Africa in 2022: Five key trends to watch
Robert Besseling, CEO of PANGEA-RISK, identifies five key trends to watch in the coming year for trade and investment in Africa.
Africa enters the new year with its economies battered by the pandemic, healthcare systems under pressure from low vaccination rates and new COVID-19 mutations, and political structures destabilised by coups and conflict. However, there are some bright spots to look forward to in 2022, including some countries that are set to recover faster than the global rate, a commodity boom that benefits select African markets, and the residual impact of global supply chain challenges that are accelerating domestic manufacturing and trade digitisation.
- Looking for growth in Africa
Africa’s economy will recover at a slower rate than the rest of the world, but still offer remarkable trade and investment opportunities. The World Bank expects the sub-Saharan region’s gross domestic product (GDP) to grow by just 3.3% after last year’s contraction, the first in a quarter century. The International Monetary Fund (IMF) projects 3.7% for this year and 3.8% next year. These figures are up from a 1.7% economic contraction in 2020, but well below the 5.9% growth forecast for the rest of the world.
The forecasts indicate that most of the continent will not reach pre-pandemic economic output levels for several more years. This trend is a major setback for Africa’s growth narrative and puts the continent well behind other emerging market regions. Most worrying, some countries will see continued shrinking of their economies, including oil producers Angola and Republic of Congo, for six and seven consecutive years, respectively. Countries with structural weaknesses, such as another oil producer Equatorial Guinea, will fall back into long term decline.
On the other hand, several African markets have been boosted by higher commodity prices, particularly metals as well as some soft commodities. Countries that are benefitting from this rally include Burkina Faso, South Sudan, and Guinea, whose GDP growth rates will well exceed the global average. Countries that led the pre-pandemic economic growth rate charts thanks to relatively superior fiscal and monetary governance, such as Côte d’Ivoire, Kenya, Benin, Niger, and Rwanda, will also recover faster than many other countries elsewhere on the continent. As a result, East and West African markets will again drive Africa’s economic recovery, just like they did after the 2015/16 economic turmoil.
Nevertheless, most African countries will fail to match the global economic recovery rate of above 5% growth this year as they suffer from low vaccination rates. This category includes major regional economies such as Nigeria, Ghana, Egypt, Algeria, and Sudan. It also includes Ethiopia, which was once the world’s fastest growing economy. Ethiopia is now categorised by the IMF along with other war zones such as Afghanistan, Libya, and Syria, with no data projections provided by the multilateral lender for the next four years.
Meanwhile, global supply chain challenges offer an opportunity for domestic manufacturing and African intra-regional trade that should offer a welcome boost to the stalled continental free trade agreement implementation. Major African markets are looking less to Asian exporters and are instead scaling up domestic markets, including food production, manufacturing, and digital services. The development of African payment market infrastructure and the introduction of African central bank digital currencies should speed up digitisation and bank payment processes that facilitate trade.
- More African debt defaults in 2022?
Slow economic growth will impact debt sustainability over the coming year and the prospect of more defaults on loan servicing or repayments is a serious concern. The IMF, World Bank, and G20 will not extend the pandemic-era Debt Service Suspension Initiative (DSSI). This means that countries offered a suspension of their bilateral and concessional debt interest payments during 2020 and 2021 will have to resume interest payments from 2022, while also settling the arrears on two years of suspended interest payments.
Countries that are unable to meet such terms will have to apply to the Common Framework for debt treatment beyond the DSSI to manage a restructuring of their debt. So far, three African countries have applied to the Common Framework: Zambia, Chad, and Ethiopia, with creditor committees already formed for the latter two countries.
For many African countries, the end of the DSSI will renew debt servicing risks, especially for countries suffering from slow economic growth and low revenues. In many instances, external debt has outpaced gross national income (GNI) and export growth. Based on a debt to GNI ratio above 100%, the World Bank has raised alarm bells for four sub-Saharan countries, including Mozambique, Zambia, Cabo Verde, and Angola. PANGEA-RISK also remains concerned over the debt sustainability of Republic of Congo, Kenya, and Ghana.
That said, countries with relatively small debt burdens and good capability to service debt should see an opportunity to return to debt markets to fund their economic recovery and plug deficits. IMF cash injections during the pandemic and rising export revenues more recently have placed many African countries’ foreign exchange reserves on an excellent footing – governments should put these to use to drive economic diversification and development.
- Funding African climate change adaptation
In addition to funding to counter damage wrought by the coronavirus pandemic and to bolster economic recovery prospects, Africa will require new funding to mitigate threats posed by climate change. The sub-Saharan region will also need as much as $50 billion each year over the next decade to adapt to climate change, according to the World Bank. A global funding drive will offer exciting opportunities in African renewable energies, water infrastructure, and sustainable city development. Although there are concerns that such initiatives will further hike sovereign debt risks, most of the financing is expected to come through grants or on concessional terms.
African countries are also pushing for a fairer share of the $100 billion a year that rich countries promised by 2020 to allocate to developing economies for adjustment to the effects of climate change. Until now Africa has been allocated just 3% of that fund, with the bulk going to India and China. Many wealthy countries are falling behind on their payments to the fund. Instead, climate change financing is more likely to come from further foreign direct investment, as well as additional borrowing through development finance. The European Union has promised to make Africa part of its ‘Global Gateway’, a new planned initiative programme, which the European Commission has heralded as its answer to China’s ‘Belt and Road’ agenda.
At the forefront of such initiatives is the COP26 announcement that South Africa will receive $8.5 billion from the US, European Union, UK, France, and Germany to finance its energy transition. The objective is to allow South Africa to accelerate the closure of its coal-fired power plants, and to open new renewable energy power plants. As the world’s 12th largest emitter of climate-warming greenhouse gases, South Africa is under pressure to shift away from its reliance on a fleet of aging coal-fired power plants that regularly fail, resulting in rolling blackouts that hurt the economy.
- Spike in African coup risks
Economic forecasts for Africa in 2022 obviously depend on countries’ political stability and a benign security outlook. In 2021, Africa has seen four successful military-led unconstitutional transfers of power in Mali, Chad, Guinea, and Sudan, which is the highest annual number of coups in 20 years. One could also argue that Tunisia’s president instigated a self-coup this year, while South Africa saw an insurrection in July 2021. The socioeconomic impact of the pandemic will have a lasting legacy on many African countries’ stability and cohesion.
Into 2022, PANGEA-RISK assesses that several more African countries, namely Ethiopia, Burkina Faso, Somalia, South Sudan, Zimbabwe, Lesotho, and eSwatini, have a very high probability of their government being overthrown. Out of the 17 coups that have taken place across the world over the past five years, 16 have been in Africa (with one more in Myanmar). With global powers distracted by the pandemic, supply chain challenges, and climate change issues, other African military leaders may feel emboldened in coming months to copy a Mali- or Sudan-style coup.
That said, not all military interventions necessarily hurt a country’s longer term stability. Unpopular, corrupt, and aging leaders face an increasingly agitated backlash from urban youths. Rather than allowing chaotic street revolutions, African militaries are sporadically intervening to drive political change and address entrenched grievances. Western governments should recognise coups that have broad-based public support, or else risk losing market share and regional influence. Military coup leaders in Mali, Guinea, Chad, and Sudan, as well as Tunisia, are consolidating power and reaching out to new partners like Russia, Turkey, and Gulf Arab states for financial, diplomatic, and military backing.
Non-traditional influences in Africa
In 2022, there will be a further increase of engagement with African countries by non-traditional partners, such as Russia, Turkey, and Gulf Arab states. These new relationships are driving greater competition on the continent and playing off established powers such as China, Europe, and the US against each other. This is not necessarily a detrimental trend, as Africa’s infrastructure deficit and spending gap remain colossal.
The Turkish president’s Africa tour in late 2021 cements the growing role of Turkish companies and security cooperation on the continent. Turkey has consistently expanded its Africa outreach as a component of expanding and diversifying its global footprint and has more recently began using defence ties to strengthen the diplomatic foundations of its outreach to African states. A growing interest in Turkey’s domestic defence industry is accelerating the shift towards a defence-oriented approach in bilateral relations, particularly since Turkey’s demonstrated military successes in Libya. Along with China, India, and other Asian giants, Turkey is now a major player on the African continent, although some emerging non-traditional influences are leaving an arguably more detrimental legacy.
Russia is carving out a regional sphere of influence in central Africa, the Sahel, and elsewhere on the continent through its private military companies, which is causing an international backlash and raising concerns over political instability and transparency issues. Russian private military contractors have a weak combat record in Africa, and their operations in Central African Republic are associated with human rights violations and reputational risks. Mali is now also considering a contract with one of Russia’s most prominent military contractors, although it would probably only sign such a deal if its post-coup government no longer received US and French security assurances.
The growing role of Gulf Arab states is particularly prominent in North Africa and the Horn. In the Maghreb and Egypt, the Muslim Brotherhood is on the decline, while Gulf-supported governments are reimposing social order and security, often through authoritarian means. In the Horn of Africa, interventions by Turkey, Iran, and the UAE are stoking conflict in Ethiopia and driving fresh competition across the Red Sea states for access to ports and trade routes.
2022 will be a pivotal year for Africa, as the continent emerges from the pandemic and seeks a sustainable economic recovery while also benefitting from increased global competition and new funding opportunities. For investors and trade partners, African markets will continue to offer exciting new deals. Nevertheless, understanding and managing political risk will be key to success going forward.
PANGEA-RISK is a specialist intelligence firm providing analysis and forecasts on political, security, and economic risk in Africa and the Middle East.. https://www.pangea-risk.com/
This article was published in the Berne Union Yearbook, December 2021
