Financial LiteracyFinancial marketsDark Times Ahead Amid The Impending Crisis

adminFebruary 4, 202377210 min

Coronavirus fears peaked this month. The virus has continued to spread around the globe rapidly. Tanzania, Kenya and South Africa cases have spiked, while the number of people infected slowed down in Uganda. Tanzania has been hit by a mass hysteria as the number of confirmed cases jumped to more than 500, with  deaths of more than 50 in a single day. Retailers across the continent have had their shelves ransacked of paper towels, water and hand sanitizes.

On 20th April the global markets buckled nearly 15% triggering circuit breakers in the pre-market sessions and the first few minutes of trading.   Given that a larger portion of trading volumes in majority of the trading exchanges in Africa is foreign-based, the rippling effect of the circuit breakers led to mass sell-off in Africa. The collapse in the price of crude oil combined with COVID-19 panic was too much for investors to take. African conferences and presentations have been cancelled. Most schools and universities are shut, all public events cancelled and travel banned without a business or health related reason until further notice. At the same time, measures to contain COVID- 19 continues to undermine prospects of corporate earnings of many companies and raises dangers of a funding crisis, the oil price crash threatens a wave of defaults among oil-producing countries.

As the economic slaughter from the pandemic continues to increase, fears of a depression also continue to increase rapidly.  The last time something similar to this happened was in 1929, during the great depression. Panic and fears have literally hit the entire world and economic output has been reduced by more than 20%.

African Union comments that more than 20 million jobs are at stake, this is the highest projection since the financial crisis. According to Bloomberg, the economic damage from the pandemic threatens to dwarf the 2008 financial crisis. Currently, more than 4 million youths in Kenya have no jobs according to quarterly labour data released by the Kenya Bureau of Statistics (KNBS. It is important to mention that there are very few people whose livelihood won’t be affected by the pandemic.

According to analysts from Goldman Sachs, the rebound from the pandemic is likely to be a V-shaped recovery. Their reason behind is that the economy crashed due to the fact that people were mandatorily required to stay at home. Therefore, easing such restrictions and letting people out of their homes will turn the economy back on track. However, the growth continent could face a different kind of recovery. V and U shaped recoveries have occurred as a result of corporate defaults, corporate bankruptcies and layoffs. Given the fact that many low-income economies mainly in Africa were still recovering from the 2008 financial crisis, it could take decades to get past this. Yet, historical samples from 2008, energy crisis and great depression have been able to prove that Africa’s recovery is very slow compared to any other continent. Therefore, the same is expected when the pandemic crisis goes away.  Many believe that this won’t go away easily. For instance some of the economic stimulus programmes and loan waives are measures that are seen to prolong the effects of coronavirus.

 There is significant evidence that many people are not staying indoors because of the lockdown measures but because of the fear of contracting the virus. Data from restaurant businesses around the continent shows that the decline from dine-in customers started way before most countries issued the stay-at-home orders. This means people got scared of the virus way before measures were put in place.  Consequently, unless there is an assurance that the virus is less harmful to peoples’ personal health, then no one is willing to leave their house to go out even if social distance guidelines are lifted. In regards to this, the global economy is expected to continue its downward trend until a vaccine is developed, which could be 2 years from now.

Gross domestic product (GDP) is set to decline in almost every country worldwide. Forecasts from Credit Suisse show that countries are expected to bounce back simultaneously. However, there are those that will struggle to recover especially African countries and as a result the export market is deemed to be hurt the most during the recovery process.

So far, the global financial system has party recovered. For instance, the Reserve bank of South Africa has been able to contain the solvency of the licensed banks in South Africa. Interest rates are low and distresses in banks have not been widespread compared to 2008. Nevertheless, the threat of repeated coronavirus outbreaks jeopardises the lifeline of banks because most of them will be afraid to lend due to the level of uncertainty. It is important for African governments to work together by all means necessary to prevent a depression that could last a decade as put in the words of President Ronald Reagan “a recession is when your neighbour loses his job and a depression is when you lose yours.” 


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