Economic growth in Sub-Saharan Africa (SSA) softened markedly in 2022 to 3.4 per cent as inflationary pressure, weak external demand, and tighter global financial conditions, tempered post-pandemic recoveries in many countries.
Food price pressures, already significant even before the pandemic, have intensified further because of adverse weather shocks, supply disruptions worsened by Russia’s invasion of Ukraine, increased fragility and insecurity, and, in some countries, large currency depreciations.
According to the World Bank, annual food price inflation exceeded 20 per cent in over a quarter of all countries last year, dampening growth in real income and consumer demand, and deepening food in security.
A substantial deceleration in global growth and falling non-energy commodity prices have weighed on economic activity across SSA, particularly in metal exporters.
Despite a recent easing of global food and energy prices, import costs remained elevated, contributing to widening current account deficits.
Pandemic-induced weakness in fiscal positions lingered, with the government debt surpassing 60percent of GDP in almost half of SSA economies last year.
Debt sustainability has also deteriorated further in many non-oil-producing countries, leading to rising borrowing costs, capital outflows, and credit rating downgrades
“Growth in the three largest SSA economies—Angola, Nigeria, and South Africa—pulled back sharply to2.6 percent in 2022. South Africa—the region’s second largest economy—grew by only1.9 percent as electricity shortages worsened and policy tightening accelerated to curb inflation,” World Bank says in its Global Economic Prospects: Sub-Saharan Africa report.
According to the global lender, policy uncertainty, flagging external demand, and disruption due to floods and strikes weighed on growth.
High oil prices and stable oil production supported a 3.1 percent rebound in Angola.
Meanwhile, growth in Nigeria—SSA’s largest oil producer—continued to weaken as production challenges in the oil sector intensified.
Annual inflation in Nigeria exceeded 21 percent last year—its highest level in 17 years, prompting more policy tightening.
Food affordability for vulnerable populations deteriorated further amid disruptions to farming and sizable population displacement because of recent devastating floods.
Economic Outlook for Sub-Saharan Africa
Growth in SSA is expected at 3.6 per cent in 2023 and 3.9 per cent in 2024.
Compared to a previous forecast, in June last year, growth was revised down for almost 60 percent of countries, including downward revisions for over 70 percent of metal exporters which are expected to be affected by the further easing of global metal prices.
Even as cost of living pressures are anticipated to moderate, the negative impact of persistent poverty and food insecurity on growth, amplified by other vulnerabilities, such as unfavorable weather, high debt, policy uncertainty, and violence and conflict are anticipated to keep the pace of recoveries subdued in many countries.
This growth slowdown represents a formidable challenge for economic development in SSA.
Per capita incomes in SSA are expected to increase by only 1.2 percent on average in 2023-24—a much slower rate compared to what is needed to sustain progress in poverty reduction and reverse income losses suffered because of the pandemic.
This year, incomes per capita in the region are forecast to remain more than one percent lower than in2019.
Even by the end of 2024, per capita incomes in almost 40 percent of countries, including SSA’s three largest economies, are expected to be below their pre-pandemic levels.
Economic Risks in Africa
The outlook is subject to many downside risks. A deeper-than-anticipated slowdown of the global economy could cause sharp declines in global commodity prices, World Bank warns dampening growth in SSA exporters of oil and industrial metals.
Global financial conditions could tighten further if global inflation pressures persist longer-than-expected leading to higher borrowing costs and a higher risk of debt distress in many SSA economies.
Food systems, already stressed by elevated costs of farming inputs and weather-induced production losses, remain particularly vulnerable to further disruptions that could lead to surging food prices and increased food insecurity.
This, together with increased frequency and severity of climate change induced weather shocks, could further disrupt agriculture and delay large infrastructure and mining projects in some countries.
Developing countries to be hit by Inflation
An overall outlook indicates global growth is slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia’s invasion of Ukraine, according to the World Bank’s latest Global Economic Prospects report.
Given fragile economic conditions, any new adverse development—such as higher-than-expected inflation, abrupt rises in interest rates to contain it, a resurgence of the Covid-19 pandemic, or escalating geopolitical tensions, could push the global economy into recession.
This would mark the first time in more than 80 years that two global recessions have occurred within the same decade.
The global economy is projected to grow by 1.7 per cent in 2023 and 2.7 per cent in 2024.
The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95% of advanced economies and nearly 70per cent of emerging market and developing economies.
Over the next two years, per-capita income growth in emerging markets and developing economies is projected to average 2.8 per cent—a full percentage point lower than the 2010-2019 average.
In Sub-Saharan Africa—which accounts for about 60 per cent of the world’s extreme poor, growth in per capita income over 2023-24 is expected to average just 1.2 per cent, a rate that could cause poverty rates to rise, not fall.
“The crisis facing development is intensifying as the global growth outlook deteriorates,” said World Bank Group President David Malpass.
“Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates. Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change,” Malpass adds.
Growth in advanced economies on the other hand is projected to slow from 2.5 per cent in 2022 to 0.5 per cent in 2023.
Over the past two decades, slowdowns of this scale have foreshadowed a global recession.
In the United States, growth is forecast to fall to 0.5 per cent in 2023—1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970.
In 2023, euro-area growth is expected at zero percent—a downward revision of 1.9 percentage points.
In China, growth is projected at 4.3 per cent in 2023—0.9 percentage point below previous forecasts.
Excluding China, growth in emerging market and developing economies is expected to decelerate from 3.8 per cent in 2022 to 2.7 per cent in 2023, reflecting significantly weaker external demand compounded by high inflation, currency depreciation, tighter financing conditions, and other domestic headwinds.
By the end of 2024, GDP levels in emerging and developing economies will be roughly six per cent below levels expected before the pandemic, World Bank says.
“Although global inflation is expected to moderate, it will remain above pre-pandemic levels,” the report reads in part.
The report offers the first comprehensive assessment of the medium-term outlook for investment growth in emerging market and developing economies.
Over the 2022-2024 period, gross investment in these economies is projected to grow by about 3.5 percent on average—less than half the rate that prevailed in the previous two decades.
The report lays out a menu of options for policy makers to accelerate investment growth.
“Subdued investment is a serious concern because it is associated with weak productivity and trade and dampens overall economic prospects. Without strong and sustained investment growth, it is simply impossible to make meaningful progress in achieving broader development and climate-related goals,” said Ayhan Kose, Director of the World Bank’s Prospects Group.
According to Kose, national policies to boost investment growth need to be tailored to country circumstances but they always start with establishing sound fiscal and monetary policy frameworks and undertaking comprehensive reforms in the investment climate.
The report also sheds light on the dilemma of 37 small states—countries with a population of 1.5 million or less.
These states suffered a sharper Covid-19 recession and a much weaker rebound than other economies, partly because of prolonged disruptions to tourism.
In 2020, economic output in small states fell by more than 11 per cent-seven times the decline in other emerging and developing economies.
The report finds that small states often experience disaster-related losses that average roughly five percent of GDP per year. This creates severe obstacles to economic development.
Policymakers in small states can improve long-term growth prospects by bolstering resilience to climate change, fostering effective economic diversification, and improving government efficiency, experts say.
The report calls upon the global community to assist small states by maintaining the flow of official assistance to support climate-change adaptation and help restore debt sustainability.
