Blog & Publications
African economies under the pressure of the Covid-19 health crisis
The entire planet is shaken by an unprecedented health crisis. A very difficult situation that we did not see coming. This health crisis highlights human limitations and makes us realize that we have surrounded ourselves with many activities that are not essential to life.
To limit the impact of Covid-19 on the economy of African countries, financing solutions for Covid 19 are underway, which we believe are very good initiatives. In our opinion, we must separate the immediate need for liquidity to meet the expenses generated by Covid-19 in our States and the revival of our economies which in our opinion must be carried out in accordance with a well-structured recovery plan to have an impact real.
In the first case, moratoriums may be considered for some countries and new funding under a fast-track procedure for other countries. These two options would make it possible to provide an immediate and effective response to this shock depending on the country situation. For economic recovery, debt cancellation can be considered, but without also excluding the possibility of reviving the economy through new financing according to the choice of countries. Besides, there have been considerable efforts in budgetary management in our countries. But we must continue to rethink our economies after the Covid-19 crisis.
As you know there have been debt cancellations in the past and recently with the HIPC initiative in some countries and soon after, significant recourse to debt. We are not saying that debt is a bad thing, not at all, but we have to keep in mind that the only great added value it brings is a strong and long-lasting constraint on the leaders who use it. and especially when it is injected into social projects which are necessary in our States. This is why our states must continue to improve tax revenue collection by encouraging and investing in digital transformation to improve the traceability of financial information, by integrating the banking system more closely. It will also be necessary to invest in cybersecurity to protect against related attacks. We have to transform the raw materials. This solution will make it possible to considerably increase the revenues of States through dividends and other income that they can reinvest in social projects (health, education, housing, etc.) but above all it will make it possible to create many jobs in order to permanently reduce the unemployment problem.
We know that when a company is created, it works with suppliers, subcontractors, customers. This company is hiring to produce and due to the increase in orders it generates in the sector and with its partners, they will also hire. We must seriously think about it and we think that this solution, in addition to the entrepreneurial initiatives recently launched in African countries, will make it possible to settle the unemployment problem in the long term.
Coming back to private sector companies, many executives wonder if there is an optimal level of cash flow for their business to be safe in this increasingly uncertain environment. It all depends on the business sector of the company and its own needs. Having 3 to 6 months of free cash would be sufficient. Beyond that, we must give funds to shareholders so that they give back to companies in difficult economic times. You should know that a very large cash flow within a company can reflect the inability of managers to identify interesting projects where one can hope for a rate of return higher than the cost of capital. This is why for a listed company, this transfer of assets to shareholders must be studied beforehand because it can constitute a positive or negative signal on the financial markets. Finally, with a very large cash flow, the company is not immune from unpleasant behavior on the part of some managers.
The crisis is certainly not over yet, but what lesson can we learn so far? National industries are needed for vital goods. We must equip hospitals and create at least in each African capital, an ultramodern hospital where we can treat all pathologies to avoid transferring patients out of countries, when we know that this possibility is only offered to decision-makers and the rich from the mainland. Public and private partnerships can be considered or simply public actions. Funding for scientific research must be considerably increased and tripartite doctoral agreement between universities, companies and laboratories must be created.
Source : BridgAfricA.