There are now more than 370,000 confirmed infections and close to 10,000 fatalities in Africa, according to the latest tally by the Africa Center for Disease Control. Globally, more than 10 million people have contracted the virus and close to 500,000 fatalities have been recorded.
IMF is projecting the economy in Sub-Saharan Africa will contract by 3.4 percent in 2020 with South Africa taking a big hit with a negative growth of 8 percent and Nigeria following behind with 5.4 percent negative growth amid COVID-19 pandemic.
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Because of the coronavirus crisis, IMF is approving billions of loans to African nations to beat the virus and reposition their economies.
In all, IMF has approved over $15 billion loans for African nations to combat COVID-19, with over $10 billion approved before the Egypt loan on Friday. That’s the equivalent of 15 years of loans. Before now, IMF was lending roughly $1 billion every year to Sub-Saharan Africa.
IMF is also warning that if the money is mismanaged, there would be problems of insolvencies, meaning, countries would be unable to pay back. The IMF has told countries in Sub-Saharan Africa to spend the COVID-19 money but keep the receipt.
The interest rate for the COVID-19 loan is roughly one percent or 1.05 percent, repayable within five years. Once you default, the interest shoots up and the more you keep defaulting, the more money you pay. This means these loans can become very expensive.
The problem is the impoverished guy in Lagos, Nigeria, does not see the IMF. Some even believe that the IMF is nothing. But half of their incomes, and more, may end up going back to the IMF for years to pay back loans granted now, if the money is not well invested, or if it is stolen by government officials.
Also because the means of production are usually not in Lagos, virtually everything comes from the United States, Europe or Asia again – from the PPEs to the ventilators to the vaccine or testing to technical partners or knowledge to even the knowledge and expertise needed to handle the ventilators and other equipment.
As a result, not only would the borrowed money be going back the United States to get all the things needed to fight COVID-19 or upgrade health infrastructure, African nations will send back the full amount borrowed here to pay back these loans as well as fees associated with the interest rate. It’s a win-win situation for the West. And the cycle continues. And the cycle continues.
WHAT CAN AFRICA DO?
In the short term, what African nations should do is to spend the COVID-19 money well and keep the receipts. The money should be used not only to drive the deadly virus out of the continent, but also to upgrade our health infrastructure and prepare the continent for other emergencies by increasing our knowledge with human capital development in the health sector.
In the long run, African countries should ensure the means of production can be found right in Africa rather than important everything from the United States and elsewhere.
It is only by tackling those two areas that Africa would be able to avoid loans that may become worse than the cure.
Simon Ateba is an African journalist based in Washington, District of Columbia