Can the AU help Africa’s private sector survive COVID-19?
To avoid major social crises, national efforts should be coordinated to keep the private sector afloat.
As the COVID-19 pandemic continues to rage unabated, Africa seems set for a major economic crisis owing to the restrictive measures to combat COVID-19, the fall in commodity prices, the disruption in global supply chains, and restrictions on international travel.
The African Union (AU) has drawn up a range of scenarios on the impact of COVID-19 on African economies. While key sectors (oil and gas, tourism, transport) are already severely affected, the slowdown in the informal sector will compound unemployment rates. With the informal sector the largest source of employment for many on the continent, the socio-economic impact of this is likely to be devastating.
SMEs the hardest hit
While some large companies operating in sectors on the frontlines of the COVID-19 response (mostly telecommunications, agribusiness, personal hygiene and pharmaceuticals) are reaping the benefits, most small and medium-sized enterprises (SMEs) are heavily impacted by this crisis. The slowdown, if not total interruption, of operations, cash flow issues and challenges in meeting overheads are among the major challenges.
The consequences for SMEs could range from salary cuts and retrenchments to bankruptcy.
The appointment by the AU chairperson, South African President Cyril Ramaphosa, of five special envoys to mobilise international financial support for Africa’s efforts in fighting the effects of COVID-19 indicates how the anticipated economic crisis is likely to affect the continent’s recent growth gains.
This appointment was followed by the announcement by some of Africa’s public creditors (G20) of a moratorium on Africa’s debt. Though controversial, this is a laudable effort that will presumably translate into increased capacity to manage the health crisis.
A sizable portion of the money made available in this manner should be invested in saving private businesses from bankruptcy. This is a particularly daunting challenge on a continent where access to credit remains a privilege, tax systems are tenuous and transparency challenges are rife.
Governments should focus on creating an ecosystem of strategic information that could help SMEs share experience
In several African countries SMEs have shown great resilience in confronting the existential challenges the pandemic presents. However, helping them to survive the crisis should not be restricted to cash transfers. Given how difficult it will be to resuscitate collapsed SMEs, governments and regional organisations should rather focus on creating an ecosystem of strategic information that could help SMEs share experience and good practices.
Impact on peace and security
Whether the AU Peace and Security Council, as well as the UN Security Council, declares the COVID-19 crisis an international peace and security issue or not, it seems likely that its toll on the private sector will have consequences for peace and security.
Protecting their capacity to survive this crisis should be a priority for the AU Commission’s Economic Affairs and Trade and Industry departments, as well as for its Peace and Security Department.
The stabilising role played by private businesses in peaceful times has been widely documented. By creating value and employment opportunities they help to keep citizens out of the reach of entrepreneurs of violence. Their role as peace agents in times of war, during major international crises and when building peace, is less known.
Private businesses – small, medium and large – are the backbone of post-conflict African economies. Very few peacebuilding initiatives would be possible without the contribution of private companies, including in the informal sector. Demobilised former combatants, for example, would hardly earn a living if private companies were not ready to take risks.
The stabilising role played by private businesses in peaceful times has been widely documented
When the COVID-19 pandemic hit the continent, major companies in some African countries, as well as wealthy captains of industry, offered their support to governments in their fight against the spread of the virus.
Some of the wealthiest families in South Africa opted to create funds dedicated to helping SMEs financially affected by the crisis. While big companies can afford to provide some assistance to governments, SMEs are in dire need of support.
The AU’s role in mobilising support
The AU can play a major role in mobilising support for private businesses in order to avoid social crises that could affect countries’ stability. While state-owned enterprises are almost certain to receive government bailouts, the AU Commission, in collaboration with the African Development Bank and the United Nations Economic Commission for Africa, should focus on SMEs.
This support should not be limited to an emergency plan related to the fight against COVID-19. It should be part of a systematic, long-term plan that will see the AU involve African private enterprises more in matters pertaining to peace and security.
Building on existing initiatives involving elders (Panel of the Wise), women (FemWise) and the youth (Youth for Peace), the AU Commission could take advantage of the COVID-19 crisis and its aftermath to develop a continental framework that increases the peace dividend of private businesses.
Their conflict prevention and peacebuilding potential has remained largely untapped in Africa, and the AU Commission has the legitimacy to give them a platform where they can voice their concerns at the continental level.
Despite these obstacles the AU Commission would be well advised to enter into a strategic partnership with the private sector
There are potentially many obstacles to achieving this. Some of these relate to internal dynamics and siloed thinking at the various AU Commission departments. This would present the AU departments of Peace and Security, Trade and Industry, and Economic Affairs with a unique opportunity to cross-pollinate their skills and networks in favour of peace; a cross-cutting goal enshrined in Agenda 2063. Ideally, such an initiative should be housed in the Office of the Chairperson.
Another issue is the structure of SMEs in Africa. With the notable exception of Northern Africa and South Africa, most private businesses on the continent operate informally, employing a substantial part of the labour force. Many are either personal or family businesses with accounting practices that do not reflect recognised standards of transparency. This often makes it difficult for governments to boost the capacity of informal businesses.
Despite these obstacles the AU Commission would be well advised to enter into a strategic partnership with the private sector. The COVID-19 crisis presents a historic opportunity that should also involve regional economic communities. To be sustainable, this initiative should be innovative enough to include representatives of the informal sector.
