Slowly bouncing back to growth - The state of African economies
Overcoming inflation and fiscal pressures
Hello all,
the Worldbank released it’s latest report on the state of the African economies.
Which we wanted to take as an opportunity to share some insights with you on the state and current challenges of Sub-Saharan African economies.
Let’s dive in.
🕐 In a Hurry? Here's a 1-Minute Summary:
Growth: Sub-Saharan Africa's economy is on the path to recovery, with growth rates expected to hit 3.4% in 2024 and 3.8% in 2025, mainly driven by increased consumer spending amid falling inflation.
Inflation: Inflation across the region is cooling but remains concerningly high, with some countries still facing double-digit rates.
Fiscal balances: Fiscal health is showing slight improvement through spending cuts, but high deficits and debt levels persist, compounded by risks of increased spending during election periods.
Conflicts: Conflicts and natural disasters across Sub-Saharan Africa are creating economic uncertainty, deterring investment, and exacerbating food insecurity.
Policies: Improving tax systems, and investing in human capital and technology are crucial for sustaining growth and reducing poverty.
⏳ Ready for a Deeper Dive? Here's the Breakdown:
1. Growth outlook: Bouncing back
Sub-Saharan Africa's economic growth is expected to bounce back, with growth rates projected at 3.4% in 2024 and 3.8% in 2025.
This is primarily driven by increased private consumption due to declining inflation.
However, there’s a growing gap between countries with lots of natural resources and those without.
Resource-abundant countries are projected to grow from 2.2% in 2023 to 2.8% in 2024, fueled by new projects like oil and mining.
Meanwhile, non-resource abundant countries may see their growth go from 2.4% in 2023 to 3.4% in 2024 and even 4% by 2025-26, helped by more investments.
Overall investment growth is likely to remain low due to high interest rates and fiscal consolidation, with the global economy making a modest contribution to Africa's growth.
2. Inflation Trends: Cooling, but still high
Prices in most Sub-Saharan African countries are cooling down, but they're still quite high. Inflation is expected to drop from 7.1% in 2023 to 5% by 2025-26.
Despite this drop, many countries still have high inflation rates - especially compared to pre-pandemic levels - with 14 countries having extremely high inflation (two digits or more).
3. Fiscal Balances and Debt: Improving, but caution needed
Many countries (e.g., Kenya, Nigeria or Ghana) have improved their fiscal balances due to consolidation measures.
Deficits are expected to go down to 3.5% of GDP in 2024, but they're still quite substantial, posing challenges to African governments' fiscal positions.
This is even more challenging given it’s a super election year in Sub-Saharan Africa with 17 general and presidential elections. And during election years governments often spend more.
It's important for countries to stay frugal though.
Even though public debt levels are expected to drop slightly from 61% of GDP in 2023 to 57% in 2024, growing debt service obligations are a concern.
It can come to liquidity problems and the crowding out of development spending.
The external public debt servicing cost is expected to increase to $58.7 billion by 2026, which represents a 50% jump in 7 years.
4. Conflict and Violence: Escalations causing uncertainty
Escalating conflict and violence in the region (e.g., tensions in West Africa, where Burkina Faso, Mali and Niger have decided to leave the Economic Community of West African States) make things harder and create uncertainty for businesses, impacting investor sentiment and food security in affected countries.
At the same time frequent droughts and floods in Eastern and Southern Africa are causing food shortages warranting urgent interventions and support.
5. Policy Responses: Domestic resource mobilization and investments are crucial
Countries need to generate more money domestically to pay for important things like schools and hospitals, and they can do this by improving how they collect taxes and spending money more wisely.
Making changes with regard to the tax administration and reforming things like energy subsidies can help bring in more money.
Trade agreements, like the AfCFTA, can also help countries sell more things and make more money.
But just changing fiscal policies alone won't solve everything. Countries need to invest in areas like education and technology to make sure everyone has a fair chance to succeed.
Sources to learn more:
Africa’s Pulse, Spring 2024 by The Worldbank Group
Africa MSME Pulse Survey Report 2023 by GeoPoll
Enjoying out content?
Don’t keep it for yourself and share!
Subscribe to not miss future updates!
Feedback or thoughts?
Please let us know! Just reply to this e-mail. We’re happy to hear from you!
Thanks for reading,
Carolin
Disclaimer: All information provided is not intended to serve as investment advice. Any mention of industries or countries should not be taken as an endorsement.