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World Bank to focus on economic recovery post Covid-19

The World Bank is one of several multilateral lenders on the frontline of Africa’s emergency economic response to Covid-19. World Bank vice president Makhtar Diop shares his insights on how the Bank will help overcome an unprecedented crisis that has plunged Africa into a period of great uncertainty.

What’s been your perspective of the shock caused by the Covid-19 pandemic?

This shock brought to light many things. Firstly it has exacerbated inequalities. The poorest countries will be more impacted than the richer countries because they will have less monetary and fiscal firepower to respond to the economic shock that will result from the health crisis. This is the first recession to hit Africa in 25 years!

So from this perspective, it is a huge shock, and the response capacities, such as fiscal stimulus, are more limited. This crisis has highlighted the limitations of the health system in many countries. Lastly, it has reinforced the need for well-established social protection systems.

At the Bank, after having set up a first phase of programmes for a hundred countries to address the immediate health issues, we will start focusing on economic recovery in our phase two. In this phase, we will identify solutions to problems such as the disruption of value chains and trade, the reduction of foreign direct investment, a considerable fall in foreign exchange and revenues derived from tourism, remittances, etc.

You spoke of recession. The situation appears much deeper than this, and the crisis seems to be multifaceted.

Yes, it is a crisis which will profoundly affect the functioning of productive economies. Until a vaccine is found, physical contact will have to be reduced. This means that digital will take a much more important place in economic activities, hence the need to enhance connectivity in Africa, in terms of broadband and 4G. This need is not new, but it is more urgent today.

Will this digital divide widen and further deteriorate Africa’s economic standing globally?

Sixty percent of the population does not have access to 4G. With the International Telecommunication Union (ITU), the World Economic Forum and GSMA we have implemented a programme that will accelerate access, by removing rigidities related to spectrum rental. We are talking to telco regulators to offer more data through their existing networks. There is also “dark fibre”, which is the installed capacity that is not currently being used due to political or security constraints. This dark fibre is available; we must release it. Lastly, we need to increase the number of apps and the use of big data to unlock the possibilities of digital development in education and health. We need to apply this across emerging markets and developing economies in Africa to enable them to leapfrog.

Exceptional circumstances call for exceptional measures. How can Africa prevent this crisis degenerating further?

The World Bank will make available to countries, over the next 15 months, $160bn in funding to assist governments with health, economic and social welfare. A significant effort will also be made in favour of the initiative launched, through the G20, by the World Bank and the IMF, which aims to suspend the payment of bilateral debt. This budgetary support will go a long way to get countries back on their feet.

Specifically, the World Bank and the IMF have made budgetary discipline a fundamental criterion of good governance, within the framework of the advice given to the countries they support. But today the debt is racing upwards…

I disagree. What we offer above all is maximum use of concessional resources. Thus, of the $160bn, $50bn are in the form of highly concessional resources, or in the form of grants, in order to lighten the burden of debt that weighs on these countries. Second, we also propose deferring debt repayment through additional budget support instruments which we have increased in volume and which, using existing programmes, can increase the resources made available.

For the time being, we do not see the need for these countries to carry out complicated and costly reforms in the short term. This approach takes into account the reality of the adverse situation in which countries are caught, both on the revenue and expenditure side.

You head several structures that work on energy as well as on the extractive industries, transport, digital development, financing of PPPs, etc. How do you envisage the resumption of projects in these sectors which are today impacted by the crisis? How do you reset the dynamics?

Some short-term decisions need to be made immediately. For example, the poorest households should be able to defer payment of their electricity bill, and even, for some, see these bills cancelled. Above all, we have to make sure that the support we provide to governments compensates the resulting shortfall for these distribution companies. If we do not do this, we risk seeing catastrophic cascading effects. Why? Because these distribution companies often have PPP contracts with producers that they may no longer be able to pay, because they, themselves, did not receive the revenues they expected.

This is why, when we help identify the needs of countries, we ask them for the most precise estimate possible of their shortfall in this regard. This is essential to maintain the financial sustainability of this sector while continuing to distribute electricity to populations and to maintain access programmes. At the same time, we are protecting investment programmes in this sector.

We have not cut our funding in this area because it is an essential part of the economic recovery. The greater the number of those who have access to electricity, the greater the number of those who will be able to engage in productive activities and create added value, not only in capitals or large urban centres, but especially in the most remote areas.

Why has electrification of the continent been so slow?

Huge progress has been made in recent years. In 2010-12, Africa was indeed experiencing a huge production deficit. Today, the problems have diminished in intensity. Hydroelectricity has been developed in Ethiopia. Solar energy has been massively used elsewhere on the continent. Wind is progressing. Capacity has been increased, and some countries are even left with excess capacity.

The real problem we still face is that of distribution and access. Increasing access to electricity means increasing the number of Africans who will be able to engage in productive activities and create added value not only in capital cities and large urban centres, but also – and most importantly – in the most remote areas. Within the next 10 years, our aim is that in the ten next years, we aim to have no countries in Africa where less than 50% of the population has access to electricity. And by that time, we hope that a few countries such as Ghana, Kenya, Senegal and Côte d’Ivoire will have reached universal access. Progress has been made, and with sustained efforts from all stakeholders, I am sure it will continue.

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Adapted from African Business Magazine

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