By Clara Nwachukwu
The African Development Bank (AfDB) Group has stressed the need for a “mix of restraining monetary policy” and “fiscal consolidation and stable exchange rates” to tackle persistent inflation in Africa the short term.
AfDB in its recently released 2024 Macroeconomic Performance and Outlook (MEO), also identified structural reforms and strategic industrial policies as key to accelerating economic diversification and strengthening the export sector in the continent.
For faster, more sustainable economic growth, the report recommends that countries invest more in human capital and pursue a resource-based industrialisation and diversification strategy.
This, it says “allows the continent to exploit its comparative advantage and build resilience to shocks.”
Despite its regional economic outlook, the report believes that “Up to 41 countries across the continent will in 2024, achieve an economic growth rate of 3.8%, and in 13 of them, growth will be more than 1 percentage point higher than in 2023.”
According to the MEO, the continent is set to remain the second-fastest-growing region after Asia.
“Overall, real gross domestic product (GDP) growth for the continent is expected to average 3.8% and 4.2% in 2024 and 2025, respectively. This is higher than projected global averages of 2.9% and 3.2%,” it added.
The report noted that the improved growth figure for 2024 reflects concerted efforts by the continent’s policymakers to drive economic diversification strategies focused on increased investment in key growth sectors.
This is in addition to “the implementation of domestic policies aimed at consolidating fiscal positions and reversing the increase in the cost of living and boosting private consumption.
Regional overview
Specifically, the MEO said Africa will account for 11 (excluding Nigeria) of the world’s 20 fastest-growing economies in 2024.
The report shows that the medium-term growth outlook for the continent’s five regions is slowly improving, a pointer to the continued resilience of Africa’s economies.
- West Africa: Growth is projected to pick up to 4 and 4.4% in 2024 and 2025 respectively. Strong growth in most countries in the region is projected to offset slowdowns in Nigeria and Ghana. The announced withdrawal of Burkina Faso, Mali, and Niger from the Economic Community of West African States (ECOWAS) casts a shadow over the sustainability of gains amid growing uncertainty.
- Southern Africa: Growth will remain sluggish at 2.2 and 2.6% in 2024 and 2025, respectively. This reflects continued economic weakness in South Africa, the region’s largest economy.
- Central Africa: Growth is forecast to moderate to 3.5% in 2024 but projected recovery in private consumption and increases in mining investment and exports could help push growth to 4.1% in 2025.
- North Africa: Successive adverse weather conditions and macroeconomic challenges will hold the region’s growth steady at 3.9% in 2024 with a slight improvement to 4.1% in 2025.
- East Africa: East Africa will continue to lead Africa’s growth momentum, with growth projected to rise to 5.1% in 2024 and 5.7% in 2025, supported by strong strategic investments to improve internal connectivity and deepen intra-regional trade.
The improved growth figure for 2024 reflects concerted efforts by the continent’s policymakers to drive economic diversification strategies focused on increased investment in key growth sectors.
Environment risks
Despite the confluence of shocks, the MEO insisted that “the resilience of the continent’s economies remains strong, with positive growth projected for the continent’s five regions.
The latest report is calling for cautious optimism given the challenges posed by global and regional risks.
These risks include rising geopolitical tensions, increased regional conflicts, and political instability—all of which could disrupt trade and investment flows, and perpetuate inflationary pressures.
AfDB Group President, Dr Akinwumi Adesina, was quoted in a statement as saying that “Despite the challenging global and regional economic environment, 15 African countries have posted output expansions of more than 5%.”
He also called for larger pools of financing and several policy interventions to further boost Africa’s growth.
Mr. Adesina emphasised that fiscal deficits have improved, as faster-than-expected recovery from the pandemic helped shore up revenue.
He explained further: “This has led to a stabilisation of the average fiscal deficit at 4.9% in 2023, like 2022, but significantly less than the 6.9% average fiscal deficit of 2020.
“The stabilisation is also due to the fiscal consolidation measures, especially in countries with elevated risks of debt distress.”
He cautioned that with the global economy mired in uncertainty, the fiscal positions of the African continent will continue to be vulnerable to global shocks.
Meanwhile, the Director, Center for Sustainable Development, Columbia University Prof Jeffrey Sachs noted that long-term affordable financing must be part of Africa’s strategy to achieve growth of 7% or more per year and warned that Africa is paying a very high-risk premium for debt financing. He called for this point to be made to the G20.
“Long-term development cannot be based on short-term loans. Loans to Africa should be at least 25 years or longer. Short-term borrowing is dangerous for long-term development. Africa must act as one, in scale,” he explained.
Sachs, who is also the UN Secretary-General António Guterres’ Advocate for Sustainable Development Goals also called for a much larger African Development Bank, better resourced to meet Africa’s financing needs.
