• As Harsh Global Conditions Raise Borrowing Costs
• Projects Fragile 2.8% Growth For Nigerian In 2023
Ahead of next week’s opening of the Spring Meetings, a new report by the World Bank on Wednesday warned of a high risk of debt distress on the African country, with 22 of its 56 countries at high risk of external debt distress or in debt distress as of December 2022.
Worse still, according to the latest Africa’s Pulse, the World Bank’s April 2023 economic update for Sub-Saharan Africa, unfavorable 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.
Already, it says growth across Sub-Saharan Africa remains sluggish, owing to a combination of uncertainty in the global economy, and the lackluster performance of the Nigerian and South African economies, the continent’s largest.
This growth prospect, the report continued, is further dampened by the soaring inflation, a sharp deceleration of investment growth and rising debt levels, following which the report urged governments across the continent to sharpen their focus on macroeconomic stability.
Specifically, the report continued, economic growth in Sub-Saharan Africa may slowdown from 3.6% in 2022 to 3.1% this year, while the growth recovery in Nigeria for 2023 at 2.8% remains fragile as oil production remains subdued. South Africa economy is projected to weaken further to 0.5% as the country’s energy crisis deepens.
As a solution, Africa’s Pulse called for a renewed focus on domestic revenue mobilization, debt reduction, and productive investments to reduce extreme poverty and boost shared prosperity in the medium to long term.
It says 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, it noted.
A statement quoted Andrew Dabalen, World Bank Chief Economist for Africa, as warning that “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.”
Stubbornly high inflation and low investment growth continue to constrain African economies, it stressed, 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.
As a sign of these, 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, it noted that many African countries like Kenya, Cote d’Ivoire, and the Democratic Republic of Congo (DRC) who grew at 5.2%, 6.7%, and 8.6% respectively in 2022, are showing resilience amidst multiple crises.
In the DRC, the mining sector was the main driver of growth due to an expansion in capacity and recovery in global demand, stressing the need to harness natural resource wealth as 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.
For James Cust, World Bank Senior Economist, “rapid global decarbonization will bring significant economic opportunities to Africa. 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. 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. Maximizing government revenues derived from natural resources would offer a double dividend for people and planet by increasing fiscal space and removing implicit production subsidies.