Growth across Sub-Saharan Africa remains sluggish, dragged down by uncertainty in the global economy, the underperformance of the continent’s largest economies, high inflation, and a sharp deceleration of investment growth, a World Bank report said Wednesday.
In the face of dampened growth prospects and rising debt levels, African governments must sharpen their focus on macroeconomic stability, domestic revenue mobilization, debt reduction, and productive investments to reduce extreme poverty and boost shared prosperity in the medium to long term.
Economic growth in Sub-Saharan Africa is set to slow from 3.6% in 2022 to 3.1% in 2023, according to the latest Africa’s Pulse, the World Bank’s April 2023 economic update for Sub-Saharan Africa.
Economic activity in South Africa is set to weaken further in 2023 (0.5% annual growth) as the energy crisis deepens, while the growth recovery in Nigeria for 2023 (2.8%) is still fragile as oil production remains subdued.
The real gross domestic product (GDP) growth of the Western and Central Africa subregion is estimated to decline to 3.4% in 2023 from 3.7% in 2022, while that of Eastern and Southern Africa declines to 3.0% in 2023 from 3.5% in 2022.
“Weak growth combined with debt vulnerabilities and dismal investment growth risks a lost decade in poverty reduction,” said Andrew Dabalen, World Bank Chief Economist for Africa. “Policy makers need to redouble efforts to curb inflation, boost domestic resource mobilization, and enact pro-growth reforms—while continuing to help the poorest households cope with the rising costs of living.”
Debt distress risks remain high with 22 countries in the region at high risk of external debt distress or in debt distress as of December 2022. Unfavorable global financial conditions have increased borrowing costs and debt service costs in Africa, diverting money from badly needed development investments and threatening macro-fiscal stability.
Stubbornly high inflation and low investment growth continue to constrain African economies. While headline inflation appears to have peaked in the past year, inflation is set to remain high at 7.5% for 2023, and above central bank target bands for most countries.
Investment growth in Sub-Saharan Africa fell from 6.8% in 2010-13 to 1.6% in 2021, with a sharper slowdown in Eastern and Southern Africa than in Western and Central Africa. Despite these challenges, many countries in the region are showing resilience amidst multiple crises. These include Kenya, Cote d’Ivoire, and the Democratic Republic of Congo (DRC) who grew at 5.2%, 6.7%, and 8.6% respectively in 2022. In the DRC, the mining sector was the main driver of growth due to an expansion in capacity and recovery in global demand.
Harnessing natural resource wealth provides an opportunity to improve fiscal and debt sustainability of African countries, but the report cautions that this can only happen if countries get policies right and learn the lessons from the past boom and bust cycles.
“Rapid global decarbonization will bring significant economic opportunities to Africa,” noted James Cust, World Bank Senior Economist. “Metals and minerals will be needed in larger quantities for low carbon technologies like batteries—and with the right policies—could boost fiscal revenues, increase opportunities for regional value chains that create jobs, and accelerate economic transformation.”
In a time of energy transition and rising demand for metals and minerals, resource-rich governments have an opportunity to better leverage natural resources to finance their public programs, diversify their economy, and expand energy access.
The report finds that countries could potentially more than double the average revenues that they currently collect from natural resources. Tapping these fiscal resources in the form of royalties and taxes while continuing to attract private sector investment requires the right kinds of policies, reforms, and good governance.
Maximizing government revenues derived from natural resources would offer a double dividend for people and planet by increasing fiscal space and removing implicit production subsidies.