The World Bank released the Africa’s report of 2022. It was Tuesday, October 4, 2022 in WASHINGTON, D.C., at the institution’s headquarters. According to the report, African governments must urgently restore macroeconomic stability and protect the poor from slowing growth and high inflation.
In the World Bank’s latest biannual Africa’s Pulsereport, the analysis of the short-term regional economic outlook predicts a deceleration in growth in sub-Saharan Africa from 4.1% in 2021 to 3.3% in 2022, a 0.3 percentage point downward revision from April expectations. The report indicates that Africa’s economic growth is being slowed by the headwinds of the global economy, while countries continue to struggle with rising inflation that is holding back progress in the fight against poverty. The risk of stagflation comes at a time when high interest rates and debt are forcing African governments to make difficult choices to successfully protect employment, purchasing power and development gains. Through this 26th edition of the World Bank’s Africa’s Pulse report, it should be understood that economic growth in Sub-Saharan Africa (SSA) is expected to decelerate from 4.1% in 2021 to 3.3% in 2022, due to the slowdown in global growth, rising inflation exacerbated by the war in Ukraine, adverse weather conditions, tightening global financial conditions and the increasing risk of over-indebtedness. These trends undermine poverty reduction, already undermined by the impact of the COVID-19 pandemic.
Analysis of growth prospects in sub-Saharan Africa
The outlook shows that among the three largest African economies, growth is moderate in Nigeria and South Africa, while the Angolan economy is benefiting from rising oil prices, rising oil production and strong performance in the non-oil sector. Growth in sub-Saharan Africa is expected to rebound to 3.5 per cent in 2023 and 3.9 per cent in 2024. Excluding Angola and South Africa, the subregion of Eastern and Southern Africa is expected to grow by 4.5 per cent next year and 5.0 per cent in 2024. Excluding Nigeria, the West and Central African subregion is expected to grow by 5.0 per cent in 2023 (4.2 per cent), and growth will strengthen in 2024 (5.6 per cent). Economies in the countries of the West African Economic and Monetary Union (WAEMU) are expected to recover in 2023 after the slowdown in 2022 (4.9 per cent) to reach 6.4 per cent, and to strengthen further in 2024 to reach 7.0 per cent. The war in Ukraine has accelerated already rising inflation in the region. The rise in inflation is weighing on economic activity in SSA by depressing both business investment and household consumption. As of July 2022, 29 of the 33 sub-Saharan African countries for which information is available had inflation rates above 5.0 per cent, while 17 countries had double-digit inflation. Inflation functions as a regressive tax, disproportionately affecting the poor. In SSA, the strong impact of food and fuel prices on consumer prices has boosted inflation to record levels in many countries, exceeding the ceiling of central bank targets in most countries that have one. The vast majority of the population of sub-Saharan Africa is affected by high food prices, as they spend on average more than 40 per cent of their total expenditure on food. These economic challenges come at a time when countries’ ability to sustain growth and protect poor households is severely constrained.
Public financial management and the challenges ahead
Analysis of the data shows that fiscal space is almost exhausted in some sub-Saharan African countries, mainly due to high debt levels, rising borrowing costs and the depletion of public savings. The region’s fiscal deficit widened during the pandemic to 5.6% of GDP in 2020 (from 3.0% of GDP in 2019). In 2022, the deficit amounts to 4.8% of GDP due to consolidation efforts. Debt is expected to remain high at 59.5 per cent of GDP in 2022 in sub-Saharan Africa. Eight of the 38 IDA-eligible countries in the region are in debt distress, and 14 are at high risk of joining them. African governments spent 16.5% of their revenues on external debt servicing in 2021, compared to less than 5% in 2010. To preserve development gains in the region, countries must prioritize protecting the poorest households while maintaining macroeconomic stability. This requires coherent monetary, fiscal and debt policies in order to reduce inflation and create fiscal space. If inflationary pressures are not contained, this could lead to social unrest, intensify conflict and, ultimately, provoke political instability.
The rise in food prices is causing difficulties with serious consequences in one of the regions of the world where food insecurity is the highest. Hunger has risen sharply in sub-Saharan Africa in recent years, due to income losses and supply chain disruptions caused by the pandemic, regional and global conflicts, extreme weather conditions and locust invasion. More than one in five people in Africa faces hunger – a much higher proportion than in other parts of the world. Acute food insecurity (IPC Phase 3 or higher) is also on the rise: 140 million people were acutely food insecure in 2022, up from 120 million in 2021.At least 55 million people in the Horn of Africa are severely food insecure, with Ethiopia, Kenya and Somalia experiencing the worst drought in 40 years. Without urgent action by African policymakers, food security will continue to deteriorate, with devastating consequences for Africa’s poorest and most vulnerable populations. In times of crisis and limited resources, it is imperative that Governments find ways to support the poorest households while redirecting their agricultural and food expenditures to public goods that produce the best development results. Redirecting agricultural spending and poorly targeted subsidies to public goods can bring considerable benefits. An investment of US $1 in agricultural research generates an average future profit stream of US $10 (in terms of net present value). The benefits of investments in irrigation are also high – with returns in SSA ranging from 17% for large projects to 43% for small projects. Scientific innovation and better management of limited water resources will be essential to increase productivity in the face of climate impacts. Deepening regional (sub-regional and continental) trade and integration within Africa can also strengthen the resilience of food systems to international shocks. Currently, interregional trade in agricultural products, as a percentage of Africa’s total agricultural trade, remains below 20 per cent, one of the lowest in the world. The regional economic communities and the newly established African Continental Free Trade Area (AfCFTA) offer opportunities to lower agricultural trade barriers and create regional markets that can reduce domestic price volatility and stimulate investment in food production, distribution and transport.
Growth projections for the major economies in Eastern and Southern Africa
In South Africa, the economy slowed to 0.2% year-on-year in 2022 from 2.7% in the previous quarter. The economy is expected to grow by 1.9% this year, a 0.2 percentage point downward revision from the first April projections. The Angolan economy is one of the main beneficiaries of favourable terms of trade, which translate into real growth of 3.1 per cent in 2022, compared with 0.8 per cent the previous year. Kenya is expected to grow by 5.0 per cent in 2023 (from 5.5 per cent previously) to 5.3 per cent in 2024. Ethiopia will find it difficult to regain its pre-pandemic performance due to the protracted conflict in the northern region that is driving investment out of reach. Real GDP is expected to grow steadily, from 5.3 per cent in 2023 (up from 3.5 per cent previously) to 6.1 per cent in 2024. Botswana and Zambia will grow by 4.0 per cent in 2023 (compared to 3.2 and 3.3 per cent, respectively). While growth is expected to slow in Botswana (3.7 per cent) in 2024, it is expected to accelerate to 4.2 per cent in Zambia.
Growth Projections for Key West and Central African Economies Real GDP growth in Nigeria is expected to slow from 3.6 per cent in 2021 to 3.3 per cent in 2022, as the country’s economic growth continues to suffer from the underperformance of the oil sector. Chad and the Republic of the Congo are expected to emerge from two- and seven-year recessions in 2022 and are expected to grow by 3.1 and 1.9 per cent, respectively, thanks to the combination of soaring oil prices, stable oil production and strong performance in the non-oil sector. In Niger, growth is expected to jump by 3.6 percentage points to 5.0%, thanks to the expansion of the agricultural sector after a severe drought in 2021. Growth in Ghana is expected to slow to 3.5 per cent in 2022, well below the country’s average pre-pandemic performance of 7 per cent, owing to rising public debt, high inflation and currency depreciation. Growth in Côte d ‘Ivoire is expected to rebound from 5.7 per cent in 2022 to 6.8 per cent, before falling back to 6.6 per cent. After slowing to 4.8% in 2022, growth in Senegal is expected to jump to 8.0% in 2023 and strengthen to 10.5% in 2024. Gabon is expected to continue its upward trend, but at a slow pace. Growth is expected to reach 3.0% in 2023 (up from 2.7% previously). In Cameroon, the economy will continue to grow steadily in 2023 (4.3 per cent) and 2024 (4.6 per cent), supported by investment and private consumption. The World Bank report presents the challenges for the effective development of African economies.