According to World Bank, the African economy will experience marginal growth in 2022.
Apart from the piling debt by some countries, economic experts believe that there are some pressing challenges that African countries need to resolve for better economies in 2022. From the World Bank’s “Global Economic Prospects” report, Africa’s emerging countries are more sensitive to global economic recovery challenges, and these may include the new COVID-19 variant – Omicron, an increase in inflation and debt, as well as income inequality.
In 2021, some of Africa’s poorest countries made a small comeback. Emerging and developing economies, the majority of which are in Africa, increased by 6.3%. However, in Sub-Saharan Africa, the numbers are less encouraging. In 2021, the region’s economy grew by 3.5%, owing to a rise in commodities prices and the relaxation of social constraints.
According to the World Bank, this marginal growth will be the same in 2022. Although the impact of the COVID-19 pandemic has slightly subsided, African countries are yet to fully recover from the havoc and downturn effect it had on the economy.
Despite the availability of vaccinations, the pandemic is expected to continue to impede economic activities, as evident in the fast-spreading Omicron variant. Here are some of the biggest challenges that will affect the African economies in 2022 through the eyes of experts.
Debt and inflation
Although the borrowing in Africa in 2021 was due to the COVID-19 pandemic’s impact, the bulk of African economies is also grappling with budget deficits forcing them to embark on borrowing binges.
According to economists, in 2022, it would be far more difficult for Sub-Saharan African countries in need of large debt financings to get foreign investment, especially as some developed economies struggle to handle inflation. Since funding criteria have become stricter in 2022, Africa’s debt would also increase.
Courage Martey said, “Debt service cost is going to become a bit elevated unless the authorities can work a lot more on mobilising internal resources and revenues from domestic economies”.
Against a problematic fiscal context and predicted currency pressure from the impact of rising interest rates in the developed market, Martey said, there is substantial uncertainty regarding 2022 economic estimates.
Free trade – African Continental Free Trade Agreement (AfCFTA)
African nations, except for Eritrea, in 2021, signed a free trade zone that was formed under the African Continental Free Trade Agreement (AfCFTA). It was created to lead to a liberalised single market for goods and services, assisted by the free movement of people and money.
This is said to have the potential to boost manufacturing, alleviate poverty and inequality, and promote inclusive and sustainable growth. However, most African nations currently lack the technical infrastructure to support the agreement’s free trade provisions.
One of the biggest challenges to the African economies this year is the tourism sector. This is because some African countries depend on tourism for economic sustainability.
In 2019, the tourist industry in Africa was the second-fastest-growing industry in the world. Travel and tourism contributed US$170 billion to Africa’s gross domestic product (GDP), with over 70 million foreign visitors visiting the continent.
On the other hand, the pandemic had a severe impact on all social and economic sectors, especially tourism. According to the United Nations World Tourism Organization (UNWTO), one billion fewer foreign tourists visited the world in 2020. Africa saw a 74% drop in international tourists and a 64% drop in tourism-related exports.
After a rough year in 2020 and a minor rebound in 2021, African tourism is expected to bounce significantly in the following years. However, low vaccination rates in Sub-Saharan Africa, combined with the potential of novel variations arising, is a risk that international visitors may not want to face.
The three most pressing security concerns in Africa in 2022 are intra-state warfare, terrorism, and unlawful government transitions. The African economy can be endangered by raging conflicts such as Ethiopia’s civil war, political instability in Sudan, Guinea, and Mali and soaring insecurity across the Sahel area.
Louis Yaw Afful, an African merchant, said, “We need to critically look at security because it is intrinsic to the development and growth of trade”. Unsettled disputes is a significant threat to Africa’s expected economic development in 2022.
Africa’s green transition
Africa accounts for an insignificant percentage of global warming, yet it is the most susceptible to its effects. This extends beyond food poverty; it influences the spread of infectious illnesses, the obstruction of biodiversity, and the direct loss of human lives.
Since the outbreak of the pandemic, 30 million Africans have become impoverished. In 2009, the world’s wealthiest nations agreed to contribute $100 billion per year for relief, but by 2020 only $20 billion was gathered.
Adaptation expenses for African nations are expected to be between $259 and $407 billion between 2020 and 2030, while mitigation costs are estimated to be $715 billion over the same period.