African economies still suffer from structural challenges like the effects of climate change.
The Covid-19 pandemic triggered a profound setback after a quarter-century of economic and social progress. Insecurity and political instability are becoming pervasive across Africa.
The Russia-Ukraine war is exposing millions of people to food insecurity, and the most vulnerable are the hardest hit as a large share of their income goes to food and transport. This is compounded by a harsh drought in the Horn of Africa affecting food supply and security.
In parallel to these, African economies still suffer from structural challenges like the effects of climate change.
As of the end of October 2022, the pandemic cost the lives of some 175,000 people, with more than nine million reported cases in the continent according to the World Health Organisation (WHO).
Thanks to effective policies and “good luck,” the health impact is lower than initially predicted. However, even though Africa is less affected compared with the other regions of the world, the economic impacts remain one of the highest.
The real GDP declined by 1.8 percent in 2020 — for the first time in more than 25 years — pushing 23 million people into extreme poverty according to the World Bank, exacerbating inequality, and shrinking fiscal space.
Africa’s Human Development Index also fell for the first time in three decades. The recovery itself is dragged and uneven because of unequal access to vaccines and slow vaccination progress, protracted conflicts and political instabilities, and the Russia-Ukraine war.
The war compounds the challenges to economic recovery. The war and subsequent economic sanctions against Russia increased energy prices, triggered food inflation, tightened financial conditions, and caused global uncertainty. Brent oil price went above the $100/barrel mark for the first time since 2014, creating a ripple effect on other prices and challenging the green energy transition.
Although the imports from Ukraine and Russia — as a share of Africa’s total imports — are small, many relying on these countries for critical imports like wheat and fertilisers. As a result, 346 million people face severe food insecurity.
Moreover, the pandemic and war in Ukraine have created a highly polarised world, which undermines the international community’s capability to come together and address the world’s most pressing issues.
Under such circumstances, how can African policymakers properly navigate the multiple headwinds?
In 2022, the African population will be equivalent to the Chinese and Indian populations. In less than 40 years, the African population is expected to be greater than China’s and India’s combined.
Feeding these masses under climate change is one of the greatest challenges for Africa, but it can be accomplished by investing in technologies, build fertiliser factories, and build climate resilience by investing in climate-smart agriculture and adaptation.
Food security and climate change should be developed into a strategic policy design. Education is also key to improving agricultural labour productivity. Failing to feed a young and fast-growing population can turn the expected demographic dividend into a demographic time bomb.
The pandemic and the successive negative shocks dramatically deteriorated macroeconomic fundamentals in many African countries, particularly the sovereign debt balance. As of February 2022, 23 African countries were either in debt distress or at risk of it.
Fiscal space and sound macroeconomic conditions will be key to properly respond to the various shocks faced by African economies. Improving efficiency in public spending and mobilising more domestic revenue by increasing tax administration efficiency, can contribute to building fiscal space and a sound macroeconomic framework, which is fundamental to sustaining economic recovery.
However, improving tax revenue collection and public spending efficiency, may entail structural reforms plus technology adoption and fighting graft.
Crises and recovery are uneven within and between countries. To ensure that no one is left behind, recovery policies need to be inclusive and equitable. Governments can also leverage digital financial services to improve access to finance for the most vulnerable population.
Vulnerability, unrest, instability
Insecurity, vulnerability, and social unrest hinder political stability and development prospects. The food insecurity and terrorism in the Sahel heighten the risk of social unrest on the continent. Governments need to take adequate measures to avoid setbacks in democratic progress. To support an inclusive recovery, governments should engage in reducing people’s vulnerability and developing social safety nets.
Prof Njuguna Ndung’u is Kenya’s Cabinet Secretary at the National Treasury and Economic Planning. Prof Théophile T. Azomahou is Acting Executive Director and Director of Training, African Economic Research Consortium.
This article was first published in “Foresight Africa 2023: Top priorities for Africa in 2023” published under the Brookings Institution, Africa Growth Initiative (AGI).