalisation could soon be on the rise.

Can the SDGs framework support and help African countries build greater security and resilience?

Through this crisis, people have come to realise the importance of the SDGs and resilience across all sectors of the economy. For example, we have many conversations now about the healthcare sector, specifically about how to rebuild Africa’s healthcare sector for resilience and equity. We are also helping many countries develop their post-Covid-19 economic recovery plans. As part of this, we ask ourselves, ‘how do we rebuild in a way that's greener?’.

 

The crisis has highlighted some of these issues and opportunities, and the importance of rebuilding systems more equitably. A lot of the focus in the past centered around vulnerable populations in rural areas.

 

The crisis has exposed the plight of the vulnerable urban population: there are about 500 million Africans in urban regions, and more than half of them live in slums. The global donor community is now repurposing a lot of funding and support to figure out how to support both rural and urban communities.

Can systems be reset towards a more sustainable future?

We're actually in the middle of developing many of these plans – I’m currently working with governments in four different African countries. It’s very clear that the

 

question is not ‘how do we resolve the crisis in the next two years?’ but rather, ‘how do I rebuild a much more resilient economy coming out of this?’.

 

Another crisis could spring up, so it’s about ensuring that we are better prepared to deal with whatever may lie ahead. I’m optimistic and excited that our leaders are thinking and acting with this long-term perspective, not just rebuilding for the short term.

 

In the past, there has been talk of Africa not being able to respond with one voice, but I think this crisis has brought us together.

 

Our leaders have realised the value of taking a unified and integrated approach to ensure that all countries on the continent have access to the same resources and safeguards. I am hopeful that this will continue.