Can Africa avoid the global recession trend?

2023-02-13 22:16:16
Can Africa avoid the global recession trend?

The world is bracing for the next recession. Post-pandemic, global supply chain disruptions persist, and conflict in Ukraine has decimated a key source of fertilisers, energy, and staple diet produce, such as wheat.

Together with rising inflation and the cost of living, this has put substantial pressure on the global economy. A recession now seems inevitable.

But some examples from Africa suggest that while the continent may slow down, it may not dig as deep into the recessionary trough as other, more developed, markets.

The positive case

Economic green shoots are evident across the continent. For example, Benin’s cotton production is soaring, and it is set to become one of the biggest producers in the world; the majority of the world’s platinum group metals (PGMs) – critical for renewable energy technologies and catalytic converters responsible for reducing car emissions – are in the ground beneath Southern Africa; and through the much-heralded leadership of Hakainde Hichilema, Zambia has halted its spiralling debt, and is now set to grow above 4% over the medium term.

In the meantime Ghana’s cocoa trade is booming. With further plans for greater processing of cocoa to be done in-country, the West African nation could seize even more potential from this widely desired and lucrative little bean.

Furthermore, global investors are eying up climate-related opportunities in Africa, most notably in energy, agriculture and water – three resources the world could never go without. This provides further evidence that there are some regions that are well placed to buttress against the worst effects of a global recession; they may even continue on a growth trajectory, albeit a little slower.

The negative case

But before we get carried away with enthusiasm for these positive signs, it is also impossible to ignore the fact that there are persistent challenges that continue to limit the continent’s potential.

For example, in a recent Henley Business School webinar, MD Ramesh, group chief executive officer of TGI Agribusiness, pointed out that while agriculture is a success story, the continent still imports around $45bn worth of food.

This is a large sum, made larger by the fact many African governments lack the capacity and reserves to continue paying for these imports in foreign currencies. This ratchets up the risks for food security in many countries.

And as the West, most notably the US and Europe, raise interest rates, the screws on the fiscus are being tightened still further. Speaking alongside Ramesh, Nosa Igbinadolor, special reports editor at Business Day, Nigeria’s leading financial newspaper, highlighted how the dollar has become stronger relative to local currencies, leading to increased importing costs, which in turn pushes up the costs of living.

“Inflation has ballooned in Nigeria”, Igbinadolor said, “and there are ongoing fears it could lead to social strife.”

Source: African Business


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