African Development Bank president Dr Akinwumi Adesina
Photo by: Reuters
Global macroeconomic conditions have become increasingly uncertain with the persistence of multiple shocks that make policymaking and investment decisions very challenging, African Development Bank (AfDB) president Dr Akinwumi Adesina said at the launch of a new report on January 19.
The new biannual publication ‘Africa’s Macroeconomic Performance and Outlook’ will be released in the first and third quarters of every year going forward.
It is aimed at providing 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 first report revealed the extent to which African economies have been impacted by multiple factors following the recovery from the pandemic in 2021, leading to a slowdown in growth. These factors include the effects of climate change, ongoing Covid-19 risks and the spillover from rising geopolitical tensions, such as conflict and insecurity on the continent and Russia's invasion of Ukraine.
“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,” Adesina said during a January 19 briefing.
He highlighted how these issues have resulted in volatility in global financial markets, inflationary pressures, increased costs of capital and debt servicing, disruptions to global supply chains, and decreased demand in key export markets, particularly in Europe and China.
However, despite these challenges, the report indicates that the outlook for African economies remains stable.
A key finding in the report relates to how the tightening of financial conditions and the appreciation of the dollar have had a negative impact on many African economies, which is common among all emerging markets.
These factors have increased the cost of servicing existing debt and the risk of debt distress, while contributing to limited access to international capital markets for new financing, which has led to instability in foreign exchange markets, making it difficult for central banks to maintain price stability.
Adesina noted that this was particularly problematic as African countries were already facing strain on their fiscal positions owing to Covid-19 response measures and the need to provide support for vulnerable populations, as well as rising food and energy prices, high debt levels and the effects of climate change.
AfDB acting chief economist and VP Kevin Chika Urama explained that the projected average growth rate of real gross domestic product (GDP) for the continent was expected to slow to 3.8% for 2022, from 4.8% in 2021, and then to stabilise at an average of about 4% over 2023 and 2024. He attributed this slowdown to a combination of domestic and external factors.
Adesina noted that this projected growth was higher than the projected global economic growth averages of 2.7% in 2023 and 3.2% in 2024.
In Southern Africa, growth slowed more than any other region on the continent, dropping to about 2.5% in 2022 from 4.3% in 2021. Urama said this was primarily owing to a decrease in economic activity in South Africa, caused by factors such as higher interest rates, lack of domestic demand and ongoing power shortages.
In Central Africa, growth is estimated to have been the continent’s fastest at 4.7%, up from 3.6% in 2021. This growth was bolstered by favourable commodity prices.
Urama explained that, across the continent, the economies dependent on tourism are expected to have grown by 6.3% in 2022, up from 4.2% in 2021, owing to the easing of Covid-19 risks and increased household savings. However, with rising inflation in these markets, growth is projected to slow to 5.1% in 2023.
Oil-exporting countries, which make up 51% of the continent's GDP, are expected to have slightly weakened to 4% growth in 2022 from 4.2% in 2021, owing to deceleration in the Libyan economy and subdued growth in Nigeria. Oil-exporting country growth is projected to stabilise at 4.1% in 2023 thanks to improved political stability in Libya and increased oil production in Nigeria.
Resource-intensive economies are estimated to have declined to 2.8% growth in 2022 from 4.7% in 2021, owing to structural weaknesses, inadequate electricity generation, high inflation and weak global demand. These economies may see slightly improved growth rates of 3% in 2023.
Non-resource-intensive economies are estimated to have declined to 4.3% growth in 2022 from 6.3% in 2021 because of the impact of high inflation on household consumption and subdued global demand for exports. These economies, mostly net oil importers, have also been affected by high energy and food prices, which have likely dampened household spending.
Adesina said the projected stability in medium-term growth in Africa largely reflects the benefits of policy support, global efforts to mitigate the impacts of exogenous shocks and rising uncertainty, as well as stable growth in Asia, which is one of Africa’s main trading partners.
“However, this welcome recovery and the economic resilience of African economies come with a cautious optimism,” he warned.
Adesina noted that global financial conditions have become more restrictive and are expected to stay that way in the short term, owing to increased volatility in global financial markets and ongoing disruptions in global supply chains. This may lead to further exchange rate fluctuations and cause high levels of debt and domestic inflation to persist, potentially affecting food and energy security in many African countries.
“The report advocates for bold policy actions at the national, regional, and global scales to help African economies mitigate the compounding risks. The African Development Bank reiterates its call for accelerating implementation of structural reforms to enhance government-enabled private sector industrialisation in key sectors,” Adesina said.
He highlighted that the report presented policy options to mitigate the effects of tighter global financial conditions and to revitalise financial flows to Africa.
“Tapping into the private sector’s accumulated savings – at home and abroad – and channelling them to urgently finance infrastructure and social development will be key,” Adesina said.