The African Development Bank Group’s Acting Chief Economist and Vice President for Economic Governance and Knowledge Management, Professor Kevin Chika Urama, shares his thoughts on the inaugural Africa’s Macroeconomic Performance and Outlook report, released on Thursday 19 January.
The new biannual publication aims to provide African policymakers, global investors, researchers, and other development partners with an incisive, timely, evidence-based evaluation of the continent’s recent macroeconomic performance and short-to-medium-term outlook amid dynamic global economic developments.
Why is Africa’s Macro-Economic Performance and Outlook report important?
Like other world regions, Africa continues to face overlapping shocks such as the COVID-19 pandemic, climate change-related impacts, rising geopolitical tensions, supply chain disruptions and the tightening global financial conditions impacting key macroeconomic indicators.
The macroeconomic indicators include economic growth, financial sector development, interest and exchange rates, fiscal positions, current account positions, financial flows and debt dynamics that are making policymaking and investment decisions very challenging.
The Africa’s Macroeconomic Performance and Outlook report covers all African countries and aims to provide regular analysis on the recent evolution and short to medium-term outlook of these key macroeconomic indicators at the continental, regional and country levels. It also proposes policies to aid policymaking and investment decisions on the continent.
The report will be released twice a year – in the first and third quarters – to provide policymakers, investors and all stakeholders with real-time and evidence-based information on the factors shaping Africa’s development.
Why did the bank find it necessary to produce the report? What were the key objectives?
Africa’s Macroeconomic Performance and Outlook Report responds to a critical need for timely information to help decision-making in a context of heightened global and regional uncertainties.
Global macroeconomic conditions have recently become uncertain, with persistent multiple shocks that make policymaking and investment decisions challenging. With these global shocks and their interaction with prevailing pockets of domestic and regional risks, the need for regular diagnosis and targeted policy actions to address their impacts on African economies is critical.
With the publication of Africa’s Macroeconomic Performance and Outlook Report, The Bank –Africa’s premier knowledge broker — is reaffirming to African policymakers that it has a mandate to shape the African narrative on key issues of relevance to the continent’s development.
The report, therefore, serves as a compass for African countries on their economic situation, providing interested parties and stakeholders with an up-to-date evidence-based assessment of the continent’s recent macroeconomic performance and short-to-medium term outlook amid dynamic global economic developments.
What distinguishes this report from the African Economic Outlook, which is released yearly by the African Development Bank Group?
The new report complements the African Economic Outlook (AEO) report, which is the Bank’s flagship publication and which focuses on key emerging issues relevant to Africa’s development.
The MEO aims to provide a current and timely evidence-based assessment of Africa’s macroeconomic performance and short-to-medium-term outlook while the AEO is both broad-based as it discusses Africa’s macro- and micro economic performance and outlook, and theme-oriented, focusing its analyses each year on a different key emerging issue relevant to Africa’s development in line with the Bank’s High 5s of Light up and Power Africa; Feed Africa; Industrialize Africa; Integrate Africa; and Improve the Quality of Life for the People of Africa.
How did African countries fare in 2022? What are the economic projections for Africa for 2023–2024?
Despite increasingly uncertain and challenging global macroeconomic conditions, Africa’s economic performance proved resilient. Out of its 54 countries, 53 maintained positive growth in 2022, ensuring that the continent recorded a stable 3.8 percent growth rate in the period.
Africa’s stable economic performance is expected to continue in the medium term, with growth projected at 4% in 2023 and 2024, higher than the projected global averages of 2.7 percent and 3.2 percent, respectively.
The stable outlook projected for 2023-2024 reflects continuing policy support in Africa, global efforts to mitigate the impact of external shocks and rising uncertainty in the global economy, the expected growth in demand for Africa’s commodities and green minerals as countries seek alternative sources of food and energy to counter the effects of Russia’s invasion of Ukraine, and green minerals to support global green transitions.
The rise in food and energy prices stoked by Russia’s invasion of Ukraine, and effects of drought and flooding in some countries have fueled inflationary pressures, pushing Africa’s average inflation rate 0.9 percentage points to 13.8% in 2022, the highest rate in over a decade. Inflation is however projected to decline to 13.5% in 2023 and reach a single-digit level of 8.8% in 2024.
The tightening global financial conditions in 2022 destabilized foreign exchange markets in many African countries, driving depreciations in domestic currencies and increased sovereign borrowing costs which could exacerbate debt vulnerabilities in 2023 and 2024.
What is your prognosis for Africa’s economy in the medium term based on the findings of the report? What are the risks to watch?
The welcome recovery and the economic resilience of African countries in the short to medium term come with cautious optimism given the considerable global uncertainties and risks.
The risks of debt default could increase in some African countries—given the already high accumulation and changed structure of public debt in the past decade, the additional financial pressures created by the appreciating US dollar, and tightening monetary conditions globally.
Climate change could increase losses and damages due to extreme weather events and exacerbate fiscal risks for countries. The high dependence on exports of primary commodities with limited value addition exposes countries to commodity price volatility and could delay the structural transformation presented by the green transition.
With the low rates of COVID-19 vaccination across Africa, currently 26%, there is a moderate risk of new variants emerging, which could be amplified by a full reopening of the global economy.
We also have regional conflicts in key hotspots such as Burkina Faso, the Democratic Republic of Congo, Ethiopia, Mali, and Mozambique that could exert further pressures on the fiscal position of countries through increased security expenditure and reverse investment flows.
In addition, political risks could rise in 30 African countries. Algeria, the Democratic Republic of Congo, Egypt, Ethiopia, Libya, Madagascar, Nigeria, South Africa, and Zimbabwe are scheduled to hold national elections in 2023 or 2024.
Last, there is low to moderate risk of sustained geopolitical tensions, and an escalation of Russia’s invasion of Ukraine that could further disrupt global supply chains and commodity markets.
What are some of the measures that countries need to follow to mitigate these risks?
There are various measures African countries could deploy in the short-to-medium and long-term to deal with existing and emerging threats to inclusive and sustainable development.
They include deploying timely and aggressive monetary policy tightening – especially in countries with acute inflation – and cautious tightening in countries where inflationary pressures are low.
Effective coordination of fiscal and monetary actions to optimize the outcomes of targeted policy intervention is required to tame inflation and fiscal pressures as well as boost intra-Africa trade, especially in manufactured products, to cushion economies from volatile commodity prices.
Another important action would be accelerating structural reforms to build tax administration capacity and investments in digitalization and e-governance. This would enhance transparency, reduce illicit financial flows, and scale up domestic resource mobilization.
Africa also needs to embrace institutional governance and enact policies that leverage private financing — especially in climate-proof and pandemic-proof greenfield projects—and mobilize Africa’s resources for inclusive and sustainable development.
Equally important is the targeting of structural budget deficit reduction and accumulation of public debt in countries facing a high risk of debt distress or that are already in debt distress.
Managing foreign exchange reserves to reduce exchange-rate volatility and enhance export competitiveness could be part of effective risk-reducing agents.
Countries also need to implement local-content development and franchising policies to develop value chains and get more value from natural resources, especially in countries with minerals for green development.
African countries should boost regional trade to enhance resilience to spillovers from the global economic slowdown and reduce persistent trade deficits. Carrying out structural reform to boost regional trade can lead to a more vibrant regional market in the medium to long term.
What would you say are the key takeaways from the report?
The report offers fundamental insights that African policymakers, global investors, researchers, and other development partners will find handy and utilize as an essential reference tool. It gives hope for continued economic resilience amid the heightened risk of global recession. Importantly, the economic growth was positive across all five African regions and that 53 of 54 African countries in 2022 with a stable outlook in the medium term against multiple shocks.
But the recovery and the economic resilience of African countries in the short-to-medium term come with cautious optimism given the considerable global uncertainty. Therefore, bold policy actions outlined above should be implemented to address the effects of rising inflation and sustain growth to a higher trajectory needed to reduce poverty. To meet the significant financing gaps in Africa, it is imperative to enact policies that can mobilize and leverage private financing for development in Africa.
Zimbabwean Central Bank admits collapse of local currency – The Zimbabwe Mail
The Reserve Bank of Zimbabwe (RBZ) has said about 70% of domestic expenditure is in US dollars.
This was announced by RBZ Governor John Mangudya in the 2023 Monetary Policy Statement seen by Pindula News.
Mangudya also said as of December 31, 2022, the Foreign Currency Accounts (FCA) deposits in the banking system accounted for 64.2% of total deposits, with the remainder being ZW$ deposits. Said Mangudya:
Transactional activities in the retail and wholesale sectors also points to the same structure of currency composition as shown by recent Confederation of Zimbabwe Industry (CZI) surveys, which reported that on average USD sales contribute 66% to foreign currency generation for the businesses. The dual currency structure of the economy is corroborated by estimates by the Zimbabwe National Statistics Agency (ZimStat) at Classification of Individual Consumption by Purpose (COICOP) division level.
Mangudya also noted that domestic inflation reflects the significant foreign currency inflows in the economy by adopting blended inflation as the country’s reference inflation and reflects the dual currency structure for the following reasons:
1). Total forex receipts at US$11.6 billion in 2022 were the highest FX inflows ever received in the country.
2). About 70% of domestic expenditure is in US dollars; and
3). Foreign currency deposits and loans constitute about 65% of total banking sector deposits.
The central bank also said the inflation developments largely reflect movements in the exchange rate as prices in USD have been relatively stable and, in some instances, declining.
RBZ Forex Auction 31/01/2023: Zimbabwe Dollar Continues To Lose Value Against USD
Mangudya said this points to the need to sustain exchange rate stability to anchor inflation expectations and stabilize prices under the dual currency environment.
The Zimbabwean economy has been informally re-dollarising in recent years as the local currency has continued to shed value against other currencies, mainly the USD.
More Pindula News
Zimbabwe: Inflation continues to fall, responds to prudent policies – african markets
The country’s month–on–month and annual inflation cooled down in the month of January with food inflation accounting for the biggest drop, according to the Zimbabwe Statistics Agency (ZIMSTAT).
Month-on-month inflation rate in January 2023 was 1,1 percent shedding 1,3 percentage points on the December 2022 rate of 2,4 percent. This means that prices as measured by the all items Consumer Price Index (CPI) increased by an average rate of 1,1 percent from December 2022 to January 2023.
According to ZIMSTAT on a year to year basis, inflation slowed to 229,8 percent in January 2023 from 243,8 percent in December 2022 and 255 percent in November 2022.
This is the sixth consecutive month that the monthly inflation rate has been on a downward trend and Treasury projects it to continue being below the 3 percent mark for the rest of the year as it responds to Government policy interventions.
“The Food Poverty Line (FPL) represents the amount of money that an individual will require to afford the required daily minimum energy intake of 2 100 calories. The Food Poverty Line for one person in January 2023 was $22 385,00,” said ZIMSTAT.
The Total Consumption Poverty Line is derived by computing the non-food consumption expenditures of poor households whose consumption expenditures were just equal to the FPL.
According to the statistical agency, if the amount was added to the FPL, if an individual does not consume more than the TCPL, he or she is deemed poor Resultantly, the Total Consumption Poverty Line (TCPL) for one person stood at $29 500 in January 2023.
Economist, Mr Tinevimbo Shava said; “The review and enhancement by Government of its procurement processes and practices to ensure value for money have resulted in the stability of the exchange rate and a decline in inflationary pressures, so this is not a surprise.”
According to another economist, Mr Namatai Maeresera: “The country has been on a monetary policy tightening stance and these are the benefits of such activities, the gold coins, high interest rates and Government payment stance have led us to this point and all should be commended.”
Conversations and arguments have been brought up regarding the level of lending rates currently in the market as Treasury reaffirmed that the prevailing rates will pass through into the next year.
Bankers and industry have been calling for interest rate cuts, but economists have said, the industrialists were now used to cheap money which was also part of the problem the economy was facing.
The Reserve Bank of Zimbabwe raised interest rates from 80 percent to 200 percent in June as inflation soared. Large businesses have called for a cut on rates, but Minister of Finance and Economic Development, Prof Mthuli Ncube said these will remain until annual inflation slows down to acceptable levels and when there will be durable stability.
In support of the monetary policy stance, Minister Ncube is on record telling reporters that: “I think once we see that downtrend in month-on-month inflation being sustainable, maybe over a three-to four-month period, then we can begin to think about lowering interest rates. But for now, the tough monetary-regime stance and the tough fiscal stance also stands.
“That’s what it takes to bring stability and bring things under control.”
Economist, Dr Prosper Chitambara, said the interest rates are at the right level and Treasury is correct to say we need sustained period of stability until we think of a rate cut. He, however, acknowledges that it will come with its consequences such as failure to meet growth targets.
Dr Chitambara accepts that higher rates may push up non-performing loans (NPLs), but he insists, “it is also imperative to strike a balance and determine an optimum interest rate policy that complements the policy measures that have been put in place.”
Economist, Prof Tony Hawkins, argued that the interest rates were at optimal levels and the Treasury is holding the correct line. According to him lowering interest rates will see the parallel market running away again and more money searching value.
“In the end, this will perpetuate financial disintermediation and probable market bubbles on the stock market, as customers will look for alterative, non-bank based, investment options,” Prof Hawkins said.
Zimbabwe approves ‘draconian’ law targeting civil society – eNCA
HARARE – Zimbabwe’s upper house of parliament has approved legislation that critics say will gag civil society groups, placing them under the threat of harsh sanctions and strict government control.
The senate voted late Wednesday in favour of the Private Voluntary Organisations Amendment Bill, which needs to be ratified by the president before passing into law.
The text sailed through the country’s other chamber of parliament, the National Assembly, late last year.
Justice Minister Ziyambi Ziyambi said the law was a “necessary measure to improve the administration, accountability and transparency” of charities working in the country.
He accused some of “directing money to favoured political parties.”
“We cannot run the risk of charities of a public character being used as a cover for theft, embezzlement, tax evasion, money laundering or partisan political activities,” Ziyambi told the senate on Wednesday.
Rights groups and opposition parties complain of an increased government clampdown on dissent as the country heads towards general elections later this year.
The bill bans civil society organisations from engaging in politics and allows the state to interfere in their governance and activities, such as making changes to their internal management and funding.
Those found in breach of its provisions risk up to a year in jail and the closure of their organisation.
Only one senator voted against the law. The chamber is dominated by the ruling ZANU party, with the main opposition group – the Citizens Coalition for Change – holding no seats.
The lone dissenter, Senator Morgen Komichi, called the bill “obscene”, saying NGOs provide key support in areas including health, education and food security.
“Zimbabwe is a country that does not have a strong economy which can cater for every Zimbabwean,” Komichi said.
Critics argue that the law’s broad scope risks de facto criminalising the activity of any organisation disliked by the government.
Some warned it could lead to drastic cuts in foreign aid, which comes through non-governmental organisations, and is estimated to be Zimbabwe’s third-largest revenue stream.
Prominent journalist and activist Hopewell Chin’ono, said on Twitter the “draconian” legislation was similar to an apartheid-era law in South Africa that barred certain civil organisations from receiving foreign aid or funds.
“This is the lowest any modern state can get to. Especially a state that was born through struggle for freedom, independence and democracy,” Peter Mutasa, director of the Crisis in Zimbabwe Coalition, a civil society umbrella group, told AFP.
“We never expected that we could sink this low”.
Up to 18,000 people working for non-governmental organisations in the country risk losing their jobs, he said.
President Emmerson Mnangagwa, who replaced long-time ruler Robert Mugabe in 2017, faces widespread discontent as he struggles to ease entrenched poverty, end chronic power cuts and brake inflation.
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