2 African countries: One prioritized health, the other focused on the economy. Who will ultimately emerge stronger?

Presidents of 2 African countries with totally different approach to the virus.

To most of the world, Rwanda is seen as a success story in its handling of the coronavirus pandemic. With much fewer medical supplies and facilities than the US, the UK, and Europe, the country has managed to keep their cases low (17,484) and mortality even lower (239). This success is widely celebrated. Japan Times even published an article last month, “Lessons from Rwanda’s fight against COVID-19.”

Rwanda has become a leader in the battle against major public health threats. It makes sense. The country has been struck with some of the worst tragedies and diseases: the 1994 genocide, HIV/AIDS, malaria, Ebola. With the current pandemic, they already have systems and equipment in place to control the spread of covid-19.

Over the years, the country has built itself up to be one of the fastest growing economies in Africa and in the world.

This move—from being a country riddled with violence and death to becoming the “Singapore of Africa” is, without a doubt, remarkable. But now, it seems that Rwanda may have suffered more than it needed to, due to the effects of the pandemic on its economy.

Back in March, with seven cases of coronavirus confirmed, Rwanda was the first country in sub-Saharan Africa to shut its doors to international visitors and implement a nationwide lockdown. Now the country is having to face the music. The economy declined at an unprecedented level for the first time since the genocide, 26 years ago. Rwanda is in recession, with the GDP dropping 0.2% in 2020. This is a far cry from the World Bank’s original forecast of 8% growth.

Rwanda Development Board reports that investments in 2020 were slashed by almost half, from $2.46 billion in 2019 to $1.3 billion. And while it has put an Economic Recovery Plan in place with a budget of $900 million, the new wave of infections that started in January has the country going through another phase of lockdowns and curfews, slowing the recovery even further.

Economists in Rwanda are now saying that the country is at a crucial point where whatever the government does next—stricter lockdowns or easing—will decide the fate of its economy in years to come. Poverty headcount is now likely to rise by 5.1 percentage points or 550,000 people in 2021. All the good work the country has done to bring it out of violence, disease, and poverty could be wiped out in one fell swoop.

The good news is: the Rwandan companies I bought in the
African Lions Fund are proving to be largely pandemic-proof

The impressive earning results reported in the first half of 2020, which I wrote about here, were great indications and are on track to continue this year. That’s because the companies we own, ironically, used the pandemic to reposition their businesses and are travelling just fine.

BK Group dominates Rwanda’s banking sector. It has been able to move a lot more business to low-cost online and digital channels. This was a clever move as the government started encouraging people to use digital cash-based transactions as part of their social protection measures. The government also removed charges on mobile money transfers.

Bralirwa, the main beer and soft drinks firm which is both a Heineken subsidiary and a Coca Cola bottler and distributer, found it could successfully change its distribution model from selling predominantly to bars, restaurants, cafes and clubs, to supermarkets and small grocery stores.

BK Group is very well-managed and provides a wealth of data to analyse. So, I’ve been able to verify what management says. Bralirwa is a lot tighter and less detailed with the information flow to investors. I intend to ask some questions at the half-yearly analyst briefing as to the specifics of the results generated from their pandemic response. From what I understand, profits have not been nearly as badly hit as first feared. Curfews are still in place in Kigali and the usual level of socializing and partying is but a memory at this point, friends residing there tell me.

Neighbouring sub-Saharan African countries, on completely opposite sides of the spectrum

When I first began writing regularly on Africa, I mentioned that when it comes to the topic, many uninitiated people mistakenly think of Africa as if it is one country where all policies, problems with violence and corruption, and the culture are one and the same. This could not be further from the truth. 

Rwanda took a very different approach to Tanzania during this global crisis. About the same time Rwanda announced a national lockdown, Tanzania reported its first case of coronavirus. But instead of stopping everything in its tracks, enterprises were allowed to operate, and religious gatherings were allowed to continue with social distancing rules and other precautionary measures. Hand washing stations, for example, appeared in front of most buildings.

Contrary to what the media tells you, Tanzania took its own measures to manage the spread of the pandemic. It didn’t completely ignore it as sensationalist mainstream media outlets imagine. Back in April, the country briefly suspended international flights. The suspension was lifted a month later with no quarantine requirements. Some schools were also temporarily closed in the early days of the pandemic when very little was yet known about the nature of the virus.

Rwanda deployed drones to remind its citizens about the pandemic and what safety measures to observe, and to point out that one can get tested while walking down the street. Testing is voluntary, but refusals are frowned upon. Tanzania, on the other hand, stopped reporting cases altogether in May, and instead focused on reviving the economy.

“Economy comes before the virus.”

. . . this was Tanzanian President Magufuli’s simple and clear message to his people one Sunday mass. He added:

“We have had a number of viral diseases, including Aids and measles. Our economy must come first. It must not sleep. If we allow our economy to sleep, we will not receive salaries . . . We share borders with about eight countries and if we close borders, we will be destroying their economies.”

To me, that sounds very reasonable. And I think it is the right move for Tanzania. Like Rwanda, most jobs in Tanzania are in farming and agriculture. To be exact, 64.88%. These people cannot exactly “work from home” like employees can in, say, the Philippines, where there are 1.2 million people working in the Business Process Outsourcing (BPO) industry such as call centers, IT hubs, and remote branches of big international banks like HSBC, JP Morgan Chase and Citibank.

While it’s true that we will never know how many people actually contracted covid-19 in Tanzania and died from it, I can tell you that hospitals here are not reporting that they are overwhelmed, there are no mass graves like the ones you’ve seen in Brazil, and people are not in constant fear and paranoia of getting the disease. There are no fist fights over people not wearing masks.

People do claim that there are deaths caused by the virus but were never reported as such. Still, in 2020, the total death rate for Tanzania was recorded at 7.1 per 1,000—lower than the previous year of 7.3.

Rwanda’s mortality rate last year came in at 6.1 per 1,000.

Tanzania’s economic data for 2020 is coming out soon, and obviously it is not spared from the adverse effects of the pandemic, but I expect the country to be doing much better economically than Rwanda.  For one, the Tanzanian government has reported a revenue collection increase of 69%.

Will we see the world someday write about “the lessons from Tanzania’s fight against covid-19?” Probably not. But I can see more people who value freedom over “safety” (whatever that means) look at Tanzania as a tourist haven, with no strict regulations and quarantine requirements. Contrast that with Thailand, for example, where a family of four (the fourth member being a 5-year old) was recently quoted $13,000 for a two-week quarantine in Phuket, at one of Thailand’s luxury hotel chains.              

We’ve already seen a surge of tourists to Tanzania from Russia and Poland last Christmas break, which served well for Tanzania Breweries, a company that—as you know—we own in African Lions Fund.

There are murmurings about other countries putting Tanzania on a travel blacklist. That wouldn’t be good for the economy. But there will always be people who value a relaxed approach to quarantine and vaccines, and more of those people may come to Tanzania regardless. There are some in my own circle of friends, for a start.

Tourism numbers last year dropped from 1.5 million to 616,491, which was a heavy blow. And the 2019 level of tourist arrivals may not be seen for some years. But Tanzania is hardly the only country in this boat. Most countries saw MUCH LARGER drops in tourist arrivals, and again, the Tanzanian government’s laissez faire attitude to the pandemic has played a hand in limiting the immediate damage, bad as it nonetheless was.

Is Tanzania right, after all, to prioritize the economy? Or is Rwanda doing the right thing by putting health and safety first? Only time will tell.

But at the end of the day, it doesn’t really matter who’s right or who’s wrong. What matters is, regardless of the decisions governments make, we are able to find companies to invest in with strong fundamentals and some even with strong backing from the government. So if there’s anything I can draw from this, that is we must not let this virus take control over our lives. Strict measures or not, the virus is clever enough to infiltrate the world where it wants to. And stopping everything to fight against it does not mean we’re winning, but in fact succumbing to it.

Until next time,

Tim Staermose signature

Tim Staermose
Founder
Global Value Hunter
African Lions Fund

Privacy Policy
Copyright © 2020 ST Funds Management Limited | ABN 65 154 454 092 | AFSL No 416778