The global macroeconomic conditions have recently become increasingly uncertain with the persistence of multiple shocks that make policymaking and investment decisions very challenging. The highly volatile external environment has spilled over to the African continent, threatening to halt the gradual recovery from the lingering effects of the COVID-19 pandemic.
The dynamic and persistent nature of global shocks and their interaction with prevailing pockets of domestic and regional risks require regular diagnosis and targeted policy actions to address their impact on African economies.
Against this backdrop, Africa’s Macroeconomic Performance and Outlook Report - the Bank’s new biannual publication to be released in the first and third quarters of each year - aims to provide African policymakers, global investors, researchers, and other development partners with an up-to-date, evidence-based assessment of the continent’s recent macroeconomic performance and short-to-medium term outlook amid dynamic global economic developments.
The new report will be updated with forecasts and analysis from the surveillance of regional and global macroeconomic developments. And it will complement the African Economic Outlook, the Bank’s annual flagship publication, which will be launched on the sidelines of the Bank’s Annual Meetings in May of each year. This year’s edition of the African Economic Outlook will focus on policies to mobilize private sector financing and harnessing of natural capital for climate change and green development in Africa.
The release of this first edition of Africa’s Macroeconomic Performance and Outlook Report comes at a time when African economies face significant headwinds as global and domestic shocks undermine progress toward restoring macroeconomic and social stability and sustaining economic recovery due to higher living costs stoked by rising inflationary pressures.
Our estimates show that Africa’s average real gross domestic product slowed to 3.8 percent in 2022. The slowdown reflects the impact of downside factors including spillovers from rising geopolitical tensions, climate change risks, and the lingering impacts of COVID-19, which have been amplified by tightening of global financial conditions and the associated increase in domestic debt service costs.
Despite the slowdown, Africa demonstrated continued resilience, with all but one country maintaining positive growth rates in 2022 and with stable outlooks in 2023 and 2024.
Africa’s growth rate is projected to average about 4 percent in 2023 and 2024, higher than the world’s projected averages of 2.7 percent and 3.2 percent, respectively.
Tighter global financial conditions put pressure on African domestic currencies, raising the risk of already high inflation; but inflation is projected to ease in 2023 as countries sustain restrictive monetary and structural policies. Inflation is also expected to decline to single digits by 2024, even lower than the level preceding outbreak of COVID-19.
Both current account and fiscal positions improved in 2022. The average current account deficit narrowed in 2022 because of improved trade balances buoyed by higher commodity exports, while the average fiscal deficit narrowed on account of improved revenues especially among oil-exporting countries.
Five African countries have a projected annual GDP growth rate of more than 5.5 percent and could return to the league of the world’s top 10 fastest-growing economies in 2022. The projected stability in medium-term growth largely reflects the benefits of policy support in Africa, the global efforts to mitigate the impacts of exogenous shocks and rising uncertainty, and the stable growth in Asia, one of Africa’s main trading partners.
African economies are indeed resilient. With 54 countries at different stages of growth, different economic structures, and diverse resource endowments, the passthrough effects of global shocks always differ by region and by country. Slowing global demand, tighter financial conditions, and disrupted supply chains therefore had differentiated impacts on African economies.
Despite the confluence of multiple shocks, growth across all five African regions was positive in 2022—and the outlook for 2023–24 is projected to be stable.
With the resumption of global economic activities and as an alternative source for Europe’s energy needs, growth in the North African region stabilized at 4.3 percent.
In Central Africa, policies to support consumer demand and boost investments saw growth increasing to 4.7 percent.
Economic diversification and expansion in infrastructure spending ensured that growth in East Africa averaged 4.2 percent.
In West Africa, the recovery in the agricultural and tourism sectors coupled with expansions in construction and renewable energy projects ensured that the region grew by 3.6 percent.
The Southern African region managed to grow by 2.5 percent on the back of a strong rebound in tourism activities and resumption of investment spending in mining projects.
This welcome recovery and the economic resilience of African economies come with a cautious optimism.
As in other regions, the medium-term outlook for the continent will continue to evolve in line with the developments in the confluence of overlapping shocks currently buffeting global economies. These include the ripple effects of Russia’s invasion of Ukraine, which continues to disrupt Africa’s and global supply chains and fuel rising food and energy price inflation; the tightening of global financial conditions and the associated increase in domestic debt service costs; the lingering effects of the COVID-19 pandemic, which have reversed Africa’s gains in poverty eradication efforts by more than a decade below pre-pandemic levels; and elevated climate risks which continue to exacerbate fiscal risks for countries.
Global financial conditions are projected to remain restrictive in the near term, compounded by increased volatility in global financial markets and persistent disruptions in global supply chains. This could put further pressure on exchange rates and keep debt vulnerabilities and domestic inflation at elevated levels, threatening food and energy security in most African countries.
And an estimated 15 million more people were driven into extreme poverty in Africa in 2022 due to higher global energy and food prices, exacerbating the pandemic-induced increase in extreme poverty. A sustained increase in food and energy costs could plunge more people into poverty and threaten achievement of SDG 1 of eliminating poverty.
The combined effects of the triple challenges of COVID-19, conflict and climate change have therefore revealed the vulnerabilities of economies more than ever before.
Overall, the global economy will continue to face enormous challenges in the near term: elevated energy and food prices, which will entrench already strong inflationary pressures, heightened debt vulnerabilities and default risks, growth deceleration and volatility in global financial markets. And calls for much-needed reforms in the global financial architecture to make it better aligned with the recurrent global market conditions are growing louder.
This edition of Africa’s Macroeconomic Performance and Outlook therefore recognizes the difficult challenges African economies face in navigating the maze of multiple overlapping global risks.
First, the high interest-rate environment could exacerbate the cost of debt service and see some countries slip into a high risk of debt distress;
Second, the increasing losses and damages due to more frequent extreme weather events (floods, cyclones, droughts, etc.) will continue to exacerbate fiscal risks for countries;
Third, countries that continue to depend on commodity exports with minimum value addition will continue to be exposed to commodity price volatility risks and may miss the significant opportunities in the global green transition markets;
Fourth, continued global and regional conflicts in key hotspots could exacerbate softer demand and supply chain disruptions; and
Political risks due to upcoming national elections in several countries could undo gains in macroeconomic governance and growth if they are not carefully managed.
The report therefore advocates for bold policy actions at national, regional, and global scales to help African economies mitigate the compounding risks.
Policy recommendations include a strategic mix of monetary, fiscal and structural policies to curb inflation while protecting the most vulnerable populations and economic sectors to continue to spur growth; strategic industrial policies needed to correct market failures, drive export orientation, and encourage healthy competition in key sectors; policies to boost regional trade to enhance resilience to spillovers from the global economic slowdown and reduce persistent trade deficits; and policies that can mobilize and leverage private sector financing for development in Africa.
The report reiterates the call for accelerated implementation of structural reforms to enhance government-enabled private sector industrialization in key sectors: in agriculture and agribusiness; in climate-smart and just energy transitions; in value chain development in natural resource sectors, especially in minerals for green development; in quality health care infrastructure and pharmaceutical industries. in digitalization and e-governance; and more.
In our forthcoming African Economic Outlook Report 2023 – to be launched at our Annual Meetings in Sharm El Sheikh in the Arab Republic of Egypt in May 2023 – we will examine options for mobilizing the private sector’s accumulated savings (at home and abroad) and channeling them to urgently finance the continent’s infrastructure and social development. The report will also articulate policies and options to leverage Africa’s abundant natural capital for green growth and sustainable development.
We need to all join hands to harness the enormous development opportunities across the resilient economies of Africa. The continent has shown over time that its diversity is a source of resilience. Harnessing these opportunities will be key as the continent continues to build back better and bolder to secure a resilient, prosperous, and sustainable future for all Africans.
Let us stand together to build the Africa We Want – a continent that continues to play pivotal roles in improving the quality of lives of its citizens and contributing to the sustainability of economies everywhere.
By Dr. Akinwumi A. Adesina
President, African Development Bank Group