At Trendtype we have decided to put our thoughts down on paper, as it were. Headline: there are lots of reasons to believe that African countries may emerge from COVID-19 in better (or less worse) shape than developed economies in Europe, China and the US.
We write this with several caveats. Bear in mind that this pandemic has made fools of many forecasters and, as Lenin famously said, “There are decades where nothing happens; and there are weeks where decades happen.”
At the time of writing there have been cases of COVID-19 in 43 countries in Africa, although the prevalence is not yet on the scale we have yet seen in China, Europe or the US. Some of these cases are local infections, i.e. not someone who has recently travelled abroad.
We do not think the direct impact will be felt as much as in China, Europe or the US. Why?
Over 65s – the most at risk group – account for just 3.6% of the population in Africa, compared to rates of 15-20% in most developed economies. North African countries and Mauritius have an older population profile but still trend younger than Europe or the US.
Urbanisation is lower, which slows down the rate of transmission. In countries like Ethiopia or Kenya it is sub 30%, compared to rates of 80% in many developed economies. But: within urban areas, overcrowding and poor sanitation will exacerbate the issue.
There is a working theory that summer (or equatorial) heat inhibits the transmission of the virus, but it is just a theory for now.
Testing is more limited, so the scale of any crisis will be a rough estimate. The real size of the population of Nigeria feeds a lively academic debate. Assessing an increase in death rates when most COVID-19 deaths occur to patients with underlying conditions is a statistical challenge in its own right.
Countries such as Nigeria also have existing protocols they can draw on from the ebola crisis and other pandemics. But healthcare systems are vulnerable. So people who are most severely affected are less likely to get the help they need.
Put simply, the scale of the crisis probably won’t show itself in the same way.
How is COVID-19 affecting African markets?
Last week several countries reported prices for high demand products like hand sanitiser had shot up.
Panic buying has already forced supermarkets in South Africa to start rationing items. Early last week there have been some reports of panic buying in Egypt and Morocco, but not on the scale seen elsewhere. Broadly, as news of coronavirus hits individual countries, we do see higher consumption rates and price increases caused by low supplies and speculation.
Now, we are starting to see prices for household staples such as rice, oil, sugar and flour increase. Already, prices are up 10%+ in some places and will continue to go up with stockpiling, panic buying and speculation. Expect a lot of pricing volatility where consumer seek out commodity products, home-made “cures” for flu, and wholesalers take advantage.
A key factor is what happens in India, which will knock on rice prices for much of Africa.
Several international travel bans are in place – mostly to stop visitors from Europe bringing the virus. Ethiopia, Kenya, Rwanda, Senegal, South Africa, Tanzania and Zambia have all closed schools. Botswana, Ethiopia and Ghana have banned mass sporting events.
Many countries have shut mosques and churches, with mixed success – in Kenya, Nigeria and Senegal religious leaders have all openly defied requests to self-isolate and stop mass gatherings. In the US and the UK the political taboo may be curbing the liberty of the individual. But in West Africa especially we can see the problems where political power, the money generating ability of churches and politics intersect. Closing down organised religion is not without challenges.
The economic impact
Aside the impact of the virus itself, the fall in oil prices will affect the economies of Nigeria, Angola, Algeria, Gabon, Equatorial Guinea and South Sudan among others. Nigeria does have enough in the coffers to finance imports for a year, but clearly needs oil prices to rebound in 2020. Best estimates so far is that oil prices will be soft for the next six months at least.
Apart from that, it is anyone’s guess. Globally, the narrative is starting to move from recession to depression. But bear in mind that Africa accounts for around 3% of the global economy.
Will COVID-19 hit African economies as hard as it will in Europe or the US?
We don’t think it is a given.
Firstly, we see more earlier proactive measures in place to contain the virus. Especially in terms of closing borders and cutting international travel – probably the single most important driver in the early days of a country’s pandemic.
Before coronavirus, most African economies were forecast to grow strongly. The population engine driving demand for products is still there.
For genuinely mass market products, African markets still present a significant opportunity.
One way we look at mass market opportunities, for example, is to compare economic growth against inequality. More than half of African markets trend towards being more equal with strong economic growth forecasts – good indicators of what helps drive mass market demand.