African economy: what prospects for 2021?

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So a continent where the Covid-19 pandemic is causing more economic than health damage for the time being, what can we expect for the year 2021? The answer, far from being obvious, is already rich in lessons. First, because the continent has come a long way. The World Bank reminded us in its latest economic forecasts published in early January that the recession that befell the world in 2020 is on a scale unprecedented since the two world wars. And not a continent is spared. While forecasts were for growth of nearly 4% in 2020, Africa is in a 2.6% recession. Yasmine Osman, economist in the Africa department of the French Development Agency, believes that “not even the 2008 financial crisis or the 2015-2016 oil crisis had led so many African countries into recession simultaneously”. That is more than forty out of the fifty-four that make up the continent. It should be noted that in the large African economies, growth is still based on the prices of raw materials, the shutdown of the world economy has therefore strongly penalized them. Access to financial aid has also shrunk, as the health crisis has posed huge budgetary challenges. To cope, few governments have debt capacity. From these findings, two regional groups seem to emerge even if there is no question of major upheavals for the moment.

An unprecedented economic shock

A first group – which includes countries strongly marked by the fall in the prices of raw materials, the fall in tourism and foreign demand – stands out. Nigeria is in this sense a textbook case. As the leading African economy in terms of the size of GDP, the economic situation of this African giant conditions that of the continent. “The unfolding of the crisis in this country is symptomatic of the vulnerability of countries dependent on their extractive resources to a turnaround in the global economy and in commodity prices”, analysis for Le Point Afrique Yasmine Osman. At the West African giant, growth fell to – 4.3% in 2020, a rate well below the African average. At the other end of the spectrum, South Africa, Africa’s second-largest economy, already weakened by several years of weak growth since the 2009 crisis, has suffered the full brunt of the consequences of the pandemic. Quickly affected in terms of health, the country declared a “state of disaster” and implemented strict containment. “The external shock was also considerable,” points out the analyst. South Africa is highly exposed to external risks due to its dependence on global demand, especially for minerals and metals whose exports represent 10% of GDP. The country has also closed to tourists and foreign capital. Globally, in 2020, FDI to Africa collapsed by 30-40% and remittances fell 9%, a situation that left African finance ministers with little room for maneuver.

African countries that are resisting as best they can

As early as March, financial institutions and rating agencies warned about the issue of debt in this pandemic context. Almost a year later, despite lingering concerns about the matter, there has been no real effect on debt levels. The region’s public debt even jumped 8 points to reach around 70% of GDP, according to the IMF. The consequences are already serious since the increase in interest payment obligations has led some States to sacrifice their development objectives, especially in the fields of education or health. However, all is not lost and some signals give hope for a rebound in activity in 2021. At least that is what most forecasts suggest. For some observers like the French Development Agency, which publishes these days, African Economy 2021, (ed. La Découverte), the African continent, “struck by a presumption of fragility”, has already “demonstrated its resilience”. The African continent has been relatively less affected in terms of health, with less than 5% of confirmed cases when it was predicted to suffer immense loss of human life. Would it be the same economically? Affirmative, answer the researchers and experts who participated in AFD’s work. Because all countries have not been affected in the same way by the health crisis. In the midst of this slump, a few countries have managed to stay in the green. Hence the emergence of a second group of countries, where economic activity seems to have held up better.

Contrasting realities

Among them, some diverse East African countries have managed to maintain positive growth rates. Egypt too, which, unlike Nigeria, has a more diversified economy and can count on the strength of its domestic market, despite the collapse of tourism. As a result, the country is one of the few to have recorded positive growth in 2020 (+ 3.5%). In West Africa, “four countries – Ghana (the region’s second largest economy after Nigeria), Côte d’Ivoire, Benin and Guinea – are among the ten African economies with the highest growth rates. high in 2020. ”Nearby, in the greater Sahel, the recession has remained relatively contained, despite the many challenges and constant pressure from jihadists in Mali, Niger and Burkina Faso. The rise in gold prices which show an increase of nearly 30% over the year 2020 has enabled this sub-region to resist. “These regions are also not very dependent on tourism on the whole and on foreign capital”, explain the AFD experts. But these numbers should be taken with caution. Niger may show growth of 1% at the end of 2020, according to the World Bank, this rate is very far from 7% in 2018 and 6% in 2019. This country, among the poorest, must necessarily return to much more vigorous growth. to create the jobs its youth needs. For all these countries, 2021 will probably be just as difficult as 2020. Especially, if we take into account the social factor, the other side of the pandemic. Last year, there was a 6.1% drop in per capita income for sub-Saharan Africa, the “deepest contraction on record,” the World Bank says in its latest global outlook. There will be another 0.2% drop this year which will have strong consequences for extreme poverty and widening inequalities. Like many observers, AFD fears that the crisis may erase ten years of development progress.

Challenges and challenges of tomorrow

Especially since Africa’s financing needs remain significant: they would amount to around $ 1,200 billion for the period 2020-2023 according to the IMF. “This crisis is a reminder of the long-term challenges facing Africa,” underlines Yasmine Osman. “Already before the crisis, West African countries had greater economic dynamism than the African average. On the other hand, the growth models of these countries are still too largely based on public investment, ”notes the expert. One of the major challenges for these countries is therefore to support the private sector to enable it to fully play a driving role in growth. It seems obvious to AFD that the States will have a major role to play. They will have to prioritize their spending so that they can continue to support the sectors and actors most affected by the crisis and invest in promising sectors, which will enable them to achieve their development objectives. Optimists, the experts and researchers who worked on this book are convinced that Africa remains the continent of opportunities, a new economic frontier which, in addition to its natural resources, has numerous human resources. They are both the strength and the weakness of Africa. “However, integrating this youth into the labor market is a major challenge: it will be necessary to provide them with many more jobs than today. In addition, these generations will be more and more educated ”, we learn.

The State called to play a more important role

Concretely, Africa has not stood idly by. Last November, Côte d’Ivoire was able to issue the first Eurobond issue in sub-Saharan Africa since the crisis. Information went around the world. “This operation, considered a success by all observers, underlines Yasmine Osman, in particular because of the historically low rate obtained, makes Côte d’Ivoire one of the most attractive African countries,” writes the economist. In the same vein, Benin was able, just a few months after Côte d’Ivoire, to raise one billion euros on the financial markets. Here too, a success underlined by observers. This shakes up preconceived ideas about Africa. Especially since “these two operations have an economic sense insofar as they are part of the debt management strategies of the countries aimed at reducing the risks of refinancing and extending the average maturity of the debt. public, adds Yasmine Osman. “Part of the funds raised through new issues are indeed aimed at buying back previous bonds subscribed at higher rates.” But have these countries finished with the crisis? It would be going fast. The challenges for the entire continent are immense. AFD has identified four, leading the strengthening of the health and social protection sectors. Because there is still a way for Africa to find the narrow path that will allow it to develop, without leaving many of its inhabitants on the side. To this end, it appears crucial to tackle the issue of governance. Perhaps the most difficult to solve.

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