Erratic and jobless growth
The lack of coordination between macroeconomic and sectoral policies is reducing Africa’s ability to achieve inclusive 7 to 10 percent growth and sustainable development as encapsulated in Agenda 2023. Over the past four decades, Africa has experienced growth episodes that can be classified into three categories: (i) growth accelerations, (ii) growth spikes; and (iii) failed take offs. Africa’s growth performance is even less stellar in per capita terms relative to other regions of the world.
The impact of the global shocks induced by the COVID-19 Pandemic, geopolitical tensions and climate change continue to affect
Africa’s growth trajectory. Africa’s gross domestic product (GDP) growth is expected to average 3.8% and 4.2% in 2024 and 2025,
respectively. Despite this regain and positive trend, growth remains below the pre-pandemic average of 5 % and the targeted 7 to 10 percent level required to achieve Agenda 2030 and Agenda 2063.
In Africa, unemployment is increasing faster than growth. The spread between unemployment and GDP rates averages around 3.04% between 2018 and 2024. This spread shows a surplus of unemployment which is not covered by GDP growth in Africa. Recent data show a surge in effective unemployment in Africa with a historic peak of 7.2% in 2021, a year with a high peak in GDP (4.8).
Fiscal instability and debt
According to the AfDB 2023, Africa's average debt-to-GDP ratio will remain high at 66 percent in 2023 and stabilize at 65 percent due to growing financing needs associated with rising food and energy import bills, high debt service costs due to interest rate hikes, exchange rate depreciations, and rollover risks. In addition, many countries’ difficulties in accessing international capital markets, combined with limited revenue mobilization, have led to issue local currency debt, which increased substantially from 35 percent of GDP on average in 2019 to 42 percent in 2021. Domestic debt restructuring, therefore, should be part of the negotiations for the resolution of public debt crises in countries facing heightened risks.
The increase of Illicit Financial Flows (IFFs)
Despite the high-level commitment taken since the adoption of the Assembly Special Declaration on IFFs (Doc. Assembly/AU/17(XXIV) in January 2015, recent estimates suggest that illicit financial flows have grown from the original estimate of US$50 billion annually to pick at around USD 89 billion annually since 2020. This represents 3.7% of Africa’s GDP. The loss in IFFs represents approximately 95 per cent of the USD 93 billion historic replenishment of the International Development Association (IDA), which is part of the World Bank to provide concessional loans to developing countries. In the same vein, tax incentives contribute to a further US $220 billion loss. Addressing these issues requires concerted efforts to promote fiscal transparency, enhance efficiency, and ensure accountability in tax administration.
Delays in the implementation of the regional integration agenda
The Abuja Treaty 6-stage phased approach towards the creation of an African Economic Community was originally supposed to be completed in the year 2000. Despite the huge continental appetite for regional integration as a source of economic growth and shared prosperity, the slow progress recorded in various continental critical programmes highlights the need for coordinated efforts to move this important agenda forward. Beyond the African Continental Free Trade Area (AfCFTA), significant implementation efforts are required to create a continental customs union, a common market, and a monetary and economic union towards the African Economic Community (AEC). At the center of this drive is the need to adhere and implement the African Monetary Cooperation Program (AMCP) on the macroeconomic convergence criteria towards the African Central Bank, the creation of the African Investment Bank (AIB), the African Monetary Fund (AMF) and the Pan-African Stock Exchanges. These institutions are of critical importance as they form the African Financial Architecture essential for sustainable financing of the continent.
Impact of external shocks on macroeconomic policies in Africa
The continent’s medium-term growth outlook faces several downside risks, including unexpected adverse developments in the global economy, external shocks due to changes in weather conditions, and political instability, insecurity and potential civil unrest in some countries. Despite the growing optimism and resilience, Africa continues to be confronted by multiple external crises. The impact of COVID-19, Russia-Ukraine war, the recent development between Israel and Palestine and climate change have all exposed the continued vulnerability of the continent to exogenous shocks. These and other factors have constrained the region’s ability to sustain the growth momentum of the 2000s.
To translate rapid economic growth into sustained and inclusive development, Africa must follow through on development strategies that foster economic diversification, create jobs, reduce inequality and poverty and boost access to basic social services. It can only do this through the structural transformation of its economies, which requires a healthy population with high-quality and relevant skills to facilitate productive transformation through industrialisation.
