Growth in sub-Saharan Africa remains weak, dragged down by global economic uncertainty, underperformance of the continent’s largest economies, high inflation and a sharp deceleration in investment growth, according to a World Bank report released Wednesday. Africa can do better in economic growth!
Africa can do better in economic growth
With growth prospects dimming and debt levels rising, African governments need to focus more on macroeconomic stability, domestic revenue mobilization, debt reduction, and productive investments to reduce extreme poverty and boost shared prosperity over the medium to long term.
Economic growth in sub-Saharan Africa is expected to slow from 3.6 percent in 2022 to 3.1 percent in 2023, according to the latest edition of Africa’s Pulse, the World Bank’s April 2023 economic update for sub-Saharan Africa. Economic activity in South Africa is expected to weaken further in 2023 (0.5 percent annual growth) due to the worsening energy crisis, while Nigeria’s growth recovery for 2023 (2.8 percent) remains fragile as oil production remains subdued. Real gross domestic product (GDP) growth in the West and Central Africa subregion is projected to decline to 3.4 percent in 2023 from 3.7 percent in 2022, while growth in Eastern and Southern Africa is projected to decline to 3.0 percent in 2023 from 3.5 percent in 2022.
Weak growth, combined with debt vulnerabilities and sluggish investment growth, risks costing poverty reduction a decade,” said Andrew Dabalen, the World Bank’s chief economist for Africa. Policymakers must redouble their efforts to curb inflation, boost domestic resource mobilization and adopt pro-growth reforms, while continuing to help the poorest households cope with the rising cost of living.”
Debt 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 much-needed development investments and threatening macro-fiscal stability.
Many countries in the region are showing resilience in the face of multiple crises
Stubbornly high inflation and weak investment growth continue to weigh on African economies. Although inflation appears to have peaked last year, it is expected to remain high, at 7.5 percent in 2023, and to exceed central bank target ranges in most countries. Investment growth in sub-Saharan Africa has fallen from 6.8 percent in 2010-2013 to 1.6 percent 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 in the face of multiple crises. These include Kenya, Côte d’Ivoire, and the Democratic Republic of Congo (DRC), which have recorded growth rates of 5.2 percent, 6.7 percent, and 8.6 percent in 2022, respectively. In the DRC, the mining sector has been the main driver of growth due to capacity expansion and a recovery in global demand. The development of natural resource wealth offers the potential to improve the fiscal and debt sustainability of African countries, but the report warns that this can only happen if countries adopt the right policies and learn from past economic booms and busts.
“The rapid decarbonization of the world will bring significant economic opportunities to Africa,” noted James Cust, senior economist at the World Bank. Metals and minerals will be needed in greater quantities for low-carbon technologies such as batteries. If the right policies are put in place, these resources could increase tax revenues, expand opportunities for regional value chains that create jobs, and accelerate economic transformation.”
Maximizing government revenues from natural resources would provide a double benefit
In an era of energy transition and increasing demand for metals and minerals, resource-rich governments have the opportunity to better leverage natural resources to finance public programs, diversify their economies, and expand energy access.
The report indicates that countries could potentially more than double the average revenue they currently derive from natural resources. Capturing these fiscal resources in the form of royalties and taxes, while continuing to attract private sector investment, requires reform and good governance.
Maximizing government revenues from natural resources would provide a double benefit to people and the planet by increasing tax revenues and removing implicit production subsidies.