Welcome to the July 2020 edition of PwC’s Public Sector and Infrastructure Insight publication, a biannual collection of articles authored by PwC practitioners in the East Africa region. On behalf of everyone who contributed to this publication, I hope that you enjoy our perspectives on some of the most pertinent issues affecting the government, not-for-profit, development and infrastructure sectors. For this edition, we have chosen the theme of Governance in uncertain times. This theme reflects the uncertainty facing governments and economies globally and in East Africa. Whilst there are always elements of uncertainty in any system of governance, the impact of COVID-19 on health and economies is unprecedented in modern times. Uncertainty requires a high level of good governance even as it challenges the very foundations of governance. Uncertainty affects government, individual households and all sectors of the economy. Governments face tremendous uncertainty about whether they will have adequate resources to meet budgetary requirements - especially requirements that are evolving as the pandemic unfolds. Governments also face uncertainty about whether their countries’ health systems and other infrastructure can cope with the pandemic. Day-to-day, there is also much uncertainty about the impact of the pandemic on the basic livelihoods of citizens. These are uncertain times indeed.

A pandemic of magnitude, across all sectors In the East Africa region, the COVID-19 pandemic has had an unprecedented impact on all sectors of the economy. Health and technology infrastructure systems have had to adjust most rapidly, perhaps, but the scale of the economic impact in totality is huge. Tourism, which is a significant revenue earner for many countries, has suffered from the travel restrictions (domestic and international) and social distancing requirements imposed by governments and health authorities. Many hotels and resorts have shut their doors, contributing to a loss of employment and government tax revenue. As a capital intensive industry, aviation also employs millions of people globally. It will be difficult for the sector to recover quickly and it may evolve significantly in the coming years. The impact of the virus on the agriculture sector is indicative of the impact it has had on the health and wellbeing of citizens generally, since so many citizens derive their livelihoods from agriculture either directly or indirectly. Learning at all levels has been disrupted and the education sector has had to adapt almost overnight. In rural areas where internet connectivity is poor or non-existent, this poses special challenges. Some private learning institutions are suffering financially with implications for their teachers and others that they employ. That said, there are also opportunities for good governance such as managing stakeholder resources dedicated to fighting the pandemic. Those who are charged with the responsibility of good governance have encountered new challenges - and also new opportunities to demonstrate the power of leadership and accountability. Resources - both human and material - are required to discharge governance responsibilities appropriately and therefore, predictability and accountability are fundamental to the successful management of resources. Uncertainty impacts adversely on the ability to predict and manage revenue and other resources. For a revenue authority, for example, revenue generation depends almost entirely on the performance of the economy. In this environment, governments must balance raising revenue from their economies with the spending required to alleviate the pandemic. Tax measures, waivers and economic stimulus plans must be managed carefully so as not to tip this balance too far one way or the other. Most governments have managed to channel resources to their health systems rapidly. But this rapid response has a cost: they have had to divert these resources from their pre-COVID allocation plans, impacting other vital sectors of the economy such as education, agriculture and infrastructure. Balance is hard to achieve and indeed, sacrifices are required. They are not easy sacrifices to make, even if they are made with good intent.

"Going forward, governments will need to prioritise the livelihoods of citizens by securing access to food, water, infrastructure and health services. The pandemic has already shown us that our health and education sectors need to be stronger and more resilient. Governments can also consider different economic measures to help revive their economies sooner rather than later."

These and other sectors illustrate the impact of COVID-19 on our economies, but it is equally important to acknowledge the social impact of the pandemic and not least, the impact on the quality of human capital. Citizens are struggling to cope with the effects of the pandemic on their daily livelihoods, their extended families and communities and the way that they conduct their work. For many people, uncertainty has caused mental and social distress and consequently impacted growth, development and productivity. On the other hand, our information and communication technologies have facilitated much more innovation and productive work than many of us could have imagined. Online shopping, online education and virtual workplaces have taken the place of shopping malls, schools and offices. Investment in ICT infrastructure clearly delivers a return; governments and companies need to invest for the long term. Going forward, governments will need to prioritise the livelihoods of citizens by securing access to food, water, infrastructure and health services. The pandemic has already shown us that our health and education sectors need to be stronger and more resilient. Governments can also consider different economic measures to help revive their economies sooner rather than later. Economic drivers and stimulus plans can help to spur growth but governments will need to carefully and deliberately allocate resources to those areas. Food security deserves special attention, given the critical importance of agriculture value chains and food distribution networks.

These priorities require resources and yet this is a difficult time for governments to raise revenue. At the same time, governments are under pressure to provide tax breaks and waivers to support businesses, particularly small and medium-sized enterprises and individuals. Even when economies have performed well, many revenue authorities have still struggled to meet their revenue targets. The pandemic complicates these challenges significantly. Another avenue for raising revenue is to borrow domestically and internationally, but governments need to consider carefully whether they can afford to service more debt in addition to what they already owe. Governments may need to engage with lenders to seek relief, restructuring or concessional loans which attract better terms compared to commercial loans. This is also a good time for governments to interrogate their expenditure plans, minimising waste wherever possible. Institutions that are charged with good governance such as supreme audit institutions, ethics and corruption commissions, directorates of criminal investigations, public prosecution offices and others need the resources and independence to discharge their mandates. We have learned some important lessons already from the COVID-19 pandemic. For example, consumption of locally produced goods drives economic self-sufficiency and a better balance of trade. Governments can encourage greater self-sufficiency by attracting and directing investment to the processing of raw materials, for example. Governments can also review their economic blueprints with an eye towards determining critical priority areas and prioritising the allocation of resources to those areas. ICT investment, for example, has proven to deliver a high rate of return. Governments can direct more investment towards ICT development to ensure greater resilience and continuity in the future.

These are some of the themes that our PwC practitioners discuss in more detail throughout this publication. As always, we appreciate your interest in our publication and we look forward to engaging with you on any of the topics that interest you.

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Benson Okundi

PwC Partner and Head of Government & Public Sector Services, Eastern Africa

E: T: +254 20 285 5000

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