Mike Moon
Global geopolitical uncertainty has blown apart the usual economic predictions for the year ahead. Africa has not escaped the jittery mood – though things might not turn out badly if the continent can capitalise on its inherent strengths.
That’s the message that came out of the recent World Economic Forum (WEF) meeting in Davos, Switzerland – which followed an earlier upbeat report on the state of play in financial markets in 29 African countries.
Economic growth in sub-Saharan Africa is likely to be 3.6% for 2024, with an increase to 4.2% in 2025, according to the International Monetary Fund’s Regional Economic Outlook released late last year.
In the context of growth statistics for one the region’s largest economies, South Africa, at 1.1% for 2024, the wider picture of around 4% might seem encouraging.
However, the IMF is not optimistic, saying that Africa’s expected growth is “insufficient to significantly reduce poverty or address development challenges”.
The report says African countries face macroeconomic imbalances, tight financing conditions, amid rising social pressures, leaving policymakers facing difficult choices in implementing reforms.
“… countries are navigating a complex economic landscape marked by both progress and persistent vulnerabilities,” says Abebe Aemro Selassie, director of the IMF’s African Department.
He highlights that many African countries are among the world’s fastest-growing economies, yet inflation remains in double digits in a third of them, while debt servicing crowds out development spending.
And topping the IMF’s list of critical issues for Africa is job creation.
The WEF’s own summary of events at Davos states: “If there was one word that might summarise discussions … as it relates to Africa, it might be: optimism.”
“I have to say, I’m excited about where we’re going as a continent,” said Godfrey Mutizwa of CNBC Africa, in a televised panel called Africa: Young and Fast.
The consensus of this and other Davos sessions was that Africa’s natural advantage was its youth and “vitality”, which fostered a spirit of innovation and entrepreneurship – the key to job creation.
More than 60% of Africans are below the age of 25. By 2050, about one out of three working age people globally will be African.
“We don’t have a problem of entrepreneurship in Africa,” said Strive Masiyiwa, founder of Cassava Technologies. “… our kids leave school knowing that if you don’t start something, you’re not going to be employed. But we have not put in place an ecosystem to support startups.”
The challenge for Africa’s women entrepreneurs runs deeper, said Fatoumata Ba, founder of Janngo Capital, Africa’s first unicorn, the term used to describe startups that reach a valuation of $1-billion.
“African women have the highest rate of female entrepreneurship globally at 26%. Yet, according to the African Development Bank, they are facing a $42-billion funding gap,” she said. “Access to capital is a very important topic to tackle.”
Happily, there has been progress in solving this problem.
Commercial banks in Africa are becoming much less risk averse in their lending practices to entrepreneurs, backed by development finance institutions and others that provide capital for banks to on-lend to reduce the risk of such lending and increase the availability of capital.
Pan-African institutions such as the African Development Bank and Afreximbank, as well as African development finance institutions, are playing a significant role in building entrepreneurship, recognising its power to create employment and unlock opportunity and wealth.
The Absa Africa Financial Markets Index (AFMI) offers a standardised measure for the accessibility, transparency and openness of financial markets across 29 African countries.
Its recent report talks of “clear and widespread progress” in the sector in 2024.
“Overall scores increased in 23 countries this year, equivalent to 82% of the index. This represents the highest proportion over the past seven years,” it says.
The AFMI has measured improvements in securities market activity, foreign exchange (FX) reserve adequacy, falling inflation and even the value of pension fund assets – where they exist.
There have been structural improvements to market infrastructure: better transparency in FX markets, monetary policy decisions, creditworthiness of corporates and advancing legal frameworks.
The report concludes: “… the most important changes over this time have been the increase in domestic market size, improved financial inclusion and upgrades to market infrastructure. The widespread and long-term progress made in developing financial markets, despite the global shocks experienced in recent years, bodes well for Africa’s resilience and investment prospects.”
