- Central Africa’s economic performance was powered by the DRC, which grew at a jaw-dropping 8.5% in 2022.
- Central Africa growth rate was higher than the African average, which is estimated at 3.8% in 2022, down from 4.8% in 2021.
- The region id projected to settle at 4.9% in 2023 and 4.6% in 2024.
Central Africa achieved real GDP growth of 5.0 per cent in 2022 compared with 3.4 per cent in 2021, as the region posted the strongest performance compared to other regions in the continent.
This was in terms of growth, inflation and budget deficit, a new report by the African Development Bank (AfDB) indicates.
Central Africa oil, minerals and commodities’ wealth
The rebound in economic activity was driven by favourable prices for raw materials. Increasingly, Central Africa economies are turning out to be a net exporter of crude oil, minerals and other commodities.
In comparison, the region’s growth rate was higher than the African average, which is estimated at 3.8 per cent in 2022. A year earlier, the area registered 4.8 per cent economic growth. Experts expect that it is will settle at 4.9 percent in 2023 and 4.6 per cent in 2024.
In 2022, the Southern Africa region’s GDP growth barely reached 2.7 percent. This was a level much lower than global and African average 3.4 per cent and 3.8 per cent.
The slowdown in South Africa, the region’s economic powerhouse has been mirrored in other countries within the area. Already, Zimbabwe, Zambia, Malawi, Madagascar, and São Tomé and Príncipe economies are suffering due to adverse weather events.
Meanwhile, the economic growth in North Africa was moderate at 4.1 per cent in 2022. This was a marginal improvement from 5.4 percent in 2021.
In the year under focus, West Africa’s average gross domestic product decelerated to 3.8 per cent. In 2021, West Africa recorded 4.4 per cent uptick on post-pandemic recovery.
Overall, AfDB attributes the decelerating growth to successive shocks like the resurgence of Covid-19 in China. Notably, China is a major trade partner for the region’s countries.
Russia’s invasion of Ukraine has also spurred inflationary pressures on the cost of food. The war is also denting the economies’ ability to buy fuel, and fertilizer across West Africa.
In East Africa, real GDP was propelled by its booming services sector. Post-Covid recovery of tourism and other services sector contributed almost half of East Africa’s economic growth in 2022.
The services sector contributed 2 percentage points to GDP growth, lower than 2.5 percentage points on average for the period 2015-2021.
East Africa’s natural and cultural attractions draw millions of tourists from around the world. As a result, line businesses in accommodation, food, and entertainment experience high demand for services.
The East Africa region, however, faces several external and domestic downside risks. Economic experts warn that these could slow down the positive economic outlook.
A global economic slowdown, rising commodity prices are some of the issues policymakers should tackle. Other risks are the Russian-Ukraine war, international trade policies, and tightening of global financial conditions. The region is also grappling with exchange rate depreciation, and a resurgence of Covid-19.
“The domestic risks include gaps in infrastructure, domestic conflicts and political instability, macroeconomic imbalances, and adverse impacts of climate change,” the report states.
AfDB’s Central African Economic Outlook 2023 report offers an assessment of the region’s recent macroeconomic performance. The report has the theme “Mobilizing Private-Sector Financing for Climate and Green Growth in Africa”.
It also examines medium-term projections and the risks to the region’s growth outlook. Additionally, it provides in-depth analysis of topical issues that the region is grappling with.
The report said Central Africa inflation rate was 6.7 per cent in 2022 compared with 3.9 percent in 2021. This was the best performance of any African region. North Africa had 8.2 per cent inflation while Southern Africa’s was 12.6 per cent. West Africa had 17 per cent while East Africa was highest at 28.9 percent.
Similarly, the Central Africa region achieved the best budget performance, including the smallest deficit. Although the region’s public finances remain in deficit, the situation improved in 2022. The areas’ total budget balance, including donations, of -0.6 per cent of GDP, an improvement of 0.4 percentage points compared with the level in 2021.
The deficit, despite improvements in export prices were due to an increase in total spending. Rise in spending was attributable to budget support measures undertaken by governments.
Energy prices and food products
Governments in the region rolled out measurers to counter impact of Russia-Ukraine on energy and food prices. Hervé Lohoues, Lead Regional Economist for Central Africa and Acting Division Manager for the Southern Africa, East Africa and Nigeria Country Economists, said: “Overall, the economic outlook for the Central Africa region is positive for 2023 and 2024.”
According to Lohoues, this performance is due to structural reforms meant to support the non-extractive sectors. It is also due to increase in external demand and better export prices earned by various countries in the region. At the intraregional level, the performance was powered by the DRC, which grew at a jaw-dropping 8.5 per cent.
Overall, the services sector was the main component of nominal GDP in 2022, accounting for 42.1 per cent. Industry represented an estimated 41.4 per cent of nominal GDP in 2022. The proportion of agriculture in the region remains low, accounting for 16.5 per cent of nominal GDP.
Only the industrial sector increased its share of GDP, from 39.9 per cent (in 2021) to 41.4 per cent. Agricultural and services sectors saw their shares decline from 16.6 per cent to 16.5 per cent and from 43.4 per cent to 42.1 per cent, respectively.
In terms of economic policy, it will be essential to take rapid steps to curb inflationary pressures. Of key focus should be a check on rising food prices, but, above all, to make economies more resilient, AfDB noted.
This will require a structural transformation of the region’s economies. For instance, country’s can develop the agro-industrial sector where Central Africa has a comparative advantage.
Serge Nguessan, the Bank’s Director General for the Central Africa region, stressed that the report provides “decision-makers and the population with useful facts and advice to inform policy options and decisions in the region.”
The report will also serve to improve preparation for COP28, which is scheduled to take place in Dubai in November-December 2023. Central Africa needs around $128 billion between 2020 and 2030 to implement adaptation and mitigation measures and tackle the effects of climate change, or around $11.6 billion per year. This would enable it to invest in green growth and sustainable development.
Given the region’s climate funding gap, a rapid increase in financing is required to respond to the need for climate actions.
Central Africa has significant natural resources, including the Congo Basin, the world’s second largest “ecological lung” after the Amazon rainforest, which can support green financing and climate needs.
The value of the region’s natural capital resources is estimated at more than $700 billion.
A revaluation of the GDP of Central African countries in relation to natural capital could be considered with this in mind. Countries have begun to implement the Support Programme for the Development of the Green Economy in Central Africa. They are also adopting mitigation and adaptation measures defined in their Nationally Determined Contributions.
The report recommends that Central African countries commit to implementing innovative funding mechanisms to attract private-sector financing.
Governments in the region have also been advised to direct private-sector climate financing towards low-risk sectors that offer higher yields, in order to attract investors.
“It is also essential to widen access to capital for small and medium-sized enterprises (SMEs), particularly those led by women and young people,” AFDB said.