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Nigerian, African economies to grow at 4.1% despite headwinds

By Wole Oyebade, Sharm el Sheikh, Egypt
25 May 2023   |   4:04 am
Economies of African countries, including Nigeria, have shown resilience despite multiple shocks, with average growth projected to stabilise at 4.1 per cent in 2023 and 2024.

Economies of African countries, including Nigeria, have shown resilience despite multiple shocks, with average growth projected to stabilise at 4.1 per cent in 2023 and 2024.

The new projection, as contained in a new African Economic Outlook (AEO) 2023, launched yesterday in Egypt, is higher than the estimated 3.8 per cent of 2022 Africa’s growth in real Gross Domestic Product (GDP), down from 4.8 per cent in 2021, but above the global average of 3.4 per cent.

The African Development Bank (AfDB) attributed the growth slowdown to the tightening of global financial conditions and supply chain disruptions exacerbated by Russia’s invasion of Ukraine, which subdued global growth. Growth was also impaired by the residual effects of the COVID-19 pandemic and the growing impact of climate change and extreme weather events.

AfDB Vice President for Economic Governance and Knowledge, Prof. Kelvin Urama, said the deceleration was broad-based, with 31 of the 54 African countries posting weaker growth rates in 2022 relative to 2021.

Urama said the continent, however, performed better than most world regions in 2022, with the continent’s resilience projected to put five of the six pre-pandemic top-performing economies—Benin, Côte d’Ivoire, Ethiopia, Rwanda, and Tanzania—back in the league of the world’s 10 fastest-growing economies in 2023–24.

“Growth is projected to rebound to four per cent in 2023, and consolidate at 4.3 per cent in 2024, underpinning Africa’s continued resilience to shocks,” he said.

Despite this, he added, climate change, elevated global inflation, and persistent fragilities in supply chains would remain on the watchlist as potential factors for possible slowdowns of growth in the continent.

According to the report, although most African currencies weakened, others appreciated or remained stable. Countries with appreciating currencies included Angola (27.1 per cent), Seychelles (15.6 per cent), and Zambia (15.3 per cent).

Depreciation rates could ease in 2023 and 2024, but continued strengthening of the U.S. dollar will keep African currencies under pressure.

Currency weaknesses in some of Africa’s more globally integrated economies (Kenya, Nigeria, and South Africa) are expected to persist in 2023, largely due to potential capital outflows as investors search for safe assets in advanced economies.

Public debt was projected to remain high, with lingering vulnerabilities. Although the median public debt in Africa is estimated to have declined to 65 per cent of GDP in 2022 from 68 per cent in 2021, thanks to debt relief initiatives in some countries, it will remain above the pre-pandemic level of 61 per cent of GDP.

Moreover, this debt GDP ratio is expected to increase to 66 per cent in 2023 and then to stabilise at around 65 per cent in 2024 due to growing financing needs associated with rising food and energy import bills, high debt service costs due to interest rate hikes, exchange rate depreciations, and rollover risks.

“In addition, many countries’ difficulties in accessing international capital markets, combined with limited revenue mobilisation, have led them to issue local currency debt, which increased substantially from 35 per cent of GDP on average in 2019 to 42 per cent in 2021. Domestic debt restructuring, therefore, should be part of the negotiations for the resolution of public debt crises in countries facing heightened risks,” the report read in part.

President of the AfDB Group, Dr. Akinwumi Adesina, however, said Africa has a great potential to pursue green growth and climate objectives to accelerate economic growth, given its enormous advantages.

Adesina said the continent has some of the world’s fastest-growing economies and its real GDP growth was projected to surpass the global average in 2023– 24, even as headwinds persist.

The continent also has an important human capital base, with its population projected to increase to 2.4 billion by 2050.

“As most of the current population is young, compared with other regions’ aging populations, Africa is the current and future frontier market in green growth opportunities.

“Africa hosts 25 per cent of the world’s natural biodiversity and 30 per cent of the world’s mineral resources, most of which will be essential for a green transition.

“Africa has a large renewable energy potential—including wind, solar, hydropower and geothermal—and the world’s highest solar energy potential.

“African countries also have the greatest potential for investments in green infrastructure and technology due to their low levels of development, low legacy high-emissions infrastructure, and low frequency of infrastructure and project finance default rates, estimated at 5.5 per cent.”