AfDB Africa economic outlook | Economic growth

Projections from the World Bank show that 18 African countries will experience growth rates exceeding 5 per cent in 2023.
The number of economies recording over 5 per cent growth in 2024 will increase to 22 across the continent.
AfDB says that Africa’s average GDP growth of 3.8 per cent in 2022 exceeded the global average of 3.4 per cent.

Almost all African nations have shown resilience this year and are steadily emerging from the global economic slowdown. According to the African Development Bank (AfDB), multiple shocks have slowed Africa’s economic momentum. Real Gross Domestic Product (GDP) growth decreased to 3.8 per cent in 2022 from 4.8 per cent in 2021. High inflation, depreciating currencies, and supply chain woes hit the economies.

Nevertheless, AfDB reports that Africa’s average GDP growth last year was more than the global average of 3.4 per cent. In fact, all but two African countries recorded positive growth trends. Overall, African nations have shown remarkable resilience, evident in the projected economic growth surpassing the global average.

“The outlook remains positive and stable, with a projected rebound to 4 per cent in 2023 and further consolidation to 4.3 per cent in 2024. Our projections show that 18 African countries will experience growth rates exceeding 5 per cent in 2023, a number expected to increase to 22 in 2024,” states the World Bank in its 2023 Economic Outlook report for Africa.

Africa’s resilience amid global shocks

According to the report, Africa’s resilience will be further reinforced by the anticipated improvements in general global economic conditions. China’s resurgence and trade post-COVID-19 pandemic are key factors in this global improvement.

The multilateral lender is, however, cautious, noting that “the projected rebound in growth will depend on underlying economic characteristics.” These characteristics include growth in oil-exporting countries attributable to better oil prices. Similarly, non-resource-intensive economies are expected to gain from their diverse economic structures.

One of the biggest challenges facing Africa’s performance is inflation, which hit double digits in 18 African countries. Other than inflation, Africa still faces several downside risks to its growth prospects that call for cautious optimism.

“The tightening of global financial conditions and appreciation of the US dollar have exacerbated debt service costs and could increase the risk of debt distress, especially for countries with severely constrained fiscal positions.”

AfDB also cites the prolonged Russian invasion of Ukraine as a major global risk hurting Africa’s performance. Then there is climate change, which, again, the AfDB says, continues to threaten lives, livelihoods, and economic activities.

The role of the private sector in Africa’s economic recovery

Further, AfDB’s 2023 African Economic Outlook places special focus private sector in financing Africa’s green growth. AfDB points to “the benefits of Africa’s enormous and untapped natural capital as a complementary source of financing.”

Private finance has proven especially important given most African countries’ already strained public finances. Globally, experts agree that private finance is critical given the scale of resources needed for climate action and green growth.

Implementing Africa’s climate commitments needs between $2.6 trillion and $2.8 trillion by 2030, notes Dr Akinwumi Adesina, President of AfDB Group. The recently published Nationally Determined Contributions contains these estimates.

The UN estimates that a $1.3 trillion financing gap is necessary to achieve Sustainable Development Goals (SDGs). This figure highlights the huge magnitude of Africa’s sustainable development financing requirements.

The AfDB makes a strong case for private-sector financing, citing factors like identifying investment opportunities across different sectors. It also identifies several barriers and risks to attract private investments in climate and green growth. Moreover, the lender discusses innovative financing instruments and policy and regulatory instruments to attract private-sector financing.

The complementary role of natural capital in financing climate action

Africa has a huge natural wealth potential, estimated at $6.2 trillion in 2018. AfDB President proposes the need for “concrete actions to improve the governance of Africa’s natural wealth and increase local content and value addition for extractive resources.” Moreover, the AfDB says natural capital plays a vital complementary role in financing climate action, and green transitions.

Per Adesina, the emergence of new technologies, including electric manufacturing of electric vehicles, opens a huge opportunity for Africa. He is confident that Africa “can leverage its critical minerals to become the next hub for global green development.”

“As Africa’s premier development finance institution, the Bank has been very active in attracting private financing for climate action and green growth in Africa and in supporting Regional Member Countries to improve the governance of their natural resources,” the President said.

“Last year, under the ADF-16, we established a $429 million Climate Action window, which will allow us to mobilize up to $13 billion for climate adaptation for 37 low-income and fragile states, the worst impacted by climate change,” he notes.

Need for global financial sector reform

“Through our African Natural Resources Management and Investment Centre and in conjunction with the African Legal Support Facility, we have been building the capacity of African governments to better manage their resources for inclusive and sustained growth,” the President said.

Despite all these actions, the President calls for “an urgent action from all stakeholders. African countries to put in place all the necessary legal and fiscal apparatus, not only to address structural barriers to private investments in climate action and green transition but also to improve the management of their natural resources and to create incentives for local beneficiation, processing, and value addition.”

According to the President, if Africa is to achieve these goals, there will be a need for Multilateral Development Banks and other Development Financial Institutions to reform. He believes the reforms are necessary “if they are to remain relevant to the new reality underpinned by the growing socio-economic challenges confronting African countries.”

“As key players in unlocking development and international finance, MDBs need to become less risk-averse by cautiously reducing their capital adequacy ratios, moving away from project-based finance to financing a system-wide sustainable transition, and being given stronger and more coherent mandates from their shareholders to deliver transformative climate action and green growth outcomes,” he said.

President Adesina says, “Let us, therefore, join forces to support African countries address the existential threat of climate change and achieve sustainable and inclusive development.”