UNECA report reveals hope of growth for Africa’s GDP

(Photo: Anteneh Aklilu)

Africa’s GDP will expand by 3.9 percent in 2023, up from 3.6 percent in 2022 according to projections made by the United Nations Economic Commission for Africa (UNECA).
While presenting a report on recent economic and social developments in Africa Wednesday at the 55th session of the Commission, UNECA’s Macroeconomics and Governance Division Director Adam Elhiraika said Africa’s GDP growth declined from 4.6 percent in 2021 to 3.6 percent in 2022 but is expected to rebound to 3.9 percent in 2023.
“The slowdown in the global economy, high prices fuelled by the Ukrainian conflict, climate change and worsening international economic and financial conditions significantly impacted Africa’s growth in 2022,” said Elhiraika, adding that the 3.9 percent growth forecast for 2023 is mainly driven by growth in the continent’s east, north and west Africa sub-regions.

(Photo: Anteneh Aklilu)

In the developing world, Africa was the fastest growing region after East and South Asia (4.5 percent), followed by South-Eastern Europe (3.2 percent), and Latin America (2.1 percent).
According to the report Africa’s growth in 2022 was driven by the growth in the sub regions of East, North, and West Africa. East Africa’s development was predicted to peak at 5.1% in 2022 and settle at that level in 2023. Central Africa’s growth was predicted to rise to 3.4% in 2022, driven by rising oil prices and robust domestic production. West Africa’s growth is expected to rise slightly from 3.6 in 2022 to 3.8 in 2023, but Nigeria’s real GDP growth is predicted to decelerate due to the continued weakness of the oil sector.
According to the report, net export and private consumption are expected to be the key drivers of the growth in to 2023. However the tightening of global monetary policies is expected to weigh on investments on the continent. Regarding the structure of African economies, they continue to be driven by the services sector, followed by the industrial and agriculture sectors, with an estimated average contribution of 56.2 per cent, 29.0 per cent and 19.3 per cent, respectively.
It is indicated that African Governments are facing limited fiscal space due to soaring inflation and rising interest rates. Fiscal deficits have been exacerbated by up to 0.2 percentage points, reaching -5.0% in 2022. In North Africa, fiscal deficits widened from -5.7% in 2021 to -6.1% in 2022, while in Southern Africa the fiscal deficit improved from -4.7% to -3.4%. Oil exporting countries benefited from elevated energy prices, with fiscal deficits reaching -4.6% in 2022 before an expected decrease to -4.3% in 2023.
Africa’s debt-to-GDP ratio is projected to remain high due to increased public spending and declining revenues due to exogenous shocks.
Fiscal deficits and debt levels are projected to improve in 2023, but they remain relatively higher or at par with pre-pandemic levels in most countries except in Central and Southern Africa which has had significant improvements.
Fiscal space remains constrained despite narrowing economic deficits, making it harder for most countries to invest in major sectors to ensure resilience from shocks, said the director, adding that rising borrowing costs and debt service burdens pose a significant challenge going forward and that Africa’s debt-to-GDP ratio is estimated to reach 61.9 percent in 2023.

(Photo: Anteneh Aklilu)

Elhiraika added that currency depreciation has been more pronounced in countries with flexible exchange rate regimes and in commodity-exporting countries.
Countries with fixed exchange rates, especially those within the Economic and Monetary Community of Central Africa and West African Economic and Monetary Union experienced an average depreciation of 10 percent against the U.S. dollar in 2022.
“Rising costs of funding in United States dollars pose a big risk not only to existing debt burdens but also to prospects for mobilizing resources to finance sustainable development projects. African countries should develop their domestic financial markets with sound and effective regulatory frameworks in order to lay a good foundation for the resilience of the overall financial system and to make monetary policies more effective,” stated the report.
Global economic activities slowed in 2022. The main decline is driven by the conflict between Russia and Ukraine, and Covid-19. The conflict erupted just as the Africa economies were recovering from the adverse effect of the pandemic. Owing to a slowdown in the global economy, a rise in prices fuelled by the Ukrainian conflict, climate change and worsening international economic and financial conditions, growth in Africa has been negatively affected.