. Region set to tap resource wealth for sustainable dev’t
By Clara Nwachukwu
A new World Bank report on Wednesday, said growth in Sub-Saharan Africa is set to slow to 3.1% in 2023, down from 3.6% last year.
The latest Africa’s Pulse, attributed the region’s slow growth rate to high inflation, and a sharp deceleration of investment amid uncertainty in the global economy, the underperformance of its largest economies, amid rising debt levels.
Accordingly, African governments are advised to “sharpen their focus on macroeconomic stability, domestic revenue mobilization, debt reduction, and productive investments to reduce extreme poverty and boost shared prosperity in the medium to long term.”
In particular, the World Bank’s April 2023 economic update for Sub-Saharan Africa, put growth recovery in Nigeria for 2023 at 2.8%, even as the economy remains fragile on lower oil production.
On the other hand, economic activity in South Africa is set to weaken further in 2023 (0.5% annual growth) as the energy crisis deepens.
The real gross domestic product (GDP) growth of the Western and Central Africa sub-region is estimated to decline to 3.4% in 2023 from 3.7% in 2022, while that of Eastern and Southern Africa declines to 3.0% in 2023 from 3.5% in 2022.
World Bank Chief Economist for Africa, Andrew Dabalen, said: “Weak growth combined with debt vulnerabilities and dismal investment growth risks a lost decade in poverty reduction.
“Policy makers need to redouble efforts to curb inflation, boost domestic resource mobilization, and enact pro-growth reforms—while continuing to help the poorest households cope with the rising costs of living.”
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.
Debt distress risks
The Africa Pulse also warned that 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,” it said.
Further, it sees “stubbornly high inflation” remaining at 7.5% this year, 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,” it added.
The World Bank report believes harnessing natural resource wealth will provide an opportunity to improve 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.”
The report noted that “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. Tapping these fiscal 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, it said.
Also, maximizing government revenues derived from natural resources would offer a double dividend for people and the planet by increasing fiscal space and removing implicit production subsidies.