Shaping the post-Covid-19 economy

With no cure in sight, it is now almost certain that Covid-19 is going to linger around for some time.  We must therefore learn to live with it, for life must go on.

This calls for a new way of thinking in order to mange the crisis as well as the economy.

Locally, as well as most in countries of Africa, the rate of infection continues to rise, with real fear that if the continent does not drastically change behaviour, the virus could sink its sharpest fangs into the continent.

Already, World Health Organization (WHO) experts project that up to 190,000 deaths could occur in Africa within the next one year if Africa fails to manage the pandemic.

Governments across the continent are caught between saving lives and livelihoods.  While saving lives cannot be equated with anything, the worst Africa can do at the moment is to open up the economy because others are doing the same.

The continent must come up with creative mays of managing this dichotomous puzzle.

A new report by McKinsey & Company, Reopening and reimagining Africa: How the Covid-19 crisis can catalyse change, says that the continent’s longer-term recovery and re-emergence requires thinking beyond the crisis. It proposes three broad ideas to reimagine African society, business, and government.

First, is the reimagining of African society. The report notes that if governments, businesses, development partners, and citizens act with renewed purpose and imagination now, they can help ensure that the crisis catalyses positive, sustainable social change and a desirable new normal.

The report identifies three opportunities, including accelerating Africa’s digital transformation, putting renewed focus on serving the needs of vulnerable urban populations, and transforming African healthcare systems for resilience and equity.

Through digitalisation, governments will enhance not just productivity but also inclusivity in serving the vulnerable communities and transforming the healthcare systems in remote areas of the continent through the expansion of connectivity and ensuring access and affordability of broadband.

LONG-TERM TRANSFORMATION

Second is the reimagining of African business as “Covid-19 has sparked extraordinary innovation as companies contribute to bolstering health care and find new ways to serve stakeholders. The crisis could catalyse long-term transformations.” In this scenario, they outline three opportunities.

The continent must seek to strengthen sector competitiveness through consolidation and innovation, reshape manufacturing, with a focus on self-reliance and catalyse the formalisation of African economies.

Although manufacturing in Kenya for example, is on its deathbed, Covid-19 has bolstered its re-mergence to resuscitate President Uhuru’s legacy agenda. The low hanging fruits in manufacturing lie in disrupting the Micro Small and Medium Enterprises (MSMEs).
Unfortunately, the focus on MSMEs has always centred on financing through the banking sector, which, in my view, is counterproductive since they have never gotten it right even in better times. Local research shows the many problems that face MSMEs but interventions only focus on finances.
Yet if other problems like broken supply chains, marketing and value addition were dealt with, a new business model would emerge that could be funded by the banks without the guaranteed schemes that have not worked in the past.

Further, there is urgent need for African countries to focus first on formalising the informal sector through digitalisation to create more data points that are critical to decision making and transformation of the sector.

The significance of MSMEs is underrated. Yet the sector consists of more than 90 per cent of enterprises, employing more than 70 per cent of the workforce and contributing at least 40 per cent to GDP.

A well-informed decision must be made quickly because I know that people who lost jobs are getting desperate. It has reached a point where some of them are begging relatives to give them money for food. Yet some of the interventions being made may not readily create the desired impact.

Last is the reimagining of the African government. On this score, the report says that by taking important steps to contain the virus and mitigate its economic fallout, governments have taken on significantly larger roles in the economy and society.

Further, Intergovernmental institutions must act with speed, decisiveness, and collaboration. If this can be sustained, the benefits for Africa’s people could be immense. The report suggests three key opportunities for reimagining government.

SUSTAINING MOMMENTUM

These include planning for a more active government role in the economy, forging a stronger social contract between citizens and government and sustaining momentum in regional and pan-African cooperation.

The McKinsey & Company report echoes a May 14, 2020 article, 'The neoliberal era is ending. What comes next?' by Rutger Bregman in The Correspondent, in which he noted:

In a crisis, what was once unthinkable can suddenly become inevitable. We’re in the middle of the biggest societal shakeup since the Second World War. And neoliberalism is gasping its last breath. So, from higher taxes for the wealthy to more robust government, the time has come for ideas that seemed impossible just months ago.

Bregman was simply referring to economic ideals espoused by philosopher Friedrich Hayek and the economist Milton Friedman who after the Second World War promoted the idea of less government and less taxes as a more efficient way of governance. The idea came to dominate western governments, especially conservative administrations and more prominently the Reagan and Thatcher governments in the US and the UK, respectively.

The tide is turning back to Keynesian economic ideals espoused by John Maynard Keynes, a British economist and champion of a strong state, high taxes, and a robust social safety net. This is precisely what McKinsey is making reference to in their third proposition for African governments.

Hayek and Friedman ideas haunted Africa most since they were adopted by the Bretton Woods institutions that urged Africa to get rid of state corporations in an effort to reduce government’s participation in the private sector. Some of the most profitable state corporations were sold.

Other countries like Australia and Canada resisted the idea of government relinquishing its role in some state corporation, choosing instead to introduce new concepts like corporatisation of state enterprises and the introduction of social protection.

It will take serious thinking to balance between the heath of the people and economic wellbeing as the raging crisis continue.
Nevertheless, we must disrupt the MSMEs, re-introduce state investments where private sector is failing and develop a well-meaning social protection program.

The writer is a professor of entrepreneurship at University of Nairobi’s School of Business.