Sub-Saharan Africa’s Economic Revival Signals Growth

 The latest International Monetary Fund (IMF) Regional Outlook, Sub-Saharan Africa has shown signs of improvement after four challenging years.

Looking ahead, the report suggests that the economic recovery will extend beyond this year, with growth projections reaching 4.0 percent in 2025. This positive outlook indicates a gradual and sustained improvement in the region’s economic performance.

“Additionally, inflation has almost halved, public debt ratios have broadly stabilized, and several countries have issued Eurobonds this year, ending a two-year hiatus from international markets.

“However, not all are favorable. The funding squeeze persists as the region’s governments continue to grapple with financing shortages, high borrowing costs, and impending debt repayments. Risks to the outlook remain tilted to the downside” part of the report reads.

The report highlighted that the sub-Saharan region remains susceptible to global external shocks, increasing political instability, and frequent climate-related events, which pose ongoing challenges to its economic stability.

“Three policy priorities can help countries adapt to these challenges: improving public finances without undermining development; monetary policy focused on ensuring price stability; and implementing structural reforms to diversify funding sources and economies.

“Amid these challenges, sub-Saharan African countries will need additional support from the international community to develop a more inclusive, sustainable, and prosperous future.”

Recommendation

One key recommendation highlighted in the report is the need to attract more Foreign Direct Investment (FDI) to the region. Despite its potential, sub-Saharan Africa currently captures only 3 percent of global FDI.

The report emphasized that implementing cost-effective reforms to enhance macroeconomic stability, reduce policy uncertainty, and improve the business environment can boost investor confidence.

“Other effective measures include enhancing the business environment, leveling the playing field between public and private firms, reducing red tape, and improving governance.”

It stated that Senegal’s success in dramatically reducing the setup time for new businesses to just 48 hours has significantly enhanced its attractiveness to investors, leading to a substantial increase in FDI inflows.

“This move greatly contributed to enhancing its attractiveness to investors, as seen in the rise of net FDI inflows from 1.6 percent of GDP in 2012 to 9.3 percent in 2022, including in the hydrocarbon sector” the report reads in other parts.

Another critical recommendation is to foster the development of domestic financial markets within the region. The report noted that, excluding South Africa, the average stock exchange market capitalization in sub-Saharan Africa is less than 20 percent of GDP, significantly lower than other emerging markets and advanced economies.

Moreover, the report stated that strengthening financial markets requires robust institutional frameworks that protect property rights and enforce contracts, promote bank competition, and improve financial infrastructure.

“Like in the case of attracting FDI, governments also need to ensure economic stability as well as increase transparency and reduce risks,” the report stated.

In addition, the report emphasized the importance of fostering financial inclusion through initiatives such as mobile banking, microfinance, and financial literacy programs. These efforts would improve access to funding for small businesses, which constitute a significant portion of the region’s private sector.

Also, by expanding trade relationships beyond traditional partners, African countries can diversify export destinations and import sources, mitigating the risks associated with economic downturns in any single region.

The report highlighted the African Continental Free Trade Area as a significant opportunity in this regard, “but its success hinges on a substantial reduction in tariff and non-tariff trade barriers, robust trade facilitation, as well as improvement in the trade environment and infrastructure.”

As such, the IMF report underscores the critical role of structural reforms in expanding financing sources and diversifying growth opportunities in sub-Saharan Africa, particularly in the face of global economic challenges and rising borrowing costs.