PREVIEW
Inflation is falling but capital is scarce and a host of climate and trade disruptors hold back progress
Africa is set for faster growth and lower inflation this year – and the World Bank has upgraded growth projections for 2025 and 2026 – partly due to improved growth prospects in the bigger economies like South Africa and Angola. Most importantly, in many countries on the continent, economic growth lags in per capita GDP and incomes compared to industrial economies and other developing regions. And the continent’s annual growth projections are rarely met (AC vol 65 No 22, The Bank sounds alarms on lost decade).
With population growth typically close to 2.5% per annum, 2025 GDP growth of 4.1% (sub-Saharan Africa), 4.2% (SSA) and 3.7% (including North Africa) projected by the World Bank, IMF and UN respectively, remains well below 2% in per capita terms. The continent’s growth in working age population is set to vastly exceed that in other developing regions through 2050, but current economic growth trajectories do not imply convergence towards higher incomes in other regions.
Numerous Sustainable Development Goals (SDGs), which have 2030 target dates, are well out of reach (AC Vol 65 No 23, Global and regional conflicts hit economies). According to Brookings Institution analysis, the continent is lagging behind the ‘rest of the world’ on almost all metrics – vastly so on extreme poverty, sanitation, malaria incidence, and access to water and electricity. World Bank figures suggest that the numbers of Africans facing food insecurity now exceed 160 million in SSA alone, and that the share of SSA’s population affected by ‘adverse weather events’ from 2020-24 is almost triple that in 2015-19.
A host of economic disruptors remain on the horizon, such as conflicts in the Sahel, Sudan and Central Africa; climate shocks; strikes and protests in major African economies; elections in Cameroon, Côte d’Ivoire, Malawi and Tanzania; and external developments mostly outside African governments’ control.
The latter includes the impact of a China slowdown; the US trade and Africa policy of the second Trump administration; resumption of Middle East hostilities; the outcome of the Russia-Ukraine conflict; and a fresh deterioration of global financing conditions, which had improved sufficiently last year to allow Kenya, Nigeria, South Africa, Cameroon, Benin and Senegal to raise dollars on the international Eurobond market (Dispatches 24/4/24, UN agency warns against African Eurobonds & 11/6/24, New President Faye passes the market test).
Inflation easing
Last year’s weather hit to domestic agriculture and food production in several economies is a reminder that food prices and availability remain unpredictable.
Current trends suggest inflation on the continent will continue to fall from the highs of 2022. But average Africa inflation will still exceed world averages, and to a lesser extent exceed inflation in most developing regions. Pressure on Africa’s central banks to partially reverse hefty 2022-24 rate hikes – to reduce the cost of borrowing and boost growth – might prevail even in some economies without sustained reduction in inflation.
In Nigeria, major foreign exchange market reforms have turbocharged inflation and created short-term hardship. And in Egypt, IMF-backed forex-market reforms have created short-term economic turbulence and coincided with IMF downgrading of 2025 and 2026 growth projections (AC Vol 65 No 16, Central bank fights to slow inflation and protect its independence & Dispatches 22/10/24, Sisi threatens push back on IMF terms). These recent experiences offer a cautionary tale to central banks and governments considering similar policy change close to elections, before the mooted longer-term benefits to economic stability, investor confidence and revenue generation kick in.
Zimbabwe, where the April 2024 introduction of yet another currency has not prevented major devaluation, illustrates the outlandishly high policy interest rates required to bring previously runaway inflation under control (Dispatches 1/10/24, Businesses are panicking after latest crash in the ZiG’s value against the US dollar). The country is nevertheless, together with debt-restructuring Zambia, predicted to be among the fastest-growing Southern African economies this year, thanks to mineral exports in both cases.
Debt matters
Concerns over Africa debt sustainability persist among the international financial institutions. South Africa’s President Cyril Ramaphosa highlighted the need for coordinated action on debt and the costs of capital when he set out his country’s agenda for its presidency of the G20 this year. There has been some improvement in global financing conditions, mostly driven by central bank policy in the US and other major economies (Dispatches 21/1/25, Lower US interest rates will lead sub-Saharan Africa back to market). But this could prove temporary given some of the countervailing pressures in the global economy.
There has also been progress in debt restructuring negotiations in Ghana and Zambia, signs that the IMF and World Bank are working to accelerate lending to sovereign borrowers in need, and modest fiscal consolidation/deficit reductions in several economies. Yet more than half of the continent’s low-income countries (LICs) remain in, or at high risk of, debt distress. And, although debt ratios are returning to stability, the share of domestic revenues depleted by interest payments is set to increase in West, East, Central and North Africa this year, according to UN analysis of IMF numbers.
But this is not the case in Southern Africa, which remains dominated by South Africa (AC Vol 66 No 1, Political marriage holds together). So far, the country’s Government of National Unity (GNU) has avoided the return of economy-disrupting electricity power cuts, optimism on growth is returning, and its national Treasury suggests 2025 could see discussions on whether to introduce another cap on national debt to complement the existing one on primary budget deficits. But there are concerns that such a ‘debt anchor’ could unnecessarily restrain government policy in response to future circumstances.
African economies such as Nigeria, Kenya and post-elections Ghana face a pressing need to boost revenues in 2025. Joining them is Egypt, where IMF staff completing the latest review of its now US$8 billion Extended Fund Facility (EFF) last month observed that Cairo’s request for ‘recalibration’ of medium-term fiscal targets will require additional policy reforms to boost tax revenues by 2% of GDP within two years. At least Egypt, which is set to receive another $1.2bn EFF disbursement once it gets Executive Board approval, has and could continue to benefit from a massive influx of investment. Egypt has also received multi-billion-dollar investments from the United Arab Emirates for development along its Mediterranean coast: yet the two countries are backing opposing sides in the Sudan’s devastating civil war.
Almost all governments are under pressure to secure foreign direct investment or financing to meet major investment needs, rather than freeing up funds through unpopular cuts in expenditures such as public sector wages.
African economies currently under IMF programmes and receiving World Bank financing are facing pressure from these institutions to boost social spending. Since its October Annual Meetings in Washington DC, the Fund has approved programme disbursements to over 20 African borrowers and has this month approved two loan programmes worth a combined $2.8bn for Congo-Kinshasa.
Beijing’s commitment at September’s Forum on China-Africa Cooperation of $50.8bn in Africa financing over the next three years surpassed some expectations and talk of ‘small is beautiful’ (AC Vol 65 No 19, Beijing leads battle for influence). But signs that China’s economy could slow this year, and the threat of a US-provoked tariff and trade war, could hit African economies heavily dependent on the China export market.
Many economists predict that overall Africa investment should increase this year, and that diaspora remittances could continue their upward trend. But the financing gap relating to Africa climate ‘adaptation’ costs remains huge, even before considering ‘mitigation’ costs to reduce Africa’s own emissions. And, in the aftermath of November’s COP29 climate summit, the $700m of pledges so far by rich economies to the much-touted Loss and Damage Fun all far short in relation to Africa’s needs (AC Vol 65 No 24, Cosplay at the COP29 – a climate finance summit without numbers).
The resource paradox persists
Africa’s growth story remains heterogeneous, with differences between faster-growing non-resource intensive economies such as Rwanda and Côte d’Ivoire and typically slower-growing resource-intensive economies, such as oil exporters Angola and Equatorial Guinea. During 2025, three of Africa’s four largest economies (Egypt, Nigeria, South Africa) should, according to World Bank economists, achieve faster growth than last year, even if still lagging behind continental averages. But the Bank predicts that, over the longer term, per capita incomes in Angola will decline.
Almost half the 21 African economies projected by the World Bank to reach or exceed 5% GDP growth this year are in West Africa, led by Senegal (almost 10%) where oil and gas production is set to increase from a low base. But Ghana, where growth rocketed following the 2010 start of Jubilee oil field production, provides another illustration that becoming an oil producer can provide a false growth and fiscal dawn.
Côte d’Ivoire, the best-performing major West African economy, could expand (6.4%) as fast as rapidly growing non-resource intensive East African economies Ethiopia and Uganda, but notably without the debt, currency and significant domestic security woes of the former. Finance Minister Adama Coulibaly this month described his nation to IMF officials as ‘West Africa’s engine of growth and stability’ with growth and inflation significantly and consistently better than continental averages.
Other growth hotspots include Libya (9.6%), where statistical growth from a low base – partly reflecting recovering oil production backed by strong oil prices – contrasts with the disruption caused by inter-government tensions, absence of economic diversification, and persisting vulnerability of oil production to domestic political developments.
In Rwanda, services growth and a rebounding agricultural sector are accompanied by glowing IMF reviews on Kigali’s implementation of structural reforms under a three-year programme that expires in December. It remains an illustration of how devastating conflicts such as the 1994 genocide can be followed by extended periods of strong, income-boosting growth. But the political record of President Paul Kagame’s government – the growing critiques of its human rights abuses and backing for the M23 militia in Congo-Kinshasa – could still undermine that growth record, which has been heavily fuelled by western aid flows.
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