21.06.2024

The African Development Bank has launched its African Economic Outlook 2024 report - filled with insights, that we want to shine a light on today.

The report highlights the continent’s resilience and growth potential despite significant challenges. It argues that by addressing structural weaknesses and advocating for global financial reforms, Africa can pave the way for a more inclusive and sustainable economic future.

Read on to learn more, or access the full report through the website of the African Development Bank.

In a Hurry? Here's a 1-Minute Summary:

1. Economic Resilience Amid Challenges: Africa's GDP growth slowed from 4.1% in 2022 to 3.1% in 2023 due to geopolitical tensions and climate issues but is expected to rebound to 3.7% in 2024 and 4.3% in 2025, maintaining its position as the second-fastest growing region globally.
2. Regional Growth Variability: Growth projections for 2024-25 vary by region, with East Africa expected to grow the fastest. This variability underscores the need for tailored policy interventions.
3. Structural Transformation Needs: Africa's economic structure remains reliant on low-productivity sectors like agriculture. Investment in high-skill services and manufacturing, alongside closing the $402 billion annual financing gap, is crucial for significant transformation.
4. Enhancing Domestic Resource Mobilization: Improving tax systems, broadening the tax base, and strengthening tax administration are essential to reduce dependency on external financing and ensure stable development funding.
5. Global Financial Reforms: Comprehensive reforms are needed to make global financial institutions like the World Bank and IMF more effective and inclusive. Proposed reforms include recycling SDRs, capital adequacy reforms, efficient debt resolution mechanisms, and increasing climate finance accessibility. These reforms could secure $169.4 billion annually, covering 42% of Africa’s financing gap.

Ready for a Deeper Dive? Here's the Breakdown:

The African Development Bank's African Economic Outlook 2024 emphasizes bold reforms in the global financial architecture to meet Africa's development financing needs. Here are the key things we took away:

1. Economic Resilience Amid Challenges

Despite strong economic performance, Africa's structural transformation has been slow. The continent faces severe shocks, including rising food and energy prices due to geopolitical tensions, climate issues, and political instability. Average consumer price inflation in Africa increased from 14% in 2022 to 17% in 2023.These challenges contributed to a slowdown in GDP growth from 4.1% in 2022 to 3.1% in 2023.However, over half of African countries saw higher GDP growth in 2023 than in 2022, with fifteen countries achieving at least 5% growth.Overall, growth is expected to rebound to 3.7% in 2024 and 4.3% in 2025, maintaining Africa as the second-fastest growing region globally.

2. Heterogeneous Growth Across Regions

The growth outlook for 2024-25 varies across Africa’s regions and economic groupings, reflecting differences in economic structures, commodity dependence, and domestic policy responses:

• East Africa: Fastest-growing, with GDP growth from 1.5% in 2023 to 4.9% in 2024 and 5.7% in 2025.
• Central Africa: Growth moderates from 4.3% in 2023 to 4.1% in 2024, improving to 4.7% in 2025.
• West Africa: Growth from 3.6% in 2023 to 4.2% in 2024 and 4.4% in 2025.
• North Africa: Growth declines from 4.1% in 2023 to 3.6% in 2024, rising to 4.2% in 2025.
• Southern Africa: Growth increases from 1.6% in 2023 to 2.2% in 2024 and 2.7% in 2025.

This variability highlights the need for tailored policy interventions.

3. Structural Transformation and Investment Needs

Africa’s economic structure remains heavily reliant on low-productivity sectors like agriculture and low-skill services.The services sector drives growth despite global shocks, but industrialization remains limited. The shift has been towards low-skill services rather than more productive manufacturing sectors.Agriculture and industry face challenges from climate change and structural issues. The agriculture sector, which employs 42% of Africa’s workforce, is 60% less productive than the economy-wide average. This low productivity leaves most African workers in low-income situations.Recent growth in high-skill services, such as finance and ICT, suggests that this sector can significantly contribute to Africa’s productivity growth if properly harnessed. Developing a services-led growth model, alongside promoting manufacturing, could drive future economic development.However, closing the annual financing gap of about $402 billion until 2030 is crucial for this purpose. This would allow investments in education, energy, productivity-enhancing technology, and infrastructure.

4. Enhancing Domestic Resource Mobilization

Domestic Resource Mobilization (DRM) is vital for reducing dependency on external financing and ensuring stable development funding. Many African countries have low tax-to-GDP ratios and a large informal economy, limiting revenue collection.Policies to broaden the tax base, improve tax compliance, and eliminate tax exemptions are essential. Strengthening tax administration through technology and capacity building, and implementing transparent tax regimes for natural resources can boost DRM.However, domestic resources alone are insufficient; scaling up external financial flows and reforming the global financial architecture are necessary.

5. Recommendations for Global Financial Reform

The current Global Financial Architecture, including key institutions like the World Bank and IMF, has played a crucial role in supporting global development. However, the report argues it is increasingly inadequate in addressing modern challenges such as climate change, geopolitical tensions, and pandemics. Despite their efforts, these institutions often provide only short-term relief and fail to offer sustainable solutions to ongoing economic issues.The African Economic Outlook 2024 calls for comprehensive reforms to make these institutions more effective, inclusive, and responsive:

• Recycling SDRs (Special Drawing rights) through Multilateral Development Banks to increase funding for Africa.
• Capital Adequacy Reforms to enhance lending capacity and attract private investments.
• Debt Resolution Mechanisms to make debt resolution more efficient.
• Climate Finance Accessibility by simplifying procedures and increasing funding to vulnerable countries.

These reforms could secure $169.4 billion annually, covering 42% of Africa’s financing gap. Greater private sector involvement and inclusive governance structures in financial institutions are also emphasized.