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Why Africa’s economic growth forecast lower than emerging markets in Asia, others

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By Godwin Anyebe

The World Bank and the International Monetary Fund in a new World Economic Outlook report released during the Spring meetings forecasted a global growth rate of 2.8 per cent in 2023 with Africa showing some promises.

Specifically, Africa is expected to grow by 3.6 per cent, lower than “emerging and developing” Asia (India 5.9%, China 5.2%) but higher than the global average (Europe 0.8%, the U.S. 1.6 per cent, and Latin America 1.6%).

On the sidelines of the Spring Meetings, the Carnegie Africa Program hosted policymakers, members of the private sector, and representatives of pan-African organisations for a private high-level roundtable to discuss an African agenda for reform of the World Bank Group.

The discussion, according to informed sources at the Carnegie Africa Program, is just the beginning of a series of initiatives at the Carnegie Africa Program to examine ways that the African continent can navigate the rapidly changing system of global economic governance.

How the African continent positions itself will shape the future of some multilateral organisations.

Africa is a central component of the portfolio of the World Bank’s concessional arm, the International Development Association (IDA).

For close to two decades, the bulk of the World’s BBank’s’sfinancial commitments has been increasingly concentrated in Africa.

For instance, in FY2022, 83 per cent ($27.5 billion) of IDA was committed across 48 countries in Africa.

With that being said, as a major borrower, the African continent—whose approach to achieving development outcomes has been shaped for decades by World Bank policies—should in turn be able to weigh in on the organisation’s direction as the momentum for reform picks up steam.

Across Sub-Saharan Africa remains sluggish, dragged down by uncertainty in the global economy, the underperformance of the continent’s largest economies, high inflation, and a sharp deceleration of investment growth, a World Bank report.

In the face of dampened growth prospects and rising debt levels, African governments must sharpen their focus on macroeconomic stability, domestic revenue mobilisation, debt reduction, and productive investments to reduce extreme poverty and boost shared prosperity in the medium to long term.

Economic growth in Sub-Saharan Africa is set to slow from 3.6 per cent in 2022 to 3.1 per cent in 2023, according to the latest Africa’s Pulse, the World Bank’s April 2023 economic update for Sub-Saharan Africa.

Economic activity in South Africa is set to weaken further in 2023 (0.5% annual growth) as the energy crisis deepens, while the growth recovery in Nigeria for 2023 (2.8%) is still fragile as oil production remains subdued.

The real gross domestic product (GDP) growth of the Western and Central Africa subregion is estimated to decline to 3.4 per cent in 2023 from 3.7 per cent in 2022, while that of Eastern and Southern Africa declines to 3.0 per cent in 2023 from 3.5 per cent in 2022.

“Weak growth combined with debt vulnerabilities and dismal investment growth risks a lost decade in poverty reduction,” said Andrew Dabalen, World Bank Chief Economist for Africa.

“Policymakers need to redouble efforts to curb inflation, boost domestic resource mobilisation, and enact pro-growth reforms—while continuing to help the poorest households cope with the rising costs of living.”

Debt distress risks remain high with 22 countries in the region at high risk of external debt distress or in debt distress as of December 2022.

Unfavourable global financial conditions have increased borrowing costs and debt service costs in Africa, diverting money from badly needed development investments and threatening macro-fiscal stability.

Stubbornly high inflation and low investment growth continue to constrain African economies.

While headline inflation appears to have peaked in the past year, inflation is set to remain high at 7.5% for 2023, and above central bank target bands for most countries.

Investment growth in Sub-Saharan Africa fell from 6.8% in 2010-13 to 1.6% in 2021, with a sharper slowdown in Eastern and Southern Africa than in Western and Central Africa.

Despite these challenges, many countries in the region are showing resilience amidst multiple crises.

These include Kenya, Cote d’Ivoire, and the Democratic Republic of Congo (DRC) whwhichrew at 5.2%, 6.7%, and 8.6% respectively in 2022.

In the DRC, the mining sector was the main driver of growth due to an expansion in capacity and a recovery in global demand.

Harnessing natural resource wealth provides an opportunity to improve the fiscal and debt sustainability of African countries, but the report cautions that this can only happen if countries get policies right and learn the lessons from the past boom and bust cycles.

“Rapid global decarbonisation will bring significant economic opportunities to Africa,” noted James Cust, World Bank Senior Economist.

“Metals and minerals will be needed in larger quantities for low carbon technologies like batteries—and with the right policies—could boost fiscal revenues, increase opportunities for regional value chains that create jobs, and accelerate economic transformation.”

In a time of energy transition and rising demand for metals and minerals, resource-rich governments have an opportunity to better leverage natural resources to finance their public programs, diversify their economy, and expand energy access.

The report finds that countries could potentially more than double the average revenues that they currently collect from natural resources.

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Tapping these financial resources in the form of royalties and taxes while continuing to attract private-sector investment requires the right kinds of policies, reforms, and good governance.

Maximising government revenues derived from natural resources would offer a double dividend for people on ohe the land increasing fiscal space and removing implicit production subsidies.

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Ihesiulo Grace

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