Kudzanai Sharara in Cairo, Egypt
After showing resilience during the Covid-19 pandemic and in the face of rising geopolitical tensions, “Africa’s growth is expected to accelerate further in the near term”, according to Afreximbank’s Chief Economist Dr. Hippolyte Fofack.
In a report titled Africas-2022-Growth-Prospects Report released ahead of the Afreximbank Annual Meetings taking place here ( Cairo, Egypt) this week, Dr Fofack said Africa, which in recent years has exhibited remarkable growth resilience, bounced back strongly from its first recession in a quarter of a century, with aggregate output expanding by 6,9 percent in 2021 (up from a 1,7 percent contraction).
“Even the region’s most affected tourism-dependent economies enjoyed a strong rebound despite their disproportionately large exposure to self-imposed risk aversion behaviour and excess vulnerability to the pandemic’s impact on consumer-facing businesses,” reads the report in part.
According to the report, the globally synchronised recovery reflects several concurrent factors including the nature of the policy-induced pandemic downturn, wherein virus containment measures led to a sharp contraction that precipitated global demand and supply shocks.
The lifting of lockdowns and opening of borders facilitated a swift recovery, bringing unemployment rates down sharply, especially in advanced economies, reads part of the report attributing the International Monetary Fund (IMF).
The global lender added that the efficacy of Covid-19 vaccines, also enabled a gradual economic reopening, with the release of pent-up demand boosting domestic consumption and global demand, as well as the reopening of factories to sustain output expansion and trade.
According to the Afreximbank report world trade volumes (goods and services), which contracted by 7.9 percent in 2020 and expanded by 10.1 percent the following year, largely driven by emerging economies.
Attributing figures to the IMF, the Afreximbank Report said world trade volumes in those markets grew by 11.8 percent, against 9.5 percent for advanced economies (IMF, 2022b).
“Africa’s merchandise trade, which contracted by 12.3 percent in 2020, expanded by more than 28 percent in 2021, boosted by a dynamic commodity market (IMF Direction of Trade Statistics, 2022).
“The African Export-Import Bank’s (Afreximbank) African Commodity Index rose 55 percent year-on-year in Q2 2021, with higher prices helping to reduce balance of payments pressures and improving macroeconomic management in a region where natural resources account for the lion’s share of foreign exchange (forex) earnings and government revenues.”
However, despite the strong recovery, the reports suggest that the balance of risks to the baseline forecasts for African growth is tilted to the downside.
According to the report, Africa remains in a challenging global environment, to which inflationary pressures — exacerbated by the Ukraine crisis have added another twist to pandemic-related uncertainty and supply chain problems.
“Tightening global financial conditions in response to a large inflation overshoot has become a major hazard that could generate disproportionate increases in risk spread, as well as capital flow reversals and heighten stagflationary risks,” reads the report in part.
Further, according to the report, the new cycle of a sharp increase in interest rates by systemically important central banks is another major downside risk.
“For African countries, this is magnified by onerous perception premiums, which have long undermined the quest for macroeconomic stability and impeded growth,” according to Dr Fofack back in 2021.
“These premiums — the overinflated risks perennially assigned to Africa, irrespective of global economic conditions, the region’s improving macroeconomic fundamentals, or individual nations’ growth prospects
— raise funding costs, constrain access to capital, and could undermine the fragile recovery in a region where the fiscal space for public investment is already very limited.
“Aggressive interest rate hikes, in addition to the turbocharged tapering of bond-buying programmes, are intimately related to other risks to Africa’s outlook. They could engender a sharp deterioration of global investor sentiment and trigger massive capital flow reversals in a flight to quality.
“The attendant currency depreciation would raise the costs of servicing external debt, further straining the external and fiscal balances, and enflame inflationary pressures”.