REOPENING AND REIMAGINING AFRICA: HOW THE COVID-19 CRISIS CAN CATALYZE CHANGE - MCKINSEY

 
REOPENING AND REIMAGINING AFRICA: HOW THE COVID-19 CRISIS CAN CATALYZE CHANGE - MCKINSEY
Reopening and
           reimagining Africa:
           How the COVID-19 crisis can catalyze change
           This article is a collaborative effort by Kartik Jayaram, Kevin Leiby, Acha Leke,
           Amandla Ooko-Ombaka, and Ying Sunny Sun, representing views from across the
           McKinsey Africa Practice.

May 2020
COVID-19 poses a grave threat to lives across                        a muted economic recovery. A prolonged global
    Africa, with the World Health Organization (WHO)                     slowdown, combined with continued lockdowns
    estimating that the continent could see up to                        in Africa, could plunge the continent into its first
    190,000 deaths over the next year if the pandemic                    economic recession in 25 years while threatening
    is not controlled.1 In the face of this challenge,                   the jobs or incomes of 150 million Africans—one-
    governments have acted fast, both to strengthen                      third of the entire workforce. 3
    the capacity of health systems and to contain
                                                                         African countries need to find smart approaches
    the spread of the virus: as of May 19, about half
                                                                         to reopen economies in a calibrated way that
    of Africa’s population lives in countries imposing
                                                                         brings key industries back into operation while
    some type of lockdown. But despite accelerating
                                                                         ensuring safe ways of working. The COVID-19
    case numbers and still-low testing rates in many
                                                                         crisis will likely persist for some time, and there
    countries (Exhibit 1), as well as recent reports
                                                                         is serious risk of a resurgence in infections.
    of a worsening health crisis in hotspots on the
                                                                         Accordingly, governments will need to build the
    continent, some governments have started to
                                                                         capacity to alternate between reopening and
    ease restrictions with caution as economic pain
                                                                         restricting economies on a granular, local level—
    becomes more acute for households.2
                                                                         akin to developing and flexing a muscle. 4 In the
    The economic outlook is also bleak. Globally,                        first part of this article we shine a spotlight on
    while some countries are past their peak rate                        these approaches to smart reopening, suggesting
    of infections, concerns about virus resurgence                       pathways that countries can adopt to save lives
    continue to raise uncertainty. In a recent McKinsey                  and safeguard livelihoods.
    survey of global executives, 40 percent anticipated

    Governments will
    need to build the
    capacity to alternate
    between reopening and
    restricting economies
    on a granular, local
    level—akin to developing
    and flexing a muscle
    1 World Health Organization, “New WHO estimates: Up to 190 000 people could die of COVID-19 in Africa if not controlled”, May 7, 2020.
      https://www.afro.who.int/news/new-who-estimates-190-000-people-could-die-covid-19-africa-if-not-controlled.
    2 Kartik Jayaram, Acha Leke, Amandla Ooko-Ombaka, and Ying Sunny Sun, Finding Africa’s path: Shaping bold solutions to save lives and
      livelihoods in the COVID-19 crisis, McKinsey & Company, April 17, 2020.
    3 New York Times, “Covid-19 Outbreak in Nigeria Is Just One of Africa’s Alarming Hot Spots,” May 17, 2020. https://www.nytimes.
      com/2020/05/17/world/africa/coronavirus-kano-nigeria-hotspot.html
    4 “Crushing coronavirus uncertainty: The big ‘unlock’ for our economies”, McKinsey & Company, May 13, 2020.

2   Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change
Exhibit 1
Web 

Web  
Some African countries are starting to experience exponential growth in
Exhibit  of 

Some...
      African countries are starting to experience exponential growth in cases ...
Exhibit  of 
cases
Some  African countries are starting to experience exponential growth in cases ...
Cumulative confirmed case count (as of May 19, 2020)
Cumulative confirmed case count (as of May 19, 2020)
                                      18                                                                                                                             South Africa
                                      18                                                                                                                             South Africa
                                                                                                                                                                     Egypt
                                      16                                                                                                                             Egypt
                                      16
                                                                                                                                                                     Algeria
                                                                                                                                                                     Algeria
                                      14
                                                                                                                                                                     Morocco
                                      14
                                                                                                                                                                     Morocco
                                                                                                                                                                     Nigeria
                                      12                                                                                                                             Nigeria
                                                                                                                                                                     Ghana
                                      12                                                                                                                             Ghana
        Reported                                                                                                                                                     Senegal
        COVID-19
        Reported                      10                                                                                                                             Senegal
           cases,
        COVID-19                      10                                                                                                                             Côte d’Ivoire
         thousand
          cases,                                                                                                                                                     Côte d’Ivoire
                                       8                                                                                                                             Kenya
         thousand
                                       8                                                                                                                             Kenya
                                                                                                                                                                     Ethiopia
                                       6                                                                                                                             Ethiopia
                                       6

                                       4
                                       4

                                       2
                                       2

                                       0
                                       00                           20                         40                         60                           80
                                         0                          20                         40                         60                           80
                                                                             Days since since March 1
                                                                             Days since since March 1

… even though testing levels are still generally low
… even though testing levels are still generally
                                       generally low
                                                  low
Tests per thousand people (as of May 19, 2020)
Tests per thousand people (as of May 19, 2020)                                                                                                                 Population, million
                                                                                                                                                               Population, million
  Mauritius                                        11.0                                                                                                                 1.3
  Mauritius
  South Africa                                     11.0
                                                 7.1                                                                                                                    1.3
                                                                                                                                                                        59
  South
  GhanaAfrica                                    7.1
                                                 5.5                                                                                                                           59
                                                                                                                                                                                31
  Ghana
  Rwanda                                        5.5
                                               3.5                                                                                                                             31
                                                                                                                                                                                13
  Rwanda
  Tunisia                                      3.5
                                               3.2                                                                                                                             13
                                                                                                                                                                               12
  Tunisia
  Morocco                                      3.2
                                               2.1                                                                                                                             12
                                                                                                                                                                               37
  Morocco
  Senegal                                     2.1
                                              1.6                                                                                                                              37
                                                                                                                                                                               17
  Senegal
  Kenya                                       1.6
                                              0.7                                                                                                                              17
                                                                                                                                                                               48
  Kenya
  Ethiopia                                   0.7
                                             0.4                                                                                                                           48
                                                                                                                                                                           115
  Ethiopia
  Nigeria                                    0.4
                                             0.2                                                                                                                           115
                                                                                                                                                                          206
  Nigeria
  Mozambique                                 0.2
                                             0.2                                                                                                                          206
                                                                                                                                                                           30
  Mozambique
  Iceland                                    0.2                                                                                                                           30
                                                                                                                                                                           0.3
                                                                                                                                             166.0
  Iceland
  Italy                                                              47.6                                                                    166.0                         0.3
                                                                                                                                                                           60
  Italy
  United States                                                 32.0 47.6                                                                                                  60
                                                                                                                                                                           331
  United
  United States
         Kingdom                                                32.0
                                                              25.7                                                                                                         331
                                                                                                                                                                            68
  United
  Chile Kingdom                                         18.325.7                                                                                                            68
                                                                                                                                                                             19
  Chile
  South Korea                                           18.3
                                                       14.2                                                                                                                 19
                                                                                                                                                                            51
  South
  Brazil Korea                               0.6 14.2                                                                                                                       51
                                                                                                                                                                           213
  Brazil                                     0.6                                                                                                                           213
Source: European Centre for Disease Prevention and Control; Humanitarian Data Exchange (tests performed by country); World Health Organization
Source:European
Source:  European   Centre
                Centre        for Disease
                       for Disease PreventionPrevention    and Control;
                                              and Control; Humanitarian   Humanitarian
                                                                        Data               Data
                                                                             Exchange (tests      Exchange
                                                                                             performed       (tests
                                                                                                       by country);   performed
                                                                                                                    World           by country);
                                                                                                                          Health Organization      World Health Organization

Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change                                                                                                        3
Looking further ahead, however, we believe
    that the crisis-driven action currently underway                      Part 1: Reopening
    contains the seeds of a large-scale reimagination
    of Africa’s economic structure, service-delivery
                                                                          African economies
    systems, and social contract. The crisis is
    accelerating trends such as digitization, market
                                                                          to safeguard lives
    consolidation, and regional cooperation, and
    it is creating important new opportunities—
                                                                          and livelihoods
    for example, to boost local manufacturing,
    formalize small businesses, and upgrade                               Many African countries and cities have been under
    urban infrastructure. Just as businesses and                          strict lockdown and other restrictions for over
    governments take immediate steps to strengthen                        two months. During this time, economic pain has
    health systems and restart economies, they also                       become more acute.5
    need to think ahead and plan for the continent’s
                                                                          As countries across the continent start to
    “next normal”.
                                                                          reopen their economies, governments face
    These changes and opportunities are the focus                         tough decisions on how best to manage this
    of the second part of this article, which presents                    process in order to protect lives and safeguard
    nine big ideas to reimagine Africa. To develop                        livelihoods. To date, different countries have
    these ideas, we reached out to more than 20                           adopted varying approaches: for example, Ghana
    leading thinkers across Africa and beyond—and                         has largely reopened its economy, subject to
    asked them how the crisis could catalyze long-                        physical-distancing measures, while South Africa
    term change on the continent. These interviews,                       has taken a more cautious, phased approach to
    combined with McKinsey’s own analysis, make it                        reopening.6 Our analysis of reopening strategies
    clear that a positive transformation is by no means                   globally and in Africa suggests that governments
    inevitable. A powerful, collaborative effort will be                  can follow a three-step process in designing local
    required to ensure that Africa’s “next normal” is                     response measures to release restrictions in a
    characterized by inclusive development, effective                     calibrated way tailored to their countries’ unique
    delivery, and innovative approaches to solve the                      circumstances.7
    continent’s greatest challenges.

    Positive transformation is by
    no means inevitable ... we must
    ensure that Africa's "next normal"
    is characterized by inclusive
    development, effective delivery,
    and innovative approaches
    5 Finding Africa’s path, op, cit.
    6 Bukola Adebayo, “Ghana lifts lockdown, citing improved testing and 'severe' impact on the poor,” CNN, April 20, 2020, edition.cnn.com
    7 See, for example, Andres Cadena, Felipe Child, Matt Craven, Fernando Ferrari, David Fine, Juan Franco, and Matthew Wilson, How to
      restart national economies during the coronavirus crisis, McKinsey & Company, April 6, 2020

4   Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change
The first step is to define a tiered set of local                       education, transport, food services, and
response measures, from the least restrictive                           entertainment.
to the most restrictive, to be applied to regions
                                                                   — Tier 3 could involve restrictions on travel
across the country. Each tier would include
                                                                     between regions of the country for the general
measures to protect both the general population
                                                                     population, and mandatory stay-at-home
and high-risk populations (the elderly and people
                                                                     directives for the at-risk population. A narrower
who are immuno-compromised), and would also
                                                                     set of sectors would be allowed to operate,
specify which sectors can open and operate.
                                                                     including agriculture and information and
Depending on a country’s geographic diversity, a
                                                                     communication technology (ICT).
number of tiers can be established; South Africa,
for example, has implemented a five-tier system.8                  — Tier 4 (the most restrictive) could entail a
In a four-tier system, the following measures                        full lockdown on movement for the general
might apply:                                                         population, and quarantine encouraged for
                                                                     those at risk. Only essential sectors would be
— Tier 1 (the least restrictive) would entail no
                                                                     allowed to operate, including health and public
  restrictions beyond physical distancing, and
                                                                     administration.
  would allow all sectors to operate.
                                                                   We suggest two tools that governments can apply
— Tier 2 could involve closure of schools and
                                                                   in implementing a tiered system (Exhibit 2). The
  prohibition of mass gatherings, while high-risk
                                                                   first is the Population Protection Matrix, which
  populations would be encouraged to stay at
                                                                   maps the measures governments can use both
  home. A broad set of sectors would be allowed
                                                                   to protect the general population and to shield
  to operate, such as construction, mining,
                                                                   high-risk groups. The second is the Sector Tiering
  manufacturing, banking, and retail—provided
                                                                   Matrix, which can help guide decisions on which
  they can comply with health and safety
                                                                   sectors of the economy can reopen under each
  protocols such as use of personal protective
                                                                   tier, taking into account both their inherent rate of
  equipment (PPE) and temperature checks.
                                                                   contagion and their economic relevance
  But sectors at high risk of transmission would
                                                                   (Exhibit 3).
  be closed or restricted; those might include

The first step is to define a tiered
set of local response measures,
from the least restrictive to the
most restrictive, to be applied
to regions across the country

8 Cyril Ramaphosa, “President Cyril Ramaphosa: South Africa's response to Coronavirus COVID-19 pandemic,” South African
  Government, April 23, 2020, gov.za.

Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change                                             5
Web 
    Exhibit
     2
    Exhibit  of 

    There
    Thereisisaarange
                rangeofoftools available
                           tools         to to
                                 available  select local
                                               select    response
                                                      local       measures
                                                            response       andand
                                                                     measures  safely
                                                                                   safely
    reopen economic activities.
    reopen economic activities
    Illustrative range of measures to protect populations and reopen economies

    Population-protection matrix                                                                                                               Tier 1      Tier 2        Tier 3       Tier 4

                                                                 Measures to shield those with higher risk of severe
                                                   LESS                       illness from COVID-19                  MORE

                               MORE
                                                                                                                                                                   Lockdown
                                                                                                                                                                   Full lockdown

                                                                                                                                                                   Lockdown
                                                                                                                                                                   Partial lockdown

                                                                                                                                                                   Travel constraint
                                                                                                                                                                   Intra-region
                        Measures to                                                                                                                                travel curtailment
                         curb viral
                         spread in                                                                                                                                 Travel constraint
                        the general                                                                                                                                Inter-region travel
                        population                                                                                                                                 restrictions
                                                                                                                                                                   Curfew
                                                                                                                                                                   Time-based curfews

                                                                                                                                                                   Shutdown
                                                                                                                                                                   School closures, banning
                                                                                                                                                                   of mass gatherings
                                                                                                                                                                   No restrictions
                                                                                                                                                                   No restrictions (physical
                                                                                                                                                                   distancing encouraged)
                               LESS
                                                       Physical   Stay at  Mandatory Encouraged Mandatory
                                                      distancing   home     stay at  quarantine quarantine
                                                     encouraged encouraged   home
    Web 
    Exhibit
     3
    Exhibit  of 

    Sectors
    Sectors should
            shouldbe
                   bereopened
                      reopenedinin
                                 a phased manner,
                                   a phased       based
                                            manner,     on their
                                                     based       inherent
                                                           on their       risk ofrisk
                                                                     inherent
    contagion and economic relevance.
    of contagion and economic relevance
    Sector-tiering matrix                                                                                                                     Tier 1      Tier 2       Tier 3      Tier 4

                                                                                      Economic relevance
                                                  LOW                        (specific metrics used vary by country)                                    HIGH
                                LOW                                                                                                                                  Essential
                                                                                                                                                                     sectors1
                                                                                                                                                                     (open at all times)
                                                                                                            Information and                   Agriculture
                                                                            Utilities                       communication
                                                                                                            technology

                                                                                                                                            Manufacturing
                                                                      Mining                    Construction
                           Risk of
                          contagion

                                                                                       Social                         Public
                                                                                       services                       administration

                                                                                              Education

                                                         Travel and                        Transportation                             Financial
                                                         hospitality                                                                  services
                               HIGH
    1      Essential sectors will be defined by country but could include health (eg, hospitals), grocery stores, utilities, and defense.
        ¹Essential sectors will be defined by country but could include health (eg, hospitals), grocery stores, utilities, and defense.

6   Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change
The second step is to “triage” regions or sub-                  Exhibit 4 shows how the regions of a country
regions across the country to determine which                   might be triaged into tiers, based on these factors.
tier each of these geographic areas would fall into             The Y-axis covers the severity of virus spread,
(Exhibit 4). The triage process would be dynamic                considering both the day-to-day growth in case
and would incorporate new data as they emerge. It               counts as well as the clinical severity of cases (as
would be based on two criteria:                                 influenced by factors such as demographics and
                                                                comorbidities in the population). The readiness of
— The severity of virus spread in a region, a
                                                                the health system (on the X-axis) can be assessed
  measure which takes into account the extent of
                                                                using metrics such as availability of critical hospital
  ongoing transmissions as well as the severity
                                                                supplies and critical-care beds, testing rates, test
  of cases should there be high transmission.
                                                                positivity rates, contacts traced successfully, and
— The readiness of the public-health system in                  confirmed COVID-19 cases isolated.
  the region—both the ability of the system to
  test, trace, and isolate cases and contacts, and
  its medical capacity to treat severe cases.

Exhibit 4
Web 

Exhibit  of 
Triage regions into defined tiers based on their severity of viral spread and
Triage regions into defined tiers based on their severity of viral spread and
health-system readiness
health-system readiness.
Illustrative mapping of regions to tiers                                                 Tier 1           Tier 2     Tier 3   Tier 4

                             HIGH                Health-system readiness                              LOW
                     HIGH
                                                                                                                   Region
                                                                2                                 1

                                                                    6           4

                                                                        8            9
                                                                                10                    7

                                                                     13
                                                                                     3
                 Severity                                                           11
                  of viral                                      5
                  spread                                                  12

                     LOW

Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change                                                          7
The third and ongoing step is to monitor                                older populations tend to live together with
    progress continuously. Once regions are triaged                         younger members of their family.9 Shielding
    and measures are implemented, continuous                                would need to be community-led rather
    assessments will be required to ensure that these                       than centrally imposed: governments could
    measures are being adhered to. Governments                              empower communities to design, implement,
    would need to identify the triggers or thresholds                       and manage shielding interventions, and
    for moving a region into a less restrictive tier—or a                   could provide the required financial and
    more restrictive one. In this regard it is critical that                logistical resources required. They could also
    decision making is fact-based and data-driven,                          allow communities to self-police shielding
    with a constant focus on safeguarding both lives                        adherence, including through social pressure
    and livelihoods.                                                        and community influencing. Based on our
                                                                            calculations, the cost of shielding would be
    Governments can guide efforts in three major
                                                                            significantly lower than the negative economic
    areas to ensure that regions progress towards the
                                                                            impact of the virus if it is unconstrained.
    lowest tier:
                                                                        — Establish industry-reopening protocols. As
    — Scale up testing and tracing. In addition
                                                                          our colleagues have written, “jobs can be
      to testing those with symptoms and their
                                                                          redefined in ways that make them safer to
      contacts, more widespread testing should
                                                                          restart.”10 Sectors identified as ready to reopen
      ideally extend to high-risk groups such as
                                                                          will need to adopt appropriate safety and
      healthcare workers. Moreover, tracing of
                                                                          physical-distancing protocols, developed in
      potential COVID-19 cases would be needed
                                                                          collaboration with public-health experts and
      in each region. This may require rapid training
                                                                          labor groups; and they will need to leverage
      of workers to locate and isolate 100 percent
                                                                          lessons learned from experiences of reopening
      of contacts of confirmed cases, in a way that
                                                                          in other parts of the world. These protocols
      respects individuals’ privacy and safety.
                                                                          can be used to prioritize where to implement
    — Experiment with shielding for high-risk                             industry-specific public-health measures—
      populations. Shielding high-risk populations                        such as limited hours or employee-testing
      amidst broader re-opening can help protect                          requirements—in order to prevent reinfections
      lives. Governments can test and deploy                              as businesses lift operating restrictions.
      different approaches—for example by
                                                                        Reopening economies in the midst of a pandemic
      providing support and incentives for the
                                                                        will not be a linear, one-time process. Indeed,
      affected populations to stay at home, or
                                                                        economies will require ongoing monitoring and
      creating quarantine spaces directly within
                                                                        management over a prolonged period. The diverse
      or adjacent to a community, where high-risk
                                                                        capabilities required to implement and optimize
      groups are relocated temporarily to minimize
                                                                        economic opening—at all levels of government—
      contact with other residents. While shielding
                                                                        are "muscles" to develop and train, possibly
      has not been widely used globally, it could be
                                                                        over multiple rounds of "lockdown and restart."
      a more relevant tool for the African continent.
                                                                        Governments and society need to adopt this
      However, implementation could be particularly
                                                                        mindset to prepare for the long recovery ahead.11
      challenging in a context where vulnerable

    9 Finding Africa’s path, op. cit.
    10 Andres Cadena et al, How to restart national economies during the coronavirus crisis, McKinsey & Company, April 6, 2020
    11 Rajat Gupta and Anu Madgavkar, "The economy must be managed along with covid-19 for a prolonged period," Hindustan Times, May 7,
       2020.

8   Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change
Part 2: Reimagining                                                positive, sustained, and widely shared among
                                                                   Africa’s people and institutions. Our research and

Africa                                                             interviews suggest three key opportunities to
                                                                   reimagine African societies:
                                                                   — Accelerate Africa’s digital transformation
Even as governments and businesses respond
                                                                   — Put renewed focus on serving the needs of
to the immediate crisis and execute reopening
                                                                     vulnerable urban populations
strategies, leadership and foresight will also be
required to shape the path to the “next normal”.12                 — Transform African healthcare systems with a
The COVID-19 crisis provides impetus to reimagine                    focus on resilience and equity
fundamental aspects of African societies,
                                                                   1. Accelerate Africa’s digital transformation
business, and government. In the remainder of this
                                                                   When the COVID-19 crisis struck, Africa was in the
article, we consider each of these opportunities for
                                                                   midst of a far-reaching digital transformation. In
reimagination in turn (Exhibit 5).
                                                                   recent years the continent has seen the world’s
                                                                   fastest rate of new broadband connections,
Reimagining African society                                        while mobile data traffic was forecast to increase
The COVID-19 crisis is already transforming                        sevenfold between 2017 and 2022. E-commerce
African societies in profound ways. If governments,                has also been growing quickly: online retailers in
business, development partners, and citizens                       Nigeria, for example, have experienced a doubling
act with renewed purpose and imagination,                          of revenue each year since 2010.13
they can help ensure that the transformation is

Exhibit 5
Web 

Here are 9 bold ideas for reimagining Africa
ExhibitExhibit  of 

Here are nine bold ideas for reimagining Africa.

     Reimagine society                           Reimagine business                          Reimagine government

 1   Accelerate Africa’s digital
     transformation                          4 Strengthen sector
                                               competitiveness through                   7 Prepare for a more active
                                                                                           government role in the economy
                                                 consolidation and innovation

 2 Put renewed focus on serving
   the needs of vulnerable urban
                                             5 Reshape  manufacturing, with a
                                               focus on self-reliance
                                                                                         8 Forge a stronger social contract
                                                                                           between citizens and government
     populations

 3 Transform African healthcare
   systems, with a focus on                  6 Catalyze the formalization of
                                               African economies                         9 Sustain momentum in regional
                                                                                           and pan-African cooperation
     resilience and equity

12 Kevin Sneader and Shubham Singal, Beyond coronavirus: The path to the next normal, McKinsey & Company, March 23, 2020.
13 Acha Leke, Mutsa Chironga and Georges Desvaux, Africa’s Business Revolution, Harvard Business Review Press, 2018.

Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change                                                 9
Despite this progress, most sectors of African                                            barriers to e-commerce in Africa.” His views were
     societies and economies still lag behind the                                              echoed by Amandine Lobelle, Head of Business
     rest of the world in digitization. The COVID-19                                           Operations at Paystack, who told us: “We are
     crisis could be a catalyst to help close that gap,                                        seeing a massive acceleration in digital payments.
     accelerating digital transformation in sectors as                                         For many businesses, the only way they will be
     diverse as financial services, retail, education, and                                     able to survive is to accept digital payments.”
     government (Exhibit 6).                                                                   In a McKinsey survey of consumers in key African
                                                                                               economies during the crisis, over 30 percent said
     Sacha Poignonnec, co-founder and co-CEO at
                                                                                               they were increasing their use of online and mobile
     Jumia, remarked that: “A lasting impact of the
                                                                                               banking tools.
     crisis could be a change of mentality to transacting
     and paying online. This will address one of the

     Exhibit 6
     Web 
     
     Exhibit  of 
     Africa lags behind the world in digitization, but the COVID-19 crisis could
     Africa lagstransformation
     accelerate  behind the world
                                inincertain
                                     digitization,
                                            sectorsbut the COVID-19 crisis could
     accelerate transformation in certain sectors.
     MGI Industry Digitization Index (adapted)1
     Select sectors2                                                                                                                       Digital acceleration in
                                                                                                                                            Africa post-COVID
                                                                                    Digitization                                              Acceleration
     Sector                                                       Relatively low                     Relatively high                       Low               High

     ICT³
     Finance and
     insurance
     Wholesale trade
     Advanced
     manufacturing
     Real estate

     Government                                                                                        n/a

     Education                                                                                         n/a

     Retail trade
     Basic-goods
     manufacturing
     Healthcare

     Construction

     Agriculture

                                                         US                    UK      Italy          India             Africa
     ¹Index is based on assets, usage and labor components, and expert interviews; adapted for inclusion of Africa and comparability.
     ²Owing
     1
               to accounting differences, not all sectors can be fairly compared.
         Index is based on assets, usage and labor components, and expert interviews; adapted for inclusion of Africa and comparability.
     ³Information and communication technology.
     2   Owing to accounting differences, not all sectors can be fairly compared.
     3   Information and communication technology.

10   Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change
“Governments need to put
 ICT at the center of socio-
 economic development”
Lacina Kone,
Director General, Smart Africa

The crisis also could also trigger a digital                          and technology companies can make sure
transformation in education. Moinina David                            that data is affordable, while regulators can
Sengeh, Sierra Leone's Minister of Basic and                          take steps such as allowing banks to accept
Senior Secondary Education, remarked to                               e-signatures. Ismail Douiri, General Manager
us that the crisis creates “an opportunity to                         at Attijariwafa Bank, put it to us starkly: “The
fundamentally question everything that we                             problem is not technology; the problem is the
assumed previously. For example, what are the                         legal and regulatory environments.”
explicit roles of schools, homes, and communities
                                                                  — Bring the public sector into the digital age.
in the education of our children?” We heard similar
                                                                    Governments can step up the provision of
views from Fred Swaniker, founder of the African
                                                                    digital services and information, and harness
Leadership Group. He told us: “This crisis provides
                                                                    digital tools to collect, manage, and use data
an opportunity to reimagine education and
                                                                    to inform decision making. They can also
employment in Africa, but it will take leadership,
                                                                    enable digitization in society and the economy
courage, and imagination. Those who don't seize
                                                                    by using the crisis as a spur to accelerate the
this opportunity will be left behind.”
                                                                    rollout of digital IDs, signatures, and registries.
Businesses, governments, and social-sector                          Lacina Kone, Director General of Smart Africa,
institutions can act decisively to unlock the                       told us: “Governments need to put ICT at the
next stage of Africa’s digital transformation. We                   center of socio-economic development.”
suggest five key priorities:
                                                                  — Speed up infrastructure investments.
— Expand online presence and broaden digital                        To support broader digitization, major
  offerings. Businesses can move fast to meet                       infrastructure expansions will be required,
  customers’ increased appetite for digital.                        including those in backbone networks and
  For example, insurers can shift to end-to-                        last-mile connectivity, as well as electricity
  end digital customer journeys, using video                        supply. As Lacina Kone noted: “How digitized
  and live chats for customer interaction, while                    Africa is depends on how digitized our
  shifting their claims-submission processes to                     infrastructure is—it’s not rocket science.” It
  mobile. Retailers can also build up their online                  is estimated that governments, development
  presence and develop new logistics solutions.                     finance institutions, companies, and investors
                                                                    will need to spend $100 billion on key ICT
— Foster an enabling environment for rapid
                                                                    infrastructure by 2030 to achieve universal
  digitization. Governments can help to ensure
                                                                    broadband access— including 250,000
  that all key enablers are in place to support
                                                                    new 4G base stations and 250,000 km of
  digital adoption. For example, governments
                                                                    fiber cable.14

14 “Connecting Africa through broadband,” Broadband Commission for Sustainable Development. October 2019, https://www.
   broadbandcommission.org/Documents/working-groups/DigitalMoonshotforAfrica_Report.pdf

Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change                                            11
— Scale up digital skills. Africa needs a workforce                    impossible.15 Moreover, an estimated 65 percent
       equipped for the post-COVID “next normal,”                           of sub-Saharan Africa’s urban population lacks
       in which digital skills will be at the core of                       access to basic sanitation services.16 And a lack of
       many occupations. Countries can ensure that                          electricity and refrigeration in many homes means
       training infrastructure is in place for both basic                   that people cannot store fresh food for
       skills, like mobile transactions, and advanced                       long periods.
       ones, such as coding and graphic design.
                                                                            Kennedy Odede, President and CEO of Shining
     2. Put renewed focus on serving the needs of                           Hope for Communities, encapsulated the
     vulnerable urban populations                                           challenge, telling us: “In order to wash your
     COVID-19 has laid bare the vulnerabilities of the                      hands, you need the privilege of water and soap.
     250 million people living in Africa's poor urban                       Social distancing is not possible in slums, and you
     communities, often underserved in the context of                       can’t force people to stay at home when there’s
     greater attention and donor focus on rural poverty.                    no food.”
     Decisive intervention is needed to support these
                                                                            The crisis can spur bold action to serve the needs
     communities through this crisis and to improve
                                                                            of vulnerable urban populations better—not just in
     their living conditions in the post-COVID world.
                                                                            the short term, but also to increase their resilience
     Urbanization trends will only deepen the challenge:
                                                                            against future health and economic shocks.
     African cities are expected to double in size over
                                                                            Governments can work with the private sector
     the next 25 years, with two-thirds of that growth
                                                                            and development partners to focus on three big
     forecasted to be in urban slums. Recognizing both
                                                                            priorities:
     the crisis and urbanization trends, Julius Court,
     the Country Director of DFID in Kenya, told us that                    — Scale up delivery of basic services. Apart
     "moving the focus of development to include urban                        from gaps in infrastructure, a lack of access
     areas will be a priority for us."                                        to health, education, and waste-management
                                                                              services increases vulnerability in urban slums.
     While restrictions such as lockdowns and curfews
                                                                              Governments can redouble their efforts to
     have helped slow the spread of the virus in
                                                                              expand access to these basic services, while
     many countries, they have also created acute
                                                                              working with private-sector partners to reduce
     economic hardship for a large proportion of the
                                                                              commuting times, improve connectivity, and
     urban poor—most of whose work requires free
                                                                              increase the availability of business services.
     movement. People in urban slums are also more
                                                                              They can also encourage businesses to deliver
     vulnerable to infection from the virus: population
                                                                              services to a market whose purchasing power
     density in slums is more than ten times that of
                                                                              we estimate at over $150 billion per year.17
     other urban areas, making social distancing nearly

                                                                               2/3
                                                                               of Africa’s urbanization boom will happen in
                                                                               urban slums

     15 Bird, J., Montebruno, P., & Regan, T. (2017). Life in a slum: understanding living conditions in Nairobi’s slums across time and space.
        Oxford Review of Economic Policy, 33(3), 496-520.
     16 “People using at least basic sanitation services (urban), WHO/UNICEF Joint Monitoring Programme (JMP) for Water Supply, Sanitation
        and Hygiene, World Bank, data.worldbank.org.
     17 Adapted from Jacques Bughin, Mutsa Chironga, Georges Desvaux, Tenbite Ermias, Paul Jacobson, Omid Kassiri, Acha Leke, Susan
        Lund, Arend van Wamelen, and Yassir Zouaoui, Lions on the Move II: Realizing the potential of Africa’s economies, McKinsey & Company,
        September 2016, McKinsey.com.

12   Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change
— Leverage mobile data to identify and better                          pledged significant additional funding for African
  serve the vulnerable population. Given                               health systems.20
  the ubiquity of mobile phones in Africa,
                                                                       Our interviews and research underline the critical
  several governments are considering
                                                                       importance of ensuring that this significant inflow
  working with telecom and technology
                                                                       of health funding is not only used for temporary
  companies to share anonymized data on
                                                                       emergency response, but is also invested in
  vulnerable populations’ location, movement,
                                                                       making African health systems more resilient and
  and payments. This could enable them to
                                                                       equitable for the long term. John Nkengasong,
  design better programs and interventions to
                                                                       Director of the Africa Centres for Disease Control
  support these populations’ needs.
                                                                       and Prevention (Africa CDC), believes that at least
— Strengthen urban infrastructure and planning.                        $10 billion of the $100 billion that African countries
  Governments can accelerate programs to grant                         are seeking should be invested in health systems
  formal recognition to urban settlements that                         on the continent: “We need to prepare our health
  are currently informal. That, in turn, can unlock                    systems the way we prepare our defenses for war.
  greater investment in permanent infrastructure                       You need an army-like workforce. For example, the
  for water and electricity provision. The public,                     continent needs over 6,000 epidemiologists but
  private, and social sectors can also shape                           we have only 1,500.”
  innovative solutions to broaden access to
                                                                       As Strive Masiyiwa, Executive Chairman of the
  housing finance.
                                                                       Econet Group and one of the African Union's
3. Transform African healthcare systems for                            COVID-19 Special Envoys, told us: “Africa has an
resilience and equity                                                  opportunity to reboot the health sector. There is
The COVID-19 crisis has exposed longstanding                           an important public component to this, but it's also
fragilities in Africa’s health systems, including gaps                 a business opportunity. We can rebuild a really
in healthcare personnel, infrastructure, supplies                      strong sector if we have the right imagination.” We
and equipment, and data systems. In addition to                        suggest six big priorities in reimagining African
disrupting livelihoods, the response to the crisis                     healthcare systems:
has also contributed to significant disruption of
                                                                       — Build enduring systems for outbreak
essential healthcare services; for example, the
                                                                         prevention and response. The COVID-19 crisis
WHO estimates that the number of malaria deaths
                                                                         has enabled many countries to identify and
could double this year as a result of COVID-19.18
                                                                         start creating the elements of an effective local
The pandemic has also exacerbated inequality                             outbreak response. Governments and African
in healthcare access. Some people can safely                             institutions can prepare for future outbreaks
quarantine at home, afford PPE and hand                                  by institutionalizing emergency operation
sanitizers, access testing in private labs, or make                      centers, lab networks, disease surveillance
use of telehealth services, but the majority of rural                    systems, and emergency supply chains.
and urban poor populations are left with fewer
                                                                       — Accelerate public-sector investment in primary
options to access health care or practice self-care.
                                                                         healthcare. Governments can accelerate
In light of these challenges, African governments                        investment in robust primary healthcare
are likely to double down on their health                                systems, including at the community level,
investment commitments; In 2001, the Abuja                               tailored to the needs of rural and urban areas.
declaration set a target for countries to spend 15                       This will contribute to early detection and
percent of their annual budgets on health care, but                      surveillance of future outbreaks, as well as
we estimate that fewer than ten African nations                          more equitable access to essential health
have approached this level of spending in the past                       services needed by millions of people who are
decade.19 Development partners have already                              underserved by healthcare systems today.

18 “WHO urges countries to move quickly to save lives from malaria in sub-Saharan Africa,” World Health Organization press release, April
   23, 2020, who.int.
19 Estimate using available data from IMF and WHO, accessed via OurWorldInData.org
20 Finding Africa’s path, op. cit.

Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change                                                           13
“We need to prepare our
       health systems the way we
       prepare our defenses for war”
         John Nkengasong,
         Director, Africa CDC

         Cheikh Oumar Seydi, Director for Africa at the                        and channel private-sector involvement and
         Bill & Melinda Gates Foundation, emphasized                           investment in priority areas such as
         that “The hospital is just a small part of the                        diagnostic services, pharmaceuticals, and
         solution. Primary healthcare facilities are a                         healthcare facilities.
         key component of a strong system. If you do
                                                                          — Facilitate local manufacturing of critical
         this right, people shouldn’t need to go to the
                                                                            medical supplies. African pharmaceutical
         hospital in most situations.”
                                                                            and manufacturing companies are stepping
     — Develop Africa-wide procurement platforms                            up and innovating to produce critical supplies
       and end-to-end supply chains. Pan-African                            and drugs in the midst of global shortages,
       coordination will allow governments to                               disrupted supply chains, and export bans.
       leverage their scale in bulk purchasing and                          African leaders can decide which production
       secure supply of critical equipment and                              capabilities are essential for the continent’s
       medical resources. New crisis-motivated                              health security going forward and provide
       procurement initiatives—such as that of the                          those industries with the support needed to
       Africa CDC—can continue to be leveraged in                           survive and develop.
       a post-COVID world to complement financing
                                                                          — Invest in digital health ecosystems and
       and procurement efforts from multilateral
                                                                            innovations in service delivery. The crisis has
       institutions and donors.
                                                                            highlighted clear use cases for reaching broad
     — Facilitate private-sector investment in                              sections of the population through digital
       healthcare systems. About 45 percent of                              services. For example, the South African
       African health expenditure was financed                              government is using an interactive WhatsApp
       by governments in 2017.21 The majority                               chatbot to answer common queries on COVID-
       was funded by private-sector entities and                            19 and has reached over 3.5 million users in five
       development partners. This non-governmental                          different languages.22 Many African healthcare
       investment, especially in private care and                           providers are also accelerating their adoption
       support systems, will remain critical for                            of tools such as telemedicine and remote
       addressing the continent’s immense health                            patient case management.
       challenges. Governments can encourage

     21 WHO Global Health Expenditure Database, apps.who.int.
     22 Emmanuel Paul, “6 amazing African innovations against COVID-19: A cure from physics?” Techpoint Africa, April 2020, techpoint.
        africa.

14   Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change
Reimagining African business                                        — Strengthen sector competitiveness through
                                                                      consolidation and innovation
Although the COVID-19 crisis is negatively
impacting the revenue and valuations of                             — Reshape African manufacturing, with a focus
many African businesses, it is also sparking                          on self-reliance
extraordinary initiative and innovation as
                                                                    — Catalyze the formalization of African
companies help ramp up the health-system
                                                                      economies
response and find new ways to serve the needs
of both consumers and business customers. This                      4. Strengthen sector competitiveness through
spirit of entrepreneurship is visible from both                     consolidation and innovation
large businesses and micro, small and medium-                       Previous global crises have led to significant
enterprises (MSMEs). Vera Songwe, UN Under                          market-structure disruptions, with many firms
Secretary General and Executive Secretary                           going out of business or being acquired. But some
of the Economic Commission for Africa, put it                       companies have emerged stronger, with crises
this way: “Across the continent we are seeing a                     spurring them to rethink their business models,
can-do spirit. For example, Ethiopian Airlines                      customer offers, and corporate structures—and
is repurposing planes to move cargo. Food and                       to acquire new assets and capabilities. Global
agriculture companies are finding new ways of                       McKinsey research after the 2008–9 financial
getting customers.”                                                 crisis showed that there is a group of companies—
                                                                    the “Resilients”—that deployed such strategies
We believe that the crisis could prompt
                                                                    and generated twice the shareholder returns of
fundamental transformation in African business,
                                                                    their non-resilient peers over the next decade
from the corporate sector through to the informal
                                                                    (Exhibit 7). 23
sector. Our research and interviews highlighted
three opportunities to reimagine African business:

“M&A from outside the continent
 has collapsed. The world's
 risk appetite has disappeared.
 Unless that changes, any
 consolidation will need to
 happen within the continent”
Strive Masiyiwa,
Executive Chairman, Econet Group, and African Union COVID-19 Special Envoy

23 “Stronger for longer: How top performers thrive through downturns,” McKinsey podcast with Kevin Laczkowski and Mihir Mysore,
  December 20, 2019, McKinsey.com.

Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change                                                     15
Exhibit 7
     Web 
     
     Exhibit  of 
     Resilients generate more value both in the recovery and growth phases
     Resilients generate more value both in the recovery and growth phases.
     Total return to shareholders,1 %, index (2007 = 100)
                                                                                                                                                           CAGR,³ %
                                         350
         Resilient2
         companies in                          DOWNTURN RECOVERY                                  GROWTH
                                                                                                                                         Resilients2             12.5
         the last crisis
         outperformed                    300
         for the next
         decade

                                         250
                                                                                                                                         S&P 500                 8.5

                                         200

                                                                                                                                         Nonresilients           5.2
                                         150

                                         100

                                          50
                                          2007          2009               2011                                                   2017

     ¹Analysis based on 1,140 largest companies by revenue in North America and Europe (excludes financial-institutions groups and real-estate investment trusts).
     1  Analysis based on 1,140 largest companies by revenue in North America and Europe (excludes financial-institutions groups and real-estate investment trusts).
     ²Resilient companies defined as top-quartile total returns to shareholders in their sector through the downturn and recovery.
     2  Resilient companies defined as top-quartile total returns to shareholders in their sector through the downturn and recovery.
     ³Compound      annual growth rate.
     2    Compound annual growth rate.

     The COVID-19 crisis will be highly disruptive to the                                as they do so, deliver innovations that meet the
     business landscape in Africa. Donald Kaberuka,                                      needs of African customers better, while securing
     former President of the African Development Bank                                    positive long-term returns for investors. The result
     and one of the African Union’s COVID-19 Special                                     could be a stronger and more competitive African
     Envoys, remarked to us that "there will be lots                                     business sector.
     of bankruptcies worldwide in such industries as
                                                                                         Companies’ pathways to resilience will differ
     tourism and related services." In Africa's hard-hit
                                                                                         significantly by industry, however. Our analysis
     tourism industry, for example, “many players are
                                                                                         suggests four distinct postures that firms might
     not going to survive; people are acknowledging
                                                                                         adopt, depending on the extent to which the crisis
     this,” said Mohanjeet Brar, Managing Director of
                                                                                         has disrupted both demand and business models
     Gamewatchers Safaris.
                                                                                         in their sectors (Exhibit 8). In sectors that have
     Yet the crisis could also see African Resilients                                    faced relatively less disruption, such as agriculture,
     emerge in key sectors of the economy—and,                                           the focus will be on sustaining the business or

16   Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change
restoring operations—for example, by simply                                                            For example, we are likely to see fewer small
rehiring contract workers as business recovers.                                                        airlines in Africa, and possibly the rise of bigger
Sectors such as telecom, which have experienced                                                        carriers with broader networks across the
sustained demand but greater disruption to                                                             continent. Finally, in sectors that face disruption
their business models, will need to shift their                                                        to both demand and business models, entirely
approaches—for example, by putting increased                                                           new strategies may be needed. In banking, for
focus on digital service delivery channels.                                                            example, we could see the emergence of “digital-
                                                                                                       first” operating models as incumbents resize their
In sectors where demand has been hit hard, such
                                                                                                       branch networks and acquire smaller companies
as airlines and oil and gas, we are likely to see
                                                                                                       with technology capabilities.
restructuring and industry consolidation.

Exhibit 8
Web 
    
    Exhibit  of 
COVID-19 is disrupting sectors across Africa, and businesses can take four
COVID-19
types      is disrupting
      of action           sectors across Africa, and businesses can take four
                 to be resilient
types of action to be resilient.
Four actions to ensure resilience
                           HIGH                                                                                                                 Circle size =
                                              Shift business                                Banking                               Shape a       sector value
                                              model                                                                             whole new       $10 billion
                                                                                                                                 business

                                              Telecom
                                                                                                                     Retail:
                                                                                                                    apparel

                                                            Healthcare                                        Hotel and restaurant
                      Extent of
                      business-                                                                                             Airlines
                       model
                                                                      Agroprocessing
                     disruption1
                                              Retail:                                                           Manufacturing
                                              grocery

                                                                                                                                     Oil and
                                                                    Agriculture                                                          gas

                                             Sustain
                                             business                                                                          Restructure
                                             and restore                                                                       company or
                                             operations                                                                           industry
                           LOW
                                                                                     Depth and duration of
                                              LOW                                     demand disruption2                                 HIGH

1
    ¹Extent  of business-model disruption (change in product, economic model, delivery model, production model, supply chain) post-COVID-19.
       Extent of business-model disruption (change in product, economic model, delivery model, production model, supply chain) post-COVID-19.
    ²Extent of negative impact of COVID-19 on the sector measured as estimated reduction in sector value add (over the next 12 months).
2      Extent of negative impact of COVID-19 on the sector measured as estimated reduction in sector value add (over the next 12 months).
    Source: African Development Bank; annual reports; IHS Markit; industry expert interviews; McKinsey analysis
Source: African Development Bank; annual reports; IHS Markit; industry expert interviews; McKinsey analysis

Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change                                                                                   17
Whichever scenario companies face, they can                          and acquisitions. As Strive Masiyiwa remarked
     adopt three approaches to emerge from the crisis                     to us, the crisis provides a unique opportunity
     in a stronger competitive position:                                  in this regard: “M&A from outside the continent
                                                                          has collapsed. The world's risk appetite
     — Ramp up operating efficiency. Companies
                                                                          has disappeared. Unless that changes, any
       need to look for ways to reduce cost and
                                                                          consolidation will need to happen within the
       improve productivity—both during the
                                                                          continent.”
       downturn and in the recovery. The past is
       prologue: during the 2008–9 crisis, Resilients                5. Reshape manufacturing, with a focus on
       reduced their operating costs by more than                    self-reliance
       three times their non-resilient peers, for                    For African manufacturers, the COVID-19 crisis
       example by digitizing their processes and                     has greatly depressed demand and disrupted
       embarking on lean transformations.                            supply chains. Our Africa-wide economic
                                                                     impact analysis suggests that the continent’s
     — Innovate business models. Companies may
                                                                     manufacturing sector output will contract by at
       need to pivot their product, target-customer,
                                                                     least 10 percent (more than $50 billion) in 2020
       channel, or pricing strategies to adapt to
                                                                     —with many manufacturers facing much more
       changing market conditions. There are
                                                                     severe outlooks.
       compelling examples to draw on in Africa and
       around the world. In South Africa, the fintech                But the crisis could also lead to a reshaped and
       company Yoco is shifting focus from POS                       more resilient manufacturing sector—after a
       payments to online payments and helping                       difficult recovery—provided that governments
       SMEs tap into e-commerce.24 In the United                     and businesses tackle long-standing barriers
       States, restaurant supply companies like Sysco                to industrialization and cooperate to seize new
       and US Foods have pivoted to serving grocery                  opportunities. Africa cannot rely on business as
       stores.25 In China, a leading brewery deployed                usual to come back from the brink.
       a social-commerce strategy, recruiting more
                                                                     In the immediate crisis, African manufacturers
       than 40,000 people to serve as "social
                                                                     across the continent are stepping up to produce
       distributors."
                                                                     essential medical supplies. In economic terms,
     — Move boldly on divestitures and acquisitions.                 the opportunity may contribute just $1-1.5 billion
       In past crises, Resilients have been faster than              to the continent’s manufacturing output in 2020.
       other firms to divest themselves of assets                    Nevertheless, this is a powerful demonstration
       that were no longer core to their businesses,                 of Africa’s entrepreneurialism and innovative
       and bolder in acquiring firms that would help                 capacity.
       them build new capabilities or expand their
                                                                     In the longer run, African manufacturing can take
       footprints in key markets. This is the time
                                                                     advantage of opportunities in intra-African trade
       for African companies to adopt a similarly
                                                                     and global supply-chain realignments spurred by
       aggressive posture on divestitures, mergers

                                                                     40 cents
                                                                     As much as

                                                                     of every dollar of manufactured output in Africa
                                                                     is imported

     24 https://www.heavychef.com/articles/2020/4/23/how-8-african-businesses-have-pivoted-due-to-the-covid-19-pandemic
     25 https://www.cnbc.com/2020/03/27/restaurant-suppliers-pivot-to-grocery-direct-sales-during-coronavirus-pandemic.html

18   Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change
the crisis. Ngozi Okonjo-Iweala, former Finance                   To unlock these opportunities, governments
Minister of Nigeria and one of the African Union’s                and private-sector partners can focus on four
COVID-19 Special Envoys, told us: “This crisis has                priorities:
shown that globalization may have led us to over-
                                                                  — Accelerate implementation of the African
rely on global supply chains. There will be a big
                                                                    Continental Free Trade Area. The crisis
re-think worldwide—not just because of politics,
                                                                    provides impetus to accelerate intra-African
but also because of countries' ability to meet their
                                                                    trade that is essential for regional value chains.
basic needs.”
                                                                    Ibrahim Mayaki, CEO of the African Union
We estimate that, for every dollar of manufactured                  Development Agency (AUDA-NEPAD), noted
product, Africa imports approximately 40 cents                      that it is time to move beyond “theory” and
in inputs from outside the continent—higher than                    into practical implementation. “Manufacturing
most other regions in the world. Over five years, a                 strategy should be part of our integration
serious push to reduce reliance on global supply                    agenda, and explicitly framed around strategic
chains could add an initial $10-20 billion to the                   advantages and priority sectors,” he said.
continent’s manufacturing output if 5 to 10 percent
                                                                  — Improve ease of doing business across
of imported intermediate goods can be produced
                                                                    borders. Catalyzing intra-African commerce
within the region. In addition to supply-chain
                                                                    will also require other enablers of business and
resilience, the shift could also benefit exporters
                                                                    investment. For example, logistics facilitation is
in countries experiencing devaluation, if they
                                                                    a key enabler of productivity, and harmonized
could capture the upside of increased export
                                                                    standards and regulations are required for
attractiveness with less burden of more expensive
                                                                    trade of products such as pharmaceuticals.
imported inputs. As Vera Songwe reminded us:
                                                                    Benedict Oramah, President of the African
“The crisis shows us that we need to develop
                                                                    Export-Import Bank, believes the crisis can
stronger supply chains regionally so we can be
                                                                    refocus attention on practical implementation,
more competitive globally.”
                                                                    “including a pan-African payment and
Indeed, strengthening intra-African trade and                       settlement system to drive local and regional
supply chains could create a springboard for                        manufacturing.”
export-oriented growth. As companies globally
                                                                  — Coordinate industrial strategy and policy at the
rethink their supply-chains, Africa could have
                                                                    regional level. In addition to integration, Africa’s
new export opportunities, particularly to
                                                                    industrial development requires coordination.
geographically proximate regions. Ismail Douiri
                                                                    Regional economic communities, with support
told us: "Our value proposition in Morocco would
                                                                    from governments and development finance
be to convince European corporates that it makes
                                                                    institutions, can identify and develop industries
sense to diversify their supply chains. For East
                                                                    around countries’ comparative advantages so
Africa, there could be a similar opportunity serving
                                                                    that Africa can build truly regional value chains.
countries in the Middle East."

“The crisis shows that we need to
 develop stronger supply chains
 locally and regionally so we can
 be more competitive globally”
Vera Songwe,
UN Under Secretary General and Executive Secretary, Economic Commission for Africa

Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change                                         19
An example is the ECOWAS-led regional                      Yet the crisis also creates a real opportunity to
          healthcare manufacturing strategy, a recent                accelerate the formalization of African MSMEs—
          initiative in West Africa.                                 and so improve their productivity, access to
                                                                     finance, and integration into the supply chains
     — Explore new industries and product-
                                                                     of larger businesses and the public sector.
       space opportunities. In response to global
                                                                     Formalization would also create additional
       disruptions and greater demand for alternative
                                                                     protection and opportunities for employees of
       sources of manufacturing inputs, private-
                                                                     MSMEs, and eventually contribute additional
       sector entrepreneurialism is needed to
                                                                     tax revenues for governments. But the task is
       identify new manufactured goods that can
                                                                     mammoth, as only about 15 percent of Africa’s
       be competitive regionally and eventually
                                                                     estimated 90 million MSMEs are registered; the
       globally. Opportunities in agro-processing and
                                                                     barriers include prohibitive costs, bureaucratic
       pharmaceuticals may be particularly promising
                                                                     processes, and a perceived lack of benefit from
       in the context of renewed government
                                                                     formalization.
       prioritization of food security and capacity to
       produce critical drugs.                                       For formalization to happen at scale, fresh impetus
                                                                     is needed for MSMEs to register with governments
     6. Catalyze the formalization of African
                                                                     and regulators. As Henry Rithaa, CEO of the
     economies
                                                                     Micro and Small Enterprises Authority in Kenya,
     Covid-19 has put the survival of many MSMEs
                                                                     emphasized to us: “There needs to be sufficient
     under threat. And, by our estimates, the
                                                                     incentive for MSMEs to formalize, both from the
     livelihoods of 100 million people working in the
                                                                     public sector and through connection to larger
     informal sector—one-third of the total—are
                                                                     corporates in the private sector.” The COVID-19
     vulnerable due to the crisis.26 The economic
                                                                     crisis could provide such an incentive: with their
     consequences could be devastating. “The
                                                                     survival in the balance and registration being a
     informal economy is the economy in many African
                                                                     prerequisite for accessing government relief, many
     countries,” said Ory Okolloh, former Managing
                                                                     MSMEs may now see the benefits of entering the
     Director of the Omidyar Network and Luminate
                                                                     formal economy.
     Group in Africa, "We can afford the collapse of
     one or two large corporates, but not the informal
     sector."

     The crisis creates a real opportunity
     to accelerate the formalization of
     African MSMEs – and so improve their
     productivity, access to finance, and
     integration into the supply chains of
     larger businesses and the public sector

     26 Finding Africa’s path: op. cit.

20   Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change
>$50
                                                                   billion
                                                                   funding required over 3 months for Africa's 90
                                                                   million MSMEs to survive the crisis

There is work to be done in building bridges                    — Create links between MSMEs and the
between government and the informal sector,                       corporate sector. Governments can encourage
however. Peter Materu, Chief Program Officer of                   more small businesses to enter the formal
the MasterCard Foundation, emphasized:                            economy by generating market access
“The benefit to enterprises cannot just be                        schemes for MSMEs. For example, they can
temporary, otherwise we will see temporary                        strengthen government-guaranteed offtake
formalization and then enterprises will disappear                 schemes and incentivize large companies to
again. We also need to make the registration                      integrate MSMEs into their supply chains.
process easier.”
                                                                — Launch a targeted campaign to formalize
We suggest three key priorities for governments                   MSMEs. Small enterprises need to be
to focus on in order to draw millions of MSMEs into               convinced of the broader benefits of
the formal economy:                                               formalization, notably access to finance,
                                                                  markets, and labor. Building on the drive
— Channel stimulus funding towards MSMEs.
                                                                  to formalize MSMEs during the crisis,
  Currently, stimulus packages announced by
                                                                  governments can design compelling packages,
  governments that target MSMEs total only
                                                                  potentially including access to favorable
  about $20 billion and, by our analysis, MSMEs
                                                                  borrowing terms, multi-year tax holidays, and
  across the continent could need in excess
                                                                  capability building. As Brahima Coulibaly,
  of $50 billion to survive over just the coming
                                                                  Director of the Africa Growth Initiative at the
  three months. This, combined with the fact that
                                                                  Brookings Institution, told us: “Africa must
  MSMEs contribute between 30 and 40 percent
                                                                  seize the moment to show that the relationship
  of Africa’s GDP, means that governments
                                                                  between government and small and micro
  should channel a greater proportion of funding
                                                                  firms need not be adversarial.”
  to the informal economy.

Reopening and reimagining Africa: How the COVID-19 crisis can catalyze change                                       21
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