African SMEs to Receive an Estimated $2 Billion in Support

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The coronavirus pandemic has now affected practically all nations on earth. In the highly globalized world, we are more connected than ever before. The mobility is extremely high, causing constant in and outflows of individuals. Therefore, the spread of the virus is easier and faster. Stopping the pandemic of such a tremendous scale is not an easy task. It is connected with restricted economic activity and limited mobility.

The virus that originated in China’s Hubei province has now covered the entire world. It has been just over 4 months since the spreading of the virus started in different countries globally and as of now, more than 8 million people have contracted the deadly virus while a grim number of almost half a million individuals have unfortunately died. The virus is scary amid its high reproduction, or simply the R rate. It has been researched that an average infected individual can transmit the virus onto on average 3 others. This is an extremely high rate compared to other pandemics we have witnessed in the modern history of the world. For instance, despite a very high death rate, the R rate for ebola was much lowed, resulting in fewer infections and the curbed spread.

Under such circumstances, the only way to stop the further and uncontrolled spread of the virus around the world is social distancing and limited mobility. That is why the vast majority of nations have entered some type of a locked down phase with billions of people stuck at their homes for over 2 months. Moreover, the hygienic standards have also been revised as wearing a facemask and sometimes even surgical gloves have become mandatory in many countries and certain places. This has resulted in unprecedented pressure on businesses, individuals, and national governments. The unpredictable distribution of the virus at different given times has also caused major chaos in the financial markets. A soaring number of people started trading commodities with FX brokers as the maintenance, storage and overall availability of commodity trades was slowly becoming costlier by the day. The main reason for switching to FX companies was because of the availability of CFDs on these instruments, meaning that nobody had to think about storage or anything else. They only had to start the trades and see the markets to their magic.

Considering the massive slump the market experienced during the pandemic, millions of investors were eager to quickly buy as much as possible as countries slowly reopened and economies restarted across the world.

The coronavirus pandemic in Africa: how it is affecting local SMEs

The coronavirus pandemic has also spread across Africa. However, due to the lower rates of mobility and other contributing factors, the spread has been much slower, resulting in smaller numbers of infections in African nations. Yet, many nations have declared that the community transmission has started and it is going forward with full speed. This is an extremely dangerous path that might result in a situation similar to Italy’s unfolding across Africa.

When evaluating the severe situation, we should also consider the ability of African countries to cope with such a crisis, in comparison to what some of the leading European, Asian, and American nations can do. For instance, the healthcare system of Italy is considered to be one of the best around the world. It has tremendous funding and good infrastructure, along with public support and trust. However, not even such a well-prepared system and the country as a whole could tackle the coronavirus pandemic without huge losses. Now, the same scenario in an extremely poor African nation, with severely limited social funding and support could result in devastating consequences.

Moreover, many of the governments will not be able to further restrict economic activities. The vast majority of African nations do not have enough resources to pay welfare benefits to its citizens. Therefore, the business and economic activities will have to continue without stopping, regardless of the state of the coronavirus pandemic on the continent.

Small and medium-sized enterprises are the ones that take the biggest hit during the coronavirus pandemic. Globally, many of the extremely successful SMEs had to shut their doors to the visitors forever, due to the tremendous pressure during the turmoil. At first, companies could not re-open after being closed for more than 2 months during the lockdown. It is simply impossible to pay rents, salaries, and other fees while not receiving any income for such an extended period of time.

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Later on, as some of the companies in Africa survived the wave of locked down, they found themselves bracing toward another burning issue. The increased costs of operation have become a significant contributor to the soaring rates of closed SMEs in Africa and beyond. Hygienic products, such as face shields, face masks, and gloves have boosted the prices of various products and services. Therefore, SMEs had to adjust. Nevertheless, some bigger companies with advantages can compete effectively in terms of pricing, regardless of the hygienic product costs. That is one of the biggest factors impacting SMEs in Africa and generally, all around the world.

African Guarantee Fund to offer unprecedented COVID-19 support to SMEs

The African Guarantee Fund is a pan-continental organization that has been working closely with businesses, governments, and individuals across Africa for quite some time now. During the coronavirus pandemic, the organization acknowledged the risks, and uncertainties SMEs are facing in the wake of the expected second wave of the infection. Moreover, the same fears are shared by the financial institutions based in different nations that would traditionally provide financial assistance to small and medium-sized enterprises. However, they now are also on the verge of shutting down amid the lack of clients and increased operational costs.

Fortunately, the African Guarantee Fund has announced a $2.5 billion COVID-19 relief aimed at SMEs all around Africa. This will be a mechanism, uniting the commercial sector, businesses, individuals, and governments in various African countries to help the SMEs that need assistance the most as of now. The CEO of the African Guarantee Fund asserted on the news: “The consequences of COVID-19 pandemic will continue to have escalating negative effects on SMEs in Africa both on the supply and demand sides. Consequently, we must assume that there follows a deterioration of these SMEs’ creditworthiness. This is likely to increase the cost of credit for the financial sector which will surely increase their reluctance to finance the SME sector if there is no external stimulus. It is because of this that we must develop a commercial response in addition to the regulatory responses given by the different central banks and governments in the continent. Therefore, in line with our mandate, we have launched the COVID-19 Guarantee Facility.”

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