Global Perspectives | Bericht | 9. June 2020

Dr David Fine & Ying Sunny Sun: “It is in everyone’s interest to make this a successful outcome.”

GP Video Interview on the difficult road ahead for most African nations after the COVID-19 pandemic

Dr David Fine is Senior Partner at McKinsey’s London office and is the Global Leader of the consultancy’s Public and Social Sector Practices. Originally from South Africa, he works with senior government leaders and ministries, social sector organizations, and private sector champions on economic- and country-development strategies, public-finance management, industrial growth, education, infrastructure, social development, and public health—including country-wide responses to HIV/AIDS, Ebola, and polio.

Ying Sunny Sun is Partner at McKinsey based in Nairobi and part of the Social Sector Practice, with a focus on global public health.

GPI has talked to them about the difficult road ahead for most African nations after the COVID-19 pandemic. Apart from the economic consequences and possible ways out of the crisis, they have also discussed what the current developments mean for Africa’s next generation.

GP Video Interview with Dr David Fine & Ying Sunny Sun

In general, what scenarios does McKinsey consider for Africa in view of the economic recovery and future of the continent compared to that of Europe, Asia or North America?

Dr. David Fine: As of the 7th of May, 40 percent of people in Africa were in lockdown, which is about a third of the workforce. We imagine that this will probably lead to the first recession in 25 years in Africa. This is obviously compounded by Africa’s position in the global economy. It is heavily commodity dependent. And it is also heavily dependent on global supply chains. So, depending on exactly how those unfold, it will obviously have a different implication.

One scenario is a scenario where this is just a delay, that we have locked down early, that essentially because of the co-mobilities that exist in Africa – diseases like malaria, HIV/AIDS, etc. – we are just going to see this substantial problem arrive in Africa later. The second one is, whether or not, because of Africa’s young population – the average age is about 19 years –, weather factors, BCG vaccines[1], all the kinds of things that are in the press, in fact Africa may be lightly touched by this epidemic. And aside from places where there is very high density, in fact, Africa may come out of this relatively unscathed.

I think the jury is still out. But we see a very, very strong dependence of Africa’s economy on the outlook of these two scenarios at the moment.

What specific efforts would you like to see by African governments to ensure a timely economic revitalization and how can the private sector support?

Ying Sunny Sun: We really see the efforts across three time horizons. The starting point is really about emergency financial relief to support businesses and households.

And in the past two to three months, we were actually seeing many African governments already acting to inject liquidity into the economies, reducing interest rates, helping businesses survive through liquidity funds, and supporting households’ economic welfare through direct cash transfers and other types of support. And in many cases, actually, private sector and development partners played an active role in supporting that. So that is encouraging, but much more is needed.

The second vital effort is really about smart opening. Now it seems the COVID crisis will likely persist for at least a year, if not longer. There is serious risk of resurgence in infection globally, but maybe also regionally. And we have all seen the challenges with prolonged lockdowns on African economies, especially given densely populated urban areas and given that so many people depend on their daily wage just to survive. And so, governments really need to think about reopening economies in a very calibrated way, sooner than later. And this is about bringing key industries back into operation and ensuring safety of working. This will not be a momentary activity that you do once. Governments really need to think about building the muscle to be able to alternate between reopening and restricting economies on a pretty granular and localized level. And the private sector actually needs to play a pretty important role here in terms of informing governments on the operational and tactical means for reopening their sectors and also helping to define and reinforce the safety protocols so that businesses can stay open.

And then finally, in the midst of this prolonged crisis, we are seeing a transformation in terms of government effectiveness starting to happen in some countries. So, there are signs of greater emphasis on transparency and accountability that could potentially point to a stronger social contract between citizens and governments emerging out of the crisis.

Do you expect major regional differences in recovery on the continent and can the recently intensified efforts for regional integration help to sustainably rebuild these economies?

Dr David Fine: I think the first thing we must point out is that Africa, unfortunately, has relatively high debt levels and relatively low savings levels. So, unlike countries, for example Germany and others who can print money to manage inflation, they have less degrees of freedom. So, when you put that context in place, you then start to look at the continent and you can kind of divide the continent into what I would call gateway economies. So, these are kind of strong regionally centered economies like South Africa, Nigeria, Kenya, Ethiopia and in North Africa probably Morocco.

And so, you know, we think that those economies have obviously more resilience and are more likely to bounce back versus other more vulnerable economies, where the commodity sector is not going to fuel the growth or there is just not sufficient capital in the country.

I think we are optimistic that actually, at least certainly in Africa, people will look through the regional lens and open economies. But we are concerned that if people do actually move into more protectionist types of policies it will certainly create constraints.

Independent of all those things, I think our point of view would be that governments will need to accelerate their reforms. We do think that a lot of the savings are tied up in corporates, large corporates and large medium sized enterprises. And so, the big question is, how is the environment going to be shifted so that there is a very strong partnership between the public and private sector? And how do we continue to encourage people to see that the whole is stronger than the sum of the parts and continue to focus on that as their primary objective?

Small and informal businesses are the bedrock of African economies, but the pandemic hits them especially hard. What needs to be done to support the informal parts of the economy and protect jobs?

Ying Sunny Sun: We have already seen across many African countries that the survival of micro, small and medium enterprises (SMEs) are really under threat. By one of our estimates we are seeing that essentially at least a third of the jobs in the informal sector and employed by SMEs will be affected by COVID. So that is an enormous impact. However, when thinking about what to do to support that part of the economy and to protect those jobs, the broader health of the economic and financial system of the country is also really important. Otherwise, the solutions are really temporary. We would encourage governments to first also think about, within the broader economy and the formal sectors, what are the really strategic and important ones to protect? Not only because of the roles they have in their own sector, but also their ripple effect into the broader economy, especially the informally employed.

Africa is the youngest continent. Is this fact a positive promise for the way out of the crisis or are you worried about the consequences for the next generation?

Dr David Fine: I think, first of all, we are all very hopeful that the impact of COVID on Africa because of the average age of the population and other factors will be lower. We have also seen an extraordinary amount of digitization actually happening at the same rate as you would have seen it anywhere else in the world, both in terms of education, disbursement of funds and all kinds of extremely innovative digital solutions coming to the fore very, very quickly. Which also gives us a lot of confidence that economies will become more formalized and economies will – almost through a time machine – arrive in the future much faster than we would have anticipated previously. And with a population that is actually tech comfortable and tech savvy. So that is the upside.

I think, as I mentioned previously, the question is, let us assume these things are all true and you have a shrinking economy, what and where is this talent going to go? To what extent will there be an opportunity for them to deploy that human capacity into their home country, and actually drive the economic growth that is required to kind of absorb all that talent? Versus, will those people actually look to move and migrate? And I think the history of Africa has been the latter, not the former.

You look at Africa’s population. It is a young, well-educated population and McKinsey has published on that previously. It is a highly aspiring population. And if the rest of the world just looks through the lens of, well, we will leave Africa to solve its problems and we will come back when those problems are solved, there is an enormous risk that this young, educated population who has high aspirations is just going to find ways to essentially migrate into developed markets where they see there is opportunity, if they do not see opportunity in Africa. And I think this is an important issue for all developed economies to think through. It is in everyone’s interest to make this a successful outcome for everyone.

I think so far, based on what we are seeing through many of the aid agencies, including the German aid agency, we are seeing an extraordinary amount of commitment and support for the more optimistic scenario.

[1] The Bacillus Calmette-Guérin (BCG) vaccine is a vaccine used primarily against tuberculosis.

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