African countries will scrimp on investment in the coming year

Sub-Saharan Africa’s growth prospects for the coming year are modest. The region’s gdp expanded by 4% in 2022 and 3.3% in 2023, and the IMF reckons on 4% in 2024. Alongside population growth of about 2.6%, that is not a combination for widespread prosperity. Worse, the region may not surpass these modest rates any time soon.

Most African economies lack what they need for transformational economic growth: a well-educated workforce, reliable roads and electricity, and well-resourced, clean government. When starting from a low base—and with access to enough finance—poor countries can spark stellar economic growth through big improvements in electricity, roads and literacy. But when finance is tight, and few of the drivers of growth are in place, they can undershoot their potential for long periods. That may well be the fate of many African countries in the coming years.

Cash has dried up for most African economies, points out the imf, making investing in the future difficult. First, the mix of covid-19, the war in Ukraine and debt-fuelled spending, often with poor returns, has left many with heavy debts. Some, such as Ghana and Zambia, are already in default and working through painful IMF programmes.

Fully 19 countries in Africa are forecast to spend more than a fifth of their revenues in 2024 servicing external debt. Among them are oft-lauded economies such as Ethiopia, Ivory Coast and Kenya. On average, across Africa, 17% of revenues will be spent on external debt service in the coming year (see charte). Alas, the continent’s record at increasing tax revenues, the other side of the equation, is poor.

A second problem is that countries that still want to boost growth by borrowing and investing face soaring costs. Rising interest rates have locked most countries in sub-Saharan Africa out of global debt markets. None has issued a typical dollar-denominated bond since early 2022. Even if they manage to borrow commercially, any debt-funded projects will need to achieve even higher returns.

There are few options. Ghana was borrowing $3bn a year from the market, but the IMF’s whole programme is just $3bn over three years, points out Ernest Addison, the governor of Ghana’s central bank. “Obviously the IMF and World Bank are not an alternative to the market.”

One erstwhile alternative for Africa was loans from China. Yet those too are drying up. Disbursements from Chinese loans fell in 2022 to roughly 10% of their total in 2016. With China’s economy struggling, a rebound seems unlikely.

A final problem is that Africa’s big economies are too weak to pull others up. South Africa is in a prolonged rut, badly hampered by a plague of electricity blackouts and an often incompetent administration. The IMF forecasts just 1.8% growth in 2024. As for Nigeria, the fund forecasts 3.1% growth next year, helped in part by President Bola Tinubu’s decision to end a wasteful fuel subsidy and interfere less in foreign-exchange markets. That has excited investors.

Yet Nigeria is still battered by jihadism and kidnapping, and Mr Tinubu’s government is muttering about controlling petrol prices again. Debt remains a headache. In 2022 Nigeria spent 96% of tax revenues servicing it. Even without burning $10bn a year on the fuel subsidy, it will still spend over 60% of revenues on debt service in 2026.

There are some bright spots. Senegal, which expects to begin pumping natural gas for export in 2024, should do well. Benin and Rwanda continue to grow healthily, as do other countries that are not reliant on natural resources. And rising oil and mineral prices could give countries dependent on pumping and digging a boost, too. Yet because many of Africa’s commodity producers are poorly governed, high prices are unlikely to transform ordinary lives. For many, the future, again, looks like a struggle. ■

Kinley Salmon, Africa correspondent, The Economist, Dakar