Budget support to households and businesses in the region has amounted to 2.8% of GDP, compared to 17% in advanced countries.
This year, Sub-Saharan Africa’s three biggest economies (Nigeria, South Africa and Angola) – which account for more than 60% of the continent’s GDP – are forecast to grow by 2.4%, 4.6% and 0.4%, respectively.
The region’s three-largest economies are heavily dependent on resources, most notably minerals and oil, while non-resource economies such as Kenya and Côte d’Ivoire are expected to post growth rates of 5% and 6%, respectively.
- Nigeria’s growth will be supported by the service sector.
- South Africa’s economy will be lifted by better performance in services, industry and – to a limited extent – agriculture.
- Angola’s economy is expected to exit a five-year recession, but remains weighed down by elevated debt levels and the weak performance of the oil industry.
The latest growth prediction for the region is 1% higher than the World Bank’s April projection. “This rebound is fuelled by elevated commodity prices, the relaxation of stringent [Covid-19] measures and the recovery in global trade,” Albert Zeufack, the chief economist for the Africa region at the World Bank, told journalists.
“It is important to note that economic recovery in Sub-Saharan Africa remains very fragile,” Zeufack said, adding that, “the rebound is weaker than growth in advanced economies … and emerging economies.”
Vaccines hold the key
“The most important thing is accelerating vaccine deployment. That’s going to hold the key for economic recovery, resumption in economic activity – including tourism – and allow a stronger rebound in consumption and investment,” he said.
As of mid-September, only 3.3% of Africa’s population had been fully vaccinated, while more than half the population in advanced countries was fully vaccinated, notes the World Bank.
Vaccination rates in Madagascar, Tanzania and Uganda are lower than 1%, while Burundi and Eritrea have not started vaccine campaigns. Tourism-dependent economies such as Mauritius and Seychelles, which are exceptions, have vaccinated more than 50% of their populations.
Between October 2020 and June 2021, the World Bank provided $20bn financing to help bolster vaccine acquisition and distribution in the region. As of September 2021, the institution “approved 31 operations to support vaccine rollout in 30 Sub-Saharan African countries amounting to $1.9bn, $674.9m of which was allocated to AFW [West and Central Africa] and $1.23bn [of which] was distributed across countries in AFE (East and Southern Africa),” the World Bank said in Africa’s Pulse.
Donor debt efforts fail region
Another factor threatening the region’s recovery is debt, more specifically, rising debt-servicing costs.
The World Bank states that donor efforts, through the Group of 20 Debt Service Suspension Initiative (DSSI) for Sub-Saharan African borrowers, have been insufficient. Potential savings from the initiative were estimated at only 1% of GDP. “It has failed to reach the goal of reducing debt servicing costs.”
“Angola, Mozambique and Zambia, which were vulnerable before the pandemic, have seen further deteriorations in their public finance. Mozambique, the Republic of Congo and Zambia have been negatively affected by opaque management of their debts during boom periods. With little access to financing, these countries will struggle to launch an effective recovery,” the World Bank says.
“We need to think of alternative solutions when the DSSI expires this year. We need to think of a resolution. We need to accelerate the process of a common framework to make sure that we address the issue of creeping debt,” Zeufack said.
Climate change: the risks and potential rewards for Africa
In addition, the threat of climate change compounds the region’s already immense development challenges. The World Bank cites Africa’s high reliance on climate-sensitive sectors for this. “Our economies are suffering from climate change. GDP in Africa could contract by up to 1% when the average global temperature rises by 0.5°C,” Zeufack said.
“We are seeing an increased frequency in extreme events because of climate change. We need to make sure climate adaptation takes centre stage in economic policy-making in Africa. The cost of inaction will be very high,” said the chief economist.
The economic areas in which climate change is likely to be most disruptive to the region, according to Zeufack, are:
- Agriculture, “where our food systems are in danger because of increasing temperatures.”
- Coastal cities, where manufacturing, which creates jobs, is located. “Rising sea levels are threatening our [coastal] cities.”
- Resource conflict because of “desertification.” “Grazing land is shrinking. Water is shrinking. There is more and more conflict across the continent that is generated by climate change.”
Recent simulations suggest that a 3°C global warming by 2100 would entail estimated potential GDP losses of $2.9trn in Sub-Saharan Africa, according to the World Bank. “Implementing policies to reach the Paris Accord objectives (2°C global warming) would reduce the losses in economic activity by $962bn a year, in terms of the 2100 GDP.”
According to Zeufack, “we need to seize the opportunity of climate change to transform our economies and create jobs. This report [Africa’s Pulse] exposes all the opportunities that are available in the ongoing global decarbonisation. We [also] see climate change as an opportunity for Africa to boost its manufacturing sector.”
Besides manufacturing, infrastructure could be another avenue for green growth on the continent because “much of the infrastructure in our cities and the transport systems are yet to be built.”
Furthermore, “Africa happens to be the place where most of the minerals that will […] power the green economy will be. Africa can process those minerals, add value, create jobs for our populations, before exporting them or before using them in regional value chains within Africa,” said Zeufack.
The carbon trap …
There is also a word of caution for countries with a high share of carbon and carbon-linked wealth.
As the world decarbonises, the shift away from oil, gas and coal will pose a risk to the value of the wealth of countries that are abundant in non-renewable energy; for example, Nigeria and Angola, as well as countries with recent oil and gas discoveries, such as Mozambique, Kenya and Senegal, the World Bank says.
Moreover, these countries face the heightened risk of stranded assets, underscoring the urgency to accelerate efforts to mitigate carbon risk.
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