Most African economies have been staring into an economic abyss, besieged by a plethora of daunting challenges that have left many teetering on the edge of a precipice. A glance into Africa’s economic crystal ball for 2023 depicts a mixed bag of fortunes, with some economies set to flourish like a green bay tree, some will find themselves staring down the barrel of a recession whilst others will remain in the doldrums.
According to the International Monetary Fund (IMF), economic growth in Sub-Saharan Africa is expected to reach 3.7 percent in 2023. Slowing global growth, higher external borrowing costs and weaker domestic currencies, are now the dominant factors weighing on Africa’s economies next year. In reiteration, the Economist Intelligence Unit (EIU) predicts that African economies will face turbulent times in 2023, as a range of internal and external shocks undermine growth prospects and threaten stability, but most of countries will weather the storm and continue to grow. Moreover, real GDP growth rates will vary considerably across the continent, and some states will stagnate and teeter on the edge of recession.
Ostensibly, the devil has darkened Africa, if the mounting string of challenges continue. From adverse weather conditions, food insecurity, political instability due to election cycles, terrorism, conflicts, heavy burden of debt servicing, geopolitics and war. To boot, the Covid-19 pandemic dealt a heavy blow on African economies, resulting in the worst recession in more than half a century. Just when economic recovery was within grasp, Russia invaded Ukraine in early 2022 disrupting global supply chains, resulting in the worst inflation on record.
The year ahead is projected to be challenging pertinently for Africa’s advanced economies. \ Africa’s regional heavyweights will remain stuck in a slow-growth mode amid more challenging domestic and external economic conditions. Furthermore, the IMF, in its report dubbed ‘Living on Edge’, attributes the slower growth to downturns in advanced economies and emerging markets.
Below we assess Africa’s regional giants and what 2023 portends for their economies.
- Egypt
Renowned as the land of civilizations, the Arab Republic of Egypt has been grappling under the weight of massive debt. On the brink of an economic collapse, the North African country sought help from the IMF to avert the far-reaching effects on its fast-growing population, which currently stands at 104 million people.
In response, the Bretton Woods Institution recently approved a $3 billion loan in late October, as an Extended Fund Facility (EFF) arrangement, to reduce government debt to less than 80% of gross domestic product (GDP) in the medium term. Egypt has been battling a chronic malade of debt addiction, given that this makes for the fourth aid package in six years. To boot, the country has been receiving Band-Aids in billions of dollars from Riyadh and Abu Dhabi, to bolster its economy.
The country has been facing daunting financial woes, with inflation rate at a five-year high. This has made life unbearable for millions of Egyptians as the prices of food and other basic goods have surged becoming unaffordable. By the same token, the Egyptian pound has plummeted, losing 14.5 percent of its value against the US dollar in October. However, prior to this, it has been depreciating since the country’s Central Bank (CBE) devalued the currency in March 2022, after foreign investors pulled billions of dollars out of the country, following the Russian-Ukraine war. Currently, Egypt now owes more than $52 billion to multilateral institutions, of which 44.7 percent is solely owed to the IMF. Its foreign debt has more than tripled, raising the external debt to GDP ratio from 15 percent to more than 35 percent.
Fitch Solutions has lowered growth forecast for Egypt for fiscal year 2022/2023 to 3%, the weakest rate since 2014. According to the latest MENA Economic Update by the World Bank, Egypt is set to register an economic growth rate of 4.8 percent. To boot, according to Trading Economics global econometric models, Egypt GDP is projected to trend around US$451.95B in 2023 and US$ 476.36 B in 2024.
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- South Africa
South Africa, popularly known as the Rainbow Nation, is bracing for a tumultuous 2023. A report by the EIU forecast that the country will grow by just 1.5 percent in 2023, as higher interest rates, power supply issues and weak demand weigh on domestic and export-oriented business activity. The country could easily enter a technical recession in two consecutive quarters of negative real GDP growth in 2023.
In reiteration, according to the latest Economic Outlook by the Organization for Economic Co-operation (OECD), debt remains above 70% of GDP, and rising debt-service costs already represent 15% of government spending. Moreover, it indicates that South Africa’s fiscal and monetary policy are now turning contractionary, limiting the level of money supply for less spending and investment to slow the economy. The Outlook reported that growth for South Africa is projected to be by 1.1% in 2023and 1.6% in 2024.
Furthermore, the report highlights that electricity shortages and more persistent inflationary pressures than expected, will potentially delay the reduction of policy rates and create growth risks.
- Nigeria
This ‘Giant of Africa’ is set for a turbulent 2023, with numerous forecasts of a grim economic outlook. The country’s national elections are scheduled for February 2023, which may contribute to the steely forecasts due to potential disruptions experienced in election seasons in most African countries. In reiteration, Fitch Solutions predicts that Nigeria’s economy will continue to slow and will only expand by just 2.5 percent due to disruptions associated with the February 2023 election and the continued decline of oil production but will accelerate to 3.3 percent in 2024 as oil output picks up. The IMF projects that Nigeria’s economic growth will slow to 3.0 per cent GDP growth in 2023, while the inflation rate will drop to 17 per cent. The EIU adds that Nigeria’s economy will benefit from resilient commodities, trade and dynamic consumer goods and services, pushing growth to 3.1% in 2023.
Furthermore, a World Bank report states that “Growth will be supported mainly by the rebound in private consumption, prompted mostly by accommodative monetary policy, as inflationary pressures subside. Private consumption expenditure is forecast to decrease this year and grow next year. This performance will likely continue in 2024. On the production side, growth in 2023 will be supported by industry to record a growth of 5.1 percent with the mega-refinery project.”
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- Kenya
East Africa’s powerhouse, Kenya is bracing for a tough economic climate in 2023.The new administration under President William Ruto, inherited a heavily indebted government and has been trying to navigate around the crisis to restore stability, as what has been termed as ‘Rutonomics’ model finally settles in.
The IMF projects further a slowdown in Kenya’s economic growth of 5.1 per cent amid the tightening economy. To boot, the World Bank downgraded the country’s growth projection from 5.5 percent to 5 percent. In the same breath, Fitch Ratings has downgraded Kenya’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B’ from ‘B+’.
The downgrade by Fitch reflects Kenya’s persistent twin fiscal and external deficits, relatively high debt, and deteriorating external liquidity, and high external financing costs, which presently constrain access to international capital markets. The government faces elevated external debt service obligations in 2023-2024, including the maturity of a $2 billion Eurobond in June 2024, which combined with high current account deficits, will lead to sustained pressure on international reserves.
The World Bank’s lowered expectation for the country’s growth projections in 2023, was attributed to the country’s current economic woes. This includes high inflation rates, surge in fuel prices, food insecurity given the ongoing drought. The EIU report forecast that Kenya, albeit recovering from the uncertainties of national elections held in August 2022, will be the fastest-growing major economy in Africa during 2023, posting real GDP growth in the region of 5%.Currently, Kenya’s inflation rate stands at 8.5 percent, which is concerning as it surpasses the Central Bank of Kenya’s (CBK) 7.5 per cent ceiling target band. However, the 26th edition of the Kenya Economic Update (KEU), highlights that in response to the inflationary pressures, CBK has raised the policy rate thrice since May 2022 by a cumulative 175 basis points to reach 8.75%.
