Africa’s economy has shrunk significantly over the past decade, yet half of its population lives in the continent’s thriving economies. Africa has the human capital and natural resources to redefine its economic growth, which is now more vital than ever to the well-being of the world. 

In this material we will cover in detail each aspect of the state of the African continent’s economy. We will also consider the prospects for its development in the future.

From this study you will learn about the resources that Africa possesses, familiarize yourself with expert forecasts and understand how the economic state of the continent affects your business.

Current state of the African economy

Africa is home to the world’s youngest and fastest growing population, booming cities and bold innovations in all fields. The continent offers great opportunities for strong growth that will capitalize on its abundant natural resources and human potential to increase prosperity not only in Africa, but around the world.

The key messages that describe the continent’s current economic situation are as follows:

  1. Nearly 50% of Africa’s population lives in countries where gross domestic product (GDP) growth rates between 2010 and 2019 exceeded the continent’s average growth rate. We call these countries “steadily growing” and “recently accelerated.” They represent valuable role models on the continent.
  2. The other half of the continent’s population lives in countries whose growth rates have been slower over the past decade, including the continent’s three largest economies – Egypt, Nigeria and South Africa – as well as the continent’s ten smallest countries. These countries are in the “slow-growth” cluster. Improving productivity in these economies is a prerequisite for restoring Africa’s economic vitality.
  3. Africa’s economic recovery in 2022 has been disrupted by a range of internal and external shocks – unfavorable weather conditions, inflation, higher borrowing costs, and lower demand in key export markets. Virtually all African countries are projected to continue to grow in 2023, although real GDP growth rates will vary significantly across the region, with some states stagnating and on the verge of recession.

It is worth noting that over the past decade, individual countries, cities, industries and companies have become beacons of innovation, productivity and growth. Rapid growth and development in Africa is still possible, and it is more vital than ever to the well-being of the world.

Expert forecasts

According to expert forecasts, African economies will face turbulent times in 2023 – a series of internal and external shocks will undermine growth and threaten stability in the region.

The main theses from the opinions of economists are as follows: 

  • major commodity exporters will face challenging market conditions. This is due to the slowdown in global economic growth. However, the outlook is far from bleak, as export prices remain reasonably high and competition for Africa’s resources remains intense; 
  • monetary policy will tighten in most African countries. At the same time, the cost of international capital will rise substantially for some countries;
  • debt service burdens, instability caused by electoral cycles, geopolitics and wars are serious concerns;
  • regional leaders will remain in a slow-growth mode in the face of a difficult domestic and external economic environment.

In the following, we will analyze expert forecasts for the African economy by sector.

Exports

African exporters will face a more challenging business environment in 2023. Large export operations rely heavily on the EU, the US and China, and some businesses will face low demand in these markets. 

Commodity prices, energy, metals and minerals, will remain volatile. In addition, international competition for long-term access to strategically important energy and industrial resources will be active. 

The decision by European countries to replace Russian oil and gas with alternative supplies will provide an increase in demand for energy from Africa, as well as a potential source of new investment for future projects.

Trading economies that consume fewer resources will remain among the fastest growing – Kenya, Côte d’Ivoire and Mauritius.

For export-oriented manufacturing firms, times will be tough, characterized by shrinking demand. Despite this, the decline in business activity will be contained thanks to the hard work over the past decade to build strong relationships with international partners and improve international competitiveness.

Finance

During 2022, most African currencies lost significant value against the US dollar. Exchange rate depreciation is expected to continue into 2023, but to a lesser extent. 

The currencies of troubled nations Sudan and Zimbabwe are among the weakest in the world, while the currencies of Ghana, Malawi, Sierra Leone, Ethiopia, Malawi, Sierra Leone and Egypt will depreciate by more than 10% against the US dollar. 

Major African countries such as Nigeria, South Africa, Angola, Algeria and Kenya will not be left out of the weakening currencies and will experience further depreciation of their currencies against the US dollar. This is due to tightening global financial markets, weakening external demand and domestic price pressures.

A well-defined anti-inflationary monetary policy, backed by prudent fiscal policy, will bring inflation down faster at minimal cost to the economy.  

Africa’s inflation is projected to rise to a record 15.1 percent in 2023 before falling to 9.5 percent in 2024. The projected rise in inflation is attributed to structural weaknesses in most African countries – supply chain constraints, output gaps, and the passive impact of a stronger US dollar.  

External debt servicing

African governments are increasing their borrowing at home and abroad, and public sector debt to GDP ratios are back to peaks last seen in the early 2000s.

Some countries are expected to be in serious trouble this year, and could worsen significantly in 2024 as new debt maturities come due:

  1. Ghana, Tunisia, Egypt, Congo-Brazzaville, Zambia, Zimbabwe, and Mozambique have huge debt to GDP ratios. These governments will be struggling with debt servicing burdens that will eat into their revenues.
  2. Large economies such as Algeria, Angola, Ethiopia, Gabon, Kenya, Nigeria, and South Africa will be suffering from high and rising debt servicing costs. This will increase pressure for economic reforms – changes in the subsidy regime and tax structure, reductions in public sector spending. 

At the same time, in 2023 and 2024, more African countries will find themselves in a situation of external debt crisis. This year, countries will have to pay back about $75 billion in external loans, and the same amount next year. A large-scale external debt crisis across the continent seems unlikely, but some countries with a high level of leverage will face acute financial difficulties and enter a period of uncertainty.

A coordinated debt resolution strategy between official and private creditors is key to avoiding a debt crisis in the context of tight global financial conditions.

Elections

In 2023, 17 African countries will hold presidential or legislative elections, and 13 countries will begin active preparations for national elections.

This could be a very volatile time, with a number of countries at high risk of political protests, mass demonstrations, and strikes. Social unrest could be easily fueled by disinformation campaigns, as well as popular discontent with political institutions, ruling elites, and poor public services.

Intra-state conflicts

Unresolved conflicts will remain a challenge, given the deep-seated differences and driving forces that often transcend borders. Tensions will be seen in the following regions:

  • Horn of Africa (northern Mozambique, Nigeria);
  • Sahel region (Mal, Burkina Faso, Libya);
  • Ethiopia-Eritrea border.

These conflicts involve national armies, UN peacekeepers, European troops, especially French, and mercenary groups, including the Russian private military group Wagner.

Energy

In 2023 and beyond, several large energy projects will make significant steps towards introducing new generation capacity. This will open up prospects for increased domestic electricity supply and facilitate cross-border supply.

Some large-scale projects worth noting are:

  1. The massive Grand Ethiopian Renaissance Dam (GERD) and the massive South African Redstone Concentrated Solar Power (CSP) plant are nearing completion and are part of a large pipeline of hydropower, solar and wind projects that will accelerate the growth of installed renewable energy capacity from 2023 onwards.
  2. Various natural gas and LNG projects will be commissioned or launched in 2023, which will facilitate exports and supply gas-fired power plants in the future.

Once completed, GERD will be the largest hydroelectric power plant in Africa. The project will change the energy supply situation in the Horn of Africa region, but is controversial because it could potentially affect water flows in the lower reaches of the Blue Nile River, affecting Egypt and Sudan.

Digitalization

Over the past five years, digital transformation strategies have been driven by improving telecommunications networks, expanding mobile internet access, the development of information and communications technology (ICT) products and services, and increased demand from a rapidly growing urban population.

Digital services will continue to grow in 2023 and beyond. This should in turn support thriving ICT sectors and technology hubs located in Nigeria, South Africa, Kenya, and Egypt. It will also stimulate foreign investment in the African market.

Climate Change Challenges

Africa has enormous potential and interest in achieving green growth. However, despite growing political commitment to green growth and abundant natural capital, the continent lags behind other regions in many areas.

Poor implementation of green growth strategies, weak regulatory frameworks, high investment risk, and a lack of promising projects are hampering private investment in African climate projects.

Despite this, there are many climate action investment opportunities that could attract financing. Appropriate legal and policy frameworks are needed to develop these markets into dynamic growth sectors.

Results

Africa’s future lies in its dynamic cities. Despite 57% of the population living in rural areas in 2019, the continent is urbanizing faster than anywhere else on the planet. Over the next two decades, Africa will become a predominantly urban country as more than 500 million people move to its cities, creating the world’s largest total urban population.

Improving and increasing productivity across all sectors must be the foundation of Africa’s growth. The continent’s young and vibrant population, abundant natural resources, thriving cities and growing innovation can all be harnessed to boost productivity.

A combination of short-term, medium-term and long-term policies is needed to accelerate and sustain Africa’s growth.

In the short term, the following measures are needed:

  1. A clearly formulated anti-inflationary monetary policy, supported by a prudent fiscal policy. This will allow inflation to decline more quickly at minimal cost to the economy.
  2. Macroprudential policies that focus on building capital and liquidity buffers are needed to ensure financial stability.
  3. A coordinated debt resolution strategy between official and private creditors is key to preventing a debt crisis in the context of tight global financial conditions.

In the medium and long term:

  1. Increasing domestic revenue mobilization is necessary to restore fiscal sustainability and development.
  2. Implementing a strategic industrial policy that will limit the impact of periodically emerging unfavorable factors on economic growth.
  3. Intensifying regional trade will increase Africa’s resilience to the side effects of slowing global economic growth and reduce the trade deficit.

All these measures will ensure stable economic development of the African continent in the future.

Africa has enormous potential for economic growth. That is why it is necessary to implement reasonable policies that will allow the region to develop steadily and raise the global economy.

Sources:

  1. Africa outlook 2023: the challenges ahead. Resilience amid disruption. — EIU. 
  2. Reimagining economic growth in Africa: Turning diversity into opportunity — McKinsey Global Institute.
  3. African Economic Outlook 2023. Mobilizing Private Sector Financing for Climate and Green Growth in Africa — African Development Bank.