Nigerian reforms, others to drive 4.2% Africa’s GDP growth – Brookings

Washington-based think tank Brookings Institution has projected that Africa’s GDP would grow by 4.2 per cent in 2025.

This was indicated in its latest Foresight Africa report published on Tuesday, suggesting an improvement from the 3.1 per cent growth recorded in 2023, as reported by the African Development Bank.

Brookings attributed the anticipated growth to several key factors, including increased investments in infrastructure and ongoing economic reforms in many countries, including Nigeria.

The projection reflects a notable recovery after a challenging period marked by inflation, limited access to financing, and the lingering effects of the COVID-19 pandemic.

Also, the report said that the continent would benefit from a strong domestic demand driven by rapid urbanisation and a growing young population.

The gradual implementation of the African Continental Free Trade Area is expected to create new economic opportunities by promoting regional integration and boosting intra-African trade.

However, the report highlights risks that could threaten this outlook. They include external debt, on which the think tank said, “Africa’s economies are highly vulnerable to external shocks, such as fluctuations in commodity prices, global recessions, and changes in trade and economic policies by major economies like the U.S. and China. Africa’s net external debt, while low by global standards, increased by 24 per cent to 57 per cent of GDP by 2019. Debt-servicing costs doubled, and current account balances halved. Just three years later, in 2022, the region’s average debt-to-GDP ratio stood at 67 per cent. Debt servicing has continued to hamstring governments in 2024, when it accounted for 13.6 per cent of government expenditure across Africa.”

It noted that building economic resilience through diversification and fostering domestic demand will be critical in mitigating the risks brought on by external debt.

Other headwinds mentioned were increased political instability, with 30 per cent of Africa’s population affected by unstable political events such as coups, and slowing economic growth and challenged productivity.

Additionally, extreme weather conditions such as droughts and floods continue to disrupt agricultural production and threaten food security in several regions.

Also, as Africa is experiencing a technological revolution, with rapid growth in mobile device penetration, fintech, and e-commerce, the think tank said that the number of internet users, for example, has grown by 17 per cent annually since 2013.

“Africa’s tech startup scene, with the number of startups tripling in less than two years—particularly in countries like Nigeria, Kenya, and South Africa—is gaining global attention and investment. By fostering innovation ecosystems and ensuring regulatory frameworks that support technology adoption, Africa can lead the digital economy in developing markets,” the report averred.

In conclusion, Brookings stated, “To realise its full economic potential, Africa must harness its diversity, leverage its strategic assets, and mitigate emerging challenges that come with globalisation. Indeed, the continent is already in transition; for example, Africa’s economies are shifting rapidly from agriculture and extraction to services.

“Reflecting that shift, employment in services increased from 30 per cent to 39 per cent. Services also secured its place as the major driver of the continent’s economic output, growing to 56 per cent in the last decade compared with 50 per cent in the 2000s as it captured shares from the extractive industries.”

Brookings’ projection aligns with Moody’s forecast, which also predicts 4.2 per cent growth for sub-Saharan Africa in 2025, on the back of improved global financial conditions, increased foreign investment, and ongoing economic reforms. However, the credit rating agency warned that high borrowing costs, driven by external debt servicing and a potentially stronger US dollar, may limit some countries’ ability to sustain growth.

The World Bank, in an October 2024 report, also forecasted a four per cent growth rate for Africa in 2025 and 2026.