The United Nations’ latest report on the economic situation for 2024 paints a concerning picture for Africa, with South Africa among the major economies experiencing significant slowdowns.
The continent’s growth decelerated from 3.5% in 2022 to 3.3% in 2023, with a modest improvement to 3.5% projected for 2024. However, this growth is overshadowed by numerous problems, including tight financing conditions, currency depreciations, and climate change impacts.
South Africa, a key player in the Southern African economy, has been particularly hard hit.
The country’s ongoing electricity crisis, exacerbated by underinvestment in renewable energy, has led to an estimated growth of just 0.5% in 2024, the World Economic Situation and Prospects 2024 reveals.
This sluggish performance is not only a domestic concern, but also has ripple effects across the region.
The World Economic Situation and Prospects 2024 is a report produced by the United Nations Department of Economic and Social Affairs (UN DESA), in partnership with the United Nations Conference on Trade and Development (UNCTAD) and the five United Nations regional commissions.
The rest of Africa is not exempt.
The report says that African economies are grappling with various issues. The initial boost from the resumption of international tourism post-Covid-19 has faded, and commodity-exporting countries have not sustained their boom due to stabilised commodity prices.
External demand from major partners like China and the European Union remains subdued.
Tight financing conditions, influenced by monetary policies of the United States Federal Reserve and the European Central Bank, have limited external financing for African countries.
This, coupled with depreciating African currencies, has constrained economic expansion. Domestic challenges such as armed conflicts, political instability, extreme climate events, and infrastructure bottlenecks further depress growth.
Inflation remains a significant concern across Africa, with some of the larger economies like Nigeria, Egypt, and Ghana experiencing high food inflation rates. Central banks, excluding a few like Angola, Uganda, and Zimbabwe, have adopted a monetary tightening stance to curb inflation and stabilise exchange rates.
Debt sustainability is a growing concern, with 18 African countries recording debt-to-GDP ratios over 70% in 2023.
High debt-servicing burdens are forcing countries like Zambia, Malawi, Kenya, and Ghana to allocate over 20% of their tax revenue to interest payments, impacting essential government spending on education and healthcare.
When it comes to International trade, the report notes that growth in Africa has been stagnant, with intra-African trade still below 15% of total trade.
Efforts to enhance regional trade, particularly through the African Continental Free Trade Area (AfCFTA), are ongoing, but yet to yield significant results.
Access to development financing remains a daunting challenge, with high borrowing costs due to low credit ratings.
Efforts by the African Union to establish an independent credit rating system aim to address this issue.
The UN report reveals that climate change continues to pose significant risks, particularly for the 28 African countries in the Vulnerable Twenty Group.
The continent faces a massive annual financing gap of about $120 billion for climate adaptation and mitigation, receiving only 2% of global clean energy finance flows.
Food insecurity remains a critical issue, with approximately 60% of Africa’s population experiencing moderate or severe food insecurity.
This situation is exacerbated by ongoing geopolitical tensions and political transitions in several countries.
Looking ahead, the UN World Economic Situation and Prospects 2024 notes potential headwinds for South Africa and other African countries who head into presidential elections this year.
The outcomes of these elections could significantly influence the region’s growth and development prospects, the report says.
The continent’s economic outlook remains clouded by debt, inflation, climate risks, and political uncertainties, with the UN calling for concerted efforts to address these multifaceted challenges.