The World Bank said on Monday it had lowered its economic growth forecast for sub-Saharan Africa this year to 3% from 3.4% mainly due to the destruction of Sudan’s economy in a civil war.
However, growth is expected to remain comfortably above last year’s 2.4 percent thanks to higher private consumption and investment, the bank said in its latest regional economic outlook report, Africa’s Pulse.
“This is still a recovery that is basically in slow gear,” Andrew Dabalen, chief economist for the Africa region at the World Bank, told a media briefing on Monday.
The report forecasts next year’s growth at 3.9%, above its previous prediction of 3.8%. Moderating inflation in many countries will allow policymakers to start lowering elevated lending rates, the report said.
Risks ahead
The report noted, however, that the growth forecasts still face serious risks from armed conflict and climate events such as droughts, floods, and cyclones.
- The Bank added that without the conflict in Sudan, which devastated economic activity and caused starvation and widespread displacement, regional growth in 2024 would have been half a percentage point higher and in line with its initial April estimate.
- Growth in the region’s most advanced economy, South Africa, is expected to increase to 1.1% this year and 1.6% in 2025, from 0.7% last year.
- Nigeria is expected to grow at 3.3% this year, rising to 3.6% in 2025, while Kenya, the richest economy in East Africa, is likely to expand by 5% this year, according to the report.
- The sub-Saharan Africa region grew at a robust annual average of 5.3% in 2000-2014 on the back of a commodity supercycle, but output started flagging when commodity prices crashed. The slowdown was accelerated by the COVID-19 pandemic.
“Cumulatively, if that were to continue for a long time, it would be catastrophic,” Dabalen warned.
Low FDIs
Dabalen noted that many economies in the region were starved of public and private investments and a recovery in foreign direct investments that started in 2021 was still tepid.
“The region needs much, much larger levels of investments to be able to recover faster… and be able to reduce poverty.
“Growth across the region is also hamstrung by high debt service costs in countries like Kenya, which was rocked by deadly protests against tax hikes in June and July.
“There are staggering levels of interest payments,” Dabalen said, attributing this to a shift by governments to borrow from financial markets in the last decade and away from the low-priced credit offered by institutions like the World Bank.
- He said total external debt among economies has risen to about 500 billion dollars from 150 billion dollars a decade and a half ago with the bulk owed to bond market investors and China.
- Chad, Zambia, Ghana, and Ethiopia went into default in the last four years and have overhauled their debt under a G20 initiative Common Framework.
- Ethiopia is still working to restructure its debt while the others have completed their debt restructuring.
“As long as these debt issues are not resolved, there is going to be a lot of ‘wait and see’ games going on, and that is not good for the countries, and certainly not good for the creditors as well,” he said.
What you should know
The World Bank had earlier this year projected that over the next three decades, the Sub-Saharan Africa region would experience the fastest increase in the working-age population of all regions, with a projected net increase of 740 million people by 2050.
It noted that up to 12 million youth will enter the labor market across the region every year in the coming decades, yet only about 3 million new formal wage jobs are currently created each year, thus further creating a dicey situation for the future of the region’s economy.
