- In a briefing to the global insurance market, ATI emphasized Africa’s resilience and the importance of focusing on the long-term investment horizon with many strong performers still able to present sound investment opportunities post-Covid-19.
- Regional Development Finance Institutions like ATI are likely to play a significant role in supporting local economies thus blunting the impact of, and supporting recovery from, Covid-19. This will be particularly important as Donor countries focus their attention inward at this acute time.
- Covid’s impact is expected to hit African economies in a number of ways, the most visible being reduced GDP growth, estimated to be halved in 2020, and a loss of over US$100 billion of export revenues.
NAIROBI, 23 March, 2020 – The African Trade Insurance Agency (ATI) today held an on-line Covid-19 briefing for over 80 global insurance market participants on key risk areas likely to be impacted in African economies as a result of the Covid-19 pandemic. The areas are economic growth, export revenues, tourism earnings, diaspora remittances, oil and gas royalties, port and transport sector fees, supply chain disruption and access to the Eurobond market.
Regional Development Finance Institutions (DFIs) like ATI are expected to play a significant role in helping governments restructure priority projects and to alleviate the potential economic impacts from a Covid induced slowdown. These DFI institutions can play a central role in keeping finance flowing as donor countries focus on their own virus containment challenges.
In the eight key risk areas highlighted, ATI collated research showing that:
- Africa’s economic growth rate could halve, at a minimum, from 2% p.a. in 2019 to about 1.8% in 2020;
- Loss of over US$100 billion of export revenues based on the strong trade links with China and Europe receiving over 50% of Africa’s commodity exports. Angola, the Democratic Republic of Congo, Zambia, and Zimbabwe may be strongly impacted;
- Significant reduction in tourism earnings, which represent 5–10% of GDP and 20% of total employment in many African countries. Kenya, Madagascar, Mauritius, South Africa, Seychelles and Tanzania may be hardest hit;
- African sovereigns likely to experience challenges raising funds in global markets. African bond yields have risen quite sharply e.g. yields on Angola, Ghana and Nigeria Eurobonds almost doubled in less than 3 weeks between 21 February and 12 March 2020.
As a result, planned Eurobonds in Benin, Côte d’Ivoire, Nigeria and South Africa may be delayed or shelved. Additionally, there may be a knock-on effect felt by large companies in these economies whose borrowings are tied to reference rates – that are based on Government debt yields;
- Reduction of diaspora remittances, which in some countries equates to forex of 5% of the national GDP;
- Falling oil prices and reduced demand will stagnate growth and government revenues in some of Africa’s strongest performers – Angola, Gabon, Ghana, Niger and Nigeria;
- Sharp reduction of port earnings from closures and reduced production in China and a slowdown of imports from other export markets. Port services represent some 30% of GDP in some African countries, which flow into government revenues through direct or indirect ownership; and
- Supply chains disruption including raw materials, industrial components, and finished goods. This will impact export processing and result in a higher local costs.
On the call with its private sector insurance partners, ATI restated its long-term commitment to African development. ATI also noted that multilateral preferred creditor institutions like itself have a mandate to act counter cyclically to support trade and investment flows in Africa, whilst simultaneously maintaining a prudent risk focus particularly during challenging periods such as the current Covid-19 pandemic.
QUOTE from John Lentaigne, Ag. CEO, ATI
“This is an unprecedented time for the entire world. As global financial markets continue to react to the uncertainties, it is important for long-term investors to understand that Africa, while facing similar challenges, can still offer growth opportunities. We fully expect that Africa generally, and in particular, some of the faster growing African economies, will continue to deliver myriad opportunities for investors post-Covid-19.
