African Countries Address Liquidity Pressures

Africa’s finance ministers seek to rapidly resolve commercial debt service obligation

By Benson Afful

United Nations Economic Commission for Africa (ECA) convened a meeting between African Finance Ministers, the Africa Private Sector Working Group, and African Union (AU) Special Envoy on COVID-19 as the search continues for solutions to ensure African economies enjoy continued market access and meet their private sector debt service obligations.

Ms. Vera Songwe, ECA’s Executive Secretary

The meeting aimed at finding new financing solutions, and provide additional resources for countries to mitigate the impact of the ongoing, COVID-19 pandemic.

The discussion engaged the recently formed Africa Private Sector Working Group (PSWG), which represents leading private creditors to African countries.

Ms. Vera Songwe, ECA’s Executive Secretary, said African countries are committed to meeting all their obligations to commercial creditors on time and want to maintain access to international debt markets for the build back period.

“Most African countries were on a successful reform track before the crisis, that is why they had access to the capital markets.”

Discussions focused on ways which the interests of both African governments and commercial creditors could be aligned to deal with the double crisis of a health pandemic and economic recession.

The Finance Ministers agreed on the importance of maintaining Eurobond coupon payments to maintain post-pandemic access to international debt markets for development finance and on having an ongoing coordinated dialogue with creditors.

Speaking on behalf of the creditor group, Mr. Kevin Daly, Senior Investment Manager at Aberdeen Asset Management, expressed the desire to support African countries address liquidity pressures that have arisen due to the crisis. And by ensuring they remain current on their Eurobonds, believe financing opportunities will materialize soon.

He said the creditor group was proposing some innovative financing solutions, such as special-purpose bonds that are targeted to Social Development Goals.

These would be appealing to investors who are increasingly focused on social development goal issues. And instruments that are partially guaranteed by multilateral institutions, and that could help to ease liquidity pressures.

For his part, former Credit Suisse boss and Cote d’Ivoire minister, African Union Special Envoy Tidjane Thiam, who chaired the meeting said: We are aligned, we want Africa to develop and grow, so let us work together on concrete solutions as time is of the essence.

The Africa PSWG coordinates the views of over 25 of the world’s foremost asset managers and financial institutions, providing private finance to nations and companies through Eurobonds, syndicated loans, and other credit products across the continent.

The group expressed the view that a one-size-fits-all solution would be counter-productive for African nations.

All ministers, including the ones from Kenya, Cameroon, Senegal, and Ghana, stressed the importance of keeping market access and agreed that more work is needed to communicate the good economic track record of their countries before the crisis.

The meeting agreed to continue discussions towards pragmatic and effective solutions on Africa’s commercial debt to manage the COVID-19 crisis and return Africa to growth restoring policies and actions.

ECA in its recent report launched early this month estimated that a full one-month lockdown across Africa would cost the continent about 2.5 percent of its annual Gross Domestic Product (GDP), equivalent to about US$65.7bn per month. Adding to the lower commodity prices and investment flows, in the commission report titled COVID-19: Lockdown Exit Strategies for Africa, issued May 7.

Every Month In Lockdown Costs Africa US$65.7bn—report

Economic Commission for Africa (ECA) estimated

By Benson Afful

The Economic Commission for Africa (ECA) estimated that a month of lockdown across Africa would cost the continent approximately 2.5 percent of its annual Gross Domestic Product (GDP), equivalent to about US$65.7bn per month.

Adding to the lower commodity prices and investment flows, in the commission report titled COVID-19: Lockdown Exit Strategies for Africa, issued May 7. Businesses surveyed by ECA on average operating at 43 percent capacity, between April 14-20, while large firms report operating at a slightly better capacity. The report cited the manufacturing, health, entertainment, utilities, transport, and trade sub-sectors to be operating at the lowest capacities.

Localized or national lockdowns were in place in at least 42 African countries as of 30 April. Thirty-eight of these lockdowns had already been in place for at least 21 days, it found.

Estimated fatality for COVID-19 varies widely due to differences in testing, reporting, and attribution across countries. As more data is collected, African countries can better ascertain the severity of population vulnerabilities, like tuberculosis or malnutrition, on COVID-19 mortality, the report added.

Some of the challenges faced by companies on the continent included a lack of operational cash flow as well as the reduction of opportunities to meet new customers.

Vera Songwe, Executive Secretary; ECA, at the UK-Africa Investment Summit 2020

Companies also stated that their businesses were closed, in addition to a decline in workers’ productivity from working at home.

During an online debate to launch the report, ECA’s Executive Secretary, Vera Songwe, said governments confronted with the challenge of appropriate exit strategies to COVID-19 lockdown measures.

She said any exit strategy needs to balance the preservation of lives while alleviating economic challenges and continuing to suppress the spread of the virus.

The government of Ghana, for instance, lifted a 21-day lockdown on April 20 and has subsidized electricity and water consumption for households and businesses for April to June at a cost of GH₵1.3bn. Also, it has made available GH₵600m to provide soft loans to small and medium-sized businesses.

The funds expected to fund 200,000 enterprises as part of the Coronavirus Alleviation Program (CAP).