SA is dragging down regional growth, says development bank report
SA will once again drag down regional growth as the country continues to grapple with the effects of high interest rates and persistent power outages, an African economic report shows.
The African Development Bank (AfDB) released its 2023 Africa Economic Outlook report at its annual meeting in Sharm el-Sheikh, Egypt, on Wednesday. The flagship report showed that while growth in Africa is projected to stabilise at 4.1% in 2023/24, higher than the estimated 3.8% in 2022, growth in Southern Africa is projected to decelerate by 1.1 percentage points, from an estimated 2.7% in 2022 to 1.6% in 2023.
“The projected sharp decline in 2023 largely reflects continued growth weakness in SA, the region’s largest economy and trading partner, from 2% in 2022 to an estimated 0.2% in 2023, as the country grapples with the impact of high interest rates and persistent power outages on economic activity,” said AfDB president Akinwumi Adesina.
Adesina also said that the AfDB expects currency weakness to persist in 2023 in SA, due largely to potential capital outflows as investors seek safe assets in advanced economies.
The economic report provides up-to-date evidence and analysis that informs and supports Africa’s policy decision makers, the private sector and the international community.
As elsewhere in the world, higher food and energy prices fuelled strong inflationary pressures in 2022. As a result, inflation remained elevated across the continent and reached double digits in 18 African countries, putting additional pressure on public budgets as governments stepped up social spending to cushion vulnerable populations from the effects of higher prices.
Despite these significant headwinds, the continent has displayed remarkable resilience, with the economic outlook report showing that 18 African countries will experience growth rates rising above 5% in 2023. This number is expected to increase to 22 in 2024.
Speaking at the report’s launch, the bank’s chief economist, Kevin Chika Urama, said Africa’s continued resilience will be reinforced by expected improvements in global economic conditions, fuelled by China’s reopening and a downward adjustment of interest rates as the effects of monetary policy tightening on inflation start to bear fruit. Urama said that the projected rebound in growth will depend on underlying economic characteristics.
“For example, growth in oilexporting countries is expected to benefit from oil prices, which, despite the recent decline, remain elevated. Non resource intensive economies will gain from their more diverse economic structures, highlighting the importance of diversification in withstanding shocks.”
The report shows SA economic growth is projected to average 0.8% in 2023 and 2024 — the second-lowest in the whole region — while Nigeria’s growth is estimated to average 3.3%. Economic growth for Egypt and Kenya is expected to average 4.8% and 5.8%, respectively, in the same period.
Zimbabwe’s growth is expected to average 3.2%, but its economy will continue to be choked by inflation, which is expected to average 84.2%.
The medium-term growth outlook is heterogeneous across Africa’s regions.
Growth in East Africa is projected to strengthen from an estimated 4.4% in 2022 to 5.1% in 2023 and 5.8% in 2024.
Despite macroeconomic challenges in some of the large economies in West Africa, growth is projected to rise from an estimated 3.8% in 2022 to 3.9% in 2023 and 4.2% in 2024.
While highlighting the challenges faced by African economies, the 2023 African Economic Outlook also explores the potential roles of the private sector in financing Africa’s climate action and green growth ambitions as well as the benefits of Africa’s enormous and untapped natural capital as a complementary source of financing.
“These two potential financing sources are important, given the already strained public finances in most African countries and the scale of resources needed for climate action and green growth,” he said.