Nairobi, Kenya
The IMF expects sub-Saharan Africa to rebound in 2024, with Senegal set to outperform
The International Monetary Fund’s (IMF) latest Regional Economic Outlook report forecasts sub-Saharan Africa’s economy to grow by 4.2% in 2024, up from 3.6% in 2023. Approximately 80% of countries are expected to register an acceleration in gross domestic product (GDP) in 2024, fueled by increased private consumption and investment. The 2023 growth rate of 3.6% is a decline from 3.9% in 2022. Factors contributing to this underperformance include central bank rate increases to combat inflation and the war in Ukraine depressing global economic activity, consequently affecting demand for exports from the region.
The IMF envisions a “two-speed recovery” in sub-Saharan Africa for 2024, marked by considerable variations in growth across countries. Economic expansion is expected to be driven primarily by nations with less dependence on natural resources. Non-resource intensive economies – an IMF grouping of 21 countries including Côte d’Ivoire, Kenya, Uganda, Mozambique and Madagascar – are projected to grow by 6.2% in 2024, compared to 5.7% in 2023, thanks to more dynamic and resilient economies and a rebound in activities such as agriculture. But among the region’s larger economies, it is Senegal which is expected to post the most spectacular growth. The IMF anticipates the West African country’s economy to expand by 10.6% in 2024, powered in part by the start of a new natural gas project and infrastructure investment. Some non-oil resource-intensive countries are also set to experience strong recoveries, boosted in some cases by new mining projects, such as iron ore in Liberia and Sierra Leone and green energy commodities in the Democratic Republic of the Congo (DRC) and Mali.
Growth for oil exporters – such as Nigeria, Angola, Equatorial Guinea, and South Sudan – is expected to slow down to 3.1% in 2024 from 3.3% in 2023, mainly as a result of the projected decrease in crude oil prices and production deceleration.
Senegal
Senegal’s economy encountered challenges in 2022, primarily due to a less-than satisfactory harvest season and a pullback in industrial production. Exacerbated by food prices, average inflation surged to a multi-decade peak of 9.7%. However, projections for 2023 anticipate a revitalisation of economic activity, with growth bouncing back by 8.3% and inflation dropping to a more manageable 5%. By 2024, an acceleration in GDP growth to 10.6% is expected, making it one of the region’s fastest growing economies.
The IMF highlights the substantial economic boost expected from the soon-to-commence Greater Tortue Ahmeyim gas project. The offshore gas field, which straddles the border between Senegal and Mauritania, is scheduled to start production by year’s end. Initial projections suggest an output of 2.5m tonnes of liquefied natural gas during the first phase, escalating to 5 million tonnes in the subsequent phase.
Other factors contributing to the optimistic GDP forecast include a surge in domestic investment – particularly in sectors like electricity, transport, and the digital economy – and a marked increase in government consumption. Over the past decade, Senegal’s development strategy, the Plan Sénégal Emergent, running from 2014 to 2035, has facilitated progress in electrification, transport links, airport infrastructure, and the mining and agricultural sectors. However, concern is mounting over Senegal’s debt-to-GDP ratio, which has soared from 31.6% in 2015 to 73% in 2021.
Nigeria
Nigeria, the region’s largest economy, is expected to experience a decline in growth from 3.2% in 2023 to 3.0% in 2024. Double-digit inflation and a weaker naira currency have held back Africa’s biggest economy. Although the agriculture sector grew in 2022, severe flooding across the country significantly hampered its performance. High global oil prices have driven up diesel costs, which many businesses depend on for electricity generation, leading to increased production outlays, while a faltering currency has made imports more expensive.
South Africa
GDP growth in South Africa – a significant producer of gold, platinum group metals, and iron ore – is anticipated to rebound from 0.1% in 2023 to 1.8% in 2024, as the nation’s electricity crisis is likely to ease and the global economic climate improves.
The ongoing electricity woes is having a devastating impact on the economy and business. Scheduled power cuts, known locally as load shedding, have caused a reduction of South Africa’s GDP by 1% to 1.3% annually since 2007, according to ETM Analytics. South Africa has had a power crisis for many years, but the situation has deteriorated since 2022, with scheduled power cuts of as long as 10 hours per day. The national power utility Eskom, which is responsible for 90% of South Africa’s electricity generation, is dealing with an aging fleet of coal-fired plants that are continuously breaking down due to lack of maintenance, years of under investment, management problems and systematic corruption. Numerous private electricity generation projects are currently under development but these will take some time to come online.
Kenya
Kenya, East Africa’s economic powerhouse, is projected to experience a slight GDP acceleration from 5.3% in 2023 to 5.4% in 2024. Before the pandemic, the nation ranked among Africa’s most rapidly expanding economies, boasting an average annual growth of 5.9% between 2010 and 2018. However, the Covid-19 crisis dealt a heavy blow, significantly impacting international trade, transportation, tourism and urban services. In contrast, the agricultural sector, a vital component of Kenya’s economy, demonstrated resilience, mitigating the overall GDP contraction. Presently, the country grapples with soaring debt costs, worsened by the depreciation of the shilling against the US dollar.
Conditions for growth
The IMF says its growth outlook for the region is conditional on the realisation of three global factors. First, as the world economy continues to rebound from the effects of the war in Ukraine, export opportunities for the region are expected to improve, while easing supply chain bottlenecks will help lower import costs. Second, global inflation is projected to decline further in 2024. It is therefore assumed that major central banks will slow their monetary policy tightening in the second half of 2023, which would lessen the pressure on exchange rates in sub-Saharan Africa. Finally, crude oil prices are anticipated to drop by around 6% in 2024 compared to the previous year, as demand pressures ease. With net fuel importers accounting for two-thirds of the region’s GDP, lower prices should have a positive impact on growth.
However, there are considerable downside risks to the global economy that could adversely affect sub-Saharan Africa. Banking sector turmoil in major economies, such as the recent failure of Silicon Valley Bank, may impact the region through diminished import demand and depressed commodity prices. Financial strain in the US or Europe could amplify global risk aversion, rendering Africa a less attractive investment destination. Extensive capital outflows from emerging markets will likely prompt further dollar appreciation, exacerbating vulnerabilities for countries with substantial dollar-denominated external debt and suppressing global trade, given that many products are invoiced in dollars.
In addition to banking sector vulnerabilities, three potential hazards warrant attention. First, persistent inflation may lead to tighter monetary policy, reducing financial inflows to sub-Saharan Africa and worsening balance of payment pressures, causing currency depreciation and tighter financing. Second, an escalating Ukraine war could increase global uncertainty and raise food and energy prices. Lastly, growing geo-economic fragmentation could negatively affect sub-Saharan Africa through rising trade barriers and higher food prices, as the region is sensitive to global demand and price shocks.
Under a severe global financial stress scenario, 2023 global real GDP growth could fall 1.8 percentage points below baseline, with 2024 growth dropping by 1.4 points.
The impact would be roughly a quarter of the 2008-09 crisis. This slowdown could trigger disinflation, lower oil and gas prices, and a decline in global trade due to reduced demand, uncertainty, and a stronger dollar. Sub-Saharan Africa might experience a 1.9% GDP loss over 2023-24, with oil exporters losing more (2.5%) compared to resource-intensive (1.8%) and non-resource-intensive countries (1.4%).
Funding squeeze
The IMF says that sub-Saharan Africa is in the midst of a funding crunch due to dwindling financing options over the past year. Rising global interest rates have increased borrowing costs in domestic and international markets. A 20-year high US dollar effective exchange rate in 2022, driven by surging US treasury bond interest rates and a search for safe assets, has inflated the value of continent’s dollar denominated debt and interest payments.
The region has also experienced a notable decline in aid, prompting some countries to turn to the more expensive market-based financing. Moreover, investment inflows from China, which were once a significant source of financing, have declined markedly in recent years. Chinese loans to African governments have plummeted from US$28.4 billion in 2016 to a mere US$1.9 billion in 2020. This sharp decline can be attributed to both a shift in Chinese domestic political priorities and the mounting repayment difficulties faced by African nations.
The financial squeeze is striking sub-Saharan Africa at a particularly inopportune moment, as it grapples with intensified economic challenges and high inflation. As of February 2023, half of the countries had double-digit headline inflation and approximately 80% experienced double-digit food inflation. However, a recent 30% drop in international fuel prices from their mid-2022 peak has provided some relief.
Despite a deceleration in inflation for about half of the countries, the phasing out of fuel and food subsidies in nations like Cameroon, Central African Republic, Ethiopia and Senegal suggest that volatility will persist throughout 2023. Additionally, countries such as Cameroon, Mali, Rwanda and The Gambia have faced mounting pressure to raise public wages due to escalating living costs.
In 2022, most regional currencies depreciated against the US dollar, exacerbating inflation issues. The region is highly dependent on imports with a significant share of them invoiced in dollars. Currency depreciations also increased general government debt, as about 40% of sub-Saharan Africa’s debt was external in 2021. Although exchange rate pressures have eased since November 2022, they remain elevated and volatile.
Sub-Saharan Africa’s public debt, at 56% of GDP in 2022, has reached levels not seen since the early 2000s, raising concerns about debt sustainability. The increase in debt since the pandemic has been primarily driven by expanding fiscal deficits due to concurrent crises, decelerated growth and currency depreciation. In 2022, some 19 out of the region’s 35 low-income countries were either in debt distress or confronting a high risk of it.
In November 2020, Zambia became the first African nation to default on its debt repayment obligations amid the Covid-19 pandemic. The nation’s external debt rose from US$4.8 billion (18% of GDP) in 2014 to US$11.2 billion (48% of GDP) by 2019.
By the close of 2022, Ghana also halted payments on the majority of its external debt, essentially defaulting on its obligations. Citing the precarious state of the economy, the government deemed this decision an “interim emergency measure” and subsequently secured a US$3 billion bailout agreement with the IMF.
Recently, Kenya postponed the disbursement of civil service salaries as a result of a cash crunch brought on by substantial debt interest payments. Although some observers speculate a possible default, the presidency asserts that the government is capable of meeting repayment obligations, albeit with considerable strain. According to the Central Bank of Kenya, public debt reached about US$73 billion in December.
The IMF anticipates that the challenging funding landscape will likely continue for the region, emerging as a defining feature of the new normal. In the years ahead, some countries may encounter the world’s highest interest expenses relative to revenues, exceeding 50% in specific cases. Challenges in debt repayment or refinancing could potentially hinder the region’s economic growth and social development.
Conclusion
Economic activity in the region is expected to remain subdued in 2023 before picking up in 2024, contingent on a global recovery, easing inflation, and the gradual relaxation of monetary policy tightening. Sub-Saharan African governments should brace themselves for another challenging year, with tighter financing conditions amid the lingering aftermath of a series of cascading shocks. The IMF highlights a few policy measures that could help alleviate the situation. For example, enhancing domestic revenue collection could provide an additional source of funding. Furthermore, refining legal and regulatory frameworks may attract private financing that can contribute to addressing basic needs and development objectives. According to the IMF, ultimately, sub-Saharan Africa will need international support to tackle the funding squeeze.
* A version of this article was originally produced for the NTU-SBF Centre for African Studies at the Nanyang Business School in Singapore.