In 2024, Sub-Saharan Africa faces one of the most challenging economic environments in years, marked by a slow recovery from the pandemic, rising food and energy prices, and high levels of public debt.
One of the most urgent issues confronting the region is the need to tackle decade-high levels of inflation, which have increased to almost 9 percent in August 2022. Despite a rebound last year, the fallout from the pandemic has kept domestic economic activity in sub-Saharan Africa relatively muted, and growth in the region is expected to slow this year. Most countries in the region have lacked the resources to support and stimulate growth, in sharp contrast to richer countries elsewhere that could inject trillions of dollars into their economies.
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Inflation in sub-Saharan Africa has been driven less by domestic activity than in advanced economies. Instead, external developments have shaped the path of inflation since the start of the pandemic. They include the sharp spike in global commodity prices, swings in the exchange rate, global supply chain disruptions, and natural disasters. In the case of food, the prices of key staples such as maize and wheat have increased since 2019, contributing two-thirds of overall inflation in fragile states and one-half elsewhere in the region.
Higher global energy prices and the strong dollar have also fed through to inflation indirectly, via transportation and tradable goods like household products. By contrast, there have been only modest increases for the prices of goods and services that most reflect domestic demand pressures, so-called non-tradable—which typically include any locally-produced services, such as in the hospitality, health, or education sectors. With food and energy accounting for half of household consumption in sub-Saharan Africa, living costs across the region have spiralled. The IMF estimates that 12 percent of the region’s population will face acute food insecurity by the end of this year.
Monetary authorities across the region have already started raising interest rates in response to rising inflation, but they face a delicate trade-off: raising rates to keep inflation in check will risk choking off credit for investment, depressing economic activity, and reducing incomes. Meanwhile, fiscal consolidation and the global slowdown weigh on domestic economic activity. That means central banks should proceed with caution and raise interest rates gradually so as not to jeopardize the recovery. But policymakers must also not be complacent: countries where domestic demand pressures are acute, or inflation is very high may need to tighten faster or more decisively. The same applies to countries where monetary policy credibility is weak, the currency is depreciating rapidly, or foreign exchange reserves are shrinking.
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Policy coordination can help. Fiscal consolidation has a role to play in countries where policy is too loose, as can a combination of rate increases and currency depreciation. Given sub-Saharan Africa’s fragile recovery, combined with the fact that domestic demand pressures have not so far been an important driver of inflation, policymakers must proceed with caution in coming months while closely monitoring inflation.
The African continent’s economic growth is expected to slow to 2.5% in 2023 due to increased fragility and conflict – exacerbated by climate change – and high debt distress risks, with 21 countries identified as either at high risk of external debt distress or already ensnared in it as of June 2023. However, the region continues to grapple with high debt distress risks, with 21 countries identified as either at high risk of external debt distress or already ensnared in it as of June 2023. Several countries, including Chad, Zambia, and Ghana, have initiated debt restructuring efforts to restore sustainability and rebuild fiscal space.
Natural resources offer a huge economic opportunity for SSA economies during the low-carbon transition. Africa can also pave the way to inclusive growth by investing in its human potential. Over the next three decades, the region will experience the fastest increase in the working age population of all regions, with a projected net increase of 740 million people by 2050. Up to 12 million youth will enter the labour market across the region every year in the coming decades, yet only about 3 million new formal wage jobs are currently created each year. As the economies in the region recover at a faster pace in the years to come, policy should be geared toward sharing the growth benefits more equally across the population by investing in human capital, fostering economic diversification, and fostering jobs-friendly economic growth.
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The African continent faces significant economic challenges in 2024, including high inflation, slow economic growth, high debt distress risks, and a fragile recovery. However, the region also has significant economic opportunities, particularly in natural resources and human potential. To capitalize on these opportunities, policymakers must proceed with caution, coordinate policy efforts, and invest in human capital and economic diversification. By doing so, they can help ensure a more prosperous future for the African continent.
