Although economies in Africa faced uncertainty in 2022 as economic and global shocks weighed on the post-Covid-19 pandemic recovery, intraregional trade and climate finance initiatives are helping chart a course towards more sustainable development. Growth is projected to remain moderate at 3.3% in 2023 and increase to 4.0% in 2024, according to the IMF’s October 2023 regional economic outlook for sub-Saharan Africa.
Regional Cooperation
The African Continental Free Trade Area (AfCFTA) seeks to revive intra-continental trade, with Rwandan coffee beans, and tea leaves and vehicle batteries from Kenya making their way to Ghana in early December 2022 as part of the Guided Trade Initiative pilot programme. As of early 2023, 44 of 54 signatories ratified the agreement, which, when fully implemented, is expected to create the largest free trade area in the world in terms of the number of participating countries. As of late 2022 intraregional trade accounted for 15% of the continent’s total, below rates in Europe (67%) and Asia (60%). Indeed, the AfCFTA could boost total African exports by 29%, or around $560bn, and lift more than 30m people out of extreme poverty by 2035.
Moreover, cross-border energy agreements supported by expanded hydropower infrastructure could help promote additional intra-African cooperation. One example is the Lesotho Highlands Project, an initiative to provide water to South Africa and generate power for Lesotho that received a $86.7m loan from the African Development Bank in 2021, and launched in May 2023. In 2022 the World Bank committed funding to Tanzania’s Rural Electrification Expansion Programme and Uganda’s Grid Expansion and Reinforcement Project – the latter of which supports hydropower generation – to finance grid expansion and connectivity, and achieve more reliable power supply in rural areas.
Financing Growth
Increased digital reach and new financing options are poised to expand coverage to unbanked populations and boost access to funds for small and medium-sized enterprises (SMEs), which employ an estimated 80% of the continent’s workforce. A rise in digital transactions is spurring countries to implement an e-money tax to expand their fiscal reach. While critics argue that these policies may stymie e-commerce growth, countries such as Ghana and Zimbabwe have succeeded in broadening their tax revenue by targeting mobile money transfers.
Global remittances increased during the beginning of the pandemic and continue to represent a significant and relatively stable source of foreign income for emerging markets. Financial technology (fintech) has been integral to maintaining this flow of funds. In February 2022 the Nigerian Postal Service finalised arrangements for a microfinance bank that could allow 52m unbanked citizens to conduct financial transactions. Meanwhile, at the end of 2022 Western Union expanded coverage of its mobile banking apps to include customers of KCB Bank Kenya, Diamond Trust Bank and the Kenya Post Office Savings Bank.
Other fintech solutions, such as “buy now, pay later” microcredit models and cryptocurrencies, have been seeing robust uptake on the continent and could help improve financing access for individuals and SMEs.
Cultivating Added Value
In an effort to support sustainable growth and reduce the burden of high commodity prices on consumers, many African countries such as Ghana have directed investment to manufacturing and the establishment of special economic zones. As a top exporter of commodities such as cacao and cashews, Côte d’Ivoire has placed agriculture at the centre of its post-pandemic investment strategy. A 2022 report by Lloyds Bank named the country the strongest economy in the Economic Community of West African States, thanks in part to foreign investment inflows and increased value-added agricultural processing capacity. Such initiatives and progress is likely to set the stage for future economic growth.
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