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Africa’s economy on the edge of plunging into a new crisis

Beyond the health crisis, the economic crisis is already looming in Africa. Regional financial institutions are deploying measures to respond to emergencies. The African Union will create a continental anti-Covid-19 fund. Moody placed the financial rating of South Africa, whose economy has just plunged back into recession, in the midst of a new pandemic, at the level of speculative investment.

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This picture show some African kids living in poverty.

To cope with the financial crisis that is about to start in Africa, AfDB launched a social bond issue. The pan-African bank is pressed for time and has therefore decided to launch an appeal to investors without going through the banks.

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A social bond issue entitled “Fighting Covid-19”

“We appreciate the exceptional level of interest that our Fighting Covid-19 program has generated around the world at a crucial time for Africa. The African Development Bank is committed to making the necessary efforts to mitigate the social and economic impact of this pandemic on our already weakened continent,” said Hassatou Diop N’Sele, Treasurer of the African Development Bank Group.

“With our social bond issues, we offer investors the opportunity to participate in improving the living conditions of the people of Africa. The Fighting Covid-19 issue is an exceptional result for an exceptional cause.” After a few hours, the bank obtained more than it had hoped for, with a final order book of $4.6 billion. This issue is the largest social bond ever issued in the dollar capital markets. Still, these promises are quickly becoming a reality.

The anti-Covid-19 fund for Africa

The African Union will create a continental anti-Covid-19 fund. It is Cyril Ramaphosa, the South African head of state, in his capacity as the current chairman of the AU, who is at the helm. A total of $12.5 million will be mobilized to get it off the ground. AU member states, the international community, and philanthropic entities are all invited to contribute to the fund.

Acknowledging the critical role of the African Center for Disease Control and Prevention (CDC Africa) and its underfunding, the Member States of the African Union Office agreed to contribute $4.5 million to strengthen the capacity of CDC Africa. The Bureau, i.e., the executive of the pan-African institution, expressed concern about possible shortages of drugs and vaccines as factories close or countries hold stocks for their own consumption.

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The financial rating of South Africa was downgraded

Moody’s downgraded South Africa’s credit rating. The dreaded news came on Friday, March 27th. The rating agency placed the financial rating of South Africa, whose economy has just plunged back into recession in the midst of a new coronavirus pandemic, at the level of speculative investment.

The continent’s most industrialized country has been mired for more than a decade in a crisis manifested by sluggish growth, deteriorating public finances, mass unemployment (29.1%) and, more recently, repeated power outages.

The South African economy fell back into recession in the last quarter of last year. For 2019 as a whole, the country’s gross domestic product (GDP) grew by only 0.2%, its smallest increase since the global financial storm of 2008. Moody’s downgraded the country’s rating from Ba1 to Baa3 because of “the continued deterioration of its fiscal situation and structurally weak growth”, which the agency believes “will not be effectively addressed by current government policy”. 

Moody’s also maintained its negative outlook for fear of “weaker than expected growth and faster than expected debt growth”. The South African government recently forecasted a growth of 0.9% for the current year, but President Cyril Ramaphosa warned that the coronavirus outbreak would lower that forecast.

“The deterioration of Moody’s could not have come at a worse time,” the Finance Ministry regretted in a statement, “it will aggravate the current nervousness of the financial markets.” South Africa is the sub-Saharan African country most affected by the Covid-19 pandemic, with more than 1,000 cases and one death, according to the latest report. The other two financial agencies, Fitch and S & P, had both already placed the country on the list of speculative investments.

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(Featured image by monginkhosi via Pixabay)

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First published in LePoint Afrique, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

Although we made reasonable efforts to provide accurate translations, some parts may be incorrect. Born2Invest assumes no responsibility for errors, omissions or ambiguities in the translations provided on this website. Any person or entity relying on translated content does so at their own risk. Born2Invest is not responsible for losses caused by such reliance on the accuracy or reliability of translated information. If you wish to report an error or inaccuracy in the translation, we encourage you to contact us.

Olivia McCall is passionate about education, women and children’s rights, and the environment. A long-time investor, she covers news about the latest stocks (lately marijuana and tech), IPOs and indices, and is always on the lookout for socially responsible startups. She also writes about the food sector, and has a keen interest on cryptocurrencies.