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Bulletin | Covid-19

International and regional financial institutions response to the COVID-19 pandemic in Africa

Fasken
Reading Time 9 minute read
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With 14184 reported COVID-19 cases as of 13 April in Africa[1], the continent is now fully responding to the Covid-19 pandemic and save for a few countries, most have taken drastic measures such as lockdowns, curfews, closure of schools and borders to limit its impact. The initial slow spread of the virus was more due to the fact that contaminations came from Europe or the American continent rather than from Asia, thanks to the closure of all flights (except for Ethiopian airlines) between Africa and China since the mid to end January.

To help countries cope with the pandemic, most financial institutions on the continent have stepped up their response to help national authorities in their responses. We will detail these in an attempt to give a clearer picture of the different packages which have been made available up to this date.

  1. International Monetary Fund (“IMF”)
    1. Nearly 80 countries worldwide have requested assistance from the IMF to respond to the COVID-19 pandemic.
    2. The IMF has already approved a $165.99 million disbursement to Madagascar,[2] a $109.4 million disbursement to Rwanda[3] to address the pandemic, and has completed discussions with Senegal for a $221 million disbursement.
    3. The IMF also tracks on its site all policy responses taken globally by every country to fight the COVID-19.[4]
  2. World Bank Group
    1. The World Bank (“World Bank”) and International Finance Corporation (“IFC”) boards approved a $14 billion package to assist companies and countries in their efforts to prevent, detect and respond to the pandemic[5].
    2. It launched emergency support to 25 countries through special provisions to fast-track financing for projects totaling $1.9 billion. Another $1.7 billion is also being redeployed from existing projects to urgent pandemic response and recovery. The focus of these first efforts is to help health systems tackle the immediate challenges of COVID-19. This includes restructuring and use of projects’ emergency components as well as contingent financing instruments designed for catastrophes.
    3. In Africa, Cape Verde, Democratic Republic of Congo, Djibouti, Ethiopia, Gambia, Ghana, Kenya, Mauritania, Sao Tome e Principe, Senegal and Sierra Leone will benefit from these measures.
    4. Given the challenges posed by COVID-19, the World Bank Group is also expected to deploy up to $160 billion over the next 15 months to help countries protect the poor and vulnerable, support businesses, and bolster economic recovery, including $6 billion for expedited loan guarantees from the Multilateral Investment Guarantee Agency (“MIGA”). This will enable the purchase of urgent medical equipment and provide working capital for companies, including smaller businesses, while also supporting governments’ short-term funding needs.
    5. The emergency financing includes $8 billion from the IFC, to help the private sector cope with the pandemic. In addition to new investments, IFC is extending trade finance and working capital lines to clients.
    6. Finally, the World Bank Group is also working to address disruptions in global supply chains, so that countries have access to critically needed medical supplies.
  3. African Union Development Agency (“AUDA-NEPAD”)
    1. The African Union Commission through its Center for Disease Control (“Africa CDC”) developed a continent-wide strategy with two overarching goals of (i) Preventing severe illness and death from COVID-19 infection in Member States, and (ii) minimizing social disruption and economic consequences of COVID-19 outbreaks. Such actions envisage that the Africa CDC (i) coordinates the efforts of Member States, African Union agencies, World Health Organization, and other partners to ensure synergy and minimize duplication; and (ii) promotes evidence-based public health practice for surveillance, prevention, diagnosis, treatment, and control of COVID-19.
    2. The African Union has established a Coronavirus fund with commitments already totaling $20 million. The AUDA-NEPAD is further launching its COVID-19 response plan and has issued a white paper of the various and measures which are envisaged.[6]
  4. African Development Bank (“ADB”)
    1. On 27 March, the ADB launched a $3 billion “Fight COVID-19” social bond to help alleviate the economic and social impact the pandemic will have on livelihoods and Africa’s economies. The social bond, with a three-year maturity, was over-subscribed, which attracting $4.6 billion of interest and raising $3 billion. This is the largest US Dollar denominated social bond ever launched in international capital markets to date and the largest US Dollar benchmark ever issued by the ADB. It will pay an interest rate of 0.75%.[7] The social bond listed on the London Stock Exchange on Friday 3 April 2020, and is now available through its Sustainable Bond Market.
    2. On 8 April, the ADB announced the creation of a $10 billion COVID-19 Response Facility to assist regional member countries in fighting the pandemic. It will entail $5.5 billion for sovereign operations, $3.1 billion for sovereign and regional operations for fragile countries, and $1.35 billion for private sector operations.[8]
    3. The ADB is also considering a proposal for a grant of $2 million for emergency assistance to support COVID-19 response in African countries[9]. The project will focus on building capacities and capabilities of member countries to promptly detect and contain the spread of the COVID-19. The WHO will identify target countries and provide their details when submitting final reports. The main interventions will be: (i) capacity building on infection prevention, testing and case management; (ii) surveillance system; (iii) purchasing and distributing laboratory test kits and reagents; (iv) purchasing and distributing personal protective equipment; and (v) supporting coordination mechanism at national and regional levels.
  5. New Development Bank (“NDB”)
    1. On 2 April, the NDB issued a 3-year RMB 5 Billion (equ. $708 Million) Coronavirus Combating Bond in the China Interbank Bond Market, to support the Chinese Government in the financing of public health expenditure in the provinces which were the hardest hit by COVID-19.[10]
    2. The South African press has reported that the NDB was is ready to lend South Africa $1 billion, to tackle the immediate public health crisis,with another $1 billion later this year to help re-stimulate the economy.[11]
  6. Africa Finance Corporation (“AFC”)
    1. The AFC, based in Lagos, Nigeria, is an independent, majority private sector owned, multilateral African financial institution providing project structuring expertise and risk capital to address Africa’s infrastructure development needs. Its current members are Benin, Cape Verde, Chad, Côte d'Ivoire, Djibouti, The Gambia, Ghana, Gabon, Guinea, Guinea-Bissau, Kenya, Liberia, Madagascar, Malawi, Mauritania, Mauritius, Nigeria, Uganda, Sierra Leone, Togo, Zambia and Zimbabwe.
    2. It has committed to provide over NGN 500 million (equ. $1.3 Million) to the Central Bank of Nigeria Private Sector Coalition against the Coronavirus pandemic, aimed at targeting interventions in emergency hospitals in Lagos and Abuja. It is also providing critical medical supplies to the Nigeria Center for Disease Control to enhance its capacity as it manages the increasing number of COVID-19 cases in Nigeria.[12]
  7. African Export-Import Bank (“Afreximbank”)
    1. Afreximbank is the African continental trade finance institution. Its shareholders are a mix of public and private entities divided into four classes and consist of African governments, central banks, regional and sub-regional institutions, private investors and financial institutions, as well as non-African financial institutions, export credit agencies and private investors, and it currently has 51 members, including most of the African states.
    2. Afreximbank announced a $3 billion facility, the Pandemic Trade Impact Mitigation Facility (“PATIMFA”), to help African countries deal with the economic and health impacts of the pandemic. PATIMFA will provide financing to assist Afreximbank member countries to adjust to the financial, economic and health services shocks caused by the COVID-19 pandemic, according to information released by the Bank.
    3. It will support central banks, and other financial institutions to meet trade debt payments that fall due and to avert trade payment defaults, and be available to support and stabilize the foreign exchange resources of central banks, enabling them to support critical imports under emergency conditions.
    4. It will also assist member countries whose fiscal revenues are tied to export revenues (i.e. mineral royalties) to manage any sudden fiscal revenue declines as a result of reduced export earnings and will provide emergency trade finance facilities for import of urgent needs to combat the pandemic, including medicine, medical equipment, hospital refitting, etc. The facility will be available through direct funding, lines of credit, guarantees, cross-currency swaps and other similar instruments.[13]
  8. West African Development Bank / Banque Ouest Africaine de Developpement (“BOAD”)
    1. The BOAD is the development finance institution of the member countries of the West African Economic and Monetary Union (“WAEMU”).
    2. WAEMU member countries were granted XOF120 billion (equ $200 million)in concessional loans (XOF15 billion per country – equ $25 million) to be disbursed immediately.
    3. The BOAD also decided a suspension of prompt notices for principal repayment involving XOF76.6 billion (equ $127 million) owed by member countries for the rest of the year, in support to their response to the pandemic.
  9. Islamic Development Bank (“IsDB”)
    1. The IsDB, a multilateral development finance institution focused on Islamic finance, has 57 shareholding member states including 27 African countries.
    2. The IsDB has approved $2,3 billion for the Group Strategic Preparedness and Response Programme for COVID-19 pandemic. The Programme aims to support Member Countries’ efforts to prevent, contain, mitigate and recover from the impact of the pandemic. The Programme envisages an approach in the short, medium and long term, accommodating priorities beyond the immediate and emergency response to the health sector, while putting member countries back on the path of economic recovery through restoring livelihoods, building resilience and kick-starting economic growth.[14]
  10. International Islamic Trade Finance Corporation (“IFTC”)
    1. IFTC is a member of the Islamic Development Bank Group.
    2. It will provide $850 million for emergency response to COVID-19 in the most affected Organization of Islamic Cooperation (“OIC”) countries.
    3. The funds are channelled directly to eligible OIC member countries most in need of aid for energy supply, health care, food security and other basic needs.[15]

These packages are surely the first phase of response to governments to address the issues linked to the pandemic. In the longer term, more comprehensive packages will be required to be put in place to fight impacts of the pandemic. The World Bank projects indeed economic growth in Sub-Saharan Africa to decline from 2.4 % in 2019 to -2.1 to -5.1 % in 2020, the first recession in the region in 25 years[16].

What does this mean for South Africa? The Institute of International Finance said it expected South Africa’s economy to contract by 2.5% in 2020, but said waning demand, travel restrictions and pandemic-related closures could lead to a deeper recession. In this context, Tito Mboweni, the Minister of Finance, mentioned last week the country could go to the IMF and the World Bank to seek relief from the pandemic. This raised many voices amongst the ANC, some of its senior officials arguing that conditions likely to be attached to any funding would compromise the nation’s sovereignty. The polemics of such funding aside, the clearest path of funding for South Africa for the moment remains that of the NDB, which, it was reported, is ready to lend South Africa $1 billion, to tackle the immediate public health crisis, with another $1 billion later this year to help re-stimulate the economy. The country could also benefit from part of AfDB’s $10 billion COVID-19 Response Facility and the $3 billion social bond for specific projects. Finally, being a shareholder of Afreximbank, South Africa could also benefit from the measures put in place by this institution.

 

 



[1] https://www.africanews.com/2020/04/13/coronavirus-africa-covid-19-update-on-13-april-2020/

[2] https://www.imf.org/en/News/Articles/2020/04/03/pr20133-madagascar-imf-executive-board-approves-disbursement-to-address-the-covid-19-pandemic.

 

[4] https://www.imf.org/en/Topics/imf-and-covid19/Policy-Responses-to-COVID-19

[5] https://www.worldbank.org/en/news/feature/2020/04/02/the-world-bank-group-moves-quickly-to-help-countries-respond-to-covid-19#.

[6] https://www.nepad.org/news/auda-nepad-launches-its-covid-19-response-plan.

[7]https://www.afdb.org/en/news-and-events/press-releases/african-development-bank-launches-record-breaking-3-billion-fight-covid-19-social-bond-34982.

[8] https://www.afdb.org/en/news-and-events/press-releases/african-development-bank-group-unveils-10-billion-response-facility-curb-covid-19-35174.

[9] https://www.afdb.org/en/documents/covid-19-pandemic-crisis-proposal-grant-usd-2-million-emergency-assistance-support-covid-19-response-african-countries-emergency-and-special-assistance-grants.

[10] https://www.ndb.int/press_release/new-development-bank-issues-coronavirus-combating-bond-raising-rmb-5-bln/.

[11] https://www.dailymaverick.co.za/article/2020-04-05-the-brics-bank-is-ready-to-lend-sa-1bn-to-fight-the-covid-19/ and https://www.businesslive.co.za/bd/national/2020-04-06-sa-to-take-1bn-covid-19-loan-from-new-development-bank/.

[12] https://www.africafc.org/News-Events/News-Press-Releases/AFC-COMMITS-OVER-N500-MILLION-TO-THE-CENTRAL-BANK.aspx

[13] https://www.afreximbank.com/afreximbank-announces-3-billion-facility-to-cushion-impact-of-covid-19/

[14] https://www.isdb.org/news/the-islamic-development-bank-group-strategic-preparedness-and-response-programme-for-the-covid-19-pandemic-allocates-us23-billion-to-member-countries

[15] https://www.jeuneafrique.com/913133/economie/coronavirus-les-dernieres-infos-economiques-africaines/

[16] https://openknowledge.worldbank.org/handle/10986/33541?locale-attribute=en

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