Africa may be spared the worst of Covid-19

Obscured by the myriad stories of coronavirus global devastation are three headlines from the continent with no shortage of epidemics, man-made and natural disasters. That would be Africa. Of its 54 countries, six are among the top 10 fastest growing economies in the world this year. The continent is the favourite bazaar for appreciating equity after Eastern Europe and has one of the stock market’s best performing industries: communications.

Africa finds itself with fewer Covid-19 cases than other heavily populated regions. Even after testing almost tripled to 1.2 million, the director of the Africa Centres for Disease Control and Prevention, John Nkengasong, said the continent’s percentage is relatively small. Africa has the largest percentage of youth in the world, a higher average temperature and relatively more people outdoors most of the time, according to a 28 April report in the Financial Times.

Although South Africa remains an outlier, with surging daily Covid-19 infections similar to the US rate, Ethiopia, Kenya and Nigeria reflect the continent’s low percentage of cases relative to population, according to Bloomberg News and the Johns Hopkins Bloomberg School of Public Health. Even as the US daily infection rate based on population declines, the measure is still 24 to 46 times higher than in Ethiopia, Kenya and Nigeria.

The trend has its roots at the beginning of the 21st century, when another pandemic threatened much of the world. Ever since the 2002-2003 outbreak of severe acute respiratory syndrome (Sars), when the continent’s sole infection was in Cape Town, Africa has leapfrogged the developed world in GDP with a steadily growing share of global GDP.

Best performing

Most recently, some 38 economists who contribute to Bloomberg cut their 2020 forecasts for the world, from a 3% growth rate to a decline of 3.7%, while simultaneously predicting a much less precipitous slide for Africa: from 3% growth to a decline of 2.5%. If these forecasts prove accurate, Africa would be among the half-dozen best-performing 18 major regions in 2020.

Africa dominates the list with countries forecast to grow the most in 2020. Rwanda is projected at 3.2%, Ethiopia and Ivory Coast at 3%, Uganda at 2.8% and Ghana at 1.9%. That helps explain why stocks from North America, Western Europe and Asia Pacific contributed 3, 2 and 1 percentage points, respectively, to the world benchmark’s 8% loss, and Africa contributed just 0.24 percentage points to the deficit. It remains the best performing region, similar to Eastern Europe (0.2 percentage point).

While the world equity benchmark declined 4% in 2020, Africa lost just 1%. Communications companies in sub-Saharan Africa so far this year lead all industries in Africa with a total return (income plus appreciation) of 22% — more than twice the 9% earned by global health-care companies, the number-one performing industry in the world.

Africa’s appreciation in the stock market coincides with a similar rally by the continent in the emerging market for sovereign debt. After lagging much of the past two years, Africa’s sovereign debt gained 24% since the beginning of April, or more than double the entire market’s 10%, according to the Bloomberg Barclays Indexes.

None of these achievements apparently was anticipated by some of the biggest investors, who retreated from emerging markets earlier this year when the coronavirus became a global pandemic. BlackRock, the largest money manager with US$7.4-trillion of assets, allowed its Africa investments to decline 24% to $8.3-billion. Its Asia-Pacific investment declined 20% to $115=billion, and its Eastern Europe valuation fell 31% to $9-billion.

All of which shows that Africa is the biggest economic and financial surprise in these perilous times.  — Reported by Matthew A Winkler, with assistance from Shin Pei, Richard Dunsford-White and Amine Haddaoui, (c) 2020 Bloomberg LP