2023 was tough. Inflation and currency depreciation causing a cost-of-living crisis across the continent. Debt crises, defaults and IMF programs that squeezed African governments who in turn squeezed citizens with taxes. Droughts and floods. Coups in the Sahel. Civil conflict in the horn of Africa. Despite these challenges African societies, and economies showed extraordinary resilience.
However, resilience while important is only part of what we want to see in Africa’s socio-economic story. We want dynamism, and growth as well, and tough times can be the perfect incubator of that. 2024 will be tough, looking at the year ahead the pressures we have already been experiencing will remain and new ones will emerge. To build greater resilience, drive growth and incubate dynamism we need good foresight from our policy makers and good policy, a lot to ask, but we live in hope.
1. Debt, the IMF, and Delivering Growth
Debt distress was a key concern of 2023 with Zambia, Ghana and Ethiopia all defaulting on bond repayments. A number of other African countries continue to experience debt distress having taken on too much debt, which was not used for productive purposes, coupled with a strong dollar that has made those debts more expensive. Many countries have turned to the IMF for help which has come with structural adjustment conditionalities, increasing tax revenues, selling public assets, and slimming down public services. As our experiences in the 1990’s showed the neoliberal policies imposed by the IMF rarely have the effect they are intended to. Which means economic policy must focus on two things.
First (as I have written about in more detail here), Africa must get out of the IMF straitjacket, doing that will require prudence in spending by cutting spending on unnecessary and wasteful things. And prudent tax reform that looks to gain more from natural resources, target corporate tax avoidance and grow the tax base. The current IMF approach of simply squeezing existing narrow African tax bases harder is choking African economies to fund the debt repayment while services and public investment suffer.
Second, using the policy levers that are under IMF conditionalities. Tax and spending policy get most of the attention when it comes to economic policy but there is much more that impacts the costs and ease of doing business for small and large business. Makes it easier for African businesses to trade and do business across borders, unlocks native capital for investment. Creating linked economic policy where labour policy, agricultural policy, industrial policy, tech policy, and financial services policy are interlinked and mutually supportive, which in turn will stimulate and support the growth of the private sector.
2. Painful medicine and hard recoveries
Of particular interest to me in 2024 will be the African countries that chose in 2023 to administer painful medicine on their economies to stop the malaise of recent years and set a new path to prosperity. In Kenya and Nigeria, new presidents facing dire economies chose to do this. Both President Tinubu of Nigeria and President Ruto of Kenya have done away with subsidies on fuel and food, looked reinvest and kickstart their productive sectors (agriculture in Kenya and Petroleum in Nigeria), allowed significant currency depreciations that fuelled inflation. Kenya (advised by the IMF) has gone a step further and imposed painful tax increases (with more planned in 2024), with the intent of keeping Kenya out of debt default and self-funding development. Though interestingly both countries have found themselves unable to make spending cuts.
2024 will be make or break for both countries. In 2024 the populations of both countries will need to see, at least, the beginning of a recovery. Otherwise, discontent may deepen, and the politics may get nasty as it did during Kenya’s opposition protests last year. 2024 will show if the tough medicine is working and give other African states confidence in following Kenya and Nigeria’s tough approach or if unsuccessful reason to explore alternatives.
3. The Dollar and the Donald
After World War 2 there was a saying in economics. If the US sneezes the rest of the world catches a cold. In 2023 the US Federal reserve raised interest rates steeply to combat high inflation. These rate increases had a number of negative consequences for the continent. It made the Dollar stronger against African currencies fuelling an inflation crisis as imports from fuel to food got more expensive and made foreign currency denominated debt repayments more expensive and painful. In addition, it caused investors to pull funds from Africa as it made more sense to invest in US bonds with high returns. In 2024 the US Federal Reserve has indicated that it will start making interest rate cuts as inflation is under control. This should ease pressure on African currencies and help bring inflation in Africa under control. However, if the US doesn’t cut rates as fast or as far as expected the impact won’t be as great as hoped for, or even paused or reversed if US inflation returns. African policy makers, especially central bankers and finance ministers should be developing scenarios for 2024, looking at what happens to their economies under different US interest rate and Dollar scenarios and the policy responses they can put in place to take advantage or mitigate risks.
In 2024 more than 2 billion voters in 50 countries (including 18 in Africa) will be undergoing elections. The one overshadowing them all is the US election. Joe Biden has been a traditional US President when it comes to Africa, committing to AGOA, various aid and investment programs, and committing US resources to anti-terror/insurgency operations. If he wins re-election, we can expect more of the same. If Donald Trump returns, we can expect the return of his hands off (or disinterested) Africa policy which will see even greater interaction and influence from other non-traditional (US, EU, UK) powers on the continent. With trump in the white house expect China, India, Russia, Turkey the Middle Eastern Countries and Japan and Brazil to have more active Africa strategies. In addition, Trump will upend wider US economic and foreign policy as he did in 2016 creating not only uproar in the US but economic and geopolitical implications for the rest of the world. Again, having seen one Trump presidency, African policy makers must plan for that scenario, what do we need to protect against, and how can we take advantage of global context where US attention is either at home or ‘non-African’ parts of the world.
4. The Black Swan
A black swan event is an unexpected and unforeseen event that has an enormous impact on the world. In 2020-21 we had the coronavirus pandemic. In 2022 Russia invaded Ukraine and in 2023 we got a global inflation crisis and new war in the Middle East. All of these have had significant socio-economic and political impacts on Africa and the world.
We are all praying for a (comparatively) quiet 2024, but if the last few years are any indication there will be something in 2024, we do not know what it will be but there will be something. Maintaining some flexibility and adaptability in policy approaches and plans are key if African countries are to continue to navigate these storms.
5. Climate more hot air or action?
Over the last couple of years Africa has made a lot of noise on the global stage about climate change and had some victories such as the inclusion of a loss and damage fund at CoP-27 in Egypt, the development of South Africa’s Just Energy Transition Plan (JETP) and the 2023 Africa Climate Summit in Nairobi, the first of its kind that saw the first proper articulation of African Climate ambitions in the Nairobi Declaration.
In 2024 we must see progress and some action. Can South Africa’s JETP get off the ground and help abate the energy crisis or will it just be another talking point. Will the loss and damage fund get some honest to God funding, will some of the ambitions in the Nairobi declaration be on the table at CoP-29? If all we see is hot air at diplomatic discussions, the hot air of climate change will continue to disproportionally impact Africa, the continent least responsible for the problem.
6. More continental trade (hopefully)
Trading under the Africa Continental Free Trade Area Agreement began on 1 January 2021. As of February 2022, eight countries representing the five regions of the continent – Cameroon, Egypt, Ghana, Kenya, Mauritius, Rwanda, Tanzania, and Tunisia – participated in the AfCFTA’s Guided Trade Initiative, which sought to facilitate trade among interested states that met the minimum requirements for trade, under the Agreement. The products earmarked for trade were limited and intended to lay the groundwork for future expansion. In 2024 our fingers are crossed that that expansion will come to fruition. The goal of policy makers and the ACFTA secretariat must be the operationalisation of key protocols and one of the aspects I’m most excited about the Pan African Payments and Settlement System PAPSS enabling countries to trade and pay for services across borders in local currencies rather than expensive currencies. Hopefully, African leaders truly get behind this agenda.
2024 tough but not disastrous
2024 will be a tough year for Africa, but it should not be disastrous (black swan events aside). If policy makers can identify and plan for various scenarios, we can better control the impact of global events and policy shifts on the continent. If policy makers can think outside the IMF box on how to increase revenues without hurting citizens and businesses as well as back the big bold policy initiatives on climate and trade, we could see the foundations laid for greater prosperity in the future.
2024 will be tough but manageable if our leaders and policy makers can focus……