2023 has been a difficult year for sub-Saharan Africa (SSA) economies, to put it mildly. Many have experienced self-inflicted as well as involuntary economic misfortunes, with an overall rise in conflict and political instability, along with a decline in commodity production, all of which is hugely damaging for economies.
The October edition of the World Bank’s Africa’s Pulse report projects 2023 GDP growth across SSA to be 2.5%, a steep fall from 3.6% in 2022. This projection hides considerable variation, however. Eastern and southern Africa is projected to grow at 1.9% in 2023 while the central and western part of the continent is projected to grow at 3.3%.
The slump has been driven by the usual suspects. They include high inflation, conflict and instability, high debt with crippling service costs, and a slump in commodity production and, in some cases, prices.
Climate change, war and economic mismanagement have sucked many countries into a debt spiral
Stubborn inflation
Over the year, inflation has remained at levels much higher than central bank target rates, as a result of higher food and energy prices brought on by fiscal reforms. In turn, these price rises have inevitably led to higher interest rates, constricting production and weakening currencies.
Average inflation across SSA is projected to fall to 7.3% from 9.3% in 2023, but 18 countries still have double-digit rates. Nigeria, one of Africa’s largest economies, saw rising inflation rates all through the year, reaching 27.3% in October. Inflation in Ghana and Ethiopia eased through the year but still remains at high levels – 35.2% and 29.2% in October, respectively.
The picture is, however, brighter in some countries. Côte d’Ivoire, Gabon and Benin, for example, have manageable inflation rates – hitting under 4% in October – while South Africa saw a fall from 6.9% in January to 5.9% in October.
A more effective malaria vaccine is set to be rolled out, boosting GDP by 0.5%
Debt issues
Persistent high debt levels remain a problem. A mix of the lingering effects of Covid-19, supply chain disruptions caused by climate and geopolitical woes such as the Russia-Ukraine war, and plain economic mismanagement has sucked many countries into a debt spiral.
The World Bank reports that International Development Association-eligible SSA countries in debt distress, or at high risk of it, has risen from 27% to 55% over the past eight years. This year, Mozambique has defaulted on its debt, and Ghana, still struggling with debt restructuring after its 2022 default, is in talks with the International Monetary Fund (IMF). Malawi is also at the IMF, while Nigeria has a debt service-to-government revenue ratio of over 90%. These crippling levels of debt have prevented governments from financing cost-reducing infrastructure, making it difficult to create jobs and to produce, further dragging the countries into the debt spiral.
Good news
2023 may feel like a year to forget, but it hasn’t been all doom and gloom. Africa emerged as the world leader in floating liquified natural gas (LNG) production. Ghana, Nigeria and others have started to implement fiscal and monetary reforms that may see their economies rebound next year. In South Africa, the power load-shedding that caused a slight dip in GDP this year is reducing in frequency and duration, and of course South Africa won the Rugby World Cup.
Meanwhile, in good news for all of Africa, the World Health Organization approved a second, cheaper and more effective malaria vaccine, which is expected to lift GDP in countries where it is fully adopted by 0.5%. And in a boost for wildlife, a South African NGO has purchased the world’s largest captive rhino breeding operation and plans to rewild the animals across the continent.
Less debt, more jobs and greater stability are needed to make 2024 a better year
The way ahead
There’s no denying that the SSA region faces its ‘most challenging environment in years’, as the IMF’s Africa director Abebe Aemro Selassie acknowledged back in October. However, the IMF was ‘cautiously optimistic that there is light on the horizon’, he said, with growth expected to rebound to 4% in 2024 and be broad based.
The focus in 2024 has to be on better economic management and fiscal discipline (or, more bluntly, elimination of wasteful spending). Highly indebted SSA countries must reduce their debt loads and improve the tax take to expand government revenues.
Companies for their part must maintain measures to weather the storm and be ready for the inevitable recovery in the coming quarters. With fiscal and monetary authorities considering measures to stabilise their economies and return to growth, some countries are beginning to seriously consider a private sector-led model for infrastructure funding – finance professionals must think how best to position their organisations to benefit from opportunities emanating from these reforms.
Finally, all hands must be on deck to create jobs. SSA economies have lagged in job creation and must implement policies aimed at increasing productivity, improving skills and raising wages. Only if all of these are achieved will 2024 be a better year.
