African Economic Outlook 2021 | A Youth Lens
Every year, the OECD Development Centre, the African Development Bank, the United Nations Development Programme, and the United Nations Economic Commission for Africa publish a report that focuses on the economics of most African countries. The report reviews the recent economic situation and predicts the short-term interrelated economic, social, and political evolution of all African economies.
In the 2021 report, the African Economic Outlook focuses on three main issues; debt resolution, governance and growth in Africa. As a Pan-African youth-led organization, The Youth Café believes that young people have a role to play in the evolution of their countries because they are stakeholders. Therefore, understanding the main issues affecting their continent is the first step in knowing how they will be affected and what they can do about it.
Africa’s growth performance and outlook amid the COVID–19 pandemic.
The global COVID-19 pandemic slowed economic activity in Africa. The economic impact of the pandemic varies across economic characteristics and regions. As much as every country in Africa was affected by the pandemic it was evident that tourism-dependent economies, oil-exporting economies, and resource intensive economies were the worst affected.
As a result, a 2.1 percent contraction in 2020, the real GDP in Africa is projected to grow by 3.4 percent in 2021. There is hope that an increase in tourism numbers, rising commodity prices, and an end to pandemic-induced restrictions will all contribute to this projected recovery from the worst recession in over half a century. The outlook, on the other hand, is clouded by both external and internal risks.
The adverse effects of COVID-19 will reverse hard-won gains in poverty reduction in Africa. 30 million Africans were pushed into poverty due to the pandemic in 2020. This number is estimated to increase by 9 million in the year 2021. Inequality is set to increase with marginalized groups such as women and youth being the worst affected.
The policy paper, Africa Youth Lead: Facts & Figures of Africa Youth Agency, Challenges and Recovery Roadmap on COVID-19 published by the African Union Office of the Youth Envoy in collaboration with the Africa Centres for Disease Control conducted a poll on 29th April 2020 and found that out of a total of 236 respondents 58% stated unemployment increased their vulnerability due to COVID-19. This means that young people working in the informal sector due to their lack of skills and knowledge will be gravely exposed.
Moving forward as highlighted by The Organisation for Economic Co-operation and Development (OECD), policies and economic recovery mechanisms are what will enable the African communities to prosper through the expansion of social safety nets such as the increase of digitalization to boost the effectiveness, reduction of prices, and expansion of social protection programs using in-kind support such as free food banks, medical supplies, and free housing.
Sustaining monetary and fiscal support amongst young people and women will help greatly in economic recovery because they will inject new ideas and businesses into the economy thus enabling economic growth. Accelerating structural transformation through digitalization, industrialization, and diversification will enable Africa’s economies to become more resilient. African countries will need to deepen their structural reforms and diversify their production base. This means human capital development, promoting youth jobs in high-productivity sectors, intensifying reforms to improve the investment climate, and advancing digitization.
Debt Dynamics and Consequences
Because of the pandemic, African governments have had a surge in financial needs. Several countries have announced fiscal stimulus packages since the COVID–19 pandemic began in early 2020, with costs ranging from about 0.02 percent of GDP in South Sudan to about 10.4 percent of GDP in South Africa. As a result of this crisis, the Bank estimates that African governments will require additional gross financing of approximately $154 billion in 2020/21.
It is important to note that these fiscal stimulus packages have had immediate and direct effects on budgetary balances, borrowing requirements, and debt levels. In the short, to medium term, the average debt to GDP ratio is expected to climb significantly due to this surge.
The high appetite for debt accumulation by African countries has been driven by different factors as mentioned in the report. Some of the main reasons are poor governance, weak institutions, depreciation of exchange rates, growing interest expenses, corruption, and ambitious public investment programs. With the constant increase in debt, some African countries have found it hard to borrow from their Paris Club counterparts or Bretton Woods institutions due to the red tape and structural adjustment programs that come with it. Africa's debt has therefore started shifting to commercial creditors notably China who do not give many incentives.
African countries will therefore need to strengthen the links between debt financing and growth returns to create sustainable debt. This is best done by ensuring that debt is used to finance productive projects that will in turn accelerate growth in the economy.
Debt Resolution and the Nexus between Governance and Growth
Debt resolution in Africa is often disorganized, slow, and expensive. Economic consequences of sovereign debt restructuring are less severe in countries that act preemptively and collaboratively and in countries where economic governance is stronger. Implementation of the Heavily Indebted Poor Countries initiative, however, took more than 10 years, and recent debt relief in Africa has been delayed by long-running litigation with private and official creditors. Debt distress is more likely to occur if there is no orderly and successful resolution of the country's sovereign debt, especially with private creditors.
It is crucial that African states reignite growth in their economies in the aftermath of the pandemic and the report states that two important tasks need to be done.
More than 80% of Africa’s population has a mobile phone subscription and the digital economy is becoming one of the main drivers of growth, accounting for more than 5% of GDP. As a first priority, countries need to launch an accelerated digitalization to propel Africa into the Fourth Industrial Revolution and boost job creation. Through digital skills and entrepreneurship training, young people will be equipped with the skills and knowledge that add value to their ventures, employers and the world around them.
The second task is the promotion of free and fair competition and investing in transparency to enhance production efficiency. For the youth, access to capital is essential for the development of their enterprises therefore the support of development programmes aimed at creating sustainable youth enterprises is of high importance. The report states that three policy actions need to be implemented at the national level to boost competition and promote growth. These policies are radical transparency, competitive neutrality, and the independence and accountability of competition and regulatory authorities.
The Youth Café works with young men and women around Africa as a trailblazer in advancing youth-led approaches toward achieving sustainable development, social equity, innovative solutions, community resilience and transformative change.
Contact us for any comments or suggestions.