In the face of dampened growth prospects and rising debt levels, African governments must sharpen their focus on macroeconomic stability, domestic revenue mobilisation, debt reduction and productive investments to reduce extreme poverty and boost shared prosperity in the medium to long term, the World Bank advises in the latest edition of its ‘Africa’s Pulse’ report.

The report finds that growth across sub-Saharan Africa remains sluggish, dragged down by uncertainty in the global economy, the underperformance of the continent’s largest economies, high inflation and a sharp deceleration of investment growth.

The World Bank estimates that economic growth in the region will slow from 3.6% in 2022 to 3.1% this year.

In particular, economic activity in South Africa is set to weaken to 0.5% gross domestic product (GDP) growth, as the country’s energy crisis deepens.

Growth in Nigeria for 2023 is, however, expected to reach 2.8%, which is still fragile as oil production remains subdued.

The real GDP growth of the Western and Central African regions is expected to decline to 3.4% in 2023, down from 3.7% in 2022. The real GDP growth of Eastern and Southern Africa will likely decline from 3.5% in 2022 to 3% in 2023.

World Bank chief economist for Africa Andrew Dabalen says weak growth, combined with debt vulnerabilities and dismal investment growth, risks a lost decade in poverty reduction.

He recommends that policymakers redouble their efforts to curb inflation, boost domestic resource mobilisation and enact pro-growth reforms, while continuing to help the poorest households cope with rising costs of living.

Debt distress risks remain high with 22 countries in the sub-Saharan African region being at high risk of external debt distress or in debt distress as of December 2022.

The World Bank states that unfavourable global financial conditions have increased borrowing costs and debt service costs in Africa, diverting money from desperately needed development investments and threatening macro-fiscal stability. 

Moreover, stubbornly high inflation and low investment growth continue to constrain African economies. While headline inflation appears to have peaked in the past year, inflation is set to remain high at 7.5% in 2023, and above central bank target bands for most countries.

Investment growth in sub-Saharan Africa fell from 6.8% in 2010 to 2013 to 1.6% in 2021, with a sharper slowdown in Eastern and Southern Africa than in Western and Central Africa having been recorded.

Despite these challenges, many countries in the region are showing resilience amidst multiple crises, 'Africa's Pulse' notes. These include Kenya, Côte d’Ivoire, and the Democratic Republic of Congo (DRC), which grew at 5.2%, 6.7%, and 8.6% respectively in 2022.

In the DRC, the mining sector was the main driver of growth owing to an expansion in capacity and recovery in global demand. Harnessing natural resource wealth provides an opportunity to improve fiscal and debt sustainability of African countries, but the report cautions that this can only happen if countries get policies right and learn the lessons from the past boom and bust cycles, the World Bank explains.

“Rapid global decarbonisation will bring significant economic opportunities to Africa. Metals and minerals will be needed in larger quantities for low carbon technologies like batteries, and, with the right policies, could boost fiscal revenues, increase opportunities for regional value chains that create jobs, and accelerate economic transformation,” says World Bank chief economist James Cust.

In a time of energy transition and rising demand for metals and minerals, resource-rich governments have an opportunity to better leverage natural resources to finance their public programmes, diversify their economy, and expand energy access.

The report finds that countries could potentially more than double the average revenues that they currently collect from natural resources.

Tapping these fiscal resources in the form of royalties and taxes, while continuing to attract private sector investment, requires the right kinds of policies, reforms, and good governance.

Maximising government revenues derived from natural resources would offer a double dividend for people and planet by increasing fiscal space and removing implicit production subsidies, the World Bank concludes.