Cape Town — In order to promote the growth of their countries and improve the lives of their citizens, African leaders were urged by the International Monetary Fund (IMF) to diversify their economies and stop favoring the wealthy over the poor. This important message was delivered at the recent meetings held in Marrakech, marking the first time in 50 years that such gatherings were held on the African continent. The discussions at the meetings emphasized concerns about a potential debt crisis in low-income countries and the impact of China’s economic slowdown, as China is now the largest individual trading partner for the region.
However, the main attention was drawn to the IMF’s latest economic outlook for the region, which projected a resumption of GDP growth in four out of every five countries next year after two consecutive years of decline. The forecast indicated that gross domestic product (GDP) is expected to reach a level of four percent.
The IMF report stated, “Both groups of economies will recover next year, but at different paces.” Countries heavily reliant on net oil exports or non-renewable natural resources are expected to experience improved growth rates, with an increase from 2.6 percent to 3.2 percent in the coming year. On the other hand, countries with more diversified economies are predicted to witness an even more impressive growth rate of 5.9 percent in 2024, up from 5.3 percent this year.
This divergence between resource-dependent and diversified economies has been a long-standing trend, exacerbated by the significant drop in global commodity prices a few years ago. Since then, non-resource countries have demonstrated greater resilience and managed to recover more effectively due to the support of their diversified economies.
Examining the individual country predictions further supports the IMF’s argument. Out of the eight oil-exporting nations, only three are expected to exceed the regional average growth rate of four percent: the Republic of Congo (4.4 percent), Cameroon, and South Sudan (4.2 percent). The growth rates of other oil exporters, such as Chad (3.7 percent), Angola (3.3 percent), Nigeria (3.1 percent), and Gabon (2.6 percent), are projected to fall below four percent. Equatorial Guinea is anticipated to experience a significant decline of 5.5 percent next year, largely due to a major company discontinuing operations in the country.
In contrast, resource-intensive countries, excluding South Africa, are generally expected to perform better. Sixteen countries in this category are projected to achieve GDP growth rates of more than four percent, with Burkina Faso (6.4 percent), Tanzania (6.1 percent), and Niger (11.1 percent) leading the way. Niger’s impressive growth is attributed to its hydrocarbon development, although the impact of the recent military coup remains uncertain.
South Africa stands as an outlier among resource-intensive countries, with a growth projection of just 1.8 percent in 2024. As South Africa accounts for nearly 20 percent of regional GDP, its slow recovery heavily impacts the average regional growth rate. Other resource-intensive countries with growth rates expected to be below average include Zimbabwe (3.6 percent), Ghana and Namibia (2.7 percent), and the Central African Republic (2.5 percent).
The IMF predicts a much brighter outlook for the region’s 21 more diversified economies in 2024. Fourteen out of these 21 nations are projected to achieve GDP growth rates exceeding four percent. The top performers are expected to be Senegal (8.8 percent), Rwanda (7 percent), Cote d’Ivoire (6.6 percent), Benin (6.3 percent), Ethiopia and the Gambia (6.2 percent), and Burundi (6 percent).
While the region is blessed with abundant natural resources and a rapidly growing population, the IMF report acknowledges that incomes for many sub-Saharan Africans have stagnated. As GDP growth has been slower in resource-dependent nations, people’s incomes have also suffered. Two-thirds of the sub-Saharan African population resides in resource-dependent countries. The report suggests that incomes in diversified economies could double in as little as 20 years, while the same accomplishment in resource-intensive countries may take generations or might never be achieved.
The IMF report highlights a familiar solution to promote growth: the elimination of subsidies that hinder economic progress. The report commends Nigeria, Angola, Zambia, and the Gambia for implementing significant energy subsidy reforms. Nigeria, for instance, abolished its $10 billion fuel subsidy, and Angola plans to gradually phase out energy subsidies amounting to nearly $4 billion. These subsidies, which primarily benefited affluent segments of the population, were deemed poorly targeted. Furthermore, a portion of subsidized fuel was being smuggled out of the country, benefiting a few individuals and indirectly subsidizing neighboring states.
During a press conference at the conclusion of the meetings in Marrakech, the impact of subsidies on Nigeria’s development funding was discussed by the director of the IMF’s Africa Department, Abebe Aemro Selassie. The IMF outlook noted that fuel subsidies in Nigeria were four times the amount spent on healthcare. Selassie emphasized that subsidies diverted government resources away from where they should be allocated. Nigeria’s high debt interest payments and insufficient tax revenue generation have led to a shortage of funds for essential services. He concluded that generating tax revenue to finance these services is the most critical area of focus for any Nigerian administration.
In conclusion, the IMF’s message to African leaders is clear: diversify the economy, end subsidies that hinder growth, and prioritize the well-being of all citizens. By embracing these principles, African countries can pave the way for sustainable economic development and improve the lives of their people.