Could Africa’s riches save the continent?
Could Africa’s riches save the continent?
Growth 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 … but all hope is not lost.
I was delighted to read the words of James Cust, a senior World Bank economist: “Rapid global decarbonisation 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.”
This is great news, as economic growth in Sub-Saharan Africa is set to slow from 3.6% in 2022 to 3.1% in 2023, according to Africa’s Pulse, a bi-annual publication of the Office of the Chief Economist in the World Bank Africa Region.
April’s economic update for Sub-Saharan Africa highlights that 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 growth of the Western and Central Africa subregion is estimated to decline to 3.4% in 2023 from 3.7% in 2022, while that of Eastern and Southern Africa declines from 3.5 to 3.0%. Andrew Dabalen, the World Bank’s chief economist for Africa, says that a combination of weak growth, debt vulnerabilities, and dismal investment growth could set poverty reduction back by a decade, adding: “Policy makers need to redouble efforts to curb inflation, boost domestic resource mobilisation, and enact pro-growth reforms.”
Debt distress risks remain high, with 22 countries in the region at high risk of external debt distress or already 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.
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) which grew 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 fiscal and debt sustainability of African nations, 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.
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 programmes, diversify their economies, 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. Maximising 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. This can surely only be a good thing for the continent.
I agree Jaco, policy makers and governments… well, decision makers need to act and tap in on the energy transition growth opportunity. This has been a humbling experience for everyone in South-Africa. I place my bets on leadership decisions and this time for AFRICA 🙂