Dear Subscriber,
Africa’s population is exploding
The global population has now crossed 8 billion. Of this, the African continent is home to approx. 1.4 billion (18% of the global population) with 4 of the 8 most populous countries in sub-Saharan Africa (DRC, Nigeria, Ethiopia, and Tanzania). It means that one in every five persons living in the world is an African. However, with more people, comes a strain on scarce resources that African countries do not have. Based on the Malthusian theory which states that population grows at a geometric progression while food supply grows at an arithmetic progression, Africa will need to sharply increase its GDP growth to maintain the quality of life of its citizens, which will reverse the emigration flow to Europe. Currently, Africa contributes a minuscule 2% to the global GDP relative to the US, which accounts for 25% of the global GDP and has only 4% of the global population. The good news is that Africa’s demography is young thereby increasing the continent’s potential to make up for previous years of tepid growth. The median age in Africa is 19.7 years which is 34% above the global average of 30.1 years.
Painful credit downgrades are the new normal
Africa’s largest economies (Nigeria, South Africa, and Egypt) are going through a rough patch. Sluggish growth in fiscal revenues, bloated debt, rising inflation, currency weakness, and exposure to external shocks. This has led to a wave of sovereign credit downgrades. For instance, Moody’s downgraded Nigeria to B3 from B2, while Fitch moved Ghana’s bonds to junk status (CC). Each downgrade means a weak country with a high risk of debt default and the implications are far-reaching. Investors will begin to flee these African countries to more stable economies with greater yields like the United States. While raising interest rates may help, uncertainty and defaults are bigger dents in investor confidence.
How did Africa fall into a debt trap?
In 2020, several cash-strapped African countries, particularly in SSA embarked on a borrowing spree from multilateral agencies like the IMF and bilateral creditors like China to defibrillate their economies. These loans were to uplift their fiscal balances. Unfortunately, the loans plus already overheating debt burdens have come to haunt Africa. Total debt in SSA has risen over by 5% to $799.2bn in 2022 from $761bn in 2021. And the global interest rate environment is unforgiving at this time. With higher interest payments facing thin fiscal coffers, many African countries are on the edge. According to the IMF, 19 out of 35 SSA countries are at risk of debt defaults or in debt distress. Like dominoes, African countries are falling into a debt trap.
In the latest edition of the FDC Afriscope, we provide you with a perfect blend of economic, political, and social happenings around the continent.
Do enjoy your read!
