As African economies look to the new year, countries across the continent are poised to make moderate economic gains but must navigate the maze of domestic and international challenges.
According to the UN World Economic Situation and Prospects (WESP) 2024, the continent’s economic growth is expected to quicken slightly, with average GDP possibly inching up to 3.5 per cent.
Yet, debt sustainability concerns, fiscal pressures, and climate change present uncertainties. The projected 3.5 per cent growth is a slight increase from the 3.3 per cent in 2023.
Major regional economies, such as that of Egypt, are anticipated to slow to 3.4 per cent from 4.2 in the previous year, mainly due to foreign exchange scarcities that may weaken import capacity and domestic demand.
In South Africa, the persistent energy crisis has limited the growth to just 0.5 per cent in 2023, and no significant change is expected in 2024.
In Nigeria, the country’s growth prospect points to a moderate increase, largely due to government reforms in the oil sector. The growth is forecast to be at 3.1 per cent.
High levels of debt are one of the main challenges African economies face going forward, the report noted. For instance, Zambia is navigating a debt-to-GDP ratio that soared past 70 per cent in recent years.
Yet, the country is not alone: “18 countries in Africa recorded a debt-to-GDP ratio of over 70 per cent in 2023, with many of them facing debt distress,” the UN Department of Economic and Social Affairs (UN DESA) said in a release accompanying the report.
Ghana’s financial health is also under scrutiny, with a staggering fifth of its tax revenue devoted to servicing debt. These instances are not anomalies but rather stark representations of the debt dilemma many African nations confront.
Fiscal health and inflation
Fiscal stability remains elusive, the report highlighted, with many countries wrestling to increase their tax revenue, a vital lifeline for economic sustainability.
Energy subsidy reforms in nations like Nigeria and Angola reflect attempts to recalibrate fiscal policies amidst pressing economic realities. At the same time, inflationary pressures are widespread, with countries like Nigeria and Egypt experiencing severe surges in food prices.
In response, Central banks across the continent have tightened monetary policies, trying to stabilize currencies and curb inflation. Yet, the effectiveness of these measures in the face of global economic turbulence remains a critical question.
Climate change continues to be an unpredictable catalyst, significantly impacting agriculture-dependent economies. The Horn of Africa, repeatedly battered by droughts exacerbated by human-induced climate change, faces ongoing threats to food security and economic stability.
Southern Africa’s vulnerability was laid bare by Cyclone Freddy in March 2023, with losses mounting into hundreds of millions. These incidents underscore the urgent need for climate resilience strategies.
The global slowdown in trade has also slowed down economic growth in Africa. This is due to less demand from the main countries that buy Africa’s exports and the prices for raw materials and goods sold by the continent have stopped increasing.
Although overall intra-African trade remains relatively low continent-wide, hovering below 15 per cent, this general trend masks regional variations.
Notably, East and Southern Africa stand out with their relatively higher levels of intra-regional trade, where intra-African exports correspond to almost 30% of these subregions’ overall exports. These regions contrast with other parts of the continent, where trade is more externally oriented.
The African Continental Free Trade Area (AfCFTA) emerged as a central initiative intended to address these intra-African trade issues. Its goal is to enhance economic integration and increase trade flows within the continent by creating a single market for goods and services.
Yet, despite its potential, the actual impact of AfCFTA has been limited so far, the report said.
The 2024 UN World Economic Situation and Prospects (WESP) is produced by UN DESA in partnership with the five UN Regional Commissions, UNCTAD, UN-OHRLLS and UNWTO. It features the global economic outlook for 2024 and 2025, and regional growth forecasts for developed and developing economies, as well as economies in transition.