Africa's Macroeconomic Performance and Outlook 2023
The African Development Bank (AfDB) has a new biannual publication, launched this past week, to complement the African Economic Outlook.
The first edition of the AfDB’s Macroeconomic Performance and Outlook report provides an “up-to-date" evidence -based assessment of the continent’s recent macroeconomic performance and short-to-medium outlook amid dynamic economic developments”. You can read the full report here, but I provide some key takeaways from the report below. Particularly the parts that agree with my suggestions of ESG-aligned investment opportunities in last week’s newsletter.
The gist of the report is that despite an increasingly uncertain and volatile external environment, Africa has remained resilient with all but one country on the continent producing positive growth. The outlook also being stable for 2023 and 2024.
“Africa’s growth is projected to average about 4 percent in 2023 and 2024, higher that the projected world averages of 2.7 percent and 3.2 percent, respectively.” - Dr. Akinwumi A. Adesina (President, African Development Bank.
Some of the key takeaways from the report include:
While African economies slowed in 2022 due to some significant headwinds, they remained resilient and look stable going forward.
African economies have come under pressure from tightening financial conditions and a stronger US dollar.
The continent’s growth will stabilize at 4 percent, following a slowing down to 3.8 percent in 2022, and from the 4.8 percent of 2021.
Africa took a few body blows in 2022, but she overcame and looks good for that 4 percent in 2023 and 2024.
Not all African countries were affected in the same way by disrupted supply chains and tighter financial conditions: For resource-intensive economies, it depended on the type of exported commodity. Tourism dependent economies grew, while oil-exporting countries weakened a bit. The outlook is positive, prices for key exports remain high, and advanced economies will be looking to Africa for alternative food, our energy markets, and minerals to support their green transitions (think, Africa’s RE technical potential and agriculture as ESG-aligned investment opportunities from last week’s newsletter.)
Africa’s current account deficit has narrowed, inflation is expected to ease in 2023, but we must proceed with caution amid considerable global uncertainty.
Growth performance and outlook, by region, 2020-24 (Source: Africa’s Macroeconomic Performance and Outlook 2023, AfDB)
According to the report, we still face some significant risks. High interest rates, losses and damages due to extreme weather events, a dependence on commodity exports, conflict and significant political risks.
The AfDB report suggests bold policy actions to address some of these risks, particularly those associated with higher energy and food prices that drove 15 million people into extreme poverty in 2022. We need to boost intra-African trade, accelerate structural reforms (this is desperately needed in South Africa), coordinate fiscal and monetary actions, and respond timeously and aggressively to inflation - when it is acute, and even when inflationary pressures are low.
The AfDB report also encourages that we enact policies that can leverage private financing for development in Africa. The sectors are where the bank believes investment for development in Africa should happen. They align rather neatly with where ESG investors could have the most impact in Africa, and earn a decent risk-adjusted return. The AfDB proposes;
Investments that catalyze climate-smart agriculture and agribusiness (Sustainable Agriculture).
Investments in the transformation of our energy sector, and the support of renewable energy manufacturing industries.
Investments in our healthcare infrastructure.
Most importantly, this AfDB has perhaps signaled its priorities, and how it will endeavor to allocate its own resources. The report will be published in the 1st and 3rd quarters of every year, and will serve as a useful addition to toolbox of resources for investors who recognize that Africa is the place to invest.
