Sub-Sahara Africa growth firms up — World Bank
Growth projections in Sub-Sahara Africa (SSA) are expected to firm up this year and 2025. However, there are risks of consumer price hikes if the crises in the Middle East persist, a World Bank report has revealed.
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In its Global Economic Prospects Report for January, the World Bank said “Growth in the SSA is expected to accelerate to 3.8% in this year and a further 4.1% in 2025 as inflationary pressures fade.”
The region’s growth fell to an estimated 2.9% in 2023, a 0.3% point lower than the projected figure for June.
Country-specific challenges such as the ongoing energy crisis in South Africa and higher input prices in Nigeria were some of the main drivers of the sub-region’s slowdown in economic activity in 2023.
In Nigeria, SSA’s biggest economy, Gross Domestic Product (GDP) softened to an estimated 2.9% in 2023, on account of the “disruptive currency demonetisation policy” in the first quarter of 2023, even though oil exports rebounded after a decline in the previous year.
In South Africa, the second biggest economy in the region, growth was further weakened as the economy continued to battle the effects of the energy crises, transportation challenges, weak job creation, higher consumer price index and monetary policy tightening.
Maturing oil fields in Angola was the cause of a slowdown in economic activities as revenue shortfalls led to an economic growth decline of 0.05%.
Ghana
Ghana’s economy is undergoing a debt restructuring exercise, with a huge debt overhang. Growth projections for 2023 are expected to be within subdued levels of about three to four per cent.
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Ghana reached an agreement last week with the Paris Club on debt treatment, paving the way for an IMF budget support of US$600 million under the US$3 billion bailout programmes.
Bilateral lenders, including China and France, who co-chair the official Creditor Committee, hold around a quarter of the country’s US$20 billion external debt.
“Elsewhere in the region, activity in resource-rich countries weakened. Growth in Botswana softened, owing to declines in global demand and prices of diamonds while Namibia, a mineral and metal resource-rich country, slowed owing to the loss of momentum in mining output growth and monetary policy weighing on domestic demand,” the report said.
In its outlook for the region, the world report was cautiously optimistic about the growth prospects of the region.
This is because of expected monetary tightening and limited fiscal space due to high debt levels and increased borrowing costs. This, the report noted, will weigh down on investment growth across the region.
Risks
According to the report, many factors can pose a challenge to the rebound of the economies in the SSA region.
These include political instability and violence in the Middle East, increased disruptions to global trade and production, as well as adverse weather events, a sharper-than-expected global economic slowdown and a higher risk of government defaults, especially of debt restructuring attempts by highly indebted countries, which proved unsuccessful.
Analysts say an escalation of the Middle East conflict has the potential to increase world oil prices on the international market.
This could also spike food prices, increase production costs and disrupt the supply chain as seen immediately after the effects of the COVID-19 pandemic.
The report notes that although global food and energy prices have retreated from their peaks in 2022, “disruptions to global or local trade and production could reignite consumer prices inflation, especially food prices inflation throughout the region”.
Public Debt
According to the World Bank, there are real risks of public debt servicing costs to the growth prospects of the sub-region, as the cost of debt servicing has risen sharply on account of the global pandemic.
It warns that should global or domestic inflation surge to unexpected levels, interest rates could rise for longer periods, and this could lead to tougher financial conditions for the sub-region.
“This could limit access to financial markets and increase risk of financial distress and government defaults,” the report warned.
Nigeria
Growth in Nigeria is projected at 3.3% this year and 3.7% in 2025—up 0.3 and 0.6 percentage points respectively since June—as macro-fiscal reforms gradually bear fruits. The baseline forecast implies that per capita income will reach its pre-pandemic level only in 2025.
Growth is expected to be driven mainly by agriculture, construction, services and trade.
Inflation should gradually ease as the effects of last year’s exchange rate reforms and removal of fuel subsidies fade.
These structural reforms are expected to boost fiscal revenue over the forecast period.
South Africa
Growth in South Africa is projected to firm to a still-subdued 1.3% in 2024 and then edge up to 1.5% in 2025. While energy sector reforms are expected to improve energy availability in the medium term, increasingly prevalent infrastructure bottlenecks, exacerbated by the slow pace of structural reforms, are likely to continue to limit the country’s growth potential.
Angola
Growth in Angola is projected to pick up to 2.8% this year, half a percentage point lower than anticipated in the June Global Economic Prospects report, as investment grows more slowly than expected. Non-oil economic activity will be the main driver of growth, while the oil and gas industry is expected to grow by a mere one per cent a year on account of field depletion and lack of investment.
