In 2023, prominent African economies encountered an extraordinary challenge with inflation, characterised by an unforeseen and substantial increase in the general price levels of goods and services. This inflationary pressure had significant repercussions, particularly evident in the depreciation of local currencies against the US dollar, a trend observed notably in countries such as Nigeria, Egypt, and Kenya. The persistent struggle for these currencies to gain value against the dollar resulted in a notable depletion of foreign reserves.
This depletion, in turn, had far-reaching consequences. Economic activities within these nations experienced a decline as a result of the reduced capacity to import goods and services due to the weakened local currencies. Investors, faced with uncertainties and a less favourable economic environment, opted to exit some of these markets, further dampening economic prospects. Consequently, this economic downturn was compounded by a sharp surge in the prices of goods and services, creating a challenging scenario for both businesses and consumers alike. The confluence of these factors marked a pivotal moment, requiring strategic measures and collaborative efforts to navigate the economic challenges and set the stage for recovery in the affected African economies.
As of January 2, 2023, the Nigerian naira was at N447.46/$1, but by December 14, it had depreciated to N792.20/$1 at the official market. Similarly, the Ghanaian cedi began the year at Ghs 9.9910/$1, experiencing a minimal depreciation to Ghs 12.042/$1 by December. The Egyptian pound shifted from Egp 24.716/$1 to Egp 30.926/$1, and Kenya’s Shilling dropped from Kes 123.41/$1 to Kes 154.10/$1. The prevalent inflation in these markets has contributed to their current economic challenges. Despite this, the International Monetary Fund (IMF) and the World Bank offer forecasts for the African market in 2024.
2024 IMF’s outlook for subsaharan Africa
According to a recent IMF forecast, growth in sub-Saharan Africa (SSA) is expected to rebound to 4 per cent in 2024. This is set to be broad-based as governments work hard to address macroeconomic imbalances. “Fiscal deficits, for example, have been narrowing, helping stabilize public debt in most countries,” said Abebe Aemro Selassie, Director of African Department, IMF. “These outcomes are all the more encouraging given strong external headwinds, such as slower international demand, and expensive and difficult access to finance.”
However, he noted that it was too early to celebrate as many challenges lie ahead of the region. “The funding squeeze is not over, and while debt levels have stabilized, the cost of repayments has increased, and high debt service ratios to revenue risk are crowding out vital development spending. Inflation is still too high with one-third of countries having double-digit inflation,” Selassie added.
The IMF official emphasized the formidable global policy challenges confronting policymakers in Sub-Saharan Africa. These leaders are grappling with the intricate task of safeguarding macroeconomic stability in the face of constrained resources and ongoing developmental imperatives, all while navigating the complexities of frequent economic shocks and regional fragility.
To address these challenges effectively, policymakers are strongly advised to accord priority to critical areas. This involves proactively addressing the surge in inflation rates, implementing measures to reduce debt vulnerabilities, judiciously permitting necessary exchange rate depreciations, and sustaining a robust momentum of investments in vital sectors such as health, education, and infrastructure. This strategic emphasis is crucial not only for immediate economic stability but also for fostering sustainable and inclusive growth in the region over the long term.
World Bank
The World Bank has forecasted economic growth for SSA to increase to 3.7% in 2024 and to 4.1% in 2025. The information was recently released in the World Bank Africa’s Pulse, No. 28, October 2023: Delivering Growth to People through Better Jobs. “However, in per capita terms, the region is projected to slightly contract over 2015-2025. The region faces many challenges, including a “lost decade” of sluggish growth, persistently low per capita income, mounting fiscal pressures exacerbated by high debt burdens, and an urgent need for job creation,” the bank said.
These problems persist in many African economies. However, the World Bank has noted that “tackling these multifaceted issues requires comprehensive reforms to promote economic prosperity, reduce poverty, and create sustainable employment opportunities in the region. This will require an ecosystem that facilitates firm entry, stability, growth, and skill development that matches business demand.”