Economic Africa
2023: Africa has been dragging to a greater or lesser extent not only in the wake of the Covid-19 pandemic, but recently due to Russia's invasion of Ukraine, a triple food, energy and economic crisis.
After the remarkable recovery in 2021 (GDP +4.3%) following the impact of COVID-19, African economies experienced a slight slowdown in 2022 (3.6% according to the World Bank. 3.8% according to AfDB: African Development Bank) due to various difficulties. However, they remain resilient with a stable outlook - should stabilise at around 4% by 2023-2024 according to the AfDB. The slowdown in growth was due to a combination of factors including the multiplying impacts of climate change, the persistence of COVID-19-related risks in Africa and globally, and the impact of geopolitical tensions due to increased conflict, insecurity on the continent and Russia's invasion of Ukraine. These internal and external shocks have resulted in significant volatility in global financial markets, fuelling inflationary pressures, rising cost of capital and debt servicing, disruption of global supply chains, especially in food and energy, as well as having eroded demand in Africa's main export markets, including Europe, the United States and China, its main trading partners.
1. Food insecurity in Africa
The first question to ask is: Is the insecurity mentioned above a matter of lack of food or rather of the inability of individuals and organisations to provide it? There are a number of factors that give an answer to this question, one of which could be structural poverty and socio-political contexts that make access to food difficult and unbalanced diets unbalanced 1. In addition, the combined effects of climate change on the continent (warming/drought) as well as strong population growth will undoubtedly directly affect the availability of food in the long term. Of course, these political statements that Africa is the future breadbasket of the world are far from reality.
This reality today means that climate change is intensifying food insecurity in sub-Saharan Africa, where Russia's war in Ukraine and the pandemic are also causing food shortages and high prices. Weather events, which destroy crops and disrupt food transport, are disproportionately frequent in the region. One third of the world's droughts occur in sub-Saharan Africa, with Ethiopia and Kenya currently experiencing one of the worst droughts in at least four decades. Countries such as Chad are also severely affected by torrential rains and floods. The resulting increased poverty and other human costs are compounded by cascading macroeconomic effects, including slower economic growth 2.
The most relevant indicator is malnutrition. In 2021 this indicator affected a population of over 278 million in Africa, i.e. one third of the world's undernourished people, while in Latin America and the Caribbean it is 56.5 million and 425 million in Asia.
One in five people in Africa (20.2% of the population) faced hunger in 2021, compared to 9.1% in Asia, 8.6% in Latin America and the Caribbean, 5.8% in Oceania and less than 2.5% in North America and Europe. After increasing between 2019 and 2020 in most of Africa, Latin America, the Caribbean and Asia, the prevalence of undernourishment continued to increase in 2021 in most subregions, but at a slower rate.
One of the main factors influencing food malnutrition is the low level of income, which is the first obstacle to adequate nutrition. Africa is the region with the highest proportion of poor people in the world, far ahead of other regions.
Sub-Saharan Africa accounts for 40% of the population living on less than $1.90 a day (in 2011 purchasing power parity), a much higher proportion than in South Asia and the Middle East.
It is poverty, perhaps more than food availability, that explains the depth of food insecurity, whether severe or moderate. The poorer the population, the greater the proportion of people who are food insecure.
There are other factors that increase malnutrition in Africa; in this case I am referring to crises and conflicts.
The information obtained from the UCDP/PRIO (Armed Conflict Dataset) 3 and FAO databases shows the correlation between the progression of malnutrition and the intensity of conflicts.
According to the FAO, between 2015 and 2020, the prevalence of undernutrition has increased by 28% in African countries with high intensity conflicts, compared to an increase of 4% in countries with lower level conflicts and 0.6% in African countries with no recognised conflict.
Another factor to consider is food self-sufficiency in the face of the demographic challenge. We already know about the demographic increase that will take place in Africa between now and 2050. The African continent will account for 60% of the increase in the world's population. Africa will have to meet a demand for food that may be 160% higher than today 4. A first challenge should be to find decent jobs for the young rural population, agriculture and agri-food should be opportunities to be seized. It is also a priority to seek a certain degree of food autonomy that strategically means security of supply so as not to be dependent on the outside world. The fight against food insecurity in Africa must therefore be based on greater sovereignty with less dependence on imports and on an agricultural and trade policy that is more favourable to its farmers.
2. Crisis energética
The total electrification of AFRICA is a major challenge for this continent where the population will continue to grow.
In the last two years, the global economic landscape has changed dramatically. The Covid-19 pandemic destabilised the global economy and continues to cause supply chain disruptions that have lasting effects on project timelines and prices. In particular, the Russian invasion of Ukraine in February 2022 has sent global food and fuel prices soaring, hurting households, businesses and food consumers, affecting households, industries and entire economies, mainly developing economies where people can least afford it.
Global demand for oil and gas fell during the onset of the Covid-19 pandemic, only to falter again with the revival of major economies under increased uncertainty caused by Russia's invasion of Ukraine. All this adds up to a global consensus that the world's energy systems needed to reach zero net emissions by the middle of this century to reduce the severity of rising temperatures and climate change.
Since 2021, Africa has had 25 million more people without electricity: blame the Covid-19 pandemic and then the crisis, which ended ten years of progress, as the International Energy Agency's (IEA) Africa Energy Outlook 2022 notes, "We had seen many positive developments in Ghana, Kenya, Rwanda ... but the trend is changing. About 4% more Africans now live without electricity compared to 2019," he told AFP. Fatih Birol, director of the agency. "And when I look ahead to 2022, with high energy prices and the economic burden it means for African countries, I see little reason to be optimistic."
Currently, 600 million people, or 43% of the total African population, lack access to electricity, most of them in sub-Saharan Africa.
Some considerations to bear in mind:
- More than 600 million Africans do not have access to electricity.
- Electricity consumption per capita in sub-Saharan Africa is the lowest in the world, at 370 kilowatt hours (kWh) per year, compared to 6,500 kWh (Europe) and 11,000 kWh (USA) 5.
- Universal energy access is crucial to achieving the SDGs, including poverty eradication (SDG 1) and climate resilience (SDG 13).
- The principle of a just energy transition in Africa must take into account past emissions and how they shape future emissions trajectories.
- At 46% in 2020, the share of fossil energy sources in Africa's energy mix is relatively modest compared to the share in other regions of the world 6.
Achieving universal access to electricity for the nearly 1.3 billion Africans, some 600 million of whom are off-grid, would require injecting an annual investment of $32-40 billion into the energy value chain. A study, conducted under the auspices of the AfDB's New Deal on Energy for Africa, highlights a financing gap of between $17 billion and $25 billion with the continent's major economies such as Egypt, Nigeria and South Africa accounting for around 33% of this gap. Africa's most developed economy, South Africa, is grappling with its worst energy crisis in years. Blackouts in South Africa cost the continent between 2% and 4% of its annual gross domestic product, according to the AfDB study's findings.
Africa's energy investment needs are immense
To meet its energy and climate goals, Africa needs $190 billion in investment per year between 2026 and 2030, two-thirds of which will be in clean energy, according to the International Energy Agency (IEA). The truth is that energy poverty in Africa is due to, among other things, inadequate planning and poor regulatory frameworks for electrification, underperforming utilities, lack of investment in infrastructure and poor maintenance of existing utilities.
Demonstrations
Abidjan, at the end of the Africa CEO Forum, an economic summit that brought together 1,500 business and political leaders
Niger's President Mohamed Bazoum said African countries were "punished" by Western countries' decisions to end funding for fossil fuel projects this year. "We will continue to fight, we have fossil resources that need to be exploited," he said. At the end of May, G7 countries in particular pledged to end all international funding for fossil fuel projects without carbon capture techniques from this year. "Let the African continent be allowed to exploit its natural resources!" It is still inconceivable that those who have been exploiting oil and its derivatives for more than a century should prevent African countries from developing their resources," added his Senegalese counterpart Macky Sall at his side.
Rising energy prices and their effects on energy security could also affect the productivity and competitiveness of African companies. About 80% of African firms experience power outages, significantly more than 66% in South Asia and 38% in Europe.
Moreover, power outages are more likely to be longer in Africa than in other regions. These intermittent power losses force companies to incur additional costs for back-up diesel generators and fuel purchases, resulting in lost sales, productivity and competitiveness. While the average loss of sales in Africa is 7.6% per year, companies in countries such as the Central African Republic lose up to 25% of their turnover due to power outages. The impact includes not only loss of business turnover, but also loss of employment and tax revenue.
Rising energy prices also have an impact on the social sector, education, health and other social services. In the health sector, millions of Africans die each year from communicable and non-communicable diseases due to lack of access to reliable energy for health facilities. In Ghana, the risk of mortality increases by 43% per day of power failure for more than two hours 7.
Governments need to re-examine their energy investment needs and address them through domestic and international sources of finance.
3. Economic crisis
According to the forecasts of certain organisations such as the IMF, World Bank AfDB, French Development Agency, UNDP, etc. The recovery that began in 2021 is likely to continue in 2022 and 2023, but this will not be able to mitigate the consequences of two successive shocks such as the Covid-19 pandemic and, more recently, the Russian invasion of Ukraine.
The difficulty of predicting is a function of the nature of the future, which is already unpredictable. There are many voices that speak out and in the end many of them, when times of recession come, fall silent or disappear. Well, predicting Africa is a major test for economists, not least because statistical reliability is very relative and in some cases non-existent 8. Is it possible to know the true GDP growth rates in Africa? With a few exceptions (South Africa and Botswana), it is not easy to rank African countries according to their level of GDP per capita or to assess their economic growth. The exceptional nature of the growth phase of the last decade, so much vaunted by economists, should be questioned.
The figures produced in Africa "have such margins of error that their use and interpretation are problematic". However, many economists "relegate statistical production to secondary status" and "inattention to the conditions of their production often leads to erroneous economic conclusions". This results in "statistical fictions", which are furthermore "knowingly maintained" by a "cloak of silence". For "in order to maintain the theatre of appearances, international organisations and economists act 'as if' the figures were true and objective".
In terms of national accounts, which in particular provide estimates of each country's gross domestic product and economic growth, one example is the recent improvement in the methodology for compiling national accounts in Nigeria, resulting in a near doubling of the GDP estimate for this country, which has become, thanks to this accounting revision, the leading economic power in sub-Saharan Africa ahead of South Africa.
That said, we can advance some data.
If we focus on economic growth, GDP per capita has evolved much more slowly in Africa than in other regions of the world. The faster population growth on the continent, +2.5% between 2015 and 2020 compared to 1.1% globally, is one of the reasons for this slower evolution. Economists predict that Africa will recover to its pre-Covid-19 pandemic level from 2023.
The recovery, which will be variable, will also depend on the different economic structures of the countries.
A distinction must be made between oil-exporting economies, other extractive economies, and tourist economies 9. And we would add those economies that do not fall into these three categories that could constitute the group of diversified economies.
Within the continent, the recovery from 2021 onwards has been mainly in the more structurally diversified economies that are better prepared to recover in case of external shocks. They have higher and more stable growth rates over the long term than those more concentrated in commodity markets because they are less exposed to fluctuations in these markets or to tourist arrivals. Forecasts (they are only forecasts) from different organisations point to a growth rate of 4.8% in 2023 for Senegal, Niger, Rwanda, Côte d'Ivoire, Benin and Togo.
The oil-exporting economies 10, as well as those of other extractive resources, had sustained growth during the 2000s. But between 2015 and 2019 it was relatively lower due to the fall in commodity prices. Only from 2021 onwards, taking advantage of the global recovery, growth was 3.1% in 2021 with a slight improvement in 2022. The economy of mineral exporting countries was more dynamic with growth rates of +5.2% on average in 2021 but with a fall in 2022 of +2.9%. Finally, those economies highly dependent on tourism suffered significant falls in the same period due to the health crisis (-7.7% in 2020), according to the IMF, and could only recover in 2023 to reach levels of +3.4%.
Africa is currently experiencing the adverse effects of inflation, as is the case in other regions. On a continental level, it is estimated to reach 10% in 2022 on average per year according to IMF publications and is still susceptible to further revisions. It is precisely the low-income countries whose food products account for a large share of consumption that suffer most from this imported inflation.
Nor should we forget the state of indebtedness of African economies.
According to a recent statement by IMF director Kristalina Georgieva, 15% of low-income countries are already in debt crisis, and 40% are heading towards one. How can the IMF create new models to solve the debt problem and contribute to the development of these countries?
"The indebtedness of African countries depends on both external and internal factors. Each situation must therefore be examined on a case-by-case basis, which explains the different delays in the treatment of files. The resolution of the Chad dossier is a testimony to the effectiveness of the common framework. Moreover, the Zambian debt file is expected to move in the right direction in the coming days" 11.
Sovereign external debt is expected to remain high, with persistent vulnerabilities. African sovereign external debt is estimated to have declined slightly to 67% of GDP in 2022 from 68% in 2021. This ratio remains above the pre-pandemic level of 61% of GDP in 2019, but could stabilise at around 65% in 2023 and 2024. However, the stability of the debt ratio is subject to considerable uncertainty due to rising financing needs associated with rising food and energy import bills, high debt servicing costs due to exchange rate depreciations and refinancing risks.
The high debt burden, derived from poor revenue performance, limits the capacity of the public sector in Africa. Restoring debt sustainability could therefore expand fiscal space, but will require debt restructuring or even a total restructuring in the case of some countries.
Recognising the interest of both debtors and creditors in a rapid and orderly debt resolution, the G20 has taken an important step to facilitate the restructuring of official external debt through the Common Debt Framework. But the significant delays and challenges call for urgent and bold measures to accelerate the implementation of the CDF in order to ensure faster resolution of debt crises.
Conclusion
The continent's financing needs remain substantial and in 2021 the IMF put the continent's financing needs at around USD 400 billion for the period 2021-2025, a figure perhaps below what is expected given inflation and the continent's spending needs to reduce food insecurity, and the rising costs linked to climate change.
References
1 Food insecurity in Africa AFD the African economy 2023.la Decouverte Edition.
2 Africa Renewal: September 2022 14 September 2022 By: Laurent Kemoe, Cedric Okou, Pritha Mitra and Filiz Unas. United Nations.
3 https://ucdp.uu.se/downloads/ UCDP/PRIO Armed Conflict Dataset version 22.1
A conflict-year dataset with information on armed conflict where at least one party is the government of a state in the period 1946-2021. Davies, Shawn, Therese Pettersson & Magnus Öberg.
4 Schmitt B.2021" How to ensure food availability in Africa by 205".
5 Energy consumption is lower in Africa than in comparable regions, partly due to the continent's low level of energy security, where production is not sufficient to meet growing demand. In 2019, per capita electricity consumption was 550 kWh in Africa, compared to 2 300 kWh in Asia. The large disparity in energy security and consumption between low-income, mainly non-oil-exporting countries on the one hand, and high-income countries on the other, could also be attributed to the level of energy subsidies.
6 Source AfDB African Economic Outlook 2022
7 MACROECONOMIC PERFORMANCE AND OUTLOOK FOR AFRICA. January 2023 African Development Bank
8 In 2013, the World Bank's Chief Economist for Africa published an article with an emphatic title on the state of statistics in Africa: "Africa's Statistical Tragedy" (Devarajan, 2013).
This title is inspired by the article of the same name by Easterly and Levine ..... The author paints a very dark portrait. Beyond the diagnosis, he is interested in the reasons for this situation, resulting according to him from a lack of capacity within African statistical institutions, a vague governance of responsibilities in the area of statistics, a lack of financial stability on the part of states, and an effect of the destructuring of donor funding in this area; a paradoxical analysis when we know the important role played by the World Bank in statistics in Africa.
9 AFD Françoise Rivière and Matthieu Morando.
10 Oil-exporting countries are those whose net oil exports represent at least 30% of total exports. The economies of countries rich in non-renewable natural resources account for at least 25% of total exports.
11 Catherine Pattillo, Assistant Director of the Africa Department at the IMF.