African

Economic
Outlook
2023
Mobilizing Private
Sector Financing for
Climate and Green
Growth in Africa
African
Economic
Outlook
2023
Mobilizing Private
Sector Financing for
Climate and Green
Growth in Africa
The opinions expressed and arguments employed herein do not necessarily reflect the official views
of the African Development Bank, its Boards of Directors, or the countries they represent. This doc-
ument, as well as any data and maps included, are without prejudice to the status of or sovereignty
over any territory, to the delimitation of international frontiers and boundaries, and to the name of any
territory, city, or area.

ISBN: 978-0-9765655-6-7

© African Development Bank 2023

You may copy, download, or print this material for your own use, and you may include excerpts from
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FOREWORD

A frican economies have consolidated their recovery from the debilitating impact of COVID-
19 while navigating an uncertain global environment characterized by the tightening of
global financial conditions, spillover effects of Russia’s invasion of Ukraine,1 subdued global
growth, and persistent climatic threats.
These multiple and dynamic shocks have weighed on Africa’s growth momentum, with
growth in real gross domestic product (GDP) estimated at 3.8 percent in 2022, down from
4.8 percent in 2021. The GDP growth in 2022 is above the global average of 3.4 percent, and
all but two African countries posted positive growth rates. Despite significant headwinds, Africa
has also shown remarkable resilience, evident in the projected consolidation of economic
growth in the medium term. The outlook remains positive and stable, with a projected rebound
to 4 percent in 2023 and further consolidation to 4.3 percent in 2024. Our projections show
that 18 African countries will experience growth rates surpassing 5 percent in 2023, a number
expected to increase to 22 in 2024.
This continued resilience will be reinforced by expected improvements in global economic
conditions, fueled by China’s reopening and a downward adjustment of interest rates as the
effects of monetary policy tightening on inflation start to bear fruit. The projected rebound in
growth will depend on underlying economic characteristics. For example, growth in oil-export-
ing countries is expected to benefit from oil prices, which, despite the recent decline, remain
elevated. Non-resource-intensive economies will gain from their more diverse economic struc-
tures, highlighting the importance of diversification in withstanding shocks.
However, like elsewhere in the world, higher food and energy prices fueled strong infla-
tionary pressures in 2022. As a result, inflation remained elevated across the continent and
reached double digits in 18 African countries, putting additional pressure on public budgets as
governments stepped up social spending to cushion vulnerable populations from the impacts
of higher prices. In the face of these socioeconomic challenges, the Bank has demonstrated its
unwavering commitment to building a resilient and prosperous Africa. Through its $1.5 billion
African Food Crisis Response and Emergency Facility, it provided much-needed support to
bolster local food production and enhance food security across the continent.
Even so, Africa faces several downside risks to its growth prospects that call for cautious
optimism. The tightening of global financial conditions and appreciation of the United States
dollar have exacerbated debt service costs and could increase the risk of debt distress, espe-
cially for countries with severely constrained fiscal positions. The prolonging of Russia’s inva-
sion of Ukraine remains a major global risk that heightens uncertainty and could aggravate

1 Agreed wording at the 2022 African Development Bank Group Annual Meetings in Ghana. Alge-
ria, China, Egypt, Eswatini, Namibia, Nigeria, and South Africa, entered a reservation and proposed
“Russia–Ukraine Conflict.”

 iii
 Africa’s food insecurity situation and living costs across the continent. For instance, we have used
more generally. This is in addition to climate change, a climate safeguard screening system to ensure
which continues to threaten lives, livelihoods, and that all our projects are aligned with the goals of the
economic activities. Paris Agreement. Last year, under the ADF-16, we
Against this backdrop, the 2023 African Eco- established a $429 million Climate Action Window,
nomic Outlook (AEO) explores the potential roles of which will allow us to mobilize up to $13 billion for
the private sector in financing Africa’s climate action climate adaptation for 37 low-income and frag-
and green growth ambitions as well as the benefits ile states, the worst impacted by climate change.
of Africa’s enormous and untapped natural capital Through our African Natural Resources Manage-
as a complementary source of financing. These ment and Investment Centre and in conjunction
two potential financing sources are important given with the African Legal Support Facility, we have
the already strained public finances in most African been building the capacity of African governments
countries and the scale of resources needed for cli- to better manage their resources for inclusive and
mate action and green growth. Between $2.6 trillion sustained growth. We also provide RMCs with advi-
and $2.8  trillion is needed by 2030 to implement sory services and technical assistance for effective
Africa’s climate commitments as expressed in coun- contract negotiations and improved and transpar-
tries’ recently submitted Nationally Determined Con- ent management of renewable and non-renewable
tributions (NDCs). When adding United Nations esti- natural resources.
mates of $1.3 trillion needed annually to achieve the However, the Bank cannot be in the oven and
Sustainable Development Goals (SDGs), the mag- at the mill at the same time. That is why the report
nitude of Africa’s sustainable development financ- is calling for an urgent action from all stakeholders.
ing requirements becomes starkly apparent. The African countries will need to put in place all the nec-
report thus makes a strong case for private sector essary legal and fiscal apparatus not only to address
financing by identifying investment opportunities structural barriers to private investments in climate
across different sectors, presenting a taxonomy of actions and green transitions but also to improve
barriers and risks to attract private investments in the management of their natural resources and to
climate and green growth, and discussing innova- create incentives for local beneficiation, processing,
tive financing instruments, and policy and regulatory and value addition. Multilateral Development Banks
instruments to attract private sector financing. (MDBs) and other Development Financial Institutions
Taking stock of Africa’s huge natural wealth, esti- (DFIs) will also need to be reformed if they are to
mated at $6.2 trillion in 2018, the report discusses remain relevant to the new reality underpinned by
the complementary role of natural capital in financ- the growing socioeconomic challenges confront-
ing climate action and green transitions and pro- ing African countries. As key players in unlocking
poses concrete actions to improve the governance development and international finance, MDBs need
of Africa’s natural wealth and increase local content to become less risk averse by cautiously reducing
and value addition for extractive resources. It also their capital adequacy ratios, moving away from
recognizes the emergence of new technologies project-based finance to financing a system-wide
such as manufacturing of electric vehicles and how sustainable transition, and being given stronger and
Africa can leverage its critical minerals to become more coherent mandates from their shareholders
the next hub for global green development. to deliver transformative climate action and green
As Africa’s premiere development finance institu- growth outcomes.
tion, the Bank has been very active in attracting pri- Let us therefore join forces to support African
vate financing for climate action and green growth countries address the existential threat of climate
in Africa and in supporting Regional Member Coun- change and achieve sustainable and inclusive
tries (RMCs) to improve the governance of their development.
natural resources. We have spearheaded important
initiatives and instituted several innovative financ- Dr. Akinwumi A. Adesina
ing mechanisms to scale up climate co-financing President, African Development Bank Group

iv F ore w ord

CONTENTS

Forewordiii
Acknowledgementsix

Highlights1

Chapter 1
Africa’s economic performance and outlook 15
Key messages 15
Growth performance and outlook 17
Other macroeconomic developments and outlook 27
Policy options 53
Notes58
References59

Chapter 2
Private sector financing for climate action and green growth in Africa 61
Key messages 61
The imperative for green growth and the role of private sector financing 63
The private climate financing landscape in Africa 68
Private financing gap for climate action and green growth 75
Barriers and opportunities for leveraging private financing for green growth in Africa 79
The role of MDBs and DFIs in mobilizing private finance 98
Policy recommendations 104
Notes107
References108

Chapter 3
Natural capital for climate finance and green growth in Africa 115
Key messages 115
Introduction116
Africa’s natural wealth 117
Conclusion and policy considerations 150
Notes153
References154

Country notes 161

 v
 Abbreviations221

Annexes
1.1 Statistical appendix 56
2.1 Methodology for calculating the private sector financing gap 106

Boxes
1.1 Increasing food and energy prices led to heightened social unrest in Africa 25
1.2 Policy responses from African governments to protecting households and businesses
from rising food and energy prices 37
2.1 The Great Carbon Arbitrage 78
2.2 The African Green Bank Initiative 103
3.1 Debt-­for-nature swaps 138
3.2 Can Africa become the new green hydrogen El Dorado? 143
3.3 Recent green initiatives of the African Development Bank 146

Figures
1 Growth performance and outlook, by region, 2020–24 3
2 Outlook for key macroeconomic indicators, average, 2023–24 5
1.1 Real GDP growth, 2019–24 17
1.2 Purchasing Managers’ Index in Africa, 2017–March 2023 18
1.3 Global commodity price indices, January 2020–March 2023 18
1.4 Leading global capital market indices, January 2020–March 2023 19
1.5 Real GDP per capita growth, 2019–24 19
1.6 Demand-side decomposition of GDP growth, 2017–24 20
1.7 Sectoral decomposition of GDP growth, 2017–24 21
1.8 GDP Growth in Africa, by region, 2021–24 22
1.9 GDP Growth in Africa, by country grouping, 2021–24 24
1.10 Movement in the US dollar nominal effective exchange rate 27
1.11 Exchange rate changes, 2020–21 and 2021–22 28
1.12 Global Supply Chain Pressures Index 29
1.13 Consumer price inflation, 2021 and 2022 30
1.14 Inflation dynamics in targeting and non-targeting countries 31
1.15 Yield curves are shifting upward, 2022 (percent) 32
1.16 Nonperforming loans ratios and regulatory capital to risk-­weighted assets 34
1.17 Liquid asset ratios and returns on assets 34
1.18 Fiscal balance as a share of GDP by country grouping, 2020–24 35
1.19 Fiscal balance as a share of GDP by country, 2021–22 36
1.20 Overall fiscal balance and primary fiscal balance (percent of GDP), 2019–22 37
1.21 Average shares of capital expenditure in total general government expenditure 39
1.22 Government revenue by economic grouping in Africa, 2010–22 40
1.23 Gross government debt as a share of GDP, 2010–24 41
1.24 Drivers of public debt dynamics as a share of GDP, 2013–23 42
1.25 10-­year sovereign bond spreads in Africa, November 2019–March 2023 43
1.26 Interest payments on external debt, public and publicly guaranteed 43
1.27 Debt service on external debt, public and publicly guaranteed 44
1.28 Debt service on external debt, public and publicly guaranteed, by risk of debt distress 45
1.29 African sovereigns, total external debt service due 46
1.30 Domestic and external debt and domestic bond issuances 46

vi C ontents
1.31 Average coupon and tenor of government bonds in Africa over 2000–22 47
1.32 Current account balances by type of resources, 2020–24 48
1.33 Current account balance decomposition: continental averages over 2000–24 49
1.34 External financial flows to Africa, 2015–21 50
1.35 Portfolio investments, 2021 and 2022 52
2.1 Selected correlates of green growth in Africa, average 2010–21 64
2.2 Africa’s green growth index and green growth ambitions, average 2010–21 66
2.3 Distance to targets of green growth indicators in Africa, average 2010–21 66
2.4 Upfront private investment opportunities to adapt to droughts and floods in Africa
between 2021 and 2040 68
2.5 Private and public financing in total climate finance, by main regions, 2019–20 69
2.6 Distribution of private climate finance across Africa, average 2019–20 69
2.7 Sectoral breakdown of private climate finance across Africa, average 2019–20 70
2.8 Updated cumulative climate finance needs in Africa’s NDCs, 2020–30 70
2.9 Sources of private climate finance flows in Africa, average 2019–20 71
2.10 Africa venture capital investments, 2014–21 72
2.11 Private climate finance by instruments and sources, 2020 72
2.12 Regional breakdown of estimated annual private climate finance gap for selected rates of
the potential contribution of the private sector to the residual climate finance needs 76
2.13 Private sector climate financing gap of selected African countries 77
2.14 Required annual growth rate of private climate finance flows to close Africa’s climate
finance gap by 2030 77
2.15 Key drivers of private climate finance flows to Africa and complementarity between public
and private climate finance 80
2.16 Trends in regulations and policies for green growth in African countries since 2010 82
2.17 Climate-­related sustainable financing, by region, 2016–22 84
2.18 Sovereign borrowing costs, climate vulnerability and readiness 86
2.19 Sovereign credit ratings and required return from solar projects 87
2.20 Proportion of climate blended finance deals by region 90
2.21 Climate blended finance by region, 2019–21 91
2.22 Number of public-­private partnership projects by region, 1990–2022 91
2.23 Number of private participation in infrastructure projects by sector, 1990–2022 92
2.24 Financing sources of investment and working capital of firms by region, average 2010–21 93
2.25 Ticket size of the Bank’s approved projects with at least 30 percent of climate finance
content, 2018–22 95
2.26 FDI outflows from Africa, 2017–21 97
2.27 Geographical distribution of private climate finance mobilized by official development
finance institutions, average 2018–20 98
3.1 The value of natural capital by regions 118
3.2 The distribution of value of natural capital in Africa between 1995 and 2018 by regions 119
3.3 Value of natural capital in Africa by type 119
3.4 Per capita value of natural capital 120
3.5 Trends in per capita values of natural capital 121
3.6 Changes in the value of natural capital for African countries, 1995–2018 122
3.7 Changes in per capita value of natural capital for African countries, 1995–2018 123
3.8 Real prices of selected commodities, 1960–2020 124
3.9 Value added per hectare of agricultural land 2021 126
3.10 Annual gas flaring, 2012–21 128
3.11 The value of mineral wealth of Africa, 1995–2018 130

C ontents  vii
 3.12 Africa’s fossil fuel wealth, 1995–2018 130
3.13 Fiscal instruments in the African mining sector and year of enactment 132
3.14 The value of capture fisheries in Africa 134
3.15 Changes in IUU scores between 2019 and 2021 135
3.16 Changes in the value of mangrove wealth for African countries, 1995–2018 136
3.17 Forest cover loss in Africa between 2001 and 2021 137
3.18 Prices per ton of emission reductions in the EU Emissions Trading System and in
voluntary markets, 2016–21 140
3.19 Potential emission and financial transfers based on the cooperative implementation of
universal net-­zero CO2 emission pathways 141
3.20 Country coverage of the Great Green Wall Acceleration 142
3.21 Losses and damages associated with climate change 144
3.22 Market size by traded value of voluntary carbon offsets 145

Tables
A1.1 Real GDP growth (percent) 56
A1.2 Country groupings 57
2.1 Emerging innovative finance instruments for private climate finance in Africa 74
3.1 Fiscal instruments for natural resource revenue extraction 131

viii C ontents
ACKNOWLEDGEMENTS

T he African Economic Outlook (AEO) 2023

was prepared in the Vice Presidency for
Economic Governance and Knowledge Man-
Valuable contributions to chapters 2 and 3
were also received from several experts
within and outside the African Development
agement (ECVP), under the general direction Bank. Within the Bank, experts were drawn
and supervision of Prof. Kevin Chika Urama, from ECMR.1 and comprised Yaye Betty
Chief Economist and Vice President for Camara, Zeineb Cherif, Blaise Gnimas-
the ECVP Complex, with support from Eric soun, James Ochieng, Assi Okara, Zackary
Ogunleye, Amadou Boly, and Amah Koffi. Seogo, Julian Slotman, and Sosson Tadad-
Preparation of the chapters was super- jeu. From ECNR, contributions were received
vised by Abdoulaye Coulibaly, Director (Gov- from Vanessa Ushie (Acting Director), Fred
ernance and Economic Reforms Department) Kabanda (Division Manager), Jerry Kwame
and Director (Officer-in-Charge, Macro- Ahadjie, Koffi Kpognon, Charles Nyirahuku,
economic Policy, Forecasting and Research Julius Chupezi Tieguhong, and Philippe Dom-
(ECMR) Department). The core team com- inique Julius Tous. The team from the Climate
prised Anthony Simpasa (Division Manager, Change and Green Growth Department was
ECMR.1), Hammed Amusa, Francis Leni led by Anthony Nyong (Director) and com-
Anguyo, Lacina Balma, Alexandre Kopoin, prised Gareth Phillips (Division Manager),
Adamon Mukasa, Dawit Tessema, Andinet Gerald Esambe Njume, Fekadu Shimelis, and
Woldemichael, all from ECMR.1, and Innocent Audrey-Cynthia Yamadjako. Neema Siwingwa
Onah, from the African Natural Resources and Nana-Efua Spio Garbrah, both from the
Management and Investment Centre (ECNR). Syndications and Client Solutions Depart-
Chapter 1 was co-led by Hammed Amusa, ment, also provided valuable suggestions.
Francis Leni Anguyo, and Alexandre Kopoin. Externally, contributions were received from
Chapter 2 was led by Adamon Mukasa, along Tracy Tunge (South Pole), Alissa Kleinnijen-
with Jessica Omukuti (Oxford University). huis (Stanford University), Prof. Anil Markan-
Andinet Woldemichael and Innocent Onah dya (Basque Centre for Climate Change),
co-led the preparation of chapter 3 with Prof. Prof. Wisdom Akpalu (Ghana Institute of Man-
Gunnar Kohlin (University of Gothenburg). agement and Public Administration), Thabot
Promise Bolutife Aderibigbe and Michael Jacob (University of Gothenburg), and Obrian
Abah provided administrative support to the Ndhlovu (University of Cape Town).
core team. The report also benefited from review
The statistical information was compiled comments by internal Bank staff and exter-
by the Statistics Department, led by Louis nal experts. Within the Bank, comments
Kouakou (Acting Director, Statistics Depart- and suggestions were received from a team
ment). The statistics team included Rosa of economists in the Country Econom-
Bora, Anouar Chaouch, Slim Jerbi, Soumaila ics Department (ECCE) led by Ferdinand
Karambiri, and Hauhouot Stephane Regis. Bakoup (Acting Director), and comprising

 ix
 Sara Bertin, Iyad Dhaoui, Rachidi Kotchoni, and The country notes were prepared by Country
Ibrahim Sawadogo. Other Bank internal experts Economists (see the table below) under the over-
were Hazem Mohamed Mokhtar Elwassimy all guidance and supervision of Ferdinand Bakoup,
(Division Manager, Non-Sovereign Operations Acting Director (ECCE). Internal review and over-
and Private Sector Support Department), Eric all coordination for the preparation of the country
Ogunleye (Manager, Policy Management Divi- notes were done by Audrey Chouchane (Acting
sion, ECAD.2), and Njeri Wabiri (ECAD). Com- Division Manager, ECCE.1), and Hervé Lohoues
ments and suggestions were also received from (Acting Division Manager, ECCE.2), with sup-
ECMR.2, led by Fadel Jaoui (Division Manager, port and validation by the Lead Economists for
Officer-in-Charge) and comprising Omolola each region: Central Africa (Hervé Lohoues); East
Amoussou, Yang Liu, Michael Machokoto, and Africa (Marcellin Ndong Ntah and Edward Sen-
Eugene Nyantakyi. Also contributing were Eze- noga), Nigeria Country Department (Anthony Sim-
kiel Odiogo (Lead, Regional Infrastructure Devel- pasa); North Africa (Audrey Verdier-­Chouchane);
opment), Aristide Tekeu and Emmanuel Olet Southern Africa (George Kararach); and West Africa
from the Water and Sanitation Department, led (Guy-Blaise Nkamleu, supported by Olivier Manlan
by Oswald Chanda (Director), the Human Cap- and Zerihun Gudeta Alemu). Staff from ECMR.1 and
ital, Youth and Skills Development Department ECMR.2 (Fadel Jaoui, Division Manager [Officer-
led by Martha Phiri (Director) and comprising in-Charge], Sahawal Alidou, Omolola Amoussou,
Tapera Muzira (Lead, Human Capital, Youth and Mamadou Bah, Orieta Covi, Francis Kemeze, Yang
Skills Development), Rosemond Offei-Awuku Liu, Patrick Mabuza, Michael Machokoto, Eugene
and Andre-­M arie Taptue. Comments were also Nyantakyi, and James Omotilewa) also reviewed all
received from the African Legal Support Facility, the country notes. The country notes were cleared
led by Olivier Pognon (Director) with support from by the Country Managers. Tricia Baidoo provided
Charles Afeku. Kevin Chika Urama, Chief Econ- administrative support to the ECCE team.
omist and Vice-President, provided extensive The cover of the report is based on a general
technical inputs on all the chapters. design by Laetitia Yattien-Amiguet and Justin
External peer reviewers included Prof. Léonce Kabasele of the Bank’s Communication and Exter-
Ndikumana (University of Massachusetts at nal Relations Department. Editing, translation,
Amherst), Prof. Christopher Adam (University of and layout were done by a team from Communi-
Oxford), Prof. Perrine Toledano (Columbia Uni- cations Development Incorporated, led by Bruce
versity), Prof. Steffen Bjarne (ETH Zurich), Baysa Ross-Larson and including Joe Caponio, Meta de
Naran (Climate Policy Initiative), Prof. Edward B. Coquereaumont, Mike Crumplar, Christopher Trott,
Barbier (University of Colorado), and Prof. Rashid and Elaine Wilson, with translation support from
Hassan (University of Pretoria). Jean-Paul Dailly and a team at JPD Systems.

x A ckno w ledgements
COUNTRY NOTE AUTHORS
Central Lead Economist Hervé Lohoues Southern Lead Economist George Kararach
Cameroon Claude N’kodia and Godwill Angola Tulio Antonio Cravo
Kan Tange
Botswana Caroline Bernice Akishule
Central African Republic Sebastien Mangele Ntumwa
Chad Alassane Diabate Eswatini Bothwell Nyajena
Congo Sie Antoine-Marie Tioye Lesotho Suwareh Darbo
Congo, Dem. Rep. Etaki Wadzon Madagascar Hamacire Dicko
Equatorial Guinea Toussaint Houeninvo Malawi Vera Kintu Oling
Gabon Bernice Savy Mauritius Philippe Trape/George
Kararach
East Lead Economists Marcellin Ndong Ntah and
Edward Sennoga Mozambique Romulo Correa
Burundi Seydou Coulibaly Namibia Caroline Bernice Akishule
Ntumwa
Djibouti Garad Malik Mohamed
São Tomé and Príncipe Felisberto Alexandre
Comoros Samarinina Andrambelosoa Lourenco Mateus
Eritrea Edisira Nseera South Africa Kelvin Banda
Ethiopia Paul Mpuga and Admit Zambia Nathaniel Oluoch Agola
Zerihun
Zimbabwe Kelvin Banda
Kenya Zerihun Alemu and Martin
Nandelenga West Lead Economist Guy Blaise Nkamleu
(with support from Zerihun
Rwanda Walter Odero Owour and Alemu and Olivier Manlan)
Bernis Byamukama
Benin Dayo Tankien
Seychelles Tilahun Temesgen
Burkina Faso Ibrahim Sawadogo
Somalia Vera Oling Kintu
Cabo Verde Joel Muzima
South Sudan Flavio Soares da Gama and
David Thiang Côte d’Ivoire Jean Marie Vianney Dabire
Sudan Ouma Duncan and Bashir Gambia Joel Muzima
M.A Yousif Eltahir
Ghana Zerihun Alemu
Tanzania Jacob Oduor and Prosper
Charle Guinea Richard Antonin Doffonsou

Uganda Peter Rasmussen Guinea-Bissau Elisabeth Diatou Diouf

North Lead Economist Audrey Verdier-Chouchane Liberia Yusuf Foday

Algeria Abdoulaye Konate Mali Ameth Saloum Ndiaye and

Issiaka Coulibaly
Egypt Kaouther Abderrahim
Niger Kalidou Diallo
Libya Iyad Dhaoui and Kaouther
Abderrahim Nigeria Anthony Simpasa

Mauritania Ibrahim Sawadogo Senegal Olivier Beguy and Elisabeth

Diatou Diouf
Morocco Sara Bertin
Sierra Leone Wolassa Lawisso Kumo
Tunisia Rachidi Kotchoni
Togo Yapo Leonce

A ckno w ledgements  xi
 THEMATIC COVERAGE OF PREVIOUS EDITIONS

Edition Thematic title

2003 Privatization
2004 Energy Supply and Demand
2005 Financing of Small and Medium-sized Enterprise (SME) Development
2006 Promoting and Financing Transport Infrastructure
2007 Access to Drinking Water and Sanitation in Africa
2008 Technical and Vocational Training
2009 Information and Communication Technology across Africa
2010 Public Resource Mobilization and Aid
2011 Africa and Its Emerging Partners
2012 Promoting Youth Employment
2013 Structural Transformation and Natural Resources
2014 Global Value Chains and Africa’s Industrialization
2015 Regional Development and Spatial Inclusion
2016 Sustainable Cities and Structural Transformation
2017 Entrepreneurship and Industrial Development
2018 Infrastructure and Its Financing
2019 Integration for Africa’s Economic Prosperity
2020 Developing Africa’s Workforce for the Future
2021 From Debt Resolution to Growth: The Road Ahead for Africa
2022 Supporting Climate Resilience and a Just Energy Transition in Africa

xii T hematic coverage of previous editions

HIGHLIGHTS

CHAPTER 1
AFRICA’S ECONOMIC PERFORMANCE AND OUTLOOK

African economies remain resilient amidst multiple shocks with average

growth projected to stabilize at 4.1 percent in 2023–24, higher than the
estimated 3.8 percent in 2022
Africa’s growth in real gross domestic product (GDP) was estimated at 3.8 percent in 2022,
down from 4.8 percent in 2021 but above the global average of 3.4 percent. The growth slow-
down was attributed mainly to the tightening global financial conditions, and supply chain dis-
ruptions exacerbated by Russia’s invasion of Ukraine,1 subduing global growth. Growth was
also impaired by the residual effects of the COVID-­19 pandemic and the growing impact of
climate change and extreme weather events. While the deceleration was broad-­based, with 31
of the 54 African countries posting weaker growth rates in 2022 relative to 2021, the continent
performed better than most world regions in 2022, with the continent’s resilience projected
to put five of the six pre-­pandemic top performing economies­—­Benin, Côte d’Ivoire, Ethiopia,
Rwanda, and Tanzania­—­back in the league of the world’s 10 fastest-­growing economies in
2023–24.
Growth is projected to rebound to 4 percent in 2023 and consolidate at 4.3 percent in 2024,
underpinning Africa’s continued resilience to shocks (figure 1 and appendix table A1.1). The
forecast for 2023 has been maintained as predicted in the January 2023 edition of Africa’s
Macroeconomic Performance and Outlook (MEO) published by the African Development Bank
Group. However, due to expected slight improvements in medium-­term global and regional
economic conditions­—­mainly underpinned by China’s re-­opening and slower pace of interest
rate adjustments­—­the forecast for 2024 has been revised up by 0.4 percentage points relative
to the January 2023 MEO projection. Despite this, climate change, elevated global inflation,
and persistent fragilities in supply chains will remain on the watchlist as potential factors for
possible slowdowns of growth in the continent.

1 Agreed wording at the 2022 African Development Bank Group Annual Meetings in Ghana. Alge-
ria, China, Egypt, Eswatini, Namibia, Nigeria, and South Africa, entered a reservation and proposed
“Russia–Ukraine Conflict.”

 1
 The medium-­term growth outlook is estimated 3.8 percent in 2022 to 3.9 percent
heterogenous across Africa’s regions in 2023 and 4.2 percent in 2024. This favorable
• The growth momentum in Central Africa outlook reflects higher growth in the region’s
is projected to decline from an estimated small economies. Of the nine countries with
5.0 percent in 2022 to 4.9 percent in 2023 and projected growth rates of 5 percent or higher
4.6 percent in 2024. The slowdown reflects a in 2023, eight are small economies, accounting
downward trend in commodity prices from for 15 percent of the region’s GDP and 22 per-
their peak in 2022. Central Africa comprises cent of the projected growth.
mostly commodity exporters, and fluctuations
in commodity prices indicate the risks asso- The growth outlook also varies
ciated with commodity export dependence according to economic groupings
across these countries. reflecting diverse exposure to
• Growth in East Africa is projected to underlying economic uncertainties
strengthen from an estimated 4.4  percent • Growth in tourism-­dependent economies
in 2022 to 5.1  percent in 2023 and 5.8  per- is projected to decline from an estimated
cent in 2024. With the exception of South 8.4 percent in 2022 to 4.9 percent in 2023 and
Growth is projected
Sudan, growth in all countries in this region 4.4 percent in 2024, reflecting an abating base
to rebound to are estimated to increase in 2023, with seven effect and growth slowdowns in important
4 percent in 2023 of them achieving 5  percent GDP growth or tourist source markets, especially Europe and
higher, driven by fairly diversified production North America.
and consolidate
structures and a decline in commodity prices. • Despite the decline, oil prices have remained
at 4.3 percent in Many countries in East Africa are commod- above the five-­year trend, boosting growth in
2024, underpinning ity importers, and lower prices would ben- oil-­exporting countries since the recession
Africa’s continued efit their GDP growth. However, pockets of at the peak of COVID-­19. Growth in this group,
drought and insecurity remain and may pose estimated at 4.0 percent in 2022, is projected
resilience to shocks a challenge to achieving the projected higher to strengthen to an average of 4.2 percent in
growth. 2023 and 2024. The oil output effect, notably
• In North Africa, growth is projected to rise in Libya and Nigeria, could also shore up eco-
from an estimated 4.1  percent in 2022 to nomic growth as production improves follow-
4.6 percent in 2023 and 4.4 percent in 2024. ing efforts to tackle insecurity.
The increase in 2023 will come largely from • Growth in other resource-­intensive econ-
the strong recoveries in Morocco and Libya, omies is, however, projected to decline from
the former from devastating drought, the latter an estimated 3.0  percent in 2022 to 2.4  per-
from fluctuating oil production. cent in 2023, with a recovery to 3.5  percent
• Growth in Southern Africa is projected to in 2024. The growth deceleration in 2023 is
decelerate by 1.1 percentage points, from an largely attributed to limited diversification and
estimated 2.7  percent in 2022 to 1.6  percent the lower prices of key commodities, notably
in 2023. But with the right policy interventions, minerals, amid weak global growth.
growth could recover to 2.7  percent in 2024. • Non-­resource-intensive economies, largely
The projected sharp decline in 2023 largely countries with more diversified economic
reflects continued growth weakness in South structures, are likely to sustain their resilience.
Africa, the region’s largest economy and trad- Average growth for the group is projected to
ing partner, from an estimated 2.0 percent in accelerate to 5.0 percent in 2023 and 5.6 per-
2022 to 0.2 percent in 2023, as it grapples with cent in 2024 from an estimated 4.4 percent in
the impact of high interest rates and persistent 2022. This group recovered the strongest from
power outages on economic activity. the effects of COVID-­19. The projected higher
• Growth in West Africa, despite macro- growth underscores the importance of eco-
economic challenges in some of the region’s nomic diversification to weather the effects of
large economies, is projected to rise from an exogenous shocks.

2 H ighlights
FIGURE 1 Growth performance and outlook, by region, 2020–24

Percent North Africa

6
5.4
4.1 4.6 4.4
3

0
–1.7

–3

–6
Percent West Africa 2020 2021 2022 2023 2024
6

4.4 4.2
Percent East Africa
3 3.8 3.9
6
5.8
0 4.7 5.1
4.4
–0.6 3
–3 1.9
0
–6
2020 2021 2022 2023 2024 –3

Percent Central Africa –6

6 2020 2021 2022 2023 2024

5.0 4.9 4.6

3 3.4

0
–0.4
–3

–6
2020 2021 2022 2023 2024

Percent Africa
6

4.8
3 3.8 4.0 4.3
Percent Southern Africa
6
0
–1.7
4.4
–3 3
2.7 2.7
1.6
–6 0
2020 2021 2022 2023 2024
–3

–6.0
–6
2020 2021 2022 2023 2024

Source: African Development Bank statistics.

Sustained tightening of global financial con- in the United States, which propped up the US
ditions has put pressure on African national dollar and historical domestic macroeconomic
currencies. National currencies in Africa’s net imbalances. Zimbabwe’s dollar, Ghana’s cedi,
commodity exporters lost substantial value in and Sierra Leone’s leone were among Africa’s
2022, mainly due to monetary policy tightening most devalued currencies against the US dollar in

H ighlights  3
 2022, with respective depreciation rates of around for non-­
t argeters in 2024. Figure 2 presents
323.4  percent, 42.5  percent, and 34.0  percent. the detailed outlook for countries’ key macro-
Although most African currencies weakened, economic indicators in 2023–24.
others appreciated or remained stable. Coun-
tries with appreciating currencies included Angola Fiscal performance improved in 2022, reflect-
(27.1  percent), Seychelles (15.6  percent), and ing reversals of pandemic-­induced expan-
Zambia (15.3  percent). Depreciation rates could sionary spending across the continent. The
ease in 2023 and 2024, but continued strength- overall fiscal deficit is estimated to have narrowed
ening of the US dollar will keep African currencies to 4  percent of GDP in 2022 from 4.9  percent
under pressure. Currency weaknesses in some in 2021. The fiscal deficit in 2022 also shows a
of Africa’s more globally integrated economies 0.4 percentage point improvement from the ear-
(Kenya, Nigeria, and South Africa) are expected lier estimate of 4.4 percent of GDP reported in the
to persist in 2023, largely due to potential capi- 2023 MEO. This is the second consecutive year
tal outflows as investors search for safe assets in of improved fiscal position after the sharp dete-
advanced economies. rioration to 6.8  percent of GDP in 2020 due to
large fiscal support to alleviate the socioeconomic
Africa’s average
Africa’s average consumer price inflation impacts of the pandemic. The sustained improve-
consumer price is projected to increase from an estimated ment was broad-­b ased, and Africa’s average
inflation is projected 14.2 percent in 2022 to 15.1 percent in 2023, fiscal deficit is projected to stabilize at 4.1 percent
and to decline to 9.5  percent in 2024. The of GDP in 2023 and could narrow to 3.8 percent
to increase from
projected increase in 2023 mirrors structural in 2024, below the pre-­pandemic 4  percent in
an estimated weaknesses in most African countries: supply 2019.
14.2 percent in 2022 constraints to offset the effects of elevated food
to 15.1 percent in prices, dependence on energy imports, even in Improvement in the current account positions
key oil producers such as Nigeria, and exchange in oil-­exporting countries was insufficient to
2023, and to decline rate passthrough effects from the stronger US mitigate weaknesses in other economies. Net
to 9.5 percent in 2024 dollar. The resulting increase in the cost of living oil exporters recorded a current account surplus
could further intensify price-­induced social unrest of 1.4  percent of GDP in 2022, benefiting from
events across the continent. Other contribu- higher oil prices, which helped reverse a deficit of
tors include the lingering impact of supply chain 1.1 percent the previous year. However, the cur-
disruptions, excess demand fueled by massive rent account in non-­resource and other resource-­
government spending in the aftermath of the intensive countries deteriorated further, eroding
pandemic, and spillover effects of Russia’s inva- the gains from their oil-­exporting peers. The deficit
sion of Ukraine. The return to single-­digit inflation in non-­resource-intensive economies rose from an
in 2024 after four years of sustained build-­up in estimated 5.4 percent of GDP in 2021 to 7.6 per-
inflationary pressures reflects the benefits of mon- cent in 2022 and 2.8  percent of GDP in other
etary policy tightening and countries’ efforts to resource economies, against a surplus of 0.5 per-
tackle structural impediments to domestic food cent the previous year. Despite an improvement in
supplies. The number of countries with at least tourism-­dependent economies from 21.5 percent
double-­digit inflation in 2024 is projected to halve in 2021, the current account deficit remained ele-
from 16 in 2023, down from the 18 in 2022. Coun- vated at 14.4 percent of GDP in 2022, reinforcing
tries with inflation-­ t argeting frameworks have the deterioration in other resource economies
been more successful in taming inflation relative and non-­resource dependent counterparts. As
to non-­targeting peers. The former group’s aver- a result, Africa’s average current account defi-
age inflation, at 10.9  percent in 2022, was half cit widened to 2.1 percent of GDP in 2022 from
the rate for non-­targeters (23.1 percent), and the 1.7 percent in 2021.
trend is expected to persist in 2024. The infla- Continued implementation of corrective mea-
tion rate for inflation targeters is projected to hit sures to restore external balances and increased
single digits of 7.9 percent, against 13.6 percent export revenues could prop up the current

4 H ighlights
FIGURE 2 Outlook for key macroeconomic indicators, average, 2023–24
Current Current
GDP account Fiscal GDP account Fiscal
growth Inflation balance balance growth Inflation balance balance
Algeria 2.7 7.2 2.7 –4.8 Lesotho 2.3 6.0 –5.5 –5.3
Angola 3.7 11.4 4.1 –0.1 Liberia 4.5 7.4 –16.4 –4.0
Benin 6.1 2.5 –3.9 –4.3 Libya 13.0 4.6 23.7 20.5
Botswana 3.9 7.0 3.4 1.5 Madagascar 4.6 8.9 –5.5 –3.3
Burkina Faso 3.8 4.9 –3.0 –5.6 Malawi 2.7 19.1 –12.0 –7.8
Burundi 4.6 9.7 –9.2 –4.2 Mali 5.2 2.5 –6.7 –4.4
Cabo Verde 6.0 7.1 –6.2 –4.0 Mauritania 5.1 8.5 –9.8 –1.7
Cameroon 4.3 4.6 –3.0 –0.7 Mauritius 4.6 6.3 –6.4 –5.1
Central Morocco 3.4 4.5 –4.2 –4.3
6.2 –4.0
African Rep. 2.4 –11.4
Mozambique 6.6 8.2 –25.0 –3.8
Chad 3.7 3.3 –2.8 5.7
Namibia 2.8 5.2 –4.3 –5.2
Comoros 3.7 2.6 –4.7 –2.7
Niger 9.4 2.5 –14.0 –4.9
Congo 9.9 –4.0 Nigeria 3.3 16.6 –0.2 –4.8
Dem. Rep. 7.6 –2.4
Congo Rep. 4.3 2.9 6.2 6.0 Rwanda 7.8 6.5 –11.0 –7.4

Côte d’Ivoire 7.1 3.2 –6.0 –4.7 São Tomé & 1.8 –5.0
Príncipe 11.5 –15.0
Djibouti 5.9 3.0 22.2 –2.1
Senegal 7.7 3.0 –11.3 –5.2
Egypt 4.8 14.0 –3.0 –5.4
Seychelles 4.7 4.3 –5.1 –1.0
Equatorial –3.2 Sierra Leone 4.0 24.0 –7.7 –2.8
Guinea –3.9 3.1 –8.6
Eritrea 2.9 5.6 10.5 –1.6 Somalia 3.2 4.1 –14.6 –1.1

Eswatini 4.2 5.3 0.9 –4.1 South Africa 0.8 5.2 –2.3 –6.5

Ethiopia 6.0 24.1 –3.7 –2.8 South Sudan 2.1 13.7 6.8 4.9

Gabon 2.8 3.3 –2.0 1.4 Sudan 2.9 79.4 –2.4 –1.4

Gambia, The 5.4 10.4 –11.2 –2.2 Tanzania 5.8 4.3 –4.6 –3.5

Ghana 2.4 32.5 –2.7 –9.0 Togo 6.4 3.2 –6.2 –5.9

Guinea 5.6 10.6 –5.6 –2.7 Tunisia 2.3 8.0 –5.9 –5.0

Guinea- Uganda 6.6 6.3 –8.9 –4.2

4.9 –4.4 –4.4
Bissau 4.3 Zambia 4.1 7.8 –0.5 –7.7
Kenya 5.8 7.3 –5.1 –5.8 Zimbabwe 3.2 84.2 0.6 0.1

Note: This heatmap plots the countries’ outlook for selected key macroeconomic indicators. Countries are green for good performers, yellow for fair
performers, and red for weak performers. Real GDP growth above 6 percent green, 4–6 percent yellow, and below 4 percent red. Inflation below
5 percent is green, 5–9.9 percent yellow, and above 10 percent red. Current account surplus is green, deficits below 5 percent yellow, and above
5 percent red. Fiscal surpluses and deficits below 3 percent are green, 3–5 percent yellow, and above 5 percent red.
Source: AfDB staff calculations.

account, with the deficit projected to stabilize at Public debt is projected to remain high, with
around 2.3 percent in 2023–24, an improvement lingering vulnerabilities. Although the median
of more than 1.5 percentage points from the pre-­ public debt in Africa is estimated to have declined
pandemic 3.8  percent. Corrective measures to to 65  percent of GDP in 2022 from 68  percent
restore external balance include fiscal consolida- in 2021 thanks to debt relief initiatives in some
tion and monetary policy actions to curb domes- countries, it will remain above the pre-­pandemic
tic inflation and reverse capital outflows, reduce level of 61 percent of GDP. Moreover, this debt-­
dependence on imported products, and enhance GDP ratio is expected to increase to 66 percent in
African countries’ external competitiveness. 2023 and then to stabilize at around 65 percent in

H ighlights  5
 2024 due to growing financing needs associated growth in the rest of Asia and the global econ-
with rising food and energy import bills, high debt omy, increasing demand for Africa’s exports,
service costs due to interest rate hikes, exchange boosting growth.
rate depreciations, and rollover risks. In addition, • Improved effectiveness of monetary policy in
many countries’ difficulties in accessing inter- tackling inflation in Africa and globally would
national capital markets, combined with limited mean a faster exit from the cycle of aggressive
revenue mobilization, have led them to issue local policy tightening toward more support for the
currency debt, which increased substantially from economy and livelihoods.
35 percent of GDP on average in 2019 to 42 per- • Reduced pace of tight monetary policy could
cent in 2021. Domestic debt restructuring, there- also halt appreciation of the US dollar, provid-
fore, should be part of the negotiations for the ing a respite for African currencies.
resolution of public debt crises in countries facing • Ongoing efforts by the global coalition on cli-
heightened risks. mate change to mobilize resources to combat
the effects of climate change could lessen
The main downside risks to the physical impacts and create fiscal space to
outlook invest in greening Africa’s economies.
In the short
term, a clearly Main headwinds include: A mix of short term and medium
communicated anti- • Subdued global growth, which, if it weak- to long term policies is needed
inflation monetary ens further, could affect demand for Africa’s to accelerate and sustain the
exports. momentum of Africa’s economic
policy, supported • The associated persistence of tight global finan- growth
by prudent fiscal cial conditions, which could exacerbate the
policy, will achieve cost of debt service and drive more countries In the short term:
into debt distress or a high risk of debt distress. • A clearly communicated anti-­inflation monetary
lower inflation faster • Losses and damages due to frequent extreme policy, supported by prudent fiscal policy, will
at minimum cost weather events with potential to translate into a achieve lower inflation faster at minimum cost
to the economy fiscal crisis as countries expand public spend- to the economy.
ing to rebuild damaged infrastructure and pro- • Macroprudential policies such as capital and
tect affected households. liquidity buffers to supplement monetary policy
• Sustained geopolitical tensions including a actions will be necessary to address financial
prolonged Russia’s invasion of Ukraine remains stability risks and maintain price stability.
a major source of global risk and heightened • Coordinated debt treatment strategy between
uncertainty. Further escalation could affect official and private creditors is key to avoiding
commodity prices and dampen medium-­term debt crisis given tight global financial condi-
growth prospects and endanger the resilience tions and a bunching of debt service payments.
of Africa’s economic recovery.
• Unresolved internal conflicts in some countries Over the medium to long term:
are diverting resources from growth-­enhancing • Scaling up domestic revenue mobilization
public investments and activities toward mili- is critical to restore fiscal sustainability and
tary spending. finance inclusive growth and sustainable
• Political risks due to upcoming national elec- development.
tions in some countries could affect investors’ • Enacting strategic industrial policies to accel-
confidence and cause disruptive capital out- erate economic diversification in Africa would
flows and depress investment. limit the effects of recurrent headwinds and
global shocks.
Main tailwinds include: • Boosting regional trade would enhance Africa’s
• A faster than expected rebound in China’s resilience to spillovers from global economic
growth, which could spill over and accelerate slowdown and reduce persistent trade deficits.

6 H ighlights
• Reforming the global financial and debt archi- the current and future frontier market in green
tecture would reduce the cost, time, and legal growth opportunities.
complications associated with debt restructur- • Third, Africa hosts 25  percent of the world’s
ing for African countries. natural biodiversity and 30  percent of the
• Governance reforms should strengthen public world’s mineral resources, most of which will
financial management to deal with increased be essential for a green transition.
debt and tight fiscal space. • Fourth, Africa has a large renewable energy
potential­—­including wind, solar, hydropower
and geothermal­—­and the world’s highest solar
CHAPTER 2 energy potential.
PRIVATE SECTOR FINANCING • Last, African countries have the greatest poten-
FOR CLIMATE ACTION AND tial for investments in green infrastructure and
GREEN GROWTH IN AFRICA technology due to their low levels of develop-
ment, low legacy high-­emissions infrastructure,
Sustainable development, economic growth, and low frequency of infrastructure and project
and climate action are critical for Africa, finance default rates, estimated at 5.5 percent.
Although Africa
and concurrently achieving these priori-
ties requires commitments to green growth Despite all the above potential and the has committed to
pathways. Since the beginning of the 21st cen- urgency of green transitions, Africa’s progress addressing climate
tury, Africa’s population has almost doubled and toward green growth has been slow. Between
change, significant
its GDP quadrupled. However, Africa currently 2010 and 2021, Africa was among the least per-
contributes only about 4 percent of global GHG forming regions in achieving green growth targets, environmental
emissions, much less than China (30.9 percent), lagging Europe, North America, East Asia and and social issues
the United States (13.5 percent), European Union Pacific, and Latin America and the Caribbean but and inequalities
(7.5  percent), or India (7.3  percent). The conti- above South Asia and the Middle East. In particu-
nent has also been severely affected by recent lar, the continent has underperformed on the pro-
remain that can
global events and risks, including the COVID-­19 motion of green economic opportunities, such as be addressed
pandemic, and the disruptive effects of Russia’s green trade, green innovation, and green invest- only by promoting
invasion of Ukraine. So, although Africa has com- ment. The continent’s share of exports of environ-
mitted to addressing climate change, significant mental goods to total exports­—­a proxy for green
green growth
environmental and social issues and inequalities trade­—­was the world’s lowest, at 1.5  percent
remain that can be addressed only by promoting on average over 2010–20, well below an aver-
green growth. age of at least 3 percent in other world regions.
Underperformance is similar in green employ-
Africa has a great potential to pursue green ment, measured by the share of green jobs in
growth and climate objectives to accelerate total manufacturing employment, which averaged
economic growth. 2.5 percent in Africa between 2010 and 2018, less
• First, it has some of the world’s fastest-­growing than half the average of 5.5 percent for the rest
economies and its real GDP growth is pro- of the world. Despite progress on efficient and
jected to surpass the global average in 2023– sustainable resource use, and on the promotion
24, even as headwinds persist. Embedding of social inclusion, the continent has not yet been
climate change in policy frameworks could able to catch up with other world regions on green
catapult the continent to a higher and greener growth.
growth trajectory over the next decades.
• Second, the continent has an important human The participation of the private sector in
capital base, with its population projected financing climate action and green growth is
to increase to 2.4 billion by 2050. As most of crucial to address climate challenges and to
the current population is young, compared fast-­track progress on green growth. Public
with other regions’ aging population, Africa is climate finance alone is insufficient to materialize

H ighlights  7
 Africa’s green growth agenda. The United Nations However, important barriers on the supply and
estimates that about $1.3 trillion will be required demand sides continue to inhibit the full poten-
annually to meet Africa’s financing needs for Sus- tial of private investments in climate action and
tainable Development Goals (SDGs) by 2030. To green growth sectors in Africa. The absence of
move from billions to trillions of climate finance, clear and robust green growth policies and long-­
and given already strained public resources, term strategies (LTSs) in many countries increase
bolstering resource mobilization from the private their investment risk profile and deter private actors
sector becomes imperative. from investing in green growth sectors. To date,
In addition, it is in the private sector’s best inter- only seven African countries have LTSs, and only
est to invest in climate action and green growth 18 countries put in place policies and regulations
sectors, thanks to the enormous opportunities specifically designed to attract private participa-
for high returns they offer. For example, there are tion in green growth projects. Due to low techni-
climate investment opportunities of about $1 tril- cal, human, and institutional capacity in managing
lion through 2030 in energy-­efficient buildings, critical phases of climate and green growth proj-
low-­carbon transport, and renewable energies in ect cycles, few projects get past the feasibility or
Africa. And investing $1.8  trillion between 2020 planning stage. In addition, the lack of investment-­
Between $2.6 trillion
and 2030 in climate adaptation and resilience ready project pipelines for climate action and green
and $2.8 trillion—or could generate private sector investors $7.1 trillion growth and the high levels of public debt limit the
$234.5–$250 billion in net benefits globally. The electric vehicle (EV) capacity of most countries to crowd in additional
market also offers a trillion-­dollar market oppor- private sector finance. On the supply side, interna-
a year—is needed by
tunities for private investors. Africa is at the center tional private investors perceive African markets as
2030 to implement of this supply chain given its substantial endow- high risk, leading to high costs of capital and high
the continent’s climate ments in lithium, cobalt, nickel, manganese, required rates of return. The high perceived risks
action ambitions graphite, iron, and phosphate, critical minerals in result in African countries being awarded largely
the production of lithium-­ion batteries used in EV subjective poor credit ratings in international cap-
and electricity storage. ital markets, in most cases below the investment
grade. And some private actors, particularly those
However, private climate finance flows in that recently committed to greening their invest-
Africa have fallen short of the continent’s ments, have limited experience in African mar-
needs. Between $2.6  trillion and $2.8  trillion is kets, so they base their investment decisions on
needed by 2030 to implement the continent’s asymmetric or limited information about the perfor-
climate action ambitions as expressed in Nation- mance of investments in different African markets.
ally Determined Contributions (NDCs) submit-
ted by April 2023. Put annually, this comes to Despite existing barriers, many invest-
between $234.5 billion and $250 billion. However, ment opportunities in climate action and
of the $29.5  billion in total climate finance flows green growth abound and could be lever-
in Africa in 2019–20, private finance of $4.2 billion aged to unlock private sector financing. Sec-
was on average more than six times lower than tors that rely on climate-­smart and low-­carbon
public finance ($25.3 billion), the lowest proportion technologies­ —­s uch as renewable energies
among the world’s main regions. Given the cur- and electric vehicles, energy-­efficient buildings,
rent level of private finance flows, Africa’s private climate-­resilient infrastructure, improved dryland
climate finance gap is thus estimated to reach agricultural crop production, and resilient water
about $213.4 billion a year (about 6.9 percent of resources­—­represent trillion-­dollar market oppor-
Africa’s projected GDP of $3.1 trillion in 2023) on tunities to the private sector in Africa. Africa’s ICT
average through 2030, assuming that the private market, expected to have grown from $95.4 bil-
sector covers the entire shortfall in climate finance lion in 2020 to $104.2  billion by 2023, offers
needs. To close this gap by 2030, private climate good investment potential in green technologies,
finance in Africa would therefore need to increase such as robotic trees, parasitic drones, clean-­air
by about 36 percent a year. buses, and air separation plants. Agriculture and

8 H ighlights
agribusiness sectors, with increased demand for Policy recommendations
climate-­smart agricultural technologies­—­such as • African countries should develop and cost LTSs
smart and renewable energy-­powered irrigation, to provide strong signals to domestic and inter-
biocontrol products and precision applicators, national stakeholders on their green growth and
climate-­resilient livestock feed, and smart sys- climate change priorities. They should translate
tems for pest or weed control­—­has the potential these strategies into sectoral strategies, plans,
to become a $1 trillion market by 2030. and regulations. The strategies should be com-
prehensive and cover all sectors and be fully
Several transformative policy actions can mainstreamed into the whole economy, not
turn all this potential into concrete investment developed and implemented in silos.
opportunities and mobilize private sector • They also need to strengthen governance
financing for green growth in Africa. Devel- and accountability systems to ensure that
oping regulations, standards, and policies­—­in the proceeds from private finance gener-
close collaboration with multilateral development ate the expected and maximum impact for
banks (MDBs) and development finance institu- green growth. Impact monitoring and evalu-
tions (DFIs)­—­for climate and green growth invest- ation frameworks should have clear metrics
African countries
ments can guide potential investors. Increasing and transparency and accountability systems
the use of blended finance instruments can de-­ for institutions managing this finance. These should develop
risk investments in climate and green growth sec- enabling policy and regulatory reforms will and cost long-term
tors. Expanding the use of sustainable financing create incentives for the private sector to invest
strategies to
instruments such as green bonds and loans can in both adaptation and mitigation.
help crowd in private investments. Strengthening • They should establish national standardized provide strong
domestic financial institutions, tapping into the blended finance vehicles that offer attractive signals to domestic
expanding global and domestic private equity and returns. They should use these vehicles effec- and international
venture capital appetite for African markets, and tively by ensuring that financial allocations
cautiously engaging with the emerging carbon demonstrate additionality and proportional-
stakeholders
markets and debt-­for-climate swaps and climate-­ ity. The potential impact of these investments on their green
linked debt, are also options to raise more private should inform the allocation of finance for blend- growth and climate
climate finance for the continent. ing, particularly by ensuring a balance between
infrastructure financing and social development
change priorities
To help mobilize more private financing for cli- and environmental management projects.
mate and green growth in Africa, MDBs and • MDB and DFIs need to support African coun-
DFIs need to be reformed. Only around one-­third tries’ efforts to address debt sustainability and
of private finance mobilized by these institutions create an enabling environment for climate
targeted climate action in 2018–20. As key players investment. They need to expand the issu-
in unlocking development and international public ance of concessional finance for green growth
finance, MDBs and DFIs should become less risk and climate change projects without pushing
averse by cautiously reducing their capital ade- countries into further debt. They should also
quacy ratios, establishing tailor-­made capital and enhance the roll-­out of sustainable debt mech-
liquidity frameworks and reassessing existing reg- anisms to countries at risk of debt distress,
ulatory capital and other prudential norms. They for instance through domestic capital markets
should move away from project-­based finance based on local currencies.
to finance a system-­wide sustainable transition. • These institutions should lead global efforts to
They should build internal capacity to integrate support African countries in creating a condu-
low-­c arbon, climate-­resilient perspectives into cive environment for climate investment and
policymaking. And their shareholder governments in advancing their transition to a low-­carbon
should give them stronger and more coherent pathway. This will require constant interactions
mandates to deliver transformative climate action and complementary engagements of all stake-
and green growth outcomes. holders to objectively assess countries’ climate

H ighlights  9
 and investment risk profile over time, develop Natural wealth is the part of nature that gener-
mechanisms and tools to address them, and ates well-­being for people. The Convention on
identify opportunities to enhance resilience. Biological Diversity broadly defines natural wealth
• Rating agencies need to expand their frame- as the stock of natural assets, which include air,
work to better reflect the real potential for the soil, water, geology, and all living things. Natural
African market. This could involve reforming capital is part of a country’s wealth, which includes
rating procedures to ensure that risk or credit other forms of capital­—­human, social, and phys-
ratings include the true potential of the African ical. Reliable, comprehensive, and harmonized
green growth markets. The increasing calls for data on natural capital is, however, generally lack-
the reform of the rating agencies and the on- ing due in part to the difficulty and complexity of
going progress toward the establishment of precisely quantifying and valuing natural wealth
an African Rating Agency are steps in the right on Earth. Concerted global efforts spearheaded
direction. by the United Nations and partner organizations
• Developed country governments, which make are underway to integrate natural capital and eco-
up a majority of the shareholders of MDBs system services in standard system of National
and DFIs, should champion discussions and Accounts through new frameworks such as the
Africa is endowed
actions that enable these institutions to reduce System of Environmental Economic Accounting
with 30 percent of their aversion to risk. This can be done by allo- (SEEA) and the SEEA Ecosystem Accounting. But
the world’s mineral cating more callable capital to MDBs, lowering challenges remain.
resources and MDB capital adequacy ratios, and reducing the
profitability targets of DFIs. Africa’s natural capital was estimated at
65 percent of the
$6.2  trillion in 2018, though the actual value
world’s uncultivated of this capital could be much higher if reli-
arable land, the CHAPTER 3 able data were available on recent mineral
world’s most NATURAL CAPITAL FOR and other extractive resource discoveries.
productive forests CLIMATE FINANCE AND Due to challenges of measurement and valua-
GREEN GROWTH IN AFRICA tion, the estimated values of natural capital do not
both in timber and consider several resources, including ecosystem
carbon retention Africa is abundantly endowed with renewable services in the form of land-­based sequestered
resources, and ample and non-­renewable natural resources. It is carbon stocks, solar, wind, and biodiversity­—­
solar, wind, and endowed with 30 percent of the world’s mineral and the ecosystem services they provide. Africa’s
resources and 65  percent of the world’s uncul- predominant types of measured natural capital
hydropower. However,
tivated arable land, the world’s most produc- are renewables, primarily land, forest, cropland,
the returns from tive forests both in timber and carbon retention pasture, and protected areas. But due to popu-
these resources have resources, and ample solar, wind, and hydro- lation growth and other factors, natural capital per
persistently been power. However, the returns from these resources capita in Africa fell from $4,374 in 1995 to $2,877
have persistently been below their potential. Thus, in 2018. This is concerning since a large part of
below their potential
while the share of Africa’s resources in the world is the population depends on natural resources for
considerable, the value of these resources, reflect- livelihoods, so the result is increasing inequality
ing their use, is small or not measured appro- and vulnerabilities, including to climate risks.
priately. The trend over the past quarter century
shows a decline in the value of natural capital per There is a vast potential to increase the pro-
capita­—­a strong indication that development has ductivity of renewable natural capital while
not been sustainable. Considering the significant sustaining it. With the right human capital and
climate change challenge that Africa faces and industrial policies, physical assets and ecosys-
the gaps in climate finance, it is imperative that tems could provide a higher value of output
Africa­—­a continent well-­endowed with enormous without compromising environmental quality. In
natural resources­—­leverage its natural capital to this regard, the application of circular economy
finance its green transition. principles­—­recycling and recovering materials

10 H ighlights
when possible­—­has the potential to increase the different fiscal instruments to obtain a fair share of
productivity of natural capital. And the efficiency of revenues from non-­renewable resources.
sequestering carbon in terrestrial ecosystems can
be further increased. Renewable resources replenish themselves
over time and can generate benefits in perpe-
Africa possesses significant mineral resources tuity if the extraction rate does not exceed the
that are key to the global transition to a net-­ reproduction rate. If the resources are extracted
zero carbon future, including bauxite, cobalt, sustainably, their flow generates revenue streams
graphite, lithium, manganese, and vanadium. and is not considered capital-­ d epleting. For
More than half of African countries have at least instance, Africa’s annual captured fish produc-
one of the critical metals and minerals needed for tion is estimated at 10 million tons­—­about 7 mil-
the energy transition, placing the continent in a lion tons from marine fisheries and 3 million tons
strategic position to influence the global net zero from inland fisheries. Mangroves, as a coastal
transition. But Africa participates only in the small ecosystem in tropical and subtropical regions,
value components of the total global value chain, provide several economic and ecosystem bene-
accounting for only about 10 percent of the total fits, including carbon sequestration, flood protec-
African countries
global value of such minerals, primarily exporting tion, biodiversity conservation, and timber and
raw materials with little or no local value addition. non-­timber forest benefits. The continent’s forest must break the
That makes it important for African countries to cover is estimated at about 637 million hectares, vicious cycle
break the vicious cycle stemming from excessive or 23  percent of the continent’s land area. In stemming
dependence on the export of natural resources addition, wooded landscapes and trees outside
from excessive
by creating more value on the continent, strength- forests are estimated at 350 million hectares, or
ening productive capabilities, and expanding 13  percent of the land area. There is also enor-
dependence on the
exports and intra-­African trade through the Afri- mous potential for ecotourism to leverage natu- export of natural
can Continental Free Trade Area (AfCFTA). Afri- ral resources and wildlife. Tourism is a powerful resources by
ca’s estimated 600 trillion cubic feet of natural gas source of economic growth and job creation, with creating more value
reserves, estimated at $210 billion in 2018, could a strong environmental and gender dimension.
also be used to fast-­track the continent’s energy Protecting biodiversity and forests through a mul-
on the continent,
access. tifaceted approach involving government policies, strengthening
community engagement, and public education productive
The extractive sector contributes to public and awareness is thus imperative. capabilities, and
and private finance in many African countries,
expanding exports
with some countries heavily reliant on these International multilateral agreements can
resources for public revenue. Africa’s extractive provide opportunities for African countries to and intra-African
resources will contribute more than $30  billion tap into new resources and markets. A global trade through the
annually to government revenue by 2040. The low-­c arbon transition to net-­zero greenhouse African Continental
continent’s value of non-­renewable natural capital gas emissions by 2050 presents considerable
Free Trade Area
was estimated at $2.4 trillion in 2018, with mineral resource-­based opportunities. Africa is already
and fossil fuel wealth estimated to be $215 billion much closer to net-­zero than other world regions,
and $1.06 trillion, respectively. For natural resource and thus could further build on this advantage
wealth to drive sustainable economic develop- to attract funding from, for example, increased
ment, African countries must ensure they receive a sequestration of carbon in forests. There are
fair share of resource rents and effectively manage opportunities for trade in carbon credits under
revenues generated from such resources. Tax the Paris Agreement as prices on emission reduc-
policies should be designed to internalize envi- tions in compliance markets are much higher
ronmental opportunity costs associated with the than in voluntary markets. The wedge between
exploitation of non-­renewable resources, but the compliance and voluntary markets is widening.
negotiated royalty taxes are low in many African For instance, the difference between the Euro-
countries. So, African governments should deploy pean Union (EU)-Emissions Trading System and

H ighlights  11
 voluntary carbon markets for Africa in 2017 was To fully harness their natural resource poten-
just $3.41 per metric ton of emission, but widened tial for climate finance and green growth,
to $52 per metric ton in 2021. The potential annual African countries should improve the gov-
cost reductions through trade in carbon credits ernance of their natural resources. In many
instead of each country implementing its NDCs on resource-­rich countries, including those in Africa,
its own could total about $250 billion in 2030 and resource rents have resulted in fierce contests
rise to $1 trillion in 2050. between ruling elite factions in the process of
creating, capturing, allocating, and distributing
Another opportunity is the EU Carbon Border the rents. The resource curse has been mani-
Adjustment Mechanism, which aims to sup- fested in most African countries, casting a neg-
port the low-­carbon transition by cutting emis- ative socioeconomic and political outcome from
sions by 55  percent by 2030 and to net-­zero mismanagement of rents from extractive sectors.
by 2050. It allows trade in carbon emission per- Africa has also lost more than $1 trillion in illicit
mits in goods that are produced emitting carbon flows over the last 50 years, and it is likely that
dioxide (CO2). Africa has the potential to benefit Africa will still lose about $89  billion annually, if
from this mechanism due to its enormous carbon corrective action is not taken. Illicit financial flows
Africa has also lost
sequestration potential. Greening initiatives such typically originate from corporate resource leak-
more than $1 trillion as the Great Green Wall Initiative, which also pro- ages, organized crimes, corruption, and bribery.
in illicit flows over vide funding opportunities for carbon sequestra- Drivers of illicit financial flows include high tax
tion through tree plantation, could further solidify rates on natural resources, low institutional capa-
the last 50 years
these benefits from carbon trades. Recently, COP bilities, political instability, and poor regulatory
and is likely to 27 in Sharm El-­Sheikh, Egypt, reached a land- quality.
continue to lose mark agreement on creating a Loss and Damage Policy and governance options to increase the
about $89 billion Fund for vulnerable countries with aims to pro- contribution of natural capital to green growth
vide financial assistance to developing countries transitions in Africa include separating policy and
a year if corrective most affected by the adverse effects­ —­ l osses regulatory functions in cases where various gov-
action is not taken and damages­—­of climate change. Similarly, the ernment institutions and departments have con-
Convention on Biological Diversity (CBD) agree- flicting mandates. They also include improving
ment provides environmental protection oppor- natural capital and sovereign credit risk factors
tunities for African countries through the Global to earn a better rating. The rich natural capital on
Environment Facility. Other opportunities include the continent stands as a barometer of the con-
the proliferation of voluntary carbon markets and fidence and creditworthiness of governments.
the Adaptation Benefit Mechanism, an innovative Finally, policymakers should have the right local
mechanism managed by the African Develop- content policy to add value and invest in building
ment Bank to mobilize new and additional public local capacity and improve regional integration to
and private sector finance for enhanced climate enhance trade and cooperation in tackling cross-­
change adaptation action. border challenges, such as the smuggling of
nature-­based products.
African countries need to build institutional
capacity. The meager benefits for Africa from Policy recommendations
past international agreements have been partly • The global community should honor pledges
attributed to the limited capacity to negotiate better and commitments in international agreements
positions, underpinned by the limited capacity such as the agreement on a Loss and Damage
to take stock of its resources and to identify and Fund, the post-­ 2 020 Global Biodiversity
communicate gaps for assistance. Most African Framework, and the Paris climate agreement.
countries also fail to negotiate for optimal benefits Developed countries also need to establish a
from their natural resources with private investors, global fund for nature that incorporates and
partly due to the challenge of conducting surveys incentivizes the preservation of nature and sus-
to ascertain the value of resource reserves. tainable natural resource management. This

12 H ighlights
 includes funding the Global Biodiversity Frame- and investing in natural capital. The actions
work and raising its ambition to meet the finan- include developing Natural Capital Investment
cial requirement of $200 billion a year by 2030. Plans as complements to National Biodiversity
• Increase collaboration and coordination Action Plans; mainstreaming natural capital in
among stakeholders­—­including international development planning and finance; integrating
and regional multilateral organizations, national natural capital accounting in the national sys-
governments, and the private sector­—­to invest tems of accounts; developing specific fiscal
in sustainable management of Africa’s natural instruments to improve renegotiation of roy-
resources. To improve the governance of natu- alty rates and windfall taxes, to generate more
ral resources, there must be deliberate efforts revenue from Africa’s natural resources. Other
to safeguard biodiversity and ensure that actions are reforming state-­owned enterprises
resource extraction is done sustainably and to promote beneficial ownership and working
equitably, inclusive of communities, indigenous with global credit rating institutions to feature
people, and human rights, especially in eco- natural capital more prominently in credit rat-
logically sensitive areas where threats to bio- ings for fairer ratings so that African countries
diversity and habitat destruction are very high. can have improved access to international
To improve the
• Develop long-­term policy options to establish capital markets. Developing strategies that
markets for innovative financing mechanisms. will also give African countries the impetus to governance of natural
Consider bio-­ c redits, sustainable bonds, process at least 50  percent of their primary resources, there
carbon bonds, resource-­backed loans, Cer- commodities into consumable goods by 2030. must be deliberate
tified Adaptation Benefits, debt-­ f or-nature The implementation of this set of recommen-
efforts to safeguard
swaps, and natural capital funds. However, it is dations could fast-­track development in Africa
crucial to consider the nature and origin of the because no country can develop by exporting
biodiversity and
entities financing the debt-­for-nature swaps, raw materials. ensure that resource
as some may have interests other than strict • Re-basing countries’ GDP in the light of the extraction is done
development or environmental conservation. positive externalities associated with the carbon sustainably and
These can be done both in the voluntary and sequestration value of forest ecosystems could
intergovernmental sectors but should avoid further expand the economic base, and will
equitably, inclusive
depletion of renewable natural resources and align it with the inclusive growth agenda. The of communities,
promote responsible extraction and use of benefits of carbon sequestration to overall GDP indigenous people,
non-­renewable natural resources. and as value for the purpose of credit rating is and human rights,
• Promote a circular economy in nature-­sensitive an area where risk rating agencies and African
especially in
investments to responsibly guide the environ- scholars could explore more using growing
mental, social, and governance aspects of opportunities of big data and innovative models ecologically sensitive
natural capital. Increase material reuse and that will incorporate the pricing of these positive areas where threats
recycling in non-­renewables (such as green externalities as global public goods. to biodiversity and
minerals) and renewables (sustainable fishing • Africa’s natural capital accounts need to be
habitat destruction
and forestry management). This can provide developed, transparent, and open to the public
significant win-­win opportunities for investment to build investor confidence in the role of natural
are very high
in nature-­based solutions and the overall pro- capital in financing inclusive economic growth.
tection of biodiversity. This would be a first step toward generating
• African countries need a strong and sustained appropriate macroeconomic management and
commitment to carry out public policy reforms sustainability indicators as part of the regular
to ensure that natural resource wealth drives system of national accounts. It could also help
sustainable economic development. This will generate geological and geospatial data by
trigger actions to resolve the myriad of other investing part of natural resource rents to sup-
management and governance issues, including port regional exploration, carry out required
internalizing environmental opportunity costs environmental assessments, and strengthen
associated with exploiting natural resources negotiation power with investors.

H ighlights  13
 • Africa’s endowment in green development • Multilateral development partners could sup-
minerals needed in the battery value chain port African countries by supporting the design
will require a regional approach, coopera- of appropriate fiscal instruments and policies
tion, and capacity building to ensure effective to extract revenues from resources and eco-
value addition. In addition, producing lithium-­ system services, invest in human capital, and
ion batteries from Africa’s substantial mineral build capacity in international negotiations.
resources will be necessary to decarbonize the To increase international financing for climate
supply chains while creating decent and qual- adaptation, mitigation, and nature, MDBs
ity employment opportunities on the continent. should play a role in de-­risking climate and
However, such investments need conducive nature-­related investments, as is done in the
and stable policies and institutions to foster Adaptation Benefits Mechanism.
regional collaborations.

14 H ighlights
AFRICA’S ECONOMIC
PERFORMANCE
1
AND OUTLOOK

KEY MESSAGES

• African economies remain resilient amid multiple shocks with average growth
projected to stabilize at 4.1  percent in 2023–24, higher than the estimated
3.8 percent in 2022. Following a strong recovery from the debilitating impact of COVID-­
19, Africa’s growth declined to an estimated 3.8 percent in 2022, from 4.8 percent in 2021.
The slowdown in growth had many causes: tightening global financial conditions, supply
chain disruptions exacerbated by Russia’s invasion of Ukraine,1 subdued global growth
constraining demand for Africa’s exports, residual effects of the COVID-­19 pandemic, and
growing impacts of climate change and extreme weather events. Growth’s projected sta-
bility in 2023 and 2024 reflects the expected benefits from a slight improvement in global
economic conditions­—­mainly underpinned by China’s re-­opening and the slower pace of
interest rate adjustments following aggressive tight monetary policy. But elevated inflation
and persistent fragility in supply chains and climate change impacts will remain on the
watchlist as potential constraints to accelerated growth in the continent.

• The outturn for growth in 2022 and the outlook for the medium- term mask
cross-­regional variations. Underpinned by high commodity prices, Central Africa had
the highest growth of 5.0 percent in 2022, up from 3.4 percent in 2021, but it is projected
to decline slightly to 4.8 percent in 2023–24. West Africa’s growth slowed to 3.8 percent
in 2022 from 4.4 percent in 2021 but is projected to rise to about 4.1 percent in 2023–24.
Similarly, North Africa’s average growth is projected to rise to 4.5  percent in 2023–24
after a decline to 4.1 percent in 2022 from 5.1 percent the previous year. East Africa’s
growth moderated to 4.4 percent in 2022 from 4.7 percent in 2021 but is projected to
rise to 5.5 percent in 2023–24. Growth in Southern Africa is expected to slow further to
2.1 percent in 2023–24 after decelerating to 2.7 percent in 2022 from 4.4 percent in 2021,
weighed down by subdued growth in South Africa.

• The dynamics of Africa’s macroeconomic fundamentals are still mixed, and

considerable challenges remain. The average fiscal deficit is estimated to have nar-
rowed to 4.0 percent of GDP in 2022, from 4.9 percent in 2021, and is projected to stabi-
lize at 3.9 percent, reflecting relative improvement in revenues, especially in oil-­exporting
countries. However, the average current account deficit is estimated to have widened to
2.1 percent of GDP in 2022, from 1.7 percent in 2021, and is projected to widen further
to 2.3 percent in 2023–24, reflecting net capital outflows and subdued export revenues
mainly in other resource-­intensive economies. Exchange rate fluctuations continued in
most countries, and domestic currencies in African net commodity-­exporters lost sub-
stantial value against the US dollar due to interest rate hikes in the United States, which

 15
 bolstered the dollar. Despite the decline, projected stability. Continued appreciation
food and energy prices remained high, with of the US dollar could also heighten risks of
average inflation increasing to an estimated debt distress and perpetuate debt vulnerabil-
14.2  percent in 2022, from 12.9  percent in ities, dampening the growth momentum. And
2021. The increase in inflation also reflected general elections scheduled in several African
strong exchange rate pass­through effects. countries in 2023 and 2024 could increase
Inflation is projected to rise to 15.1 percent in political uncertainty, weaken investor confi-
2023, due to prevailing structural weakness dence, derail the recovery in investment flows
on domestic food supply, volatility in energy and disrupt economic activity. Other out-
prices, as well as continued weakening of standing downside risks include prolonged
domestic currencies. But it should fall to global tightening of monetary policy and the
9.5 percent in 2024, benefiting from the cur- resulting drag on global growth that could
rent cycle of tightening monetary policy and dampen demand for Africa’s exports and
easing domestic food supply constraints. investment flows.

• Public debt is projected to remain high, • A mix of short term and medium to long-­
Africa’s stable
increasing the vulnerabilities. Although term policies is needed to accelerate
economic outlook the median public debt in Africa is estimated and sustain the growth momentum in
comes with cautious to have declined to 65 percent of GDP in 2022 Africa. In the short term: A clearly commu-
from 68 percent in 2021­—­thanks to debt relief nicated anti-­inflation monetary policy, sup-
optimism, given the
initiatives in some countries­—­it will remain ported by prudent fiscal policy will achieve
considerable global above the pre-­pandemic 61 percent of GDP. lower inflation faster at minimum cost to the
uncertainty and Moreover, this debt-­GDP ratio is expected to economy. Macroprudential policies to build
geopolitical tensions increase to 66 percent in 2023 and then stabi- capital and liquidity buffers to supplement
lize at around 65 percent in 2024 due to grow- monetary policy actions will be necessary to
ing financing needs­—­associated with rising address financial stability risks and maintain
food and energy import bills, high debt service price stability. Coordinated debt treatment
costs due to interest rate hikes, exchange rate strategy between official and private credi-
depreciations, and rollover risks. tors is key to avoiding debt crisis, given tight
In addition, many countries’ difficulties in global financial conditions and a bunching of
accessing international capital markets, com- debt service payments.
bined with limited revenue mobilization, have In the medium to long term: Scaling up
led them to issue local currency debt, which domestic revenue mobilization is critical to
increased substantially from 35  percent of restore fiscal sustainability and finance inclu-
GDP on average in 2019 to 42  percent in sive growth and sustainable development.
2021. Factoring in the cost of subsidies and Enacting strategic industrial policies to accel-
cash transfers to mitigate food and energy erate economic diversification in Africa would
prices, domestic borrowing could have risen limit the effects of recurrent headwinds and
further in 2022. Domestic debt restructuring, the transmission of global shocks to growth.
therefore, should be part of the negotiations Boosting regional trade would enhance Afri-
for the resolution of public debt crises in ca’s resilience to spillovers from global eco-
countries facing heightened risks. nomic growth slowdown and reduce the
persistent trade deficit. Reforming the global
• Africa’s stable economic outlook comes financial and debt architecture would reduce
with cautious optimism, however, given the cost, time, and legal complications associ-
the considerable global uncertainty and ated with debt restructuring for African coun-
geopolitical tensions. The failure to diffuse tries. Governance reforms should strengthen
Russia’s invasion of Ukraine and the pockets public financial management to deal with
of conflict in Africa could unravel growth’s increased debt and tight fiscal space.

16 A frica’ s economic performance and outlook

GROWTH PERFORMANCE pandemic, is projected to exceed 5  percent in
AND OUTLOOK 2023, and the number of countries with growth
exceeding 5 percent is expected to rise to 22 in
Africa remains resilient amidst 2024. However, Equatorial Guinea, in recession for
multiple shocks with average growth most of the past decade due to maturing oil fields
projected to stabilize at 4.1 percent and low investment, could remain so even in 2024.
in 2023–24, higher than the estimated Africa’s projected growth for 2023–24 will be
3.8 percent in 2022 stronger than Europe’s and the global average
The pace of economic recovery in Africa was but will lag Asia’s (4.3 percent), which is likely to
dampened by tightening global financial condi- benefit from the rebound in China. The April 2023
tions, elevated inflation, and supply chain disrup- edition of the International Monetary Fund’s World
tions stoked by Russia’s prolonged invasion of Economic Outlook projects global growth to
Ukraine and subdued global growth. The effect decline from an estimated 3.4 percent in 2022 to
of these factors was reinforced by growing impact 2.8 percent in 2023 (see figure 1.1). The projected
of climate change and extreme weather events. weakness in global growth reflects persistence of
Average growth of real gross domestic product shocks just highlighted above and is expected to
Average growth of
(GDP) was estimated at 3.8 percent in 2022, down continue to impact investment flows to Africa and
from 4.8  percent in 2021 but above the global demand for its exports. But China’s reopening real gross domestic
average of 3.4 percent. and economic rebound and associated impact on product in Africa
Updated estimates also show that growth Asia’s overall growth could shore up the demand
was estimated
in 31 of the continent’s 54 countries, including for Africa’s commodities. Asia accounts for almost
the two biggest economies, Nigeria, and South half of the continent’s merchandise exports. at 3.8 percent in
Africa, weakened in 2022 and three countries­—­ The pulse of economic activity gauged by evo- 2022, down from
Libya, Sudan, and South Sudan­—­went into reces- lution in high frequency leading indicators such as 4.8 percent in
sion and faced prolonged growth decelerations the Purchasing Managers’ Index (PMI) also sug-
sparked by internal imbalances and COVID-­19. gests a deceleration in four of Africa’s top six econ-
2021 but above
Libya also experienced declines in oil produc- omies in 2022 (figure 1.2). The PMI values for Egypt, the global average
tion due to blockades of several major ports and Kenya, Nigeria, and South Africa, which constitute of 3.4 percent
oil fields by protests that began in April 2022. In half of the continent’s GDP, have generally trended
addition to the three countries experiencing a
recession, three others recorded rapid growth FIGURE 1.1 Real GDP growth, 2019–24
deceleration: Morocco (6.8  percentage points),
Botswana (6.1 percentage points), and Zimbabwe Percent
8
(5.5  percentage points). Morocco’s deceleration
was attributed to a drought, and Botswana’s to 6
declines in both mining and non-­mining output Asia
4
and an ebbing base effect. Zimbabwe’s growth Africa
World
slowdown was attributed to low agricultural output 2
due to drought and persistent domestic macro- Europe
United States
economic imbalances. 0

Despite the persistence of shocks, Africa will

–2
consolidate its economic recovery, with growth
projected to stabilize at 4.1  percent in 2023–24, –4

0.1 percentage points higher than the earlier pro-

–6
jection of 4.0  percent reported in January 2023 Latin America and the Caribbean

edition of Africa’s Macroeconomic Performance –8

and Outlook (figure 1.1 and appendix table A1.1).2 2019 2020 2021 2022 2023 2024
(estimated) (projected) (projected)
Growth in 18 African countries, including 5 of the
world’s 10 fastest growing economies before the Source: African Development Bank statistics and IMF 2023.

A frica’ s economic performance and outlook  17

 FIGURE 1.2 Purchasing Managers’ Index in Africa, 3.2 percent in 2022, against growth of 5.2 percent
2017–March 2023 in 2021. The annual decline in Nigeria (0.5 percent)
was less severe than others, relative to an increase
Purchasing Managers’ Index of 9.6 percent in 2021. In South Africa, the growth
65
rate of PMI in the same period declined by 11.3 per-
centage points to 1.6 percent, from 12.9 percent.
Kenya
Nigeria The underwhelming PMI performance partly
55
reflects structural weaknesses, and the interest
rate hikes to tame spiraling inflation in these coun-
tries. In South Africa, power outages have affected
45 virtually all sectors of the economy, from retail and
South
Africa Egypt
other services to manufacturing and mining, further
exacerbating the effects of the subdued external
35 demand and tight monetary policy. South Africa’s
economy might barely escape a recession, with
growth projected at 0.2 percent in 2023. Nigeria’s
25 infrastructure challenges and rising insecurity have
2017 2018 2019 2020 20221 2022 Mar. hit oil production, with spillover effects to non-­oil
2023
sectors. Low oil production eroded the positive
Source: Haver Analytics and IHS Markit. price effect of high global oil prices, while rising
global prices of food and fertilizer fed into already
downward since March 2022, an indication of sub- elevated inflation. Growth in Nigeria is projected to
dued economic activity. The PMI values reinforce remain subdued at about 3.3 percent in 2023–24.
the estimated growth slowdown in Africa in 2022. Following Russia’s invasion of Ukraine in Feb-
For instance, between March and December 2022, ruary 2022, commodity prices rose immediately in
Egypt’s PMI declined by 4.3 percent year-­on-year, March 2022 (figure 1.3) and peaked within a few
compared with an increase of 6.4 percent during months. However, prices have since declined to
the same period in 2021. Similarly for Kenya, below pre-­invasion levels. The decline is largely
the year-­on-year PMI values also declined by attributed to weak global demand. At end March

FIGURE 1.3 Global commodity price indices, January 2020–March 2023

Index (2010 = 100)

250
Fertilizers

200
Energy

150 Food
Agricultural

100
Metals and minerals

Raw materials
50

0
Jan. Jan. Jan. Jan. Mar.
2020 2021 2022 2023

Source: AfDB staff calculations based on the World Bank Commodity database.

18 A frica’ s economic performance and outlook

2023, the energy price index was 69.9 percentage activity, as reflected in the projected slower growth
points lower than its peak in June 2022, while the in advanced economies in 2023 and 2024.
food price index was 24.3 percentage points lower The growth momentum of per capita income
than its peak in May 2022. The price index for in Africa remains sluggish (figure 1.5), and the
fertilizers followed a similar pattern, declining by continent faces a major threat to reversing the
77 percentage points from a peak of 255 in April increase in poverty over the past three years. In
2022 to 178 in January 2023. But prices for metals 2022, per capita income grew by 1.5  percent,
and minerals have since risen from their trough
in October 2022, mainly because of renewed FIGURE 1.5 Real GDP per capita growth, 2019–24
demand in Asia and particularly in China, driven
by increased construction and manufacturing Percent
8
activity after the country’s reopening. Evolution in
global commodity prices remains uncertain how-
6
ever, and the current levels could quickly reverse if Asia
Russia’s invasion of Ukraine were to escalate fur- 4
ther or linger for much longer. The early April 2023 World
surprise decision by OPEC+ to cut oil production 2
Africa
by more than one million barrels a day could also Europe
0
stoke a rise in oil prices.
Financial markets in advanced economies
–2
remain volatile in response to inflation and central
bank actions (figure 1.4). Major equity markets have –4
edged up on expectations of interest rate cuts, as
fears of persistent inflation and recession ease and –6
improve the outlook, though with considerable 2019 2020 2021 2022 2023 2024
(estimated) (projected) (projected)
uncertainty. Capital gains from rising equity mar-
kets in advanced economies have not translated Source: African Development Bank statistics, World Economic Outlook
into corresponding improvements in economic Update, April 2023, and United Nations Population Division estimates.

FIGURE 1.4 Leading global capital market indices, January 2020–March 2023

Index (March 2022 = 100)

150

Dow Jones China

Eurofirst 300

100
Dow Jones US

S&P 500

50
VIX

0
Jan. Mar. May July Sept. Nov. Jan. Mar. May July Sept. Nov. Jan. Mar.
2021 2022 2023

Note: VIX is the Chicago Board Options Exchange’s CBOE Volatility Index.
Source: African Development Bank statistics and Haver Analytics.

A frica’ s economic performance and outlook  19

 shedding 0.8 percentage points from the 2.3 per- improvement over pre-­pandemic levels­—­50.0 per-
cent recorded in 2021. It’s expected to recover to cent in 2019 and average of 58.2 percent in 2014–
about 1.8 percent in 2023–24 but will lag growth in 18. Much of the decline in private spending is due
Asia (3.7 percent) and globally (2 percent). Africa’s to relatively high commodity prices and tight mon-
high population growth rate­—­estimated at 2.4 per- etary policy, which eroded household purchasing
cent a year­—­continues to weigh on per capita power. These factors could further push down the
income growth, particularly in an environment contribution of household consumption spending
where economic growth has remained subdued to 2.4 percentage points in 2023–24.
for a prolonged period. At the current rate of per The slack in household consumption spending
capita income growth, Africa’s convergence with was offset by a slight improvement in the contri-
Asia and other fast-­growing regions will remain bution of net exports to growth while the share of
elusive. Its socioeconomic transformation will thus private investment fell. Net exports shed 0.8 per-
fall further behind other regions, unless growth is cent of growth, lower than the 2.1  percent for
accelerated and sustained at higher rates than 2021. In contrast, the contribution of gross capital
those registered in the 1990s and 2000s. formation, although positive, declined to 1.1 per-
cent from 1.4 percent the previous year. The com-
Household
Sectoral and demand-­side bination of government consumption spending
consumption decomposition of growth remained flat, at 0.2 percent, for the second con-
spending, historically The slowdown in growth in 2022 partly reflects secutive year. This is a pullback from pandemic-­
weakness in private consumption and investment induced expansionary fiscal policy, when gov-
the key driver of
on the demand side and in the industrial sector ernment consumption spending added nearly
growth on the on the supply side. Household consumption 1 percent to growth in 2020. Continued improve-
demand side, spending, historically the key driver of growth on ment in public revenues bodes well for a recov-
weakened in 2022. the demand side, weakened in 2022. It contrib- ery in the contribution of government spending to
uted 3.3 percentage points, or 86 percent, of the overall growth, projected at 0.6 percent in 2023
It contributed estimated 3.8 percent growth (figure 1.6). But this and rising further to 0.7 percent in 2024. Invest-
3.3 percentage was lower than the 5.3 percentage points (equiva- ment’s contribution to growth may pick up only in
points, or 86 percent, lent to 112 percent) contribution to growth for that 2024, at 1.2 percent, after falling to 0.8 percent in
year. Despite the decline, the contribution is an 2023 from 1.1 percent in 2022.
of the estimated
3.8 percent growth FIGURE 1.6 Demand-side decomposition of GDP growth, 2017–24

Net exports of goods and nonfactor services Gross capital formation

Percent Household consumption expenditure Government consumption expenditure
9

6
Real GDP growth

–3

–6
2017 2018 2019 2020 2021 2022 2023 2024
(estimated) (projected) (projected)

Source: African Development Bank statistics.

20 A frica’ s economic performance and outlook

 On the supply side, the contribution of services of the last six years, and it is expected to remain
to growth remained flat in 2022­—­at 2.6 percent- unchanged in the medium-­term.
age points. This represented about 68.9 percent of
the sectors’ contribution and was the most domi- Growth performance and outlook
nant driver of growth (figure 1.6). The contribution across regions and countries
of the services sector is expected to remain higher
than in other sectors, but its share will decline to Economic performance in Africa exhibits
about 2.3  percentage points in 2023 and 2024, marked cross-­regional variations
mainly due to continuing tight financial conditions. Africa’s economic performance exhibits cross-­
High interest rates have affected growth in private regional variations, largely reflecting differences in
sector credit, with the net effect reflected in the the economic structure, commodity dependence,
lower contribution of financial services to services different exogenous shocks, and the domestic
growth. policy responses to mitigate the impact of these
After rebounding strongly in 2021, the con- shocks (figure 1.7).
tribution of industry to growth more than halved
to 0.5  percentage points in 2022 from 1.2  per- Central Africa
After rebounding
centage points. This fall in industry’s share was Growth in Central Africa is estimated to have
mainly attributed to high energy input prices and risen to 5  percent in 2022 from 3.4  percent in strongly in 2021,
the higher cost of other imported raw materials, 2021, benefiting from high commodity prices. the contribution of
fueled by exchange rate passthrough effects and Central Africa mainly comprises net exporters of
industry to growth
supply chain disruptions. Persistent domestic crude oil, minerals, and other commodities such
structural weaknesses such as power outages as timber. Growth is projected to moderate to more than halved
and transport costs added further challenges to 4.9 percent in 2023 and stabilize at 4.6 percent in to 0.5 percentage
industrial activity. Improved supply chains and 2024 as global commodity demand picks up and points in 2022 from
lower commodity prices could ease some of these domestic conditions improve, supporting invest-
challenges, boosting industry’s contribution back ment, after the weak performance induced by
1.2 percentage points
to an average of 1.2  percentage points in 2023 the COVID-­19 pandemic. The projected growth
and 2024. Agriculture’s contribution to growth has in 2023–24 will be underpinned by sustained
been flat at 0.6 percentage points for most part growth in the Democratic Republic of the Congo

FIGURE 1.7 Sectoral decomposition of GDP growth, 2017–24

Percent Net taxes Services Industry Agriculture

9

Real GDP growth

6

–3
2017 2018 2019 2020 2021 2022 2023 2024
(estimated) (projected) (projected)

Source: African Development Bank statistics.

A frica’ s economic performance and outlook  21

 (36 percent of Central Africa’s GDP), the region’s shocks such as drought, particularly in the Horn
top performer, with real GDP growth exceeding of Africa, and pockets of fragility, including internal
6 percent since 2021. That growth has benefited conflicts. The slowdown in 2022 was attributed
from scaling up investments and exports in the mainly to these shocks, exacerbated by disrup-
mining sector. Cameroon and Congo will also tions to global supply chains. Tight monetary and
sustain their growth momentum, at rates averag- fiscal policy to rein in inflation has also constrained
ing above 4 percent in the medium term. In con- domestic consumption, compounded by contrac-
trast, after a recovery in 2021, Equatorial Guinea tions in agriculture and manufacturing activities,
faces a prolonged recession extending into 2024, weak growth in credit to the private sector, and
as the country grapples with declining hydrocar- the rise in public debt.
bon output from maturing operational oilfields and Growth in the region is expected to consoli-
tightening global financial conditions hindering date at above 5 percent in the medium term. High
investments in new oil and gas fields. growth will be anchored on Ethiopia, Rwanda,
and Uganda (which together account for 41 per-
East Africa cent of the region’s GDP). Rwanda has consis-
East Africa has experienced better economic per- tently grown by 7 percent or more, except in 2020,
East Africa was
formance and was the only region that escaped and is projected to sustain this momentum in
the only region a recession during the pandemic, underpinned 2023 and 2024. Growth in Rwanda will be driven
that escaped a by its more diversified production structure. Its by higher public infrastructure spending and min-
recession during the growth momentum moderated to 4.4  percent in eral exports, boosted by value addition in miner-
2022 from 4.7  percent in 2021 but is projected als through enhanced investment. Uganda and
COVID-19 pandemic, to rise strongly to 5.1 percent in 2023, firming up Ethiopia are also projected to grow strongly in
underpinned by its to 5.8  percent in 2024. Since most countries in 2023 and 2024, exceeding 5 percent on account
more diversified the region are net importers of commodities and of developments in the oil sector for Uganda and
bear the brunt of high international prices, espe- continued infrastructure spending for Ethiopia.
production structure cially for energy and food, high commodity prices Djibouti, Kenya, and Tanzania are also expected
often translate into slower growth, as in 2022, and to sustain their recent gains. Sudan’s projected
this remains a concern for the medium-­term out- higher growth of 2 percent in 2023 and 3.8 per-
look. The region is also prone to recurrent climate cent in 2024 is subject to downside risks, includ-
ing the political impasse. South Sudan may not
FIGURE 1.8 GDP Growth in Africa, by region, 2021–24 return to positive growth until 2024.

Percent 2021 2022 (est.) 2023 (proj.) 2024 (proj.)

North Africa
6
Growth in North Africa is estimated to have
declined by 1.3 percentage points to 4.1 percent
5
2022. It was hit by the sharp contraction in Libya
(6 percent of the region’s GDP) and the effects of
4
drought in Morocco (13  percent of the region’s
GDP). Higher growth is projected in 2023–24 at
3 an average of 4.5  percent, supported by strong
recovery in these two countries and consolidating
2 the gains in others. For instance, Libya’s growth is
projected to increase to 8.0 percent in 2024, from
1 the contraction of 12.1 percent in 2022, boosted
by better oil production. Similarly, Morocco’s
0 growth rate is projected to more than double to
Central East North Southern West Africa 3.5  percent in 2024, from 1.1  percent in 2022,
Africa Africa Africa Africa Africa
reflecting waning effects of the earlier supply-­side
Source: African Development Bank statistics. shock on the economy.

22 A frica’ s economic performance and outlook

 However, the region remains vulnerable to stability, providing a boost to the country’s growth,
significant headwinds, including climate shocks which is projected to accelerate to an average of
and fluidity in Libya’s political situation. These 4.1 percent, above the 2022 estimate of 3.0 per-
factors and persistent social challenges pose sig- cent. Favorable weather conditions after a series
nificant risks to the region’s economic outlook. of droughts could support growth in Madagascar,
Yet the region has immense potential to meet its projected at 4.2 percent in 2023 and 5 percent the
own energy needs and to serve as an alterna- following year.
tive source for the European Union’s oil and gas
needs, given its proximity to Europe and the Euro- West Africa
pean Union’s shift away from Russia’s oil and gas. Growth in West Africa is estimated to have slowed
to 3.8 percent in 2022 from 4.4 percent in 2021.
Southern Africa All countries except Cabo Verde, The Gambia,
Southern Africa faces significant headwinds to Guinea, Mali, and Niger, recorded growth decel-
growth, ranging from structural weakness in South erations in 2022. The region’s smaller econo-
Africa, high debt in Zambia and Zimbabwe, and mies will thus anchor average regional growth to
adverse weather conditions, including cyclones 3.9 percent in 2023 and 4.2 percent in 2024. Of
Growth declined to
in Malawi and Mozambique. Growth is therefore the nine countries with projected growth rates of
estimated to have remained tepid in 2022, declin- 5 percent or higher in 2024, eight are small econ- 2.7 percent in 2022
ing to 2.7 percent from 4.4 percent in 2021. South omies, accounting for 15 percent of the region’s from 4.4 percent in
Africa, the region’s largest economy (60 percent GDP and 21.9  percent of the projected growth.
2021 in Southern
of the region’s GDP) and main trading partner, This will offset the subdued growth in two of the
recorded a 2  percent real GDP growth in 2022, region’s biggest economies, Ghana and Nigeria. Africa and to
less than half the growth rate in 2021 (4.9 percent), Weighed down by growing macroeconomic 3.8 percent in 2022
due to subdued global demand, power outages, imbalances­—­high inflation, depreciating local cur- from 4.4 percent in
and devastating floods that affected industrial pro- rency, and high public debt estimated at 91 per-
duction in Kwa-­Zulu-Natal.3 A build-­up in inflation- cent of GDP­—growth in Ghana is projected to
2021 in West Africa
ary pressures also affected household consump- decline to an average of 2.4 percent in 2023–24,
tion spending, a key driver of growth in South from 3.3  percent in 2022. Similarly, Nigeria’s
Africa. South Africa’s close trade ties with other growth is projected to stabilize at 3.3  percent
countries in Southern Africa means that shocks in 2023–24, unchanged from 2022, reflecting
buffeting the country are transmitted to the rest structural weaknesses in the oil sector and deep
of the region. Countries in the Common Monetary macroeconomic imbalances­—­near 20-­year high
Area4 and the Southern African Customs Union5 inflation, foreign exchange shortages that drove
experience near-­ symmetrical shocks to those rapid depreciation of the national currency, and
affecting South Africa. effects of local currency shortages that affected
Protracted delays in addressing South Africa’s the country in the first quarter of the year. In Côte
worsening energy crisis, coupled with operational d’Ivoire, investment in strategic logistics infra-
and financial weaknesses in state-­owned entities structure, expanded construction projects to meet
and slow progress in implementing reforms, will growing urbanization and infrastructure in prepa-
keep the country’s growth below emerging market ration to host the 34th edition of the Africa Cup
peers. Growth in the region will thus remain sub- of Nations in January 2024, and planned energy
dued, with real output projected to decelerate to projects to enhance the country’s renewable
1.6  percent in 2023 before rising to 2.7  percent energy sector, are projected to boost growth from
in 2024. Higher growth for the region as a whole an estimated 6.7 percent in 2022 to 7.1 percent in
is projected in 2024, largely reflecting post-­Idai 2023–24.
recovery in Mozambique, which is projected to
expand by 3.5 percentage points to 8.3 percent. Country groupings
Faster debt resolution in Zambia could also unlock Tourism-­d ependent economies grew by an
stalled investments and cement macroeconomic estimated 8.4  percent in 2022, sustaining the

A frica’ s economic performance and outlook  23

 FIGURE 1.9 GDP Growth in Africa, by country grouping, 2021–24 Average growth for non-­r esource-intensive
economies declined to an estimated 4.4  per-
Percent 2021 2022 (est.) 2023 (proj.) 2024 (proj.)
cent in 2022 from 6.3 percent in 2021, weighed
10
down by the effects of heightened inflation on
household consumption and subdued global
8 demand for exports. These economies repre-
sent about a quarter of Africa’s GDP, and most
of them are relatively more diversified than their
6
commodity-­ d ependent peers. However, agri-
culture remains the mainstay for most of them.
4 Cabo Verde, Côte d’Ivoire, Mauritius, Rwanda,
and Seychelles posted growth rates above
6.5 percent, and sustaining higher rates in these
2
countries will accelerate medium-­term average
growth for non-­resource-intensive economies to
0 5 percent in 2023 and 5.6 percent the year after.
Oil Other Non- Tourism Low Middle Africa This expansion reflects the projected recovery in
exporters resource- resource- dependent income income
intensive intensive public infrastructure investment across the group
Source: African Development Bank statistics. and resilience due to diversified structure of the
economies.
momentum from 2021 (figure 1.9). Growth was Oil-­exporting countries have gradually recov-
aided by the easing of travel restrictions that ered from the effects of the pandemic, but the
Tourism-dependent
released pent-­u p tourism demand, evidenced momentum weakened slightly in 2022, with growth
economies grew by higher than expected rebound in the number estimated at 4 percent, down from 4.2 percent in
by an estimated of visitors. In 2022, tourist arrivals in Seychelles 2021. This slowdown is largely blamed on a sharp
reached a total of 334,552, 82 percent higher than decline in Libya and weaker growth in Nigeria.
8.4 percent in
2021 and exceeding the government’s forecast of Africa’s oil-­exporting countries account for about
2022, sustaining 258,000 arrivals.6 Data from the United Nations 51 percent of the continent’s GDP, so their growth
the momentum World Tourism Organization indicates that inter- has a significant influence on Africa’s average
from 2021 national tourist arrivals in 2022 were 140 percent performance.
higher than the 19.4 million in 2021. Nigeria, Africa’s largest economy and top
Tourist arrivals in Africa’s major destina- oil producer, accounts for about 30  percent of
tions were also boosted by domestic strate- the output for this group of countries and about
gies, including the award of long-­term tempo- 15  percent of Africa’s GDP. But it has suffered
rary residency permits and suspension of visa from a steady decline in oil production, due to
requirements for high-­ e nd tourism markets aging infrastructure and rising pipeline vandalism.
such as Mauritius and Seychelles. These strat- The negative output effect has thus offset any
egies reflect policy efforts to promote the sector gains from higher prices of crude oil, impeding the
to secure sustainable tourism revenues and sector’s contribution to the country’s growth.
employment. The full impact of the resumption With Nigeria’s medium-­term growth projected
of tourism activities and easing of residual mini- to remain tepid, much of the group’s projected
mal restrictions in international travel may, how- average growth of 4.2  percent in 2023–24 will
ever, be offset by persistently high inflation and be driven by strong recovery in Libya (13 percent
the impact of tight financial conditions on dis- average for the period) and consolidation in other
cretionary income in key tourist-­source markets. countries. Efforts to shore up political stability in
On the back of these potential risks, growth is Libya and spur catalytic investment in oil sector
projected to slow to 4.9 percent in 2023, and if could contribute to growth in Africa’s oil export-
adverse global conditions persist, it could slow ers. Addressing insecurity and rehabilitating infra-
further to 4.4 percent in 2024. structure as well as anticipated coming on stream

24 A frica’ s economic performance and outlook

of the Dangote oil refinery in Nigeria, could add tailwinds that could alter the outlook. The bal-
further impetus to the group’s future growth. Afri- ance of risks is, however, tilted to the downside.
ca’s oil exporters, with vast reserves, have the The risk of geopolitical tensions both regionally
opportunity to capture European markets as well and globally persists and this could affect Africa’s
as other markets that rely on Russian oil. Consid- projected medium-­term growth. Globally, Rus-
erable risks remain for the long term, however, as sia’s prolonged invasion of Ukraine remains a key
the net-­zero transition gathers pace. source of uncertainty, and any further escalation
Falling commodity prices, especially for metals could exacerbate already strained supply chains
and other minerals, dampened performance in and reverse the recent decline in global commod-
other resource-­ i ntensive economies. Average ity prices. This could affect growth in Africa’s net
growth for the group declined to an estimated commodity-­importing countries. Within Africa,
3 percent in 2022 from 4.5 percent in 2021. The conflicts in some of Africa’s hotspots­—­such as
key factors for weaker growth include inadequate Burkina Faso, Democratic Republic of Congo,
electricity generation, subdued household con- Ethiopia, Mali, and Mozambique and the security
sumption spending due to high inflation, weak situation in Sudan­—­present challenges for political
global demand, and high indebtedness. Growth stability and continue to put undue fiscal strain on
Any further escalation
in Botswana decelerated the most (6.1  percent- these countries due to increased security spend-
age points), followed by Zimbabwe (5.5 points), ing, while disrupting investment flows and tourism of Russia’s prolonged
Burkina Faso (3.7 points), South Africa (2.9 points), activity. The rise in the cost of living due to ele- invasion of Ukraine
and Ghana (2 points). With the challenging eco- vated prices has also sparked social unrest (box
could exacerbate
nomic situation in South Africa, average growth 1.1) and could unravel the continent’s hard-­earned
for this group is projected to remain subdued at stability. General elections scheduled for 2023 already strained
a low of 2.4 percent in 2023, before strengthen- and 2024 in several African countries could dis- supply chains and
ing to 3.5 percent in 2024, much lower than the rupt economic activity through increased political reverse the recent
continent’s average. Growth in other countries risks. The other outstanding downside risks to the
for the group­—Guinea, Liberia, Mali, Niger, and growth outlook include the prolonged tightening of
decline in global
Tanzania­—­will be aided by the resumption of full-­ global financing conditions, slower than expected commodity prices—
scale mining. global recovery that could dampen demand for which could affect
Africa’s exports, potentially reversing financial
Risks and upside factors of the flows and elevating risks of debt distress.
growth in Africa’s
growth outlook The tailwinds to the outlook include a faster net commodity-
The projected stabilization of growth in Africa than expected rebound in China’s growth, which importing countries
in 2023 and 2024 is subject to headwinds and could spill over and accelerate growth in the

BOX 1.1 Increasing food and energy prices led to heightened social unrest in Africa

Russia’s invasion of Ukraine in February 2022 created significant disruptions to already strained
global supply chains, impacting food and energy prices globally and across the continent. Higher
food and energy prices have eroded household’s purchasing power and increased incidence of
poverty. This has fueled social unrest across Africa as people protested against the rising cost
of living and insufficient (or lack of) policy responses to protect citizens. More than 400 events of
social unrest recorded in Africa in 2022 were directly related to rising food and energy prices. By
end of February 2022, there were 45 price-related incidents, close to three times more than in
January 2022 (box figure 1.1.1, left panel).
Between March and July 2022, at the peak of Russia’s invasion of Ukraine and disruptions
to global commodity prices, price-related social unrest was at the highest, hovering at about
 (continued)

A frica’ s economic performance and outlook  25

 BOX 1.1 Increasing food and energy prices led to heightened social unrest in Africa (continued)

1  percent of all recorded social unrest events in Africa (box figure 1.1.1, right panel). Although
price-related social unrest temporarily increased in October and November 2022, it has not
reached the average levels during the first half of 2022, as global and domestic prices stabilized
and policy responses announced by most African governments during the first half of 2022 gained
some traction.
Most price-related social unrest was in the form of protests (80 percent), while 17 percent of
protests turned into riots with less than 1 percent leading to violence against civilians by security
forces. Most protests were peaceful (84 percent) while about 16 percent of them required inter-
vention from police and other security forces. Across the continent, most price-related riots were
violent demonstrations (94 percent) leading to the arrests and/or injuries of protesters, and a few
triggered mob violence.

BOX FIGURE 1.1.1 Monthly price-related social unrest in Africa in 2022

Number of price-related social unrest events Share of recorded social unrest events (percent)
80 1.5

1.2
60

0.9

40

0.6

20
0.3

0 0.0
Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec. Jan. Feb. Mar. Apr. May June July Aug. Sep. Oct. Nov. Dec.

Source: Staff calculations based on The Armed Conflict Location and Event Data Project databases.

With domestic inflation expected to increase in Africa at 15.1 percent in 2023 from 14.2 percent
in 2022, it is likely that the frequency of protests, riots, and other forms of social unrest due to rising
cost-of-living will increase. Curbing the prevalence of these events will require faster and more
effective public policy responses to the rising inflation that has eroded living conditions. Additional
social safety nets and other social protection programs will be urgently needed to support vulner-
able households, including those affected by policy reforms.

rest of Asia and the global economy. That would tightening could also halt appreciation of the US
increase demand for Africa’s exports, boosting dollar, providing a respite for African currencies.
growth. More effective monetary policy in tackling Ongoing efforts by the global coalition on cli-
inflation in Africa and globally would mean a faster mate change to mobilize resources to combat the
exit from the cycle of aggressive policy tightening effects of climate change could lessen physical
and toward more support for the economy and impacts and create fiscal space to invest in green-
livelihoods. Reducing the pace of US monetary ing Africa’s economies.

26 A frica’ s economic performance and outlook

OTHER MACROECONOMIC currencies and increasing inflationary pressures,
DEVELOPMENTS AND particularly in countries where climate-­ d riven
OUTLOOK weather disasters have had a negative impact on
the growing season.
Exchange rates, inflation, and In light of the strong appreciation of the dollar,
monetary policy exchange rate dynamics in Africa were mixed,
with the majority of the continent’s currencies
Tighter global financial conditions have depreciating against the US dollar in 2022 (figure
destabilized the foreign exchange markets of 1.11). Beyond the spike in inflationary pressures,
most African countries the US Federal Reserve’s aggressive interest rate
As the US dollar serves a global reserve cur- hikes in 2022 heightened global uncertainty and
rency and a prominent international medium of contributed to investors exiting assets of emerging
exchange, its appreciation for most of 2022 (figure market economies, including African currencies,
1.10) in response to the US Federal Reserve’s toward safe US treasuries.
resolve to keep raising policy rates to rein in per- All of Africa’s leading commodity-­exporting
sistently high inflation continues to adversely affect countries except Angola, with a 27.1  percent
In light of the strong
economies across the globe. With more than appreciation of its local currency, experienced
half of Africa’s countries dependent on imported sustained exchange rate depreciations despite appreciation of the
cereals and grains, and the continent being a net higher international commodity prices in 2022. dollar, exchange rate
importer of hydrocarbon fuels for its energy needs, Depreciation rates varied from 75  percent in
dynamics in Africa
the strengthening of the US dollar is amplifying South Sudan, whose currency weakened follow-
inflationary stresses from the significant spikes in ing exchange rate reunification and a further dete- were mixed, with
global food and energy prices following Russia’s rioration in its economic and political situation, the majority of the
invasion of Ukraine. The prospects of a prolonged to 22.5 percent in Egypt, 6.2 percent in Nigeria, continent’s currencies
invasion of Ukraine and the recent increase in oil and 5.1 percent in Algeria. In Egypt, the authori-
prices point to continuing pressure on African ties’ decision to move to a more flexible exchange
depreciating
against it in 2022
FIGURE 1.10 Movement in the US dollar nominal effective exchange rate

US monthly NEER index (2010 = 100)

150

125

100

75

50
1990 1995 2000 2005 2010 2015 2020 2022 Feb.
2023

Note: The NEER is a measure of the value of a currency against a weighted average of several foreign currencies. An
increase in the NEER indicates an appreciation of the local currency against the weighted basket of currencies of its
trading partners.
Source: Staff calculations based on IMF International Financial Statistics (IFS) data.

A frica’ s economic performance and outlook  27

 FIGURE 1.11 Exchange rate changes, 2020–21 and 2021–22

Percent change 2020–21 2021–22

50

25

–25

–50

–75
–225 –183 Depreciation

–323
All of Africa’s
Gh p.
Su a
Nig an
An ria
Alg la
Eg a
t

ba n
Co Sie Zam e
ng rra bia
m. e

Gu na
Ta inea
L ia
tsw a
a

M pia
uri i
Rw tius
Ke a
Ma Buru a
g i
uri ar
Ga nia
Dji ia
Eri ti
So trea
Tu lia
é a Com isia
Pr os
bo ipe
yc e
Mo elles
Mo ga co
mb a
e

an U
d
Ma alaw

da nd
yp

u
uth iby

eri

bw

De on

Bo iberi
an

d
ny

Se Verd

za nd
iqu
Zim uda

ran
ric M
go

an

mb
Re

Ma asc

ma

nd or

roc
bo
d

an
e

io

ta

Ca ínc
n

Af AE
o, Le

leading commodity-
So L

nz

h
Eth
S

uth /W
U

So MAC
CE
om
exporting countries

oT
Sã
Oil exporters Other resource- Non-resource- Monetary
except Angola, intensive intensive union
Note: CEMAC is the Central African Economic and Monetary Community. WAEMU is the West African Economic and
with a 27.1 percent Monetary Union.
appreciation of Source: African Development Bank statistics.

its local currency,

rate regime as part of the reforms under the IMF-­ about the sustainability of the country’s debt and
experienced supported program led to a sharp decline of the conclusion of its debt restructuring strategy led
sustained exchange Egyptian pound. In Algeria, after a devaluation, the to the sharp depreciation of the cedi. Currency
rate depreciations dinar has started to appreciate in both nominal depreciation pressures were significant for Sierra
and real terms. In Nigeria and South Sudan, for- Leone’s leone (down 34 percent against the US
despite higher eign exchange supply constraints stoked a widen- dollar) and the Sudanese pound (down 18.5 per-
international ing of the premium between the official exchange cent). Both countries are experiencing severe
commodity (commonly referred to as the investor and exporter macroeconomic imbalances, including con-
rate in Nigeria) and the parallel market exchange strained revenues and weak investment flows.
prices in 2022
rate. In Nigeria, the parallel market exchange rate The currencies of Botswana, Cabo Verde,
depreciated by nearly a third year-­on-year, dwarf- Comoros, Ethiopia, Malawi, Morocco, São Tomé
ing the 6.2  percent depreciation for the official and Príncipe, South Africa, Tunisia, and the Mon-
rate. This widened the premium between the two etary Union (CEMAC/WAEMU7) depreciated by
rates by about 70 percent. more than 10 percent against the US dollar, due
Among the currencies of other resource-­ to global risk aversion and waning investor confi-
intensive countries­—­Zimbabwe’s dollar, Ghana’s dence. Currency weaknesses in some of Africa’s
cedi and Sierra Leone’s leone­ —­were among major economies­—­Kenya, Nigeria, and South
Africa’s weakest currencies in 2022, respectively Africa­—­a re expected to persist in 2023, due
depreciating by around 323.4, 42.5, and 34 per- largely to tighter global financial conditions and
cent against the US dollar. The rapid fall in value weak external demand. For most of Africa’s dollar-­
of the Zimbabwean dollar is due mainly to the denominated debt, currency depreciations pose
effects of the economic sanctions imposed by the a significant downside risk for debt management
United States and the European Union and pre- and sustainability in a continent where external
vailing global economic conditions. In Ghana, the debt stock­—­including bonds, syndicated loans,
first-­order effects of declining investor confidence and bilateral borrowing­—­surged to $466 billion in

28 A frica’ s economic performance and outlook

2022. This wave of depreciations could be con- due to the resumption of tourist activities and the
tained if countries continue to strengthen their associated increase in foreign exchange inflows.
monetary policies in the face of tighter financial
conditions in advanced countries, though further The build-­up of inflationary pressures in 2022 is
tightening could exacerbate the already high cost expected to ease gradually in the medium term as
of capital and halt economic recovery. tight monetary policy interventions gain traction
Although most African currencies lost substan- Global supply chains remain weak (figure 1.12),
tial value against the dollar during 2022, some partly reflecting Russia’s persistent invasion of
gained or remained stable. Among the best per- Ukraine, which is keeping global commodity
forming currencies, Angola’s kwanza appreciated prices and inflation elevated. The standard devi-
by more than 27.1  percent year-­on-year against ation of the Global Supply Chain Pressure Index
the US dollar in 2022, reflecting the combined averaged 2.10 in 2022, significantly higher than
effects of higher oil revenues, improved credit the average of –0.07 in 2019 before the COVID-­19
rating by major rating agencies, and more accom- pandemic. Global supply chain pressures remain
modative monetary policy. The Zambian kwacha a major concern for global commodity prices and
was also bolstered following creditors’ agreement inflation, even with weak global demand. In Africa,
In Africa, the
to restructure the country’s external debt, which the prevailing global supply chain weaknesses are
triggered approval of the International Monetary further amplified by structural bottlenecks in sev- prevailing global
Fund’s three-­year $1.3  billion Extended Credit eral countries. supply chain
Facility. The resultant investors’ favorable outlook The consumer price inflation in Africa rose by
weaknesses are
for Zambia’s macroeconomic situation boosted an estimated 1.3 percentage points to 14.2 per-
the kwacha, which appreciated by 15.3  percent cent in 2022 from 12.9  percent in 2021­ —­a further amplified
year-­on-year against the US dollar in 2022. Sey- 0.5 percentage point revision from the estimated by structural
chelles’ exchange rate appreciated by around 13.8 percent in Africa’s Macroeconomic Outlook bottlenecks in
15.6 percent against the US dollar in 2022, mainly 2023 published in January. The strong rise of
several countries
FIGURE 1.12 Global Supply Chain Pressures Index

Standard deviations from average value

5

–1
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 Mar.
2023

Note: Index scaled by its standard deviation. The Global Supply Chain Pressure Index (GSCPI) is a new measure of
supply chain conditions, provided by the Federal Reserve Bank of New York. It is calculated by combining variables
from several transportation and manufacturing indices, such as those related to delivery times, prices, and inventories.
Source: Bureau of Labor Statistics; Harper Petersen Holding GmbH; Baltic Exchange; IHS Markit; Institute for Supply
Management; Haver Analytics; Refinitiv; staff calculations.

A frica’ s economic performance and outlook  29

 inflation in Africa is due to domestic factors such 2023 is largely attributed to prevailing structural
as drought, expansionary public investment, and, weaknesses in most African countries­—­including
more important, the direct effect of imported supply chain constraints, output gaps, imported
inflation, and external factors such as rising oil inflation­—­and an exchange rate passthrough from
and food prices, exacerbated by supply chain the stronger US dollar, despite declining interna-
disruptions. The rise in inflation was broad-­based, tional commodity prices. It is expected to increase
surpassing central bank target rates for most in 2023 in North Africa (6 percentage points), Cen-
countries with explicitly defined bands, except in tral Africa (1 point), and West Africa (0.5 point), and
Benin, Congo, Egypt, Eswatini, Liberia and Tan- to decline in East Africa (7.1 points) and Southern
zania. Inflation reached at least double digits in Africa (2.6 points). The strong increase in North
18 countries, including seven that have explicitly Africa is mainly attributed to developments in
defined inflation targets, with the highest rates in Egypt, where currency devaluations, foreign cur-
Zimbabwe, Sudan, Ethiopia, and Ghana in that rency shortages, and import shortfalls continue to
order (figure 1.13). Double-­digit inflation persisted cause a surge in prices.
in East Africa (28.9 percent), West Africa (17.0 per- A decline in inflation is expected in 2024 in
cent), and Southern Africa (12.6 percent) in 2022, all regions and most countries, reflecting the
Inflation in Africa
and is expected to decline gradually to 17.7 per- expected benefits from the current cycle of mone-
is projected to cent, 11.3 percent, and 6.7 percent, respectively tary tightening. Despite the expectations of single-­
increase further to a in 2024. While inflation in Central Africa and North digit inflation in Africa in 2024, double-­digit inflation
Africa is low, it almost doubled in 2022 to 6.7 per- could persist in East Africa (17.7  percent), West
record 15.1 percent
cent and 8.2  percent, from 3.9  percent and Africa (11.3 percent) and a few countries that have
in 2023 but decline 4.6 percent, respectively, in 2021. a history of high inflation such as South Sudan,
to 9.5 percent in Inflation in Africa is projected to increase fur- Sudan, and Zimbabwe.
2024, close to the ther to a record 15.1 percent in 2023 but decline Africa’s non-­ i nflation targeting countries
to 9.5 percent in 2024, close to the pre-­pandemic have a history of higher inflation than their tar-
pre-pandemic levels levels of 9  percent in 2019 and 9.7  percent in geting peers (figure 1.14). Moreover, the recent
of 9 percent in 2019 2014–18. The projected increase in inflation in confluence of shocks has caused significant
and 9.7 percent
FIGURE 1.13 Consumer price inflation, 2021 and 2022
in 2014–18
Percent 2021 2022 (estimated) Target
359
60 184
143
139

40

20

–20
A p.

rra ha .
Ch a
Ga ad
Ca Conon
me go
Lib n
Eg ya
Alg ypt
Ni eria
So A geria
Su ola
n

nz a
Ce B Nig ia
al kin M r
Af a ali
So can aso

Co Bots frica
o, L ana
m. ria

Le na
Gu one
Zim am ea
ba bia
Su we
n
Rw oros
Dj da
ro ti
Ca B cco
V n
Gu S gan e
ine en da
B al
Ma swa au
uri tini
Cô Mau ania
d'I us
Eri ire
a
Mo So Togo
mb lia
Ma Tu ique
ga ia
so r
é a GKen o
nd am ya
Pr bia
Bu cipe
Se al di
he i
Eth lles
ia
yc aw
Sie G Rep
e

Le sca
Moibou
ine

Ta mibi

U erd

tre

th
roo

da

da

bo eni
an

a- eg

da nis

iop
run
uth Re

za ma
te riti
in
b

an

E iss
De ibe

vo
b
uth ng

ri F

ín
Gu

t
m

M
Na

Co
ial

ntr ur
tor
ua

ng

om
Eq

oT
Sã

Oil exporters Other resource- Non-resource-

intensive intensive

Source: African Development Bank statistics.

30 A frica’ s economic performance and outlook

divergence in inflation rates among inflation tar- As inflationary pressures remain high in 2023,
geting and non-­targeting countries in the conti- policymakers in developed countries will
nent. At the peak of the pandemic in 2020–21, continue to prioritize tight monetary policy
inflation in non-­inflation targeting countries aver- Continued interest rate hikes, further tightening
aged 24.2 percent, more than triple the average global financial conditions, raise the prospect of dis-
of 7.1  percent rate for the targeters, compared ruptive capital outflows from developing countries
with 10.2 percent and 9.4 percent respectively in and emerging markets, currency depreciations,
the six years (2014–19) preceding COVID-­19. Fur- and rising servicing costs for foreign currency-­
thermore, while inflation rates in both targeting denominated debt. Uncertainty about the easing
and non-­targeting countries closely tracked each of interest rate hikes persists, with the March 2023
other and showed signs of convergence until increase by the US Federal Reserve of a quarter
2019, the picture significantly changed during percentage point. This raises the risk of global
the peak of the pandemic in 2020–21 when financial instability. Compared with other advanced
disruptions to supply chains caused inflation to economies, the US’s relatively restrictive monetary
spiral out of control. For instance, in 2018–19, policy could contribute to further dollar appreciation
the average inflation rate for targeting countries and a widening of external imbalances.
Central banks in
was about 2.6  percentage points below their Central banks in African countries with higher
non-­ t argeting counterparts. In 2020–22, the than targeted inflation have embarked on aggres- African countries
wedge had widened nearly sixfold to 15.5  per- sive contractionary monetary policy, taking a cue with higher than
centage points. This suggests that, to a large from monetary authorities in advanced econo-
targeted inflation
degree, inflation targeting regimes in Africa have mies. Benchmark policy rate increases following
had strong policy levers and credibility to better the US Fed rate hike in March were recorded in have embarked
anchor inflation expectations, even during peri- Nigeria (+50 basis points), South Africa (+50 basis on aggressive
ods of great economic uncertainty. points), Egypt (+200 basis points), Morocco (+50 contractionary
FIGURE 1.14 Inflation dynamics in targeting and non-targeting countries
monetary policy,
taking a cue from
Inflation (percent change)
30
monetary authorities
in advanced
25
Non-targeting countries
economies

20

15

10

Inflation-targeting countries

0
2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
(estimated) (projected) (projected)

Note: Inflation targeters in this context, refers to countries with full inflation targeting regime and those with declared
target or band for inflation. These are: Benin, Botswana, Burkina Faso, Cameroon, Central African Republic, Chad,
Democratic Republic of Congo, Congo, Côte d’Ivoire, Egypt, Equatorial Guinea, Eswatini, Gabon, Gambia, Ghana,
Guinea-Bissau, Kenya, Liberia, Liberia, Malawi, Mali, Mozambique, Niger, Nigeria, Rwanda, Senegal, South Africa,
Tanzania, Togo, Uganda, Zambia.
Source: African Development Bank statistics.

A frica’ s economic performance and outlook  31

 basis points), and Kenya (+25 basis points). These for large African economies have continued to
adjustments have pushed the rates to record rise, with sharp rate movements, particularly in
highs and could limit the scope for large policy Egypt, which issues shorter maturity sovereign
rate adjustments should inflation expectations bonds (figure 1.15). Since April 2022, 10-­year
become entrenched. For many of these coun- bond yields have risen by nearly 830 basis points.
tries, however, real interest rates remain negative, In addition, the 10-­year Nigerian bond has risen
implying that further adjustments may be possible by nearly 294 basis points. In comparison, the
without causing economic damage. 10-­year benchmark bonds in South Africa and
Other countries, including Mauritius and Sey- Kenya saw modest year-­on-year increases of 29
chelles, have chosen to keep benchmark rates basis points and 170 basis points, respectively.
unchanged as inflationary pressures have mod- The upward shifts of bond yield curves imply that
erated. Naturally, the rate and frequency of policy investors demand a higher return for holding gov-
rate adjustments have varied greatly since 2022. ernment debt either because they expect inflation
Zimbabwe’s central bank, for example, cut its key to rise, reducing the value of fixed income invest-
rate in 2023, citing a downward trend in month-­ ments, or the central bank to continue raising the
on-month inflation, while Angola’s central bank policy rate to combat inflation, which would raise
Rising interest rates
cut key rates twice in 2023, similarly citing mod- the cost of government financing and reduce the
have resulted in erating inflation. However, the mixed outlook and value of existing bonds.
higher borrowing structural nature of the current inflation episodes While many African countries’ policy options
would dictate country-­specific policy responses, for mitigating tightening financial conditions are
costs for African
depending on strength of the sources of inflation limited, those falling behind the curve should con-
countries and sociopolitical costs of inaction. sider strengthening safeguards to manage grow-
Rising interest rates have resulted in higher ing uncertainties. Price stability is a prerequisite
borrowing costs for African countries. Yield curves for long-­term economic growth. With inflationary

FIGURE 1.15 Yield curves are shifting upward, 2022 (percent)

Egypt South Africa

Percent Percent
25 15
April 2023
April 2023

20 10

April 2022 April 2022

15 5

10 0
1Y 2Y 3Y 5Y 7Y 10Y 3M 5Y 10Y 12Y 20Y 25Y 30Y

Kenya Nigeria
Percent Percent
15 20
April 2023
April 2022 April 2023
15
10

10
April 2022
5
5

0 0
2Y 3Y 5Y 7Y 10Y 15Y 20Y 25Y 2Y 3Y 4Y 5Y 7Y 10Y 20Y 30Y

Source: AfDB staff calculations based on Investing.com data.

32 A frica’ s economic performance and outlook

pressures on the rise, African central banks banks are expected to contribute to the deteriora-
should rethink their monetary policy positions to tion of the sector, given the current environment of
keep inflationary pressures at bay. To target infla- increasing interest rates and debt distress levels.
tion, policy rates may need to be raised where suf- Fitch Ratings notes that sovereign debt down-
ficient slack exists. Central banks should commu- grades could result in more bank rating down-
nicate the likely need to keep interest rates higher grades in 2023, and potential sovereign defaults
for a longer period, until inflation is contained. For- are a significant concern for the financial sector,
eign exchange intervention, where reserves are with many African governments facing high and
adequate, may help to stabilize currencies. And increasing debt servicing burdens.8 And banks’
macroprudential policy and capital flow manage- asset quality risks could become more pro-
ment can help improve monetary policy auton- nounced given the dampening of household and
omy and price stability, particularly as commod- business activity due to high inflation, rising inter-
ity prices moderate. This frequently is a delicate est rates, and foreign exchange shortages. This
task, however. Gradual and modest adjustments could lead banks to further constrict credit for
can prolong price increases while doing little to investment in the real sectors.
dampen future inflation expectations. Aggres- Historically, non-­performing loans (NPLs) have
Potential sovereign
sive rate hikes, on the other hand, may stall the always been a challenge that threatens the via-
recovery. bility of banks in emerging markets, especially in defaults are a
Africa. On average, NPLs are increasing in Africa significant concern
While higher inflation and interest rates could similar to Latin American Countries but in stark
for the financial
test the resilience of financial systems in Africa, contrast to the observed declines in Europe and
the banking sectors are sufficiently capitalized the US (figure 1.16). Given the tightening of finan- sector, with many
to withstand potential losses and maintain cial conditions globally, the upward trend in NPLs African governments
financial stability, although this varies across on the continent is worrisome as it occurs against facing high and
countries the backdrop of marked decreases in capital ade-
Financial institutions are crucial in providing quacy and high concentration of assets.
increasing debt
access to credit and spurring economic growth. In Even so, the resilience shown by African banks servicing burdens
the aftermath of the global financial crisis, financial over the past years in additional capital buffers
institutions have experienced phenomenal growth and robust profitability should help mitigate some
owing to extended periods of accommodative of the risks just described. For example, the cap-
monetary policies. However, recent developments ital adequacy ratio of WAEMU banks increased
following the COVID-­19 pandemic and Russia’s from 10.5 percent in 2018 to 12.4 percent in June
invasion of Ukraine have put additional pressures 2021, above the minimum regulatory requirement
on governments and the financial sector, reminis- of 8.25  percent.9 South African banks’ average
cent of the 2008 crisis. Indeed, the tightening of capital adequacy ratio was 17.9  percent in Jan-
monetary policies, particularly the rise in interest uary 2023, against the regulatory minimum of
rates to stem inflation, has caused the collapse of 10 percent. The regulatory capital to risk-­weighted
two US banks and the takeover of others across assets ratio shown in figure 1.16 (right panel) for
the US and Europe. This has led to more than African countries has been consistently above that
$400 billion in direct support from the US Federal in the US and LAC, while it has only recently fallen
Reserve and the Swiss National Bank. below the ratio for Europe as 2018, illustrating the
Financial systems in Africa, which mainly stricter minimum capital requirements on the con-
revolve around the banking sector (more than tinent. For liquidity, African banks also appear to
90  percent of financial sector assets) are not have more liquid assets as a share of total assets
immune to these external shocks. While trying to over time compared with their counterparts in
contain inflation, central banks must also ensure Asia, Europe, and the US while they have sim-
that banks are sufficiently capitalized to withstand ilar liquidity ratios to LAC banks in more recent
potential losses and maintain financial stability. years. However, within Africa, the evolution of the
High sovereign risk exposures in most African two ratios is quite heterogeneous, with marked

A frica’ s economic performance and outlook  33

 FIGURE 1.16 Nonperforming loans ratios and regulatory capital to risk-­weighted assets

Nonperforming loans ratio (percent) Regulatory capital to risk-weighted assets (percent)

15 20
Europe
Africa

18
Africa Asia

10
16 Latin America and
the Caribbean
Europe

Asia 14
5 United States

Latin America and

the Caribbean 12
United States

0 10
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: IMF Financial Soundness Indicators and AfDB staff calculations.

declines in countries such as Algeria, Central Afri- and phenomenal growth rates in some econo-
can Republic, Chad, Madagascar, Seychelles, mies, despite lingering concerns about social and
and Tanzania. political challenges. The decreases in ROA from
Furthermore, banks in Africa, on average, 2018 will pressure African banks to innovate to
remained profitable based on return on assets meet the huge unmet demand on the continent
(ROA), with a noticeable dip between 2018 and while trying to remain financially solvent in the cur-
2020 partly attributed to COVID-­19 related chal- rent challenging economic environment. Similarly,
lenges (figure 1.17, left panel). Their ROA has been data show that banks in Africa held large reserves
consistently higher than those in the other regions of liquid assets in the decade leading up to the
(Asia, LAC, Europe, and the United States). This COVID-­19 pandemic, with a liquid asset ratio
is partly driven by the emerging consumer class exceeding 34 percent, surpassing that of Europe

FIGURE 1.17 Liquid asset ratios and returns on assets

Liquid asset ratio (percent) Return on assets (percent)

40 3.0

Latin America and Africa

the Caribbean 2.5
35 Africa

2.0 Latin America and

the Caribbean
United Asia
Asia
States
30 1.5

United States
Europe
1.0
25 Europe
0.5

20 0.0
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: IMF Financial Soundness Indicators and AfDB staff calculations.

34 A frica’ s economic performance and outlook

and the United States. This ratio declined around shows that half of these countries posted fiscal
2019, falling below that of the United States, but surpluses. Congo, Equatorial Guinea, and Libya
has since resumed an upward trend. posted larger surpluses, ranging from 4.8  per-
cent to 13.8  percent, which nearly offset fiscal
Fiscal positions and domestic deficits in countries with higher deficits, such as
resource mobilization Nigeria (5 percent). Weak oil production in Nigeria
coupled with large expenditures on fuel subsidy,
Africa’s fiscal balance is improving and could estimated at about 3 percent of GDP, eroded the
converge toward pre-­pandemic levels, but fiscal benefits from higher international oil prices.
significant challenges remain The average fiscal deficit of oil-­exporting countries
The average fiscal deficit is estimated to have nar- is projected to widen marginally to 3.1 in 2023–24,
rowed to 4  percent of GDP in 2022, down from reflecting an improvement in revenues due to the
4.9 percent in 2021 and lower (by 0.4 percentage rise in oil prices that offsets to some extent the
point) than in the 2023 MEO. This is the second expected large and persistent deficit in Nigeria,
consecutive year of improvement, after the sharp the group’s main economy.
deterioration to 6.8 percent of GDP in 2020, due to Fiscal deficits in other resource-­intensive econo-
The narrowing of
large fiscal support to alleviate the socioeconomic mies stabilized around 4.6 percent of GDP in 2022.
impacts of the pandemic. With this improvement, Countries in this group used revenues from favor- the fiscal deficit
Africa’s average fiscal deficit is returning to its able commodity exports to bolster social spending was broad-based
pre-­pandemic level in 2019. The narrowing of the in response to higher energy and food prices, but
with all groups of
fiscal deficit was broad-­based with all groups of fiscal consolidation measures targeted to non-­
countries registering lower deficits, with the larg- essential spending helped stabilize the deficit. The countries registering
est fiscal gains recorded in oil-­exporting countries average fiscal deficit for this group is projected to lower deficits, with
and tourism-­dependent economies (figure 1.18). widen slightly and stabilize at 4.8 percent of GDP, the largest fiscal
The average fiscal deficit for oil exporters 0.2  percentage point above the pre-­pandemic
declined by nearly 2 percentage points to 2.7 per- level, reflecting continued fiscal support to cope
gains recorded
cent of GDP in 2022 from 4.6  percent in 2021, with the impact of high food and energy prices. in oil-exporting
supported by strong revenue performance driven Non-­resource-intensive countries also recorded countries and
by favorable global energy prices. Figure 1.19 a marginal decline in fiscal deficits by 0.3 percentage
tourism-dependent
FIGURE 1.18 Fiscal balance as a share of GDP by country grouping, 2020–24 economies
Percent of GDP 2020 2021 2022 (estimated) 2023 (projected) 2024 (projected)
0

–5

–10

–15

–20
Oil Other resource- Non-resource- Tourism Africa
exporters intensive intensive dependent

Source: African Development Bank statistics and IMF 2023.

A frica’ s economic performance and outlook  35

 FIGURE 1.19 Fiscal balance as a share of GDP by country, 2021–22

Percent of GDP 2021 2022 (estimated)

15

10

–5

–10

–15
Stronger and faster
p.

tsw p.
E ria
uth ige t
Ca Sudria
me an
Ch n
ua Gab d
tor C on
Gu o
An nea
Lib la
ya

Za na
Sie Na bia
Bu rra L ibia
ntr ina one
Af N aso
an er

So S Mali
n
nz a
Z i a
Co imb beria
o, G bwe
m. ea

Ma a
Rwritius
Ke da
Tu nya
Ma isia
Ca Uga awi
Se o Ve da
yc rde
om Se elles
nd oro al
Pr cco
Gu G Ben e
ine am in
Cô -B bia
d’I au
Mo Le voire
mb ho
e
Es Togo
Eri tini
Ma Bu trea
ga di
Co hiop r
m ia
Dji oros
Ma m i
uri alia
ia
So bout
So N gyp

Et sca
g

Ta fric
i

an

ip

iqu
roo
a

uth uda
go

an

é a M neg

tan
da run
Re

Bo Re
ric ig

De uin
ial on

an

b n

te iss

za sot
e

wa
m

ínc
n
l
m

F
i

Gh

rk e
Alg

than expected a
A

h
u
L

a
al

ng
Eq

economic recovery
Ce

oT
Sã
Oil exporters Other resource- Non-resource-
intensive intensive
supported fiscal
Source: African Development Bank statistics and IMF 2023.
consolidation,
culminating in point in 2022. Higher energy and food prices have level in 2019. In the medium term, growing uncer-
narrowing of the severely strained government budgets in countries tainty about the global economic outlook and
such as Malawi, Rwanda, São Tomé and Príncipe, weakness in advanced economies increase risks
gap between and Togo with fiscal deficits exceeding 7 percent for demand for Africa’s tourism. Revenues could
recurrent spending of GDP. In contrast, other countries including Dji- thus be depressed, and although the deficit is
and revenues, with bouti, Mauritania, and Somalia managed to main- projected to narrow progressively to 6 percent of
tain fiscal deficits at less than 1.3 percent of GDP GDP in 2023 and 4.9 percent the following year,
the primary deficit despite the challenging economic and financial the prospect for this performance remains remote
decreasing in tandem environment. These countries helped to contain without fiscal restraint due to rapidly evolving
to an average of the average deficit for the group at 5.5  percent external forces.
of GDP in 2022. The average fiscal deficit for Improvement in the overall fiscal balance in
1.2 percent of
non-­resource-intensive countries is projected to Africa was underpinned by narrowing primary
GDP in 2021–22, decline to 4.7 percent of GDP in 2023 and 4 per- deficit. In 2020, above-­the-line budgetary sup-
making up about cent in 2024, as the expected decline in food and port doubled the primary deficit to 2.6  percent
energy prices will put less pressure on the group’s of GDP, accounting for nearly 40  percent of the
26 percent of the
revenues. overall deficit against 32 percent in the preceding
overall fiscal balance Following large fiscal deteriorations in the year. Stronger and faster than expected economic
aftermath of the COVID-­19 pandemic, tourism-­ recovery supported fiscal consolidation, culmi-
dependent economies rebounded strongly, with nating in narrowing of the gap between recurrent
the average fiscal deficit for the group narrowing spending and revenues, with the primary deficit
to 9.2 percent of GDP in 2022 from 14.6 percent decreasing in tandem to an average of 1.2 percent
the previous year. The improved fiscal perfor- of GDP in 2021–22, making up about 26 percent
mance benefited from increased tourism receipts of the overall fiscal balance (figure 1.20).
following gradual retrenchment of COVID-­ 19- As governments struggle to compensate for the
related government spending. Despite this strong decline in purchasing power among the most vul-
improvement, the average deficit remains large at nerable sections of their populations­—­due to the
1.7  percentage points above the pre-­pandemic triple challenge of high inflation, climate change

36 A frica’ s economic performance and outlook

and legacy impact of COVID-­ 19­—­i mproving FIGURE 1.20 Overall fiscal balance and primary fiscal
spending efficiency and tax administration should balance (percent of GDP), 2019–22
be the top priority of fiscal consolidation. Coun-
tries have varying levels of fiscal space and their Percent of GDP Fiscal deficit Primary balance
0
consolidation strategies will differ, but the gains
from sound and prudent fiscal policy for more effi-
cient spending could be substantial. Contractions
–2
in capital expenditure have been the main casu-
alty of fiscal restraint amidst spending pressures
to shield populations from elevated energy and
food prices (box 1.2). The share of capital expen- –4

diture in total general government expenditure

dwindled in more than half of African countries
(28) in 2020–21, relative to five-­year pre-­pandemic –6

average (figure 1.21). Among countries with the

largest reductions in the ratio of capital outlay
to total expenditure in 2020–21 were Equatorial –8

Guinea (36.4 percentage points), Congo (16.1 per- 2019 2020 2021 2022

(estimated)
centage points), and Guinea (15.6  percentage
points). These countries are resource-­intensive Source: African Development Bank statistics.

BOX 1.2 Policy responses from African governments to protecting households and businesses from rising food and
energy prices

The surge in international energy and food prices in 2022, amplified by Russia’s invasion of Ukraine, triggered a cost-­of-living
crisis worldwide and pushed 15 million more Africans into extreme poverty, as real household income fell drastically, espe-
cially for net buyers.1 To mitigate the impact of rising commodity prices on households and businesses, most governments
across the world swiftly announced a vast array of policy measures, some related to revenue and expenditure, others to
below-­the-line and non-­fiscal measures. A review of policy measures announced by 37 African countries during the first half
of 2022 reveals that of 108 policy responses (about 14.4 percent of 750 total policy responses announced worldwide), about
40 percent were revenue-­related such as suspension, removal, or reduction of custom duties on food and fuel, suspension or
reduction of taxes (VAT/sales, excise, personal income and corporate income) (box figure 1.2.1). Spending measures­—­price
subsidies to food and energy companies; cash, semi-­cash, or in-­kind transfers; increases in base or minimum wages; and
increases in pensions­—­accounted for 35.2 percent of all new measures. Other policy responses included below-­the-line mea-
sures (such as price freezes) or export restrictions of selected agricultural products.
While predominant policy announcements in Africa were either tax-­related (21.3 percent) or direct subsidies (15.7 percent),
advanced economies, especially in Europe, implemented a significant number of cash transfers as well as vouchers and
discounts in addition to reductions in consumption taxes such as VAT/sales tax and excises. Such policy differences could
stem from the fact that advanced economies have well developed and robust social safety net and social protection programs
with transparent social registries and payment systems already facilitating rapid, cost-­effective implementation of well-­crafted
targeting policies. And most new measures announced by advanced economies tended to focus on addressing the impact of
higher energy prices (more than 60 percent of all measures) while those in Africa focused mainly on responses to higher food
prices (more than 50 percent of all measures), reflecting the high share of food expenditure in households’ budgets.
In addition to the fact that food expenditure accounts for a large share of household budget in Africa, the limited focus
on energy could be due to the already high energy price subsidies in most African countries. About two-­thirds of countries
announced policy packages in response to energy prices exceeding 1 percent of GDP, with the largest in Tunisia (5.2 percent),
 (continued)

A frica’ s economic performance and outlook  37

BOX 1.2 Policy responses from African governments to protecting households and businesses from rising food and
energy prices (continued)

followed by Guinea (4.6 percent), South Africa (3 percent), and Cameroon (2.9 percent) (box figure 1.2.2). However, these
newly announced energy-­related measures and other spending measures put additional pressure on public budgets of most
countries that were already dealing with constrained fiscal space.

BOX FIGURE 1.2.1 Announced policy responses to rising food and energy prices in Africa, in 2022

Custom duties (import tariffs)

(Price) subsidies to food companies
VAT/sales tax
Price freezes
Other nonfiscal measures
Cash transfers
Export restriction
Excises
Wage bill
Other/unspecified spending
(Price) subsidies to energy companies
Other/unspecified revenues
Personal income tax
Corporate income tax Spending measures
Other below-the-line Revenue measures
In-kind transfers
Other nonfiscal measures
Other subsidies to all companies
Pensions Below-the-line measures
Semi-cash (vouchers and discounts)

0 5 10 15 20
Percent

Source: Staff calculations using IMF’s Food and Energy Price Action (DEFPA) Database.

BOX FIGURE 1.2.2 Size of announced subsidies for food and energy products in Africa, in 2022

Percent of GDP Energy price subsidies Food price subsidies

6

Median, energy
1

Median, food
0
Mo ti
Ma co

ia
tho

Co Zimb a

Eq Dem e
p

i
n

e
bia

Ta e
rki ia
so

Co a

da s
ar

uth d

ia
a

l
ia
law

ga
Ma oro
u

g
d

ine

ny

on

ir

an

ric

ine

eri
tor . Re

bo

Sie eni

da

roo
Bu an

nis
tan

mb
sc
Fa
roc
bo

an

Ch

To
vo
ab

ne
so

Ke

Af
Le

Gh

Nig
Ga

Su
Ma

nz
Gu

Gu
B

ga
m

me

Tu
d’I
uri
Dji

Rw

Ga

Za
na
Le

Se
rra
ial

Ca
te

So
Cô
o,
ng

ua

Note: Energy price subsidies include energy subsidies total; diesel; kerosene; electricity, natural gas and petroleum-­derived products and
gas; gasoline; and liquefied petroleum gas. Food price subsidies include bread, wheat, grains, cereal, and flour; fertilizer; staple foods; food
(unconditional cash transfers); sugar, rice, and vegetable oil; maize seed and meat. The median energy and food subsidies are 1.2 and
0.2 percent of GDP, respectively.
Source: Staff calculations using IMF’s Food and Energy Price Action (DEFPA) Database.

Note:
1. AfDB 2023.

38 A frica’ s economic performance and outlook

FIGURE 1.21 Average shares of capital expenditure in total general government expenditure

Percent of GDP 2015–19 2020–21

15

10

0 Median, 2015–19

Median, 2020–21
–5

–10

–15
ro .

Co p.

me ria
So aur an
Af s
Se Egy a
yc pt
Na lles
Ca Gh ia
bo ana

é a U roon
Pr da
uri pe
Ke ia
Eth nya
tor N pia
Gu er
a
Nig de
Ga ria
An on
Ma ola
Tu awi
Se isia
o, sw al
m. ini

Zim amb o
ba ia
tsw e
Mo Les ana
mb o
Ch e
Cô Bur ad
d’I di
ntr urk T ire
Af a F o
an so

Gu go
Be a
Ga nin
Sie Dji bia
Ma ra Le uti
ine gas e
B r
m u
Ta oros
Lib nia
Rw eria
da

Ca Alge li
Mo Rep

a- ca

Ma
uth itiu

ine
ric

Z cc

Bo bw

za oth
iqu

al in og

ine

Gu da on

Co issa
b

tan
ng E neg

te un

Re

ial ig
De at

ric a

r bo
M ud

an

nd gan
Ma ínci
r

n
e

vo

Africa’s fiscal
g

io
mi

a
Ve
he

n
l

nz
S

Ce B

ua
om

Eq
Co

deficit is projected

oT
Sã
Source: African Development Bank statistics. to continue to
narrow through the
economies with either large fiscal surplus or low GDP ratio is expected to gradually converge to
deficit in 2022, which should provide them with the pre-­pandemic level of 4 percent in 2019, sta- medium term as
fiscal room for higher capital spending, under- bilizing at 4.1  percent in 2023 and narrowing to economies sustain
scoring the need to improve spending efficiency 3.8 percent in 2024. The expected additional fiscal post-pandemic
and resource allocation. room over the medium term will hinge on strength-
About 22 countries have managed to preserve ening domestic resource mobilization.
fiscal consolidation
development expenditure amid significant fiscal As pointed out in the MEO 2023, the conti- despite higher
challenges, with the largest percentage point nent still exhibits lower revenue-­to-GDP ratios interest rates
increases in Tanzania, Togo, and Central African than most other world’s regions. Average general
Republic, in that order. However, unlike Tanzania government revenue as a percentage of GDP,
and currency
which registered a modest fiscal deficit of about excluding grants, declined in the decade preced- depreciations and
2.9  percent of GDP in 2020–21, the expansion ing the COVID-­19 pandemic. From 2010 to 2019, the associated
of capital expenditure has been associated with the ratio declined substantially from 23.9 percent
increases in debt
larger fiscal deficits in the other two countries. to 19  percent (figure 1.22). Mirroring this trend,
This highlights the need for a sound and prudent the tax revenue-­GDP ratio also declined by about service payments
fiscal stance in promoting investment expendi- 1.3  percentage points, to 15.3  percent of GDP.
ture through some adjustments to discretionary This figure was well below the average for Asia-­
recurrent spending to ensure fiscal sustainability. Pacific (21 percent), Latin America (22.9 percent),
Postponing investment spending should not be and Organisation for Economic Cooperation and
an option, as this would pose threats to sustained Development members (33.8 percent). The pan-
and stronger growth and could add to debt vul- demic further reduced the tax revenue ratio to
nerabilities as productive spending with the poten- 14.7 percent in 2022, below the 15 percent min-
tial to repay debt slows. imum required for a developing country to ade-
Africa’s fiscal deficit is projected to continue quately finance progress toward the Sustainable
to narrow through the medium term as econo- Development Goals.
mies sustain post-­pandemic fiscal consolidation Only resource-­intensive countries other than
despite higher interest rates and currency depre- those dependent on oil and tourism recorded
ciations and the associated increases in debt higher tax revenue ratio in 2019 of 18.1 percent of
service payments. The average fiscal deficit to GDP. With a tax revenue ratio at 15.6 percent of

A frica’ s economic performance and outlook  39

 FIGURE 1.22 Government revenue by economic grouping in Africa, 2010–22

Government revenue Tax revenue

Percent of GDP Percent of GDP
30 30

25 25

Other resource-intensive

20 20 Other resource-intensive
Africa
Non-resource-intensive

Non-resource-intensive
Oil exporters
15 15
Africa

Oil exporters
10 10
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source: AfDB staff calculations.

GDP, non-­resource-intensive countries barely met room for gradual but significant growth-­friendly
the threshold for the Sustainable Development fiscal consolidation would aid in current account
Where fiscal deficits
Goals’ development financing target for develop- rebalancing and the accumulation of international
are large and ing countries, but there is room to expand their reserves to more appropriate levels, particularly
exceed sustainable performance by improving tax collection capac- in economies with weaker-­than-warranted exter-
ity. These economies depend largely on direct nal positions. Countries with structural external
medium-term levels,
income taxes, notably corporate income and pay-­ imbalances should do more to address competi-
promoting external as-you-­earn. Given the inefficiency in tax collec- tiveness issues through gradual labor and product
rebalancing may tion systems, the share of tax revenue in total GDP market reforms. Even in difficult economic times,
necessitate fiscal has fallen progressively. policymakers need to find ways to increase invest-
Across Africa, the COVID-­19 pandemic has ment and economic development while reducing
consolidation to further exacerbated the already fragile fiscal situa- fiscal pressures. Implementing structural reforms
avoid sudden stops tion, and general government revenue as a share that improve business climate and foster compe-
and balance-of- of GDP fell by 1.6 percentage points, from 19 per- tition is one approach. This can not only increase
cent in 2019 to 17.4  percent in 2020. Consoli- investment, it can also increase tax revenues.
payment crises dating economic recovery could bolster average Implementing targeted fiscal policies, such as tax
general government revenue above the estimated incentives for public-­private partnerships, could
18.4 percent of GDP in 2022. also encourage private investment while minimiz-
Where fiscal deficits are large and exceed sus- ing the government’s fiscal burden.
tainable medium-­term levels, promoting external As reported in the 2023 MEO, given the low
rebalancing may necessitate fiscal consolidation tax base and subdued aid due to fiscal pres-
to avoid sudden stops and balance-­of-payment sures in advanced economies, enforcing com-
crises. Fiscal austerity should be implemented in pliance and improving tax administration more
a way that does not exacerbate the pandemic’s generally is imperative for mobilizing domestic
long-­term consequences, particularly by preserv- resources to support economic recovery and
ing growth-­friendly investments in infrastructure, engender sustainable, inclusive, and resilient
healthcare, and education. Policies should be growth for the continent. Improving the efficiency
maintained to protect vulnerable households from of revenue collection through institutional reforms,
the effects of rising food and oil prices. Making such as improved governance and accelerating

40 A frica’ s economic performance and outlook

investments in digitalization and e-­governance, Public debt-­to-GDP ratios are especially high
will improve transparency and reduce illicit finan- among other resource-­intensive (non-­oil) econ-
cial flows and build fiscal credibility. These poli- omies. For this group of countries, the median
cies, if sequenced and implemented appropriately, public debt-­to-GDP ratio declined in 2022 from
could enhance domestic resource mobilization to 74.5  percent of GDP to 69  percent mainly due
complement private resources in meeting financ- to a decline of more than 60 percentage points
ing needs for green growth and sustainable in Sudan’s debt, which reached the Heavily
development. Indebted Poor Countries Initiative decision point
in 2021 and is expected to receive substantial
Debt dynamics and implications for external debt relief. However, public debt remains
growth above the pre-­pandemic level of 67.5 percent of
GDP and is expected to increase respectively
Public debt is projected to remain high, with to 72 percent and 73 percent in 2023 and 2024,
lingering vulnerabilities mainly due to rising interest costs of debt, depre-
As reported in the 2023 MEO, the median public ciation of national currencies and growing financ-
debt in Africa is estimated to have declined to ing needs.
For oil-rich
65  percent of GDP in 2022 from 68  percent in For oil-­rich countries, debt is set to decline to
2021 thanks to debt relief initiatives that help 64 percent of GDP in 2022 from 66.5 percent in countries, debt
countries withstand the confluence of global 2021 despite a build-­up in Nigeria. Nigeria’s public is set to decline
shocks including the COVID-­19 pandemic. This debt has increased steadily due to a weak rev-
to 64 percent of
ratio remains higher than the pre-­ p andemic enue position coupled with large outlays on fuel
level of 61 percent of GDP, and it is expected to subsidies, estimated at about 3 percent of GDP. GDP in 2022 from
increase further to 66 percent in 2023 and then to For other countries in this group, the gain from 66.5 percent in
stabilize at around 65 percent in 2024 (figure 1.23). export earnings boosted by high oil prices have 2021 despite a
The expected increase in debt reflects growing strengthened their currencies and improved their
financing needs­—­associated with rising food and external position. These factors have mitigated
build-up in Nigeria
energy import bills, high debt service costs due the effect of rising interest rates and reduced
to interest rate hikes, exchange rate depreciations, the debt burden in these countries. Debt is esti-
and rollover risks. mated to have declined by double digits in Angola

FIGURE 1.23 Gross government debt as a share of GDP, 2010–24

Percent of GDP
90

Other resource-intensive
80

70
Africa

60 Oil exporters

Non-resource-intensive

50

40

30
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
(estimated) (projected) (projected)

Source: AfDB staff calculations based on the IMF World Economic Outlook database.

A frica’ s economic performance and outlook  41

 (20 percentage points), Equatorial Guinea (15 per- across the world, reversing the historically ultra-­
centage points), and Congo (9 percentage points). low interest rate environment.
In Angola, an appreciation of the national currency
as well as improved receipts from oil exports Tighter global financial conditions are weighing
accounted for the sharp decline in public debt in on sovereign borrowing costs
2022. All countries in this group, except Gabon Global monetary policy tightening has stoked cap-
and South Sudan are expected to see a decline in ital flight and the sell-­off of eurobonds, and con-
their public debt-­to-GDP ratios in 2023 and 2024. comitantly led to weakening of national currencies
Non-­resource-rich countries exhibit a similar and increased sovereign bond spreads across
pattern in the evolution of public debt, which is market-­access countries (figure 1.25). Ghana’s
estimated to have declined to 63 percent of GDP sovereign bonds, for example, were already trad-
in 2022 from 64 percent the previous year, reflect- ing distressed prior to Russia’s invasion of Ukraine
ing stronger economic growth. Projected higher due to the country’s domestic fiscal concerns,
economic growth and efforts to reduce the fiscal and spreads have widened by more than 1,500
deficit through fiscal consolidation and expendi- basis points (bps) since August 2022. Hurt by the
ture restraint are expected to bring down the debt increase in wheat prices, Egypt has seen the sov-
For the key drivers
ratio to 62 percent of GDP in 2023 and 60 percent ereign spread widen by more than 900 bps since
of debt dynamics of GDP in 2024. February 2023. Equally Nigeria, which has not fully
during 2013–23, the For the key drivers of debt dynamics during benefited from higher oil prices due to production
2013–23, the decomposition of debt-­ c reating constraints, faced spreads of more than 1,000
decomposition of
flows indicates that the projected exchange rate bps between July and November 2022. In South
debt-creating flows depreciation and high primary deficits will have Africa, the 10-­year bond yield spreads have risen
indicates that the a greater cumulative impact on external debt less dramatically and remain below 300 bps.
projected exchange dynamics than historical drivers such as real GDP
growth (figure 1.24). Similarly, interest expendi- Debt service costs have risen, narrowing the
rate depreciation tures, through increased nominal interest rates, scope for government spending and increasing
and high primary are projected to contribute significantly to higher vulnerabilities
deficits will have a debt accumulation relative to past values, due Public finances are becoming overstretched due
to the current normalization of monetary policy to rising debt interest costs. External debt interest
greater cumulative
impact on external FIGURE 1.24 Drivers of public debt dynamics as a share of GDP, 2013–23
debt dynamics Exchange rate depreciation Interest expenditure Primary deficit
than historical Cumulative change (percentage points) Real GDP growth GDP deflator Other
150
drivers such as
real GDP growth
100

50
Change in debt to GDP

–50

–100
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: AfDB staff calculations based on the IMF World Economic Outlook database.

42 A frica’ s economic performance and outlook

FIGURE 1.25 10-­year sovereign bond spreads in Africa, November 2019–March 2023

Basis points Basis points

5,000 10,000
Zambia (right axis)

4,000 8,000

Ghana
3,000 6,000

Tunisia

2,000 4,000

Nigeria
Egypt

1,000 2,000

Kenya

0 South Africa Côte d’Ivoire Namibia

0
Nov. Jan. Jan. Jan. Jan. Mar.
External debt
2019 2020 2021 2022 2023
interest payments
Source: AfDB staff calculations based on Haver Analytics. as a proportion of
the government
payments as a proportion of the government rev- 2020–22.10 This increase indicates that govern-
enues have risen above the pre-­pandemic level in ment revenues have not kept pace with the rise revenues have
many countries (figure 1.26). The median interest in interest payments and highlights the erosion risen above the
payments on external debt for the 35 countries in fiscal space, which constrains governments’ pre-pandemic level
as a percent of government revenue rose from capacity to finance domestic recurrent spend-
2.2  percent over 2015–19 to 2.7  percent over ing and public investment. For all 35 countries,
in many countries

FIGURE 1.26 Interest payments on external debt, public and publicly guaranteed

Percent of general government revenue 2015–19 2020–22

15

10

0
é a Bur .

da p.

Dj p.
Pr i
rra ipe

e
Co a
rki ros

so

ng M li
m i

Gu r
a
ad

Ga o
ia

Rw er
za da

Ug e
Ta da
bo ia
Ma erde

ng ia

me i
Eth n
ia
nin

a- ia
u
te ya

Le re
tho

So a
Se lia
l
nd und

De w

Ca out

ga
p

a
Ma
on
eri

ine

iqu

an
roo

sa
mb

Ca zan

Co ritan

iop

ine mb
Re

Ma . Re

Re
sc

i
o, ala

Cô Ken

ma
Fa

Ch

To

Mo an

an

vo
Sie ínc

ne
Be
Bu mo

so
Ni

Bis
Le

ib

Gh
Lib

ga

mb

d’I
Gu Za
o,
an

n
na

u
ric
Af
al

om
ntr

Co
Ce

oT
Sã

Note: Countries shown are low-­income African countries for which a debt sustainability analysis is available and
where data are available for debt service on external debt.
Source: AfDB staff calculations based on World Bank International Debt Statistics database.

A frica’ s economic performance and outlook  43

 interest costs were higher in 2020–22 than in The 25 African countries in high risk of, or
2015–19, except in Zambia, Mauritania, Chad, already in, debt distress in February 2023 (con-
and Democratic Republic of Congo. For Zambia, sidering total indebtedness­—­external and domes-
the decline in interest payment as a share of total tic)11 have experienced the highest increase in the
revenue is due to missed interest payments or burden of debt service. The median external debt
defaults during the pandemic. service payments in 2020–22 for countries with
The rise in interest costs has been com- high risk of debt distress accounted for more than
pounded by rising US dollar-­denominated prin- 11.3 percent of revenues, up from 8.6 percent in
cipal payments, resulting in overall high debt 2015–19 (figure 1.28). The median ratio more than
service payments. Total external debt service doubled for countries already in debt distress, at
payments as a percentage of government reve- 16.5 percent in 2020–22 from 7.6 percent in 2015–
nues increased between 2015–19 and 2020–22 19. Further acceleration in external debt service
in many countries (figure 1.27). The median debt payments could significantly shrink fiscal space
service to revenue ratio of the countries was in these countries, making it harder for affected
about 6.8  percent in 2015–19, well below the economies to recover from multiple crises that
IMF/World Bank debt sustainability threshold of have buffeted countries over the past three years.
The rise in interest
18 percent. The ratio increased to about 10.9 per- The insolvency risk could morph into a liquid-
costs has been cent in 2020–22, still below the threshold. Even ity crisis due to potential shortages of foreign
compounded by in the four countries where interest payments exchange to service the debt. Moreover, the diver-
declined­—­Chad, Democratic Republic of Congo, sion of resources to debt service payment from
rising US dollar-
Mauritania, and Zambia­—­total debt service has critical social and public investment spending
denominated principal risen relative to the pre-­pandemic period, under- could create a vicious cycle of an ailing economy
payments, resulting scoring that principal payments were the dom- reinforcing pre-­existing debt vulnerabilities. This
in overall high debt inant component of debt service in 2020–22 in underscores the need for faster and substan-
these countries. tial debt relief to help African countries free up
service payments
FIGURE 1.27 Debt service on external debt, public and publicly guaranteed

Percent of revenue 2015–19 2020–22

40

30

20

10

0
Pr .

rra ep.
om ric ria

Co ipe

B s
na i

Ma o
ng G i
De ea

e
li
da go

Ug ar
da

Ga d

Gu Rw a
a- a

Le u
Ta ho

Dj ia
za uti

e
bo a
Ca erde

te on
ire
Ma nin

Za ia
Eth ia
ia

Se a
So al
lia
rki nd

law
nd Rep

ge
Ma
ro

on

i
ine and

iqu
Ca eny

ng
an
a

sa
mb

an

n
mb
iop

g
sc

ma
Fa

o, uin

Ma To

an

Ch

Mo ibo

Cô ero
o T l Af Libe

vo
ínc

ita

ne
Bu uru

Sie . R

Be
mo

so
Ni

Bis
Le

Gh
Co
nz
ga

mb

V
K

d’I
é a an

ur
m
m
Sã ntra

Co
Ce

Note: Debt service payments are the sum of principal repayments and interest payments in the year specified. Coun-
tries shown are low-­income African countries for which a debt sustainability analysis is available and where data are
available for debt service on external debt.
Source: AfDB staff calculations based on World Bank International Debt Statistics database.

44 A frica’ s economic performance and outlook

FIGURE 1.28 Debt service on external debt, public and publicly guaranteed, by risk of debt distress

Percent of revenue 2015–19 2020–21 Percent of GDP 2015–19 2020–21

4 20

3 15

2 10

1 5

0 0
Moderate Median High In Moderate Median High In
risk African low-income risk distress risk African low-income risk distress
countries with debt countries with debt
sustainability analysis sustainability analysis

Note: Countries shown are low-­income African countries for which a debt sustainability analysis is available and where data are available
for debt service on external debt.
Source: AfDB staff calculations based on World Bank International Debt Statistics database.

resources for spending on education, health, and The increasing share of domestic debt in
public physical infrastructure. Africa’s public debt could exacerbate fiscal and
The median
Debt service payments falling due in 2023–25 debt risks with implications for financial stability
could further elevate the risk of distress. A bunch- and economic growth external debt
ing of debt service due in 2023–25 will further As opportunities for external finance diminish, Afri- service payments
increase debt vulnerabilities and aggravate the can countries are increasingly relying on domes-
in 2020–22 for
risks. Total external debt service payments due tic debt to finance fiscal deficits, and this trend is
in 2023 for 16 African countries will increase likely to accelerate in the near term.13 Prior to the countries with high
by about a billion dollars to $22.3  billion from COVID-­19 pandemic, the share of domestic debt risk of debt distress
$21.4 billion in 2022 (figure 1.29).12 Nigeria faces in total public debt was on a downward trend, but accounted for more
a $500 million debt payment in July 2023, while since 2020 this trend has been reversed (figure
Rwanda will need to pay $61  million in May. In 1.30, left panel). In 2019, external debt accounted
than 11.3 percent
December, Côte d’Ivoire and Gabon will face pay- for about 65 percent of Africa’s total public debt. of revenues, up
ments of $56 million and $37 million respectively, This share fell to 62 percent in 2020 and at end of from 8.6 percent
while Cameroon has debt repayments of $50 mil- 2021 external debt accounted for about 58 per-
lion annually in 2023–25. If global monetary policy cent of total debt. The change in debt composition
in 2015–19
remains tight and depreciations of national curren- has shifted toward domestic debt, whose share
cies against the US dollar persist, countries will has increased from 35 percent in 2019 to approx-
face a difficult trade-­off between honoring debt imately 42  percent of 2021. This trend reflects
repayment and meeting their food and energy growing financing needs, the difficulty by many
import bills, both of which could exert pressure on countries to access international capital markets
foreign exchange reserves. Without a comprehen- which, coupled with limited tax revenue mobiliza-
sive debt reduction strategy and financial support tion, have prompted them to turn to local currency
similar to the SDR allocation, debt vulnerabilities debt issuances.
will continue to rise, and countries may face a bal- The broad picture of the shifting share of
ance of payment crisis. public debt toward the domestic market masks

A frica’ s economic performance and outlook  45

 FIGURE 1.29 African sovereigns, total external debt service due

$ millions 2022 2023 2024 2025

26,792
25,019
22,281
21,408
8,000

6,000

4,000

2,000

0
la

nin

ire

ia

tho

bia

ria

da

da

a
lle
rd

ng

ny

iqu

ric
roo

bo
go

iop

an

an
vo

ge
mi
Be

so
Ve

he
Ke

Af
Co

Ga
An

mb
me

Eth
d’I

Rw

Ug
Ni
Le

Na

yc
bo

za
Ca

te

Se
Ca

Mo
Cô

Source: AfDB staff calculations based on World Bank International Debt Statistics database.

FIGURE 1.30 Domestic and external debt and domestic bond issuances

Domestic and external debt in Africa Domestic bonds

Percent of total public debt Domestic External $ billions Percent of GDP
100 350 14

300 13
80 Percent of GDP
(right axis)
250 12

60
200 11

150 10
40

100 9

20
50 8

0 0 7
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Source: AfDB staff calculations based on AFMI database and IMF and World Bank database.

significant differences across individual coun- 2019 (9.3 percent of GDP). This is a one-­quarter
tries and countries’ groupings. For frontier market increase within a year, due to the pandemic-­
economies with relatively deeper local bond mar- induced financing needs and limited opportunities
kets, domestic bond issuances have surged since for external financing from both private and multi-
the start of the COVID-­19 pandemic in 2020 (figure lateral sources, coupled with domestic banks’ shift
1.30, right panel). On average, African countries toward holdings of public sector assets as risks
issued domestic bonds worth $294  billion in of corporate lending heightened. The average
2020 (12.1  percent of GDP) from $234  billion in bond issuance in 2021 increased to $307 billion, a

46 A frica’ s economic performance and outlook

smaller increase of 4 percent, reflecting the end of issuance. Indeed, sovereign bonds are often con-
the worst of COVID-­19. sidered the most liquid and safest debt instruments
In frontier market economies whose external which explains their shorter maturity. In addition,
bonds are currently trading at distressed spread central banks rely on sovereign bonds with shorter
levels, domestic debt represented more than maturity to conduct monetary policy operations.
50 percent of total public debt in 2021. For Afri- The majority of the 40 African countries
ca’s heavily indebted non-­frontier market econ- with data between 2000 and 2022 have tenors
omies, domestic debt still constitutes a relatively between two and seven years and coupon rates
low proportion of public debt, except in Burundi between 4 and 12  percent (figure 1.31). Coun-
and São Tomé and Príncipe, where domestic debt tries such as Ghana and Malawi have coupon
accounts for more than 50 percent of total public rates around 20  percent. On the opposite side,
debt.14 With government financing still elevated Botswana, Namibia, and South Africa have longer
and likely to rise further and as global financial tenors with coupon rates below the Africa average.
conditions remain tight, domestic bank holdings For instance, the average tenor on local currency
of sovereign debt will keep rising. This will further bonds in South Africa is 22 years with coupon
crowd out private sector credit and present risks rates around 6 percent. These countries have rel-
The majority of
to domestic financial stability.15 Restructuring of atively more developed and liquid primary domes-
domestic debt should be part of the negotiations tic bond markets, which allows them to borrow the 40 African
for the resolution of public debt crises in countries at longer maturities, thereby reducing rollover countries with data
facing heightened risks, with domestic debt repre- risk compared to other countries. The secondary
between 2000 and
senting a substantial share of public debt. Negoti- market in these countries also allows for additional
ations should involve all parties, including bilateral trading and price formation of local currency debt. 2022 have tenors
lenders, the private sector, domestic lenders, and Shorter tenors and high coupons in most countries of domestic bond
multilateral financial institutions. are good for banks. But they are also a cause for issuances between
Shorter tenors of domestic bond issuances and concern because they increase rollover risk and
relatively high coupon rates in many countries may borrowing costs and may exacerbate debt vulner-
two and seven
exacerbate debt vulnerabilities. Domestic sovereign abilities in countries with relatively higher domestic years and coupon
bond markets in many African countries is char- debt, as governments may be tempted to turn to rates between
acterized by shorter tenors and high coupons at the restructuring of domestic debt.
4 and 12 percent
FIGURE 1.31 Average coupon and tenor of government bonds in Africa over 2000–22

Coupon
20
Malawi

Ghana
Egypt
15

Uganda
Nigeria
Zambia
Kenya
Mozambique Rwanda
10 Tanzania
Gambia
Burundi Namibia
Eswatini
Côte d’Ivoire
Congo South Africa
Equatorial Guinea Botswana
5 Mali
Cameroon Morocco
Algeria
Guinea-Bissau

0
0 5 10 15 20 25

Tenor
Source: AfDB staff calculations based on AFMI database.

A frica’ s economic performance and outlook  47

 Domestic debt restructuring may thus become External position and current account
more frequent in the future. With a bunching of balance
external and domestic loan repayments coming
due within the next few years, difficulties in Africa’s overall external position is estimated to
restructuring external debt and delays in imple- have weakened in 2022 and it is projected to
menting the G20’s Common Framework, it is likely weaken further in the medium term, reflecting
that debt restructuring will involve discussions on the gloomy export sector outlook
domestic debt restructuring as well and include all The average current account deficit is estimated
stakeholders. The latter may be easier to achieve to have widened to 2.1  percent of GDP in 2022
as debt is issued under domestic law. from 1.7  percent in 2021. As economies con-
For instance, many countries could rollover tinue to implement corrective measures to restore
their domestic debt through debt exchange strat- external balances, it is projected that external bal-
egies. Ghana’s recent debt restructuring strategy ances will stabilize at around 2.3 percent in 2023–
is instructive. In early December 2022, due to 24, an improvement of more than 1.5 percentage
delays and difficulties in restructuring its external points from the pre-­pandemic level of 3.8 percent
debt, the government16 announced a restructuring (figure 1.32).
As economies
of local-­currency debt­—­which represented around While external positions are favorable relative to
continue to 50 percent of total debt in 2021­—­through a vol- the period preceding the pandemic, a combina-
implement corrective untary domestic debt exchange program. So far, tion of current account deficits and negative inter-
the negotiations with domestic bondholders have national investment positions could create feed-
measures to restore
stalled with investors raising concerns that the back loops, particularly where debt vulnerabilities
external balances, debt swap will lead to significant financial losses. exist. Persistent current account deficits may
it is projected that Ghana’s unsuccessful experience to date shows result in large outflows of investment income, pro-
external balances that domestic debt restructuring can also be chal- ducing even larger deficits that must be financed.
lenging. To be successful, countries must design This poses a significant downside risk for coun-
will stabilize at their domestic debt restructuring strategies in tries that have relied on debt financing to deal
around 2.3 percent such a way as to achieve the required debt reduc- with the negative effects of the pandemic, such
in 2023– 24, an tion target while minimizing risks to the domestic as low-­income and non-­resource-intensive econ-
financial system and the broader economy. omies. Lower growth and higher interest rates are
improvement of more
than 1.5 percentage FIGURE 1.32 Current account balances by type of resources, 2020–24
points from the
Percent of GDP 2020 2021 2022 (estimated) 2023 (projected) 2024 (projected)
pre-pandemic level 5

of 3.8 percent
0

–5

–10

–15

–20

–25
Non-resource- Oil Other Tourism Africa
intensive exporters resource-intensive dependent

Source: African Development Bank statistics.

48 A frica’ s economic performance and outlook

expected to hasten the deterioration of net inter- national currencies persists, it could increase the
national investment positions. import bill and erode countries’ external positions,
Africa’s commodity-­ e xporting economies creating ripple effects in the real economy through
recorded mixed external positions. While oil an increase in imported inflation. The average cur-
exporters benefiting from higher oil prices are esti- rent account deficit for non-­resource-intensive
mated to have recorded current account improve- economies is projected to narrow to 6.1 percent of
ment to a surplus of 1.4 percent of GDP in 2022, GDP in 2023 and stabilize at 6.2 percent of GDP
reversing the deficit of 1.1 percent in the previous in 2024.
year, other resource-­intensive countries recorded The average current account in tourism-­
a deterioration to a deficit to 2.6 percent of GDP dependent economies remains weak, with a
from a surplus of 0.5 percent in the same period. deficit of 14.4 percent of GDP in 2022, though it
This deterioration is mainly due to the subdued improved substantially from 21.5 percent in 2021.
demand for non-­oil commodities, outweighing the It is projected to narrow further to 13.1 percent in
price increase in that year. The current account 2023, and to 11.8 percent in 2024 as tourist arriv-
surplus in oil-­exporting countries is projected to als gradually increase. According to the World
decline to 0.7 percent of GDP in 2023–24, reflect- Tourism Organization, an estimated 700  million
Current account
ing the expected decline of oil prices and subdued tourists traveled internationally between January
global activity. Similarly, the projected subdued and September 2022, more than twice (133 per- deficits in most
global demand could affect demand for non-­oil cent) the number for the same period in 2021, African countries
commodities and induce a widening of the cur- and a strong recovery of nearly 61 percent of pre-­
continue to be
rent account deficit for this group of countries to pandemic levels.
3.1 percent of GDP in 2023–24. Current account deficits in most African coun- driven mainly by
Non-­resource-intensive economies have seen tries continue to be driven mainly by trade deficits trade deficits and
their external positions weaken further in 2022 and net factor payments, while net current trans- net factor payments,
due to higher food and energy import bills and fers including remittances and foreign aid prop
depreciating national currencies. The current them up (figure 1.33).
while net current
account deficit for these economies is estimated The continent’s average current account deficit transfers including
to have deteriorated to 7.6 percent in 2022 from which peaked at 6  percent of GDP in 2015 has remittances
5.4 percent in 2021. If the recent phase of weak steadily narrowed and stabilized at slightly above
and foreign aid
FIGURE 1.33 Current account balance decomposition: continental averages over 2000–24 prop them up
Percent of GDP Trade balance Current transfers Net income
10

Current account balance

5

–5

–10
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
(est.) (proj.) (proj.)

Source: AfDB statistics.

A frica’ s economic performance and outlook  49

 2  percent since 2020. The contribution of net with macroeconomic imbalances in the short
income outflows has declined over time, particu- term due to a bleak global economic outlook, a
larly in the aftermath of the COVID-­19 pandemic persistent supply chain crunch, and tighter global
as softer global economic conditions weighed on financial conditions.
dividends and interest payments to foreign inves-
tors. But the deficit in merchandise trade has been External financial flows to Africa,
growing since 2012, peaking at about 57 percent implications, and outlook
in 2015 as net commodity exporters suffered
trade losses from lower prices. The rebound in financial flows from the
Aided by commodity prices well above pre-­ decline in 2020 has proven robust, but several
pandemic levels, the contribution of the trade uncertainties remain due to tighter global
deficit has since declined. But it remains above financial conditions
35 percent on average and is projected to remain Total external financial inflows to Africa­—­foreign
at the same level in the medium term as slower direct investment (FDI), portfolio investments,
growth in global economy dampens demand and official development assistance (ODA), and
softens export prices. In contrast, net current remittances­—­have rebounded by around 20 per-
Total external
transfers (workers’ remittances, intergovernment cent to $216.5  billion in 2021 (figure 1.34). The
financial inflows official transfers, among others) have been pos- increase was led by FDI, which more than dou-
to Africa—foreign itive and resilient throughout the period, allevi- bled to $83 billion in 2021 from $39 billion in 2020,
ating the impact of the trade deficit and income when the pandemic weighed heavily on invest-
direct investment,
outflows on the current account. These dynam- ment. Despite the strong expansion in 2021, FDI
portfolio investments, ics are expected to persist at least in the medium flows to Africa accounted for only 5.2 percent of
official development term, given the resumption of official development global FDI, up from 4.1 percent in 2020. Although
assistance, and assistance and other transfers. weak, the rising importance of Africa as host of
While these projections indicate a gradual re- global FDI flows highlights increased investor
remittances—have balancing of external positions, countries must appetite for investment opportunities in the con-
rebounded by continue to address persistent deficits proactively tinent. As pointed out in the MEO 2023, the larg-
around 20 percent rather than reactively. Unfortunately, many African est FDI recipient in 2021 was South Africa, with
countries have limited policy space for dealing investments worth more than $40.9 billion, nearly
to $216.5 billion
in 2021 FIGURE 1.34 External financial flows to Africa, 2015–21

Remittances Portfolio investments Official development assistance Foreign direct investment inflows
$ billions Percent of GDP
250 10
Percent of GDP (right axis)

200 8

150 6

100 4

50 2

0 0

–50 –2
2015 2016 2017 2018 2019 2020 2021

Source: African Development Bank statistics and staff calculations assuming constant ODA between 2020 and 2021.

50 A frica’ s economic performance and outlook

half the total inflows to Africa that year, followed global environment. African countries that experi-
by Egypt and Mozambique, each attracting nearly enced the largest increase in ODA in 2021 include
$5.1  billion in FDI inflows, about 6.2  percent of Egypt (428 percent), Equatorial Guinea (115 per-
the total. FDI in Mozambique, which increased by cent), Angola (109 percent), Gabon (82 percent),
68 percent in 2021, is largely directed to green- and Sudan (60 percent). But the bulk of ODA to
field projects in the energy sector. Other countries Africa in 2021 was concentrated in Egypt ($8.2 bil-
such as Nigeria (5.8 percent of Africa’s FDI inflows) lion), Ethiopia ($4  billion), Sudan ($3.8  billion),
and Ethiopia (5.1 percent) also managed to attract DRC ($3.5 billion), Nigeria ($3.4 billion), and Kenya
important FDI flows despite economic challenges. ($3.1 billion). The top aid-­receiving African coun-
The bulk of FDI to these countries is increasingly tries in 2021 accounted for more than half the total
directed to projects in clean energy resources. ODA flows to the continent. African countries need
The reversal of portfolio investments in 2020 to leverage this external support to address exist-
persisted in 2021 with a record $27.5  billion of ing vulnerabilities and build more resilient econo-
outflows, after $8.1 billion outflows in 2020. This mies, especially given risks that advanced econo-
sustained asset selloff highlights the sensitivity of mies may reallocate resources to reconstruction
portfolio investments to changes in the global and and humanitarian assistance in Ukraine at the
The reversal of
domestic financial environment as opposed to FDI expense of meeting their ODA commitments to
which has proven to be more resilient against eco- Africa. portfolio investments
nomic shocks. Recent interest rate hikes by cen- In 2022, member countries of the Develop- in 2020 persisted
tral banks, mainly in advanced economies, and ment Assistance Committee (DAC) provided
in 2021 with a
tighter global financial conditions are weighing on $204 billion in total ODA to the rest of the world, a
capital outflows, with attendant pressures on cur- 13.6 percent increase from 2021 levels. Contrib- record $27.5 billion
rencies and interest rates in emerging and devel- uting to this increase was net ODA to Ukraine of of outflows,
oping economies, which are particularly vulnera- $16.1 billion, equivalent to 7.8 percent of total ODA after $8.1 billion
ble to capital flight. The recent bank defaults could resources made available in 2022. In comparison,
further reinforce global financial instability and net bilateral ODA flows from DAC countries to
outflows in 2020
exacerbate capital outflows from the continent. Africa declined by 7.4 percent in real terms from
Portfolio investment, however, displays sig- $36.6 billion in 2021 to $34 billion, the lowest level
nificant cross-­ c ountry heterogeneity in Africa. since 2010 and the third consecutive decline since
Countries such as Mauritius and South Africa with 2019.17 The net ODA flows to Africa are a small
more mature equity and debt markets recording fraction of the more than $91  billion in financial
the largest outflows in 2021 (figure 1.35). But a commitments, between January 2022 and Febru-
few African countries recorded net inflows in 2021. ary 2023, from the Western governments (mainly
These include Egypt ($18 billion), Nigeria ($5.9 bil- the G7 and European Union member countries)
lion, reversing the capital flight in 2020), and and non-­bilateral donors (including the IMF, World
Ghana ($2.1 billion, bolstering its portfolio inflows Bank, and the European Bank for Reconstruction)
of $1.6 billion in 2020). Capital flight through net to help sustain economic and financial stability in
portfolio investment outflows is estimated to have Ukraine following Russia’s invasion.18
continued in 2022 at $28 billion, close to the 2021 Remittances rebounded by 13.5  percent to
level due to rising interest rates associated with $95.5 billion in 2021 from the modest drop of less
contractionary monetary policies in advanced than 1 percent to $84.2 billion in 2020. The relative
countries. resilience of remittances in 2020 was due in large
Official development assistance (ODA) to Africa part to increased personal transfers to Angola,
steadied at $65  billion in 2021 after the 28  per- Egypt, Kenya, Morocco, Zambia, and Zimbabwe,
cent jump in 2020. The surge in ODA since 2020 which offset the sharp fall in other countries such
reflected support from the international com- as Nigeria. The increase in remittances was
munity to help African governments tackle the driven by better-­than-expected economic con-
humanitarian and socioeconomic impacts of the ditions in top African migrant destination coun-
pandemic and navigate through the challenging tries, including the OECD, and the Gulf countries,

A frica’ s economic performance and outlook  51

 FIGURE 1.35 Portfolio investments, 2021 and 2022

Egypt
Nigeria
Ghana
2021
Senegal
2022
Zambia
Mali
Niger
Côte d’Ivoire
Namibia
Rwanda
Congo
Gabon
Guinea-Bissau
Uganda
Lesotho
Togo Outflows
Tanzania
The increase in Seychelles
Sudan
external financial São Tomé and Príncipe

flows needs to Equatorial Guinea

Cabo Verde
be sustained in a Gambia
Mozambique
context of large Cameroon
financing needs Benin
Tunisia
for the continent, Angola
Congo, Dem. Rep.
including for Zimbabwe
climate action Kenya
Morocco
Burkina Faso
Eswatini
Botswana
Mauritius
South Africa

–10 –5 0 5 10
$ billions
Note: A positive number signifies an outflow of portfolio investment from Africa, and a negative number an inflow of
portfolio investment.
Source: AfDB staff calculation.

depreciating exchange rates against the US dollar, for channeling these flows to mitigate the socio-
and a shift from cash (informal) to digital (formal) economic impacts of recent overlapping shocks
transfers. The increase in remittances in 2021 on African households.
was driven by Egypt ($31.5 billion, or 33 percent), As highlighted in chapter 2, the increase in
Nigeria ($19.5 billion, or 20 percent), and Morocco external financial flows needs to be sustained in a
($10.7  billion, or 11  percent). Remittances have context of large financing needs for the continent,
become a vital source of foreign financing for including for climate action estimated at $2.6–
many African countries and serve as a private $2.8 trillion over 2020–30, or $234.5–$250 billion
coping mechanism against shocks, reducing a year. Even more important is the need for Afri-
people’s vulnerability to severe shocks. This high- can countries to increase the scope and depth of
lights the importance of improving conditions available financing options. This is critical to allow

52 A frica’ s economic performance and outlook

Africa to achieve the Sustainable Development policies to have a strong and credible central bank
Goals and accelerate progress toward greener communication strategy that would hasten disin-
and more inclusive growth. Against this back- flation and thus lower the cost of aggressive mon-
ground, chapter 2 is on private sector financing for etary policy. Such a monetary policy stance will
climate and green growth in Africa and chapter 3 have to be coordinated with a tighter fiscal policy
is on natural capital for climate finance and green that restricts government spending in non-­critical
growth in Africa. areas to achieve faster desirable outcomes on
inflation. In countries whose inflation outlook is rel-
atively low and well anchored, and that have spare
POLICY OPTIONS capacity, appropriate monetary policy responses
should be coordinated with fiscal policy to ensure
African countries continue to feel the impacts that support for growth remains firmly on course.
of recent global and domestic shocks that have
weakened macroeconomic fundamentals. Amid Macroprudential policies to supplement
high inflation, tightening financing conditions, and monetary policy actions will be necessary to
elevated debt and climate risks, addressing the address financial stability risks and maintain
Countries need a
headwinds affecting Africa will require a mix of price stability
short and medium to long-­term policies that can Aggressive anti-­inflation monetary policy aimed strong and credible
achieve faster disinflation while accelerating and at realigning current inflation with its medium-­ central bank
sustaining the growth momentum. term target could test the resilience of the bank-
communication
ing sector in Africa. Strains in the financial system
Short-­term policies could in turn complicate the task of central banks. strategy that
In this case, macro-­prudential policies such as would hasten
A clearly communicated anti-­inflation monetary capital and liquidity buffers would be essential to disinflation and
policy, supported by prudent fiscal policy, will address the risks to financial stability and should
achieve lower inflation faster at minimum cost help central banks manage the trade-­off between
thus lower the cost
to the economy the twin objectives of maintaining price stability cost of aggressive
Inflation remains significantly high across Africa, and financial system stability. This will allow cen- monetary policy
even by historical accounts, and the outlook points tral banks to continue with tight monetary policy
to sustained increase this year before falling and to address inflationary pressures. Should financial
returning to single digits next year. Although the strains emerge, requiring central banks to align
risk for global recession has waned and growth monetary policy with its mandate of preserving
in Africa is projected to stabilize at around 4 per- financial stability, they should do so swiftly and
cent, tackling high inflation would rekindle pros- credibly while clearly communicating a continued
pects for faster and sustained growth. But this commitment to contain inflation as financial stress
requires careful consideration of policy options to lessens. This clear communication is necessary
ensure that inflation expectations do not become for the credibility of monetary policy.
entrenched and impose costs on growth. As global financial conditions tighten and
These policy choices will vary from one coun- financing needs mount, governments are increas-
try to another, depending on prevailing economic ingly turning to domestic banks for deficit financ-
and policy circumstances and the growth outlook. ing. Increased exposure to domestic financial
In countries where inflation rates are projected to markets raises the risk of large publicly financed
remain significantly higher than targets or in double bank balance sheets, creating an adverse bank-­
digits, raising policy rates and keeping them sovereign feedback loop that could threaten
higher in the short term will help to anchor inflation financial stability should fiscal risks escalate.
expectations and drive inflation downwards. But To avoid transmitting fiscal risks to the banking
this policy choice must consider the implied costs sector, a comprehensive domestic debt restruc-
for growth and other socioeconomic challenges. turing mechanism involving domestic banks and
It is therefore important that countries adopt such other domestic debtholders will be necessary to

A frica’ s economic performance and outlook  53

 achieve the required debt reduction target while financial markets is critical to unlocking private
minimizing the associated financial stability risks. sector financing for development. Resource mobi-
lization could also be enhanced by improving insti-
Coordinated debt treatment strategy between tutional governance and enacting policies that can
official and private creditors is key to avoiding a leverage private financing, especially in climate-­
debt crisis, given tight global financial conditions, proof and pandemic-­proof greenfield projects­—­
and a bunching of debt service payments and mobilizing Africa’s natural resources.
Countries facing a high risk of debt distress should
firmly implement policies, including expenditure-­ Enacting strategic industrial policies to
focused fiscal consolidation, aimed at restoring accelerate economic diversification in Africa
fiscal fitness and debt sustainability. Reforms is imperative to limit effects of recurrent
should however be gradual to cushion poorer headwinds and global shocks
households from expenditure cuts. For countries Cross-­regional variations in growth show that
currently in debt distress or whose debt is on tip- the most diversified regions have more sustained
ping point of sustainability, early consideration of growth. Although the short-­term cost of diver-
debt treatment and engagement with creditors sification may seem high for countries heavily
Scaling up domestic
are paramount to restoring debt sustainability. dependent on exports of primary commodities,
revenue mobilization Accompanying policies such as fiscal consolida- especially oil-­producing countries, it remains the
is critical to restore tion focusing on both efficient revenue mobiliza- most viable option for sustaining higher and inclu-
tion and public expenditure will be needed to build sive growth in the medium to long term. Further-
fiscal sustainability
market confidence and restore macroeconomic more, the shift in economic opportunities toward
and finance stability. Aligning the new Global Sovereign Debt green growth offers a strong business case for the
inclusive growth Roundtable19 with the G20 Common Framework design of strategic industrial policies to harness
and sustainable will help strengthen the collaboration among bi- Africa’s critical minerals across the entire value
lateral and multilateral lenders as well as private chain for green development to reduce the carbon
development creditors, and build credibility for successful debt footprint and lower the cost of shocks.
restructuring. Diversifying into growth-­e nhancing and job-­
creating sectors can be enhanced through struc-
Medium to long-­term policies tural reforms including supporting investment in
hard and soft infrastructure to boost regional trade
Scaling up domestic revenue mobilization is and shield against volatility in trade and current
critical to restore fiscal sustainability and finance accounts. Importantly, developing strategic indus-
inclusive growth and sustainable development trial policies to spur diversification will is critical to
Domestic resource mobilization is an imperative correct market failures, drive export orientation,
for African countries faced with huge financing and encourage healthy competition in key sectors.
needs for inclusive and sustainable growth and Examples of strategic industrial policies include
development. Mobilizing domestic resources local content and franchising policies to promote
requires strong policy commitment to reforms value addition and boost the competitiveness of
focusing, in the long term, on broadening the tax Africa’s commodity exports. Further discussion of
base, enhancing formalization of informal activities, these policies is in chapter 3.
improving the transparency and efficiency of tax
administrations through digitalization and simplified Boosting regional trade to enhance Africa’s
procedures, and curbing illicit financial flows. resilience to spillovers from global economic
Countries should improve enforcement capac- growth slowdown and reduce the persistent
ity and promote voluntary tax compliance through trade deficit
better use of tax revenues for public welfare­—­by Accelerating implementation of the African Con-
providing quality public goods and services­—­ tinental Free Trade Area (AfCFTA) presents an
and campaigns to increase awareness of the opportunity to create a borderless Africa. A
importance of paying taxes. Deepening domestic combined population of 1.4 billion, equivalent to

54 A frica’ s economic performance and outlook

16.7  percent of the world population and GDP to the joint initiative by the African Development
of about $3 trillion, could underpin a competitive Bank and African Union Commission to establish
continental market to expand intra-­African trade an African Financial Stability Mechanism (AFSM)
to cushion economies from multiple shocks. But to help the continent strengthen its debt manage-
this will entail scaling up investment in soft and ment and crisis resolution capacity. The AFSM
hard infrastructure, especially regional transport would help African countries pool resources
and logistics hubs, and dismantling trade and to address idiosyncratic shocks buffeting the
nontrade barriers that continue to hamper the free continent.
flow of goods, services, and persons. Other reforms could include reviewing the
In addition, harmonizing and strengthening global rating landscape dominated by three rating
cross-­border payment systems through techno- agencies, which tends to raise financing costs
logical advances and accelerating efforts toward and reduce financial inflows to Africa. The cur-
coordinated macroeconomic stability would facili- rent formula for the allocation of special drawing
tate regional integration and trade. Minimizing the rights (SDRs), which favors richer countries whose
effects of disruptions in global supply chains and needs for such resources during global crisis is
the emergence of trade re-­shoring and friend-­ low, also needs to be reviewed with the aim to
Reforming the global
shoring requires building more integrated and channel such resources to developing countries
resilient regional economies. that need them the most. financial and debt
architecture would
Reforming the global financial and debt Reforming governance to strengthen public
help developing
architecture to reduce the cost, time and legal financial management to deal with increased
complications associated with debt restructuring debt and tight fiscal space. countries, especially
for developing countries Africa’s debt remains elevated, financial inflows in Africa, access
The ability of the current global financial and debt have stalled, and the fiscal space has significantly international
architecture to address emerging challenges is narrowed as countries spend on average almost
being seriously undermined by the growing share one-­fifth of their annual revenues on debt service.
resources on
of non-­ concessional debt, mostly from private Under such conditions, African governments need affordable terms to
lenders and non-­Paris Club members. This is the to prioritize public expenditure management and finance investment in
main reason for the delays in sovereign debt resolu- ensure value-­for-money in their use of the limited
tions under the G20 Common Framework. And this resources. This must be accompanied by gover-
critical infrastructure
reality can no longer be ignored and calls for urgent nance reforms and improved public financial and and human capital
reform of the current global financial and debt debt management practices as immediate steps development for
architecture to avoid high debt resolution costs and to address the mounting debt vulnerabilities.
the achievement
limit the likelihood of a re-­emerging debt crisis. The coverage of Africa’s debt needs to go
Reforming the global financial and debt archi- beyond general government debt to sub-­national of Sustainable
tecture would help developing countries, espe- governments, state-­owned enterprises, public-­ Development Goals
cially in Africa, access international resources on private partnerships, and domestic arrears accu-
affordable terms to finance investment in critical mulation. Improving the transparency and expand-
infrastructure and human capital development ing the coverage of debt liabilities would help
for the achievement of Sustainable Development identify the exact nature of the debt burden and
Goals. These reforms should include strengthen- the type of relief required. Last, countries need to
ing the capacity of regional multilateral financial build institutional capacity to better manage public
institutions to better respond to emerging chal- finances, block leakages, and improve investment
lenges. Central to this is the need for support efficiency and project selection.

A frica’ s economic performance and outlook  55

ANNEX 1.1 STATISTICAL APPENDIX

TABLE A1.1 Real GDP growth (percent)

2022 2023 2024 2022 2023 2024

2021 estimated projected projected 2021 estimated projected projected
Central Africa 3.4 5.0 4.9 4.6 South Africa 4.9 2.0 0.2 1.5
Cameroon 3.6 3.4 4.2 4.5 Eswatini 7.9 3.6 3.5 4.9
Central African Zambia 4.6 3.0 4.0 4.2
Rep. 1.0 0.5 2.0 2.9
Zimbabwe 8.5 3.0 3.2 3.2
Chad -1.1 2.4 3.6 3.7
West Africa 4.4 3.8 3.9 4.2
Congo 1.5 3.2 4.2 4.4
Benin 7.2 6.0 6.2 6.0
Congo, Dem. Rep. 6.2 8.5 8.0 7.2
Burkina Faso 6.9 3.2 3.7 3.9
Equatorial Guinea –0.9 3.1 –1.4 –6.3
Cabo Verde 7.0 10.5 5.7 6.2
Gabon 1.5 3.0 2.7 2.8
Côte d’Ivoire 7.4 6.7 7.2 7.0
East Africa 4.7 4.4 5.1 5.8
Gambia 4.3 4.4 5.2 5.6
Burundi 3.1 4.0 4.5 4.6
Ghana 5.4 3.3 1.7 3.0
Comoros 2.2 2.9 3.5 4.0
Guinea 4.4 4.8 5.5 5.6
Djibouti 4.8 3.7 5.4 6.5
Guinea-­Bissau 6.4 3.7 4.6 5.1
Eritrea 2.5 2.3 2.6 3.1
Liberia 5.0 4.0 4.3 4.8
Ethiopia 5.6 5.3 5.8 6.2
Mali 3.1 3.7 5.1 5.3
Kenya 7.5 5.5 5.6 6.0
Niger 1.4 7.2 7.0 11.8
Rwanda 10.9 8.2 7.6 8.0
Nigeria 3.6 3.3 3.4 3.2
Seychelles 7.9 9.5 5.1 4.2
Senegal 6.5 4.0 5.5 9.8
Somalia 2.9 1.7 2.8 3.5
Sierra Leone 4.1 2.8 3.1 4.8
South Sudan –4.9 –2.9 –0.4 4.6
Togo 6.0 5.5 6.3 6.6
Sudan -1.9 -0.7 2.0 3.8
Africa 4.8 3.8 4.0 4.3
Tanzania 4.9 4.7 5.3 6.3
Africa
Uganda 5.6 6.3 6.5 6.7 (excluding Libya) 4.3 4.1 3.7 4.2
North Africa 5.4 4.1 4.6 4.4 Africa
(excluding Nigeria) 5.0 4.0 4.1 4.5
Algeria 3.4 3.0 3.1 2.4
Memorandum items
Egypt 3.3 6.6 4.4 5.1
North Africa
Libya 28.3 –12.1 17.9 8.0 (including Sudan) 4.9 3.8 4.5 4.4
Mauritania 2.4 5.3 4.3 5.9 Sub-­Saharan Africa 4.4 3.7 3.6 4.2
Morocco 7.9 1.1 3.3 3.5 Sub-­Saharan
Tunisia 4.3 2.4 1.9 2.8 Africa (excluding
South Africa) 4.3 4.1 4.3 4.8
Southern Africa 4.4 2.7 1.6 2.7
Oil-­exporting
Angola 1.1 3.0 3.5 3.9 countries 4.2 4.0 4.3 4.1
Botswana 11.9 5.8 4.0 3.9 Oil-­importing
countries –2.4 5.3 3.7 4.1
Lesotho 1.6 2.5 2.1 2.6
Other
Madagascar 5.7 4.2 4.2 5.0 resource-­intensive 4.5 3.0 2.4 3.5
Malawi 2.2 0.8 2.0 3.5 Non-­resource-
intensive 6.3 4.4 5.0 5.6
Mauritius 3.4 8.7 5.0 4.2
Tourism dependent 4.0 8.4 4.9 4.4
Mozambique 2.3 3.8 4.8 8.3
Low income 3.9 4.2 5.0 5.8
Namibia 3.5 4.6 2.6 3.0
Middle income 4.9 3.8 3.8 4.0
São Tomé and
Príncipe 1.9 0.9 1.6 1.9

Source: African Development Bank statistics.

56 A frica’ s economic performance and outlook

TABLE A1.2 Country groupings

Other Non-­resource-
Oil exporters resource-intensive intensive Tourism dependent Low income Middle income
Algeria Botswana Benin Cabo Verde Burkina Faso Algeria
Angola Burkina Faso Burundi Comoros Burundi Angola
Cameroon Central African Republic Cabo Verde Mauritius Central African Republic Benin
Chad Congo, Dem. Rep. Comoros São Tomé and Príncipe Chad Botswana
Congo Ghana Côte d’Ivoire Seychelles Congo, Dem. Rep. Cabo Verde
Egypt Guinea Djibouti Eritrea Cameroon
Equatorial Guinea Liberia Eritrea Ethiopia Comoros
Gabon Mali Ethiopia Gambia Congo
Libya Namibia Gambia Guinea Côte d’Ivoire
Nigeria Niger Guinea-­Bissau Guinea-­Bissau Djibouti
South Sudan Sierra Leone Kenya Liberia Egypt
South Africa Lesotho Madagascar Equatorial Guinea
Sudan Madagascar Malawi Eswatini
Tanzania Malawi Mali Gabon
Zambia Mauritania Mozambique Ghana
Zimbabwe Mauritius Niger Kenya
Morocco Rwanda Lesotho
Mozambique Sierra Leone Libya
Rwanda Somalia Mauritania
São Tomé and Príncipe South Sudan Mauritius
Senegal Sudan Morocco
Seychelles Togo Namibia
Somalia Uganda Nigeria
Eswatini Zambia São Tomé and Príncipe
Togo Senegal
Tunisia South Africa
Uganda Tanzania
Tunisia
Zimbabwe

A frica’ s economic performance and outlook  57

 NOTES 13. Domestic debt as used here is restricted to the
issuance of treasury bills and bonds, and excludes
1. Agreed wording at the 2022 African Development arrears owed to suppliers of goods and services to
Bank Group Annual Meetings in Ghana. Algeria, government. It also excludes guaranteed domestic
China, Egypt, Eswatini, Namibia, Nigeria, and South debt owed by state-owned enterprises and/or con-
Africa, entered a reservation and proposed “Russia– tingent liabilities.
Ukraine Conflict.” 14. IDA and IMF 2020; IMF 2022b.
2. AfDB 2022. 15. Banks hold sovereign debt for several reasons
3. According to Statistic South Africa, Kwa-Zulu-Natal including the fact that sovereign debt is considered
accounted for a fifth of South Africa’s manufacturing as a safe and high-quality asset for them to meet
in 2019. the liquidity requirements, a strong collateral asset
4. Common Monetary Area­
—­Eswatini, Lesotho, for central bank operations, and a benchmark for
Namibia, and South Africa. The Lesotho and Namib- pricing financial assets.
ian currencies trade at par with the South African 16. The government seeks to exchange about
rand and circulate freely in these countries. GHS137.3  billion ($11.45  billion or about 15  per-
5. The SACU, comprising Botswana, Eswatini, cent of 2021 GDP) of existing domestic notes and
Lesotho, Namibia, and South Africa, provides for bonds held by various local investors for a package
common external and excise tariffs to this common of 12 new bonds with different payout dates. How-
customs area and the revenue collected in the bloc ever, for the restructuring exercise to succeed, a
area is shared among members according to a reve- qualifying majority (usually 75 percent) of debt hold-
nue-sharing formula, as described in the agreement ers must agree to change the contract’s key financial
establishing the bloc. terms. This prevents a minority investor group from
6. Seychelles National Bureau of Statistics 2022. holding out and preventing the debt restructuring
7. CEMAC refers to the Central African Economic and from proceeding. As of January 2023, the subscrip-
Monetary Community while WAMU stands for the tion to this program was below 50  percent, well
West African Economic and Monetary Union. The below the 75 percent target.
depreciation of the currency of the monetary union 17. OECD 2023.
CEMAC and WAMU mainly reflects the depreciation 18. Kiel Institute 2023. Over the same period, total
of the euro against the US dollars due to the fixed commitments­—­financial, humanitarian, and military­
exchange rate between the CFA and euro. —­
from Western governments and non-bilateral
8. Fitch Ratings 2022. donors amounted to more than $183  billion. In
9. IMF 2022a. March 2023, the IMF approved $15.6 billion under
10. The 35 countries are low-income African countries a new 48-month arrangement under the Extended
(LICs) for which a debt sustainability analysis (DSA) Fund Facility (EFF) for Ukraine. This arrangement
is available and where data on external debt service forms part of a $115  billion overall support pack-
are available. age through which the Fund seeks to support fiscal,
11. When considering only external debt, the total external, price and financial stability and support
number of African countries in high risk of, or already economic recovery in Ukraine, while promoting long-
in debt distress as of February 2023 is 22. term growth in the context of the country’s post-war
12. Zambia and Ghana are excluded from these fig- reconstruction. Between February 2022 and April
ures, due to uncertainty over how debt restruc- 2023, the World Bank has mobilized more than
turing will affect their service payments. Ghana $23 billion in financial support, with $20 billion dis-
has debt payments of $149  million due in August bursed to assist the government of Ukraine’s efforts
2023 and $333 million in January 2024, but these in sustaining public sector administrative and service
may be affected by its restructuring currently under delivery capacity.
discussion. 19. h t t p s : / / w w w . i m f . o r g / e n / A b o u t / F A Q /
gsd-roundtable.

58 A frica’ s economic performance and outlook

REFERENCES IMF (International Monetary Fund). 2022b. Burundi: 2022
Article IV Consultation Press Release; Staff Report;
African Development Bank. 2021. African Economic and Statement by the Executive Director for Burundi.
Outlook 2021: From Debt Resolution to Growth: The Country Report No. 2022/257. Washington, D.C.: In-
Road Ahead for Africa. Abidjan, Côte d’Ivoire: African ternational Monetary Fund.
Development Bank. IMF (International Monetary Fund). 2023. World Economic
African Development Bank. 2022. African Economic Out- Outlook, April 2023: A Rocky Recovery. Washington,
look 2022: Supporting Climate Finance and a Just En- DC: IMF.
ergy Transition in Africa. Abidjan, Côte d’Ivoire: African Kiel Institute for the World Economy. 2023. Ukraine
Development Bank. Support Tracker Database. Kiel, Germany: Kiel Insti-
African Development Bank. 2023. Africa’s Macro- tute for the World Economy. https://www.ifw-­kiel.de​
economic Performance and Outlook Report 2023. /publications/data-­sets/ukraine-­support-tracker-­data​
Abidjan, Côte d’Ivoire: African Development Bank. -17410/.
Fitch Ratings. 2022. African Banks Outlook 2023. https://​ OECD (Organisation for Economic Co-­operation and De-
www.fitchratings.com/research/banks/african-­banks​ velopment). 2023. “ODA Levels in 2022­—P
­ reliminary
-outlook-­2023–07–12–2022. Data: Detailed Summary Note.” April. Paris: OECD.
IDA (International Development Association) and IMF https://www.oecd.org/dac/financing-­s ustainable​
(International Monetary Fund). 2020 “Democrat- -development/ODA-­2022-summary.pdf.
ic Republic of São Tomé and Príncipe: Request for Seychelles National Bureau of Statistics. 2022. “Month-
Disbursement under the Rapid Credit Facility – Debt ly Visitors, Arrivals, 2022.” National Bureau of Statis-
Sustainability Analysis.” Washington, D.C.: IMF. tics database. https://www.nbs.gov.sc/downloads​
IMF (International Monetary Fund). 2022a. “West African /economic-­statistics/monthly-­visitors-arrivals/2022.
Economic and Monetary Union Financial Sector As- World Bank and KNOMAD (Global Knowledge Partner-
sessment Program, Technical Note on Stress Tests, ship on Migration and Development). 2022. “Remit-
Credit Concentration, and Interest Rate Risks, August tances Brave Global Headwinds.” Migration and De-
2022.” Washington, DC: IMF. velopment Brief 37, World Bank, Washington, DC.

A frica’ s economic performance and outlook  59

PRIVATE SECTOR
FINANCING FOR
CLIMATE ACTION
AND GREEN GROWTH
2
IN AFRICA

KEY MESSAGES

• Africa has great potential and self-­interest to achieve green growth. However,
despite its growing political commitment toward green growth and its rich natural cap-
ital endowment, the continent lags other regions on many green growth dimensions, in
particular on the provision of green economic opportunities. Progress on efficient and
sustainable resource use and on the promotion of social inclusion has not been sufficient
to catch up with other world regions.

• To close Africa’s climate financing gap by 2030, approximately $213.4  billion

will need to be mobilized annually from the private sector, to complement con-
strained public resources. Africa received $4.2  billion in private climate finance in
2019/2020, 14 percent of total climate finance flows of $29.5 billion. It requires $242.4 bil-
lion a year on average until 2030­—­$2.7 trillion over 2020–30­—­to implement its climate
action expressed in the latest submitted Nationally Determined Contributions (NDCs).

• In addition, Africa will require about $1.3 trillion annually to meet its sustain-
able development needs by 2030­—­and thus to achieve green growth. Most of this
finance is expected to be met through private finance. To meet these needs and given the
current levels of public climate finance, private climate finance should increase by about
36 percent each year until 2030.

• However, barriers on the supply and demand sides inhibit reaching the full
potential of private investments in climate and green growth sectors in Africa.
Ineffective implementation of green growth strategies, weak regulatory structures and
institutions, high perceived investment risk, and the lack of bankable project pipelines
continue to impede private investment in Africa’s climate and green growth projects.

• Despite the barriers, many investment opportunities in climate action and green
growth could unlock private finance. Sectors that will rely on climate-­smart and low-­
carbon technologies­—­such as renewable energies and electric vehicles, energy-­efficient
buildings, climate-­resilient infrastructure, improved dryland crop production, and water
resource resilience­—­present Africa’s trillion-­dollar market opportunities for the private
sector. The implementation of appropriate regulatory, policy, and institutional frameworks
is essential for turning them into booming markets for private investors.

 61
 Mobilizing the trillions in finance to address cli- integration through the African Continental
mate change and meet Africa’s green growth Free Trade Area (AfCFTA) will also leverage
ambitions requires: cross-­ b oundary opportunities for private
• Balancing allocations of private sector invest- investments.
ments across areas that generate economic, • Multilateral development banks (MDBs) and
social, and environmental outcomes. High development financial institutions (DFIs) should
volumes of finance are needed for sustain- accelerate their alignment with the Joint MDB
able infrastructure (clean energy and trans- Paris Alignment Framework and commit to
port systems, green buildings, and industry). implement the Bridgetown Initiative by lever-
But achieving just transitions to green growth aging their convening power to de-­risk invest-
will also require countries to direct invest- ments for green growth in Africa. This can be
ments toward other infrastructure that gener- done through grants, concessional finance,
ates social and environmental development and credit and risk guarantees that sup-
outcomes­—­such as health, education, social port capacity development and innovation to
protection­—­to catalyze private investment. increase private sector confidence in African
• Using innovative financing instruments and markets. This will require MDBs and DFIs to
Holding promise for
mechanisms to leverage emerging sources transform into institutions that are more risk-­
mobilizing private of private sector financing. Holding promise agnostic to increase investments in priority
financing are for mobilizing private financing are emerg- sectors.
ing innovative financing instruments in green • International and domestic private investors
emerging innovative
and sustainable finance (social bonds, green should exercise stewardship to identify bar-
financing instruments bonds and loans, sustainability bonds and riers, investment risks, and opportunities for
in green and sustainability-­linked bonds and loans), carbon green growth in different African contexts
sustainable finance pricing, debt-­for-climate swaps, and blended to inform investment decisions. They should
finance. commit to aligning their investments with the
(social bonds, green Paris Agreement­—­by ensuring that financial
bonds and loans, Accelerating progress toward green growth by allocations directed toward Africa embed cli-
sustainability bonds mobilizing private sector finance requires that mate risks and contribute to green transitions,
development and climate change stakehold- sustainability, and climate resilience.
and sustainability- ers in Africa work together: • Credit rating agencies could expand their
linked bonds and • African governments should formulate, cost, framework to reflect the potential for the Afri-
loans), carbon and implement long term strategies (LTS) can market. Reforming rating procedures to
to provide high-­level and predictable policy ensure that risk and credit ratings include the
pricing, debt-for-
guidance to domestic and international pri- true potential of Africa’s green growth markets
climate swaps, and vate and public actors on priority invest- would play a catalytic role to attract private
blended finance ment sectors. They should also design and sector financing for climate and green growth.
implement conducive policies and regula- The increasing calls to reform the rating agen-
tions and develop markets to attract private cies and the progress toward establishing an
investments, particularly in priority sectors for African Rating Agency are steps in the right
climate action and green growth, while stra- direction.
tegically deploying available public finance • Governments in developed countries should
to direct investments toward these sectors. honor their Paris Agreement commitments to
Given their importance in employment cre- mobilize $100  billion of climate finance annu-
ation, micro, small, and medium enterprises ally for developing countries. They should also
(MSMEs) should be an integrated part of commit to a higher post-­2025 climate finance
any national climate and green growth strat- target that is sufficient to meet needs in devel-
egy, for instance, through affordable finance oping countries and target flows toward cli-
and skill development programs. Regional mate action and green growth.

62 P rivate sector financing for climate action and green gro w th in A frica
THE IMPERATIVE FOR GREEN enhancing agricultural productivity, and promot-
GROWTH AND THE ROLE OF ing sustainable infrastructure.”3 Green growth
PRIVATE SECTOR FINANCING pathways therefore identify and address social
and environmental externalities and market fail-
The global commitment to green growth ures that emerge from pursuing economic growth
and climate action, such as through material and
The world is facing complex and overlapping energy efficiency.4 Green growth thus contributes
crises that demand careful consideration of the toward Paris Agreement alignment and access
synergies between economic growth, social to Paris Agreement support. Developing coun-
development, and environmental protection tries that perform well on green growth also do
Climate change and recent global events and well on other economic development and climate
risks, such as the COVID-­19 pandemic and rising resilience indicators.5 Indeed, green growth score
food and energy prices, have amplified the mul- of African countries over 2010–21 was correlated
tiple risks the world faces. This underscores the positively with real GDP growth, climate resilience,
need for responses that not only mitigate these and climate readiness but negatively with climate
risks but also promote recovery prioritizing social, vulnerability (figure 2.1).
Green growth in
economic, and environmental outcomes. Eco- Green growth policies have thus been high-
nomic growth and sustainable development are at lighted as an integrated objective in key interna- Africa is positively
the heart of objectives for many state and non-­ tional frameworks for climate change and devel- correlated with
state actors. Alongside these objectives is the opment, including the RIO+20 United Nations
real GDP growth,
Paris Agreement goal of limiting warming to well Conference on Sustainable Development in 2012,
below 2°C through transformative actions that the Sustainable Development Goals (SDGs) in climate resilience
enable transitions to low carbon emissions. 2015, the Addis Ababa Declaration in 2015 on and readiness but
However, development interventions have had Financing for Development, the Paris Agreement, negatively with
a history of exacerbating climate risks while failing and the Sendai Framework for Disaster Risk
to reduce social inequalities. For example, the use Reduction.
climate vulnerability
of fossil fuels has driven economic growth in many
developed countries, but it has also increased Africa’s commitments to and progress
greenhouse gases (GHG) and environmental toward green growth
degradation through unsustainable resource
extraction, production processes and consump- Sustainable development, economic growth,
tion.1 And although climate action protects devel- and climate action are critical for Africa, and
opment gains, some interventions may threaten achieving them requires commitments to green
sustainable development objectives, as when growth
transitions from fossil fuels do not account for Since the beginning of the 21st century, Africa’s
the livelihoods of local populations or countries.2 population has almost doubled, its GDP has qua-
Leveraging complementarities among climate drupled, and its GHG emissions have increased
action, sustainable development, and economic by 50 percent. Even so, Africa currently contrib-
growth is thus crucial. utes only about 4  percent of global GHG emis-
sions, much less than China (30.9  percent), the
Green growth correlates positively United States (13.5  percent), European Union
with economic growth, climate (7.5 percent), and India (7.3 percent).6 It has also
resilience, low carbon development, been severely affected by recent global events
and climate readiness and risks, including the COVID-­19 pandemic and
The African Development Bank (AfDB, or the the disruptive effects of the Russia’s invasion of
Bank) defines green growth as “the promotion Ukraine (chapter 1). So, although Africa has com-
and maximization of opportunities from eco- mitted to addressing climate change, significant
nomic growth through building resilience, man- environmental and social issues and inequalities
aging natural assets efficiently and sustainably, can be addressed only through green growth.

P rivate sector financing for climate action and green gro w th in A frica  63
 FIGURE 2.1 Selected correlates of green growth in Africa, average 2010–21

Real GDP growth Climate resilience index

Green growth index Green growth index
70 70

60 60

50 50

40 40

30 30
–2 0 2 4 6 8 10 0 20 40 60 80 100

Percent Score

Climate vulnerability index Climate readiness index

Green growth index Green growth index
70 70

60 60

50 50

40 40

30 30
30 40 50 60 70 10 20 30 40 50 60
Score Score

Note: The climate resilience index is averaged over 2010–19, and the climate vulnerability and readiness indices are averaged over 2010–20.
Black lines are fitted with a 95% confidence interval.
Source: Staff calculations based on African Development Bank statistics, Notre Dame Global Adaptation Initiative, and Global Green Growth
Institute databases.

Africa has a great potential to pursue climate climate change in policy frameworks could
and green growth objectives to accelerate eco- catapult the continent to a higher and greener
nomic growth. growth trajectory.
• First, it has some of the world’s fastest-­growing • Second is the continent’s human capital base.
economies, and its real GDP growth is pro- Africa’s population is projected to increase to
jected to surpass the global average in 2023– 2.4  billion by 2050.7 With most of its today’s
24, even as headwinds persist. Embedding population being young, unlike other regions’

64 P rivate sector financing for climate action and green gro w th in A frica
 aging populations, Africa is the current targets. Africa’s GGI score hovered at about
and future frontier market in green growth 48–50 over 2010–21, moving from a median of 48
opportunities. in 2010 to just 50 in 2021, with important cross-­
• Third, Africa hosts 25  percent of the world’s country heterogeneity indicated by the relative size
natural biodiversity and 30  percent of the of the interquartile range over the years (figure 2.2,
world’s mineral resources, most of which is left panel). On green growth achievements, Africa
essential for a green transition. lags Latin America and the Caribbean, North
• Fourth, Africa has a large renewable energy America, East Asia and Pacific, and Europe, but
potential, including wind, solar, hydropower, performs better than the Middle East and South
and geothermal,8 with solar potential the Asia (figure 2.2, right panel).
world’s highest.9 Africa’s progress has been slow in most green
• Last, African countries have the greatest growth dimensions (figure 2.3). It underperforms
potential for investments in green infrastructure on green economic opportunities, with an average
and technology due to their low levels of devel- score of 18.1 over 2010–21, the second lowest
opment, low legacy high-­emissions infrastruc- among world regions. Its share of exports of envi-
ture, and the lowest frequency of infrastructure ronmental goods in total exports­—­a proxy for
Africa’s Green
and project finance default rates (estimated at green trade, which refers to the competitiveness
of 5.5 percent).10 of a country to produce and export environmental Growth Index score
goods that contribute to environmental protec- hovered at about
But Africa’s progress toward green growth has tion, climate action, green growth, and sustain-
48–50 (on a scale
been slow able development13­—­was on average 1.5 percent
Transitions to green growth and desired cli- over 2010–20, compared to a minimum of 3 per- of 0 to 100) over
mate actions require readiness and adequate cent in other regions. The share of green jobs in 2010–21, moving
finance. A green growth readiness assessment total manufacturing employment­ —­a measure from a median
by the Bank and the Global Green Growth Insti- of green employment­—­averaged 2.5  percent in
tute (GGGI) of seven African countries­—­Gabon, Africa between 2010 and 2018, less than half the
of 48 in 2010 to
Kenya, Morocco, Mozambique, Rwanda, Senegal, average for the rest of the world (5.5  percent).14 just 50 in 2021,
and Tunisia­—­indicated high political commitment Africa also lags other regions in green innovation, with important
to green growth, mainly supported by climate particularly energy-­s aving, pollution-­prevention,
and green growth policies and strategies.11 But waste recycling, green product designs, or corpo-
cross-country
in several other countries, there was limited evi- rate environmental management.15 The continent heterogeneity
dence that climate and green growth strategies also underperforms on green investment due to
were aligned with sectoral policies and strategies. insufficient public and private investments to pro-
Policies also lacked fully costed implementation mote sustainable resource use and natural capital
plans, with technical capacity and financing gaps protection. Africa’s ratio of adjusted net savings,
and weak regulations limiting some countries’ including particulate emissions damage, to gross
green growth readiness. national income (GNI), a proxy for green invest-
In addition to low readiness, analyses for this ment,16 was 3.6  percent on average between
report show Africa’s generally low performance 2010 and 2021, compared with a minimum of
on most green growth dimensions. To measure 6 percent in the rest of the world.
Africa’s progress toward achieving green growth, Social inclusion has nevertheless improved
this report used a Green Growth Index (GGI) con- over the past decade, from a score of 44.3 in
structed by the GGGI. The GGI, linked with the 2010 to 47.2 in 2021, largely due to improvements
SDGs, is a composite index of about 40 indica- in access to basic services and resources such
tors subdivided into four main dimensions.12 The as water, sanitation, electricity, and clean fuels,
GGI score is normalized between 0 and 100 and increasing gender balance and social equity. But
benchmarked against sustainability targets, so this progress has not been sufficient for the conti-
that the higher the score, the closer the country or nent to catch up with other world regions. Extreme
region to reaching green growth or sustainability poverty, inequality, and undernourishment remain

P rivate sector financing for climate action and green gro w th in A frica  65
FIGURE 2.2 Africa’s green growth index and green growth ambitions, average 2010–21

Green growth index in Africa, 2010–21 Africa’s green growth performance benchmarked with other regions, 2010–21
Index Median Mean Index Median Mean
60 80

70

50 60

50

40 40

30

30 20
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 Middle South Africa East Latin America North Europe and
East Asia Asia and and the America Central
Pacific Caribbean Asia

Note: Left panel: Outliers, values below the 5th and above the 95th percentiles, have been ignored. Right panel: The chart shows the median and
mean green growth index scores by region with the interquartile range (IQR) in 2010–2021. Scatters represent values outside the IQR.
Source: Staff calculations based on the Global Green Growth Institute database.

FIGURE 2.3 Distance to targets of green growth indicators in Africa, The continent performs relatively well on other
average 2010–21 dimensions of green growth. On efficient and
sustainable resource use, it is almost at par with
GV
GT AB other world regions (with an average score of 57.5
N G
GV Green investment over 2010–21), attributable to good performance
G

AB Access to basic services and resources on efficient and sustainable energy and water
GB Gender balance
50.1

SE Social equity use due to the increasing investments in these

9
38.
GJ

SE
6.2

SP Social protection
.2
44

areas. For example, average annual investments

61

EE Efficient and sustainable energy use

.1

20. 8
3 62. EW Efficient and sustainable water use
48.2
ME Waste and material use efficiency in renewable energy increased tenfold from about
GE

36.4
SP

82.3
SL Sustainable land use
3 56. BE Biodiversity and ecosystem protection $0.5 billion in 2000–09 to $5 billion in 2010–20,
66. 0
CV Cultural and social value
.0 though Africa still accounts for only 2 percent of
42

62 EQ Environmental quality
EQ

.
4

EE
76.

1
72.9

GE GHG emissions reduction

48.

global annual investments in renewable energy.17

0

GJ Green employment
GN Green innovation Despite public efforts to reduce GHG emissions,
GT Green trade
V

C W

ME improve environmental quality, protect national

BE
SL
biodiversity and ecosystem and promote cul-
tural and social value, Africa ranks 4th on prog-
Source: Staff calculations based on the Global Green Growth Institute database. ress toward natural capital protection (a score of
61.4 over 2010–2021), behind Europe and Central
high. And social safety net and social protection Asia (69.7), Latin American and the Caribbean
schemes continue to exclude a large share of the (66.2), and East Asia and Pacific (62.4), as African
population, particularly informal workers and other countries continue to struggle to curb illicit trade
vulnerable people. As a result, Africa displays the and financial outflows from natural resources
lowest social inclusion score globally. (chapter 3).

66 P rivate sector financing for climate action and green gro w th in A frica
Rationale for private sector finance positions due to a confluence of domestic and
for climate action and green growth in international shocks (chapter 1), mobilizing the
Africa private sector financing becomes imperative to
achieving the continent’s green growth ambitions
The urgency of addressing climate change and expressed in Nationally Determined Contributions
transitioning to a greener economy requires the (NDCs) and other national strategies. Already,
active participation of all actors, including the countries with climate change and green growth
private sector strategies have committed towards financing
Climate change impacts are increasing in inten- part of these using public resources. For exam-
sity and frequency around the world, particularly ple, about 15  percent of countries’ NDC needs
in Africa, highlighting the urgency of investing in are expected to be covered by domestic public
climate action and green growth. Recent reports sources. However, these alone will be insufficient
such as the African Economic Outlook 2022 and to meet current and future financing needs. Pri-
the Sixth Assessment Report of the Intergovern- vate finance will therefore be essential for plug-
mental Panel on Climate Change (IPCC) have reit- ging the gap, and for further mobilizing additional
erated that the climate crisis is likely to get worse resources to meet the growing needs.
About 15 percent of
and that the time for action is now. The global cost
of climate inaction has been found to be far greater Investment in low-­carbon climate-­resilient countries’ Nationally
than the cost of action. The IPCC’s 6th Assess- development sectors in Africa offers great Determined
ment Report indicates that the global economic opportunities of higher returns for the private
Contribution needs
benefits of limiting warming to 2°C are higher than sector
the investment costs.18 As a global commons Africa has good potential for generating high are expected to
problem, climate change and broader transitions returns on private investments, given its natural be covered by
to green growth require active participation of all capital, the composition and size of its popula- domestic public
stakeholders, including the private sector, which tion, and its prospects for rapid growth. Climate-­
can leverage its expertise and resources to invest smart technologies, already cost-­competitive with
sources. However,
in achieving net zero and green transitions. fossil-­fuel alternatives, have the highest potential these alone will be
for investments and returns in Africa. For example, insufficient to meet
Public finance alone is insufficient to achieve of total investment opportunities of about $23 tril-
Africa’s green growth agenda lion through 2030 in energy-­efficient buildings,
current and future
The United Nations estimates that approximately low-­carbon transport, and renewable energies in financing needs
$1.3 trillion will be required annually to meet Afri- emerging markets, $1.03 trillion are in Africa.22 The
ca’s sustainable development needs by 2030.19 demand for electric vehicle batteries is projected
Similarly, finance needs for sectors and invest- to grow by about 22 percent a year, from about
ments necessary for transitions to green econ- 8 million units sold in 2022 to 39 million units by
omies are too sizable to be borne by the public 2030. Africa is at the center of this supply chain,
sector finance alone. The Bank estimates that as many African countries have at least one of
ensuring continental-­ w ide access to electric- the critical metals­—­lithium, cobalt, nickel, man-
ity by 2030 will require $32–40 billion annually,20 ganese, graphite, iron, and phosphate­—­needed
while around $45  billion are needed per year to to produce lithium-­ion batteries for vehicles and
achieve Africa’s renewable energy goals.21 Over- electricity storage.
laying these targets with those of achieving social Private investors can contribute to climate
development, reducing inequalities, and achieving adaptation and resilience while also generating
cross-­sectoral environmental sustainability signifi- attractive returns on investments. For example,
cantly expand the anticipated cost of transitions to investing $1.8  trillion between 2020 and 2030
green growth. in early warning systems, climate-­resilient infra-
Finance for climate action and green growth structure, improved dryland agriculture crop
therefore needs to be mobilized in the billions production, global mangrove protection, and
and trillions. Given Africa’s already strained fiscal water resource resilience globally, can generate

P rivate sector financing for climate action and green gro w th in A frica  67
 $7.1 trillion in net benefits for private investors.23 of climate finance from private sources, which
And upfront private investment potential to adapt respectively accounted for 96  percent, 59  per-
to droughts and floods could amount to up to cent and 49 percent of the total climate finance.
4.0  percent of Africa’s GDP, close to $100  bil- Africa’s leverage ratio (the ratio of private to public
lion a year through 2040, about $5 billion a year climate finance) is, at just 0.16, the lowest among
(figure 2.4). world regions. It implies that for each $1 of public
finance mobilized for climate action, African coun-
tries were able to mobilize only $0.16 of private
THE PRIVATE CLIMATE financing. In North America, the leverage ratio is
FINANCING LANDSCAPE IN 18.5, and in South Asia and Latin America, it is at
AFRICA least 0.5.

Financing flows for climate action and Private climate finance is skewed toward a
green growth in Africa handful of African countries which concentrate
more than half of all financing inflows
Climate finance flows in Africa are dominated More than half of Africa’s private climate finance
Private climate
by public finance sources, which are 6 times inflows in 2019/2020 (56.2 percent) went to Egypt,
finance flows in greater than private finance Kenya, Morocco, Nigeria, and South Africa, the
Africa reached Financing flows for climate action in Africa continent’s largest economies with more devel-
reached an average of $29.5 billion in 2019/2020, oped financial markets. At the other extreme, 34
an average of
or 4.5 percent of the total global climate finance of African countries each accounted for less than
$4.2 billion in $652.6 billion.24 Public finance in Africa ($25.3 bil- 1  percent of total climate finance from private
2019/2020, or lion, or 86  percent of the total) was on average sources, with a combined share of just 12.2 per-
14 percent of the more than six times the private finance ($4.2 bil- cent (figure 2.6). Most of these countries are highly
lion, or 14 percent) in 2019/2020 (figure 2.5). North vulnerable to climate change, are less resilient to
total climate finance America, Western Europe, and Latin America and climate shocks, and lack sufficient climate readi-
of $29.5 billion, the Caribbean mobilized a greater proportion ness for adaptation to climate change.
and six times
FIGURE 2.4 Upfront private investment opportunities to adapt to droughts and floods in Africa
lower than public between 2021 and 2040
climate finance
Percent of 2021 GDP Drought Floods
30

25

20

15

10

0
Ga ep.
Eg re

Se bia
te tius

Alg ypt
Mo eria

Ca Tun o
o V isia
al m de
an n

Sie u on
a
M ych ne
Gu adag elles
Bis r
Rw sau
Nig da
Ug eria
Co anda

Co os
So Ang o
A a
Ta frica
tsw ia
a
go
Bu li
Ga ndi

Bu th gal
na ia
Gh so
Be a
C n
Le had
Za tho
Mo K bia
m a
uri ue
N a
Es iger
Na tini
Ma bia
i
law
a- ca

Ma
c

rra ine

ng
uth ol

an

an

za eny

i
ric o

ni
i

Bo zan

rki iop

tan
vo

Fa
roc

R
ntr Ca er
Af ero

Se Leo

an

To

Ma biq

wa
ne

mi
ru
mo
ine as

so
Cô auri
d’I

n
G

E
M

Ce b

Source: Bari and Dessus 2022.

68 P rivate sector financing for climate action and green gro w th in A frica
 Some countries have attracted more private FIGURE 2.5 Private and public financing in total climate finance, by main
finance as a share of their total climate flows: Zim- regions, 2019–20
babwe (48 percent), South Africa (40 percent), Dji-
bouti (37 percent), Algeria (30 percent), and Eritrea Middle East 46%
(29 percent). But in 30 countries, the private sector
contribution to total climate finance has been less Africa 14%

than 10 percent, with 9 having no private climate

South Asia 36%
financing. So, most African countries are already
financing climate action through domestic public
Central Asia and Eastern Europe 39%
Public
resources, with most spending 2–9  percent of Private
their GDP on climate adaptation.25 Latin America and the Carribean 49%

The largest proportion of private climate North America 96%

finance in Africa has been allocated to

Western Europe 59%
mitigation, particularly through the energy
sector, leaving other highly vulnerable sectors East Asia and Pacific 39%
to climate change with only a quarter of total
climate finance flows 0 50 100 150 200 250 300
$ billions
Mitigation projects such as renewable energy,
energy efficiency and sustainable transport Note: Labels show the share of climate finance for each region that is from private sources.
accounted for about 81  percent of Africa’s pri- Source: Staff calculations based on the Climate Policy Institute’s Landscape of Climate
vate climate finance flows, mostly from corpo- Finance in Africa database.
rates and commercial financial institutions. Very
little financing from private finance was invested in FIGURE 2.6 Distribution of private climate finance across Africa,
adaptation, mainly because it is seen as a risky average 2019–20
investment due to perceived low and unstable
returns. Although investment in energy systems,
largely renewables, forms Africa’s biggest share
of private climate finance ($3.1 billion, or 74 per-
cent), it represents just about 13  percent of the
Nigeria Kenya
$24  billion invested in African fossil fuel compa- 10.6% 9.5%
nies annually.26 Buildings and transport infrastruc-
South Africa
ture received $0.3 billion (7 percent). Both sectors 15.9%
Zimbabwe
are critical for green growth, but the high capital 4.9%
required, governance barriers, lengthy construc-
tion processes, and lack of incentives hinder these
sectors from attracting more private funding.27 12 African 34 African
countries countries
Agriculture, forestry, and other land use (> 1% and < 3%) (< 1%) Morocco Egypt Mozambique Ethiopia
(AFOLU) and water are the most vulnerable sec- 23.2% 12.2% 8.4% 8.1% 3.9% 3.4%

tors to climate change. But they respectively

received only $0.3 billion and $0.4 billion in private Source: Staff calculations based on the Climate Policy Institute’s Landscape of Climate
investments in 2019–20, with more than 90 per- Finance in Africa database.
cent coming from international public financing
sources (figure 2.7). Although private investment are intertwined with energy systems and water.
in these sectors is not well tracked, it is still rela- Other cross-­cutting areas such as capacity build-
tively low because projects are often small-­scale, ing, education, health, and food are largely driven
cross-­sectoral, hard to value, and difficult for by grants and donor funding and received only
financiers to invest in.28 Most AFOLU-­related proj- $0.4 billion. Investments in industry and ICT build-
ects that received funding (such as solar irrigation) ings remain very low.

P rivate sector financing for climate action and green gro w th in A frica  69
 FIGURE 2.7 Sectoral breakdown of private climate finance across Africa, average 2019–20

$ billions
5

0.1 0.04
4 0.3
4.2

0.3
0.4
3 3.1

0
Energy Others Building Agriculture, Water and Industry Total
Africa’s average systems cross-sectoral infrastructure forestry, and
other land use
wastewater

financing needs to Source: Staff calculations based on the Climate Policy Institute’s Landscape of Climate Finance in Africa database.
respond adequately
to climate change Africa’s climate financing and green needs to respond adequately to climate change
growth needs amount to about $2.7  trillion cumulatively over
amount to about 2020–30, with a lower bound of $2.6 trillion and
$2.7 trillion Africa needs about $242.4 billion annually an upper bound of $2.8  trillion. Put annually,
cumulatively between 2020 and 2030 to implement its this boils down to $242.4  billion on average per
NDCs and at least $1.3 trillion annually to meet year, with lower and upper bounds of respec-
over 2020–30 sustainable development needs, and thus tively $234.5  billion and $250  billion. The NDC
green growth objectives needs are distributed as follows: 42  percent for
Using the latest submitted NDCs as of April 2023, mitigation, 44 percent for adaptation, 13 percent
the Bank estimates that Africa’s average financing for loss and damage and less than 1 percent for

FIGURE 2.8 Updated cumulative climate finance needs in Africa’s NDCs, 2020–30

$ trillions
3.0
0.01
0.40 2.67
2.5

1.14
2.0

1.5

1.0 1.12

0.5

0.0
Adaptation Mitigation Loss and damage Other needs Total

Source: Staff calculations based on submitted Nationally Determined Contributions (NDCs) as of April 2023, various
African countries.

70 P rivate sector financing for climate action and green gro w th in A frica
other needs (particularly capacity development) many African countries have yet to develop and
(figure 2.8). This is about twice the average financ- cost their Long-­Term Strategies. Nor have coun-
ing needs reported in the AEO 2022 ($1.4 trillion). tries with green growth strategies quantified their
The increase reflects upward revisions of some financing needs. The United Nations estimates
countries’ initial submissions, while others have that at least $1.3  trillion will be needed annually
provided quantitative estimates of various climate between 2020 and 2030 for reaching the Sustain-
needs that were previously missing when compu- able Development Goals (SDGs) in Africa, most
tations in the AEO 2022 report were done. linked to green growth. Another estimate suggests
These updated climate finance needs could that making 35 major cities cleaner, compact, and
still be underestimated due to limited statistical more connected in Ethiopia, Kenya, and South
capacity in some countries. Some countries may Africa will require investments of $280  billion by
have underestimated their actual needs by up to 2050.31
60 percent, mostly in the areas of adaptation and
other needs such as capacity building, monitor- Current sources of private sector
ing, reporting, and verification (MRV),29 which are finance
rarely quantified. And the data gaps in needs by
sector are huge because more than 20 countries Corporations and commercial financial
do not further disaggregate mitigation and adap- institutions account for the largest share of
tation needs. However, based on reported sector private climate finance in Africa, much of it
data under mitigation, 41 percent is allocated to channeled to the energy sector
transport (solely defined by South Africa), 17 per- Corporations and commercial financial institutions
cent to energy, 5  percent to industry, and less have accounted for the largest share of private cli-
than 1 percent to buildings.30 The data gaps are mate finance in Africa, but institutional investors,
even higher for adaptation, but the few countries individuals, and funds (private equity, venture cap-
that reported on this allocated most of the adapta- ital, and infrastructure funds) are starting to invest
tion needs to AFOLU and water (including waste- more in the climate space (figure 2.9). For exam-
water) sectors. ple, venture capital investments (some allocated
Estimating financing needs to “grow green” to green growth sectors) increased between 2018
is more challenging than for climate action as and 2021 (figure 2.10). Although venture capital

FIGURE 2.9 Sources of private climate finance flows in Africa, average 2019–20

$ billions
2.0

39%
1.5

1.0

21%

15%
0.5

10% 10%

1% 5%
0.0
Private equity, Commercial Households/ Institutional Unknown Commercial Corporations
venture capital, and banks individuals investors financial
infrastructure funds institutions

Note: Percent refers to the share of each type of financing source in total private climate finance.
Source: Staff calculations based on CPI’s Landscape of Climate Finance in Africa database.

P rivate sector financing for climate action and green gro w th in A frica  71
 FIGURE 2.10 Africa venture capital investments, 2014–21

$ millions Number of deals

4,000 400

3,000 300

Number of deals (right axis)

2,000 200

1,000 100

0 0
The private 2014 2015 2016 2017 2018 2019 2020 2021
sector uses Source: Staff calculations based on Katz (2022).
different financing
investments picked up in 2019 to $850 million— investments and 308 deals. The energy sector
instruments for its
more than five times the average annual value over was the largest recipient of the private funding
climate investments 2014–2018­—­this was disrupted by the COVID-­19 in Africa, with corporations, commercial financial
in Africa, with pandemic, which reduced the investments in 2020 institutions, and households directing more than
90 percent through by about 43  percent. As the African and global 80 percent of their funding to it. Of private inves-
economies grow and recover from effects of tors, institutional investors channeled the largest
non-concessional COVID-­19 and other shocks, financing from ven- share to the AFOLU sector.
debt and equity ture capital rebounded, reaching its highest level
in more than eight years in 2021, with $3  billion Without substantial policy and market
interventions, most private finance for climate
FIGURE 2.11 Private climate finance by instruments and sources, 2020 action and green growth is likely to be allocated
in the form of equity and non-­concessional debt
The private sector uses different financing instru-
Balance sheet financing (equity)
ments for its climate investments in Africa (figure
2.11), with 90  percent through non-­concessional
Project-level equity
debt and equity (balance sheet financing and proj-
Unknown
ects). The other instruments were grants (6 percent)
and concessional project debt (1 percent). This is
Project-level non-concessional debt
different from public finance, where grants and low-­
cost project debt account for more than 60 percent
Balance sheet financing (debt)
of total climate financing in Africa. Half of Africa’s
Funds top 250 listed firms have set emission targets, and
Commercial banks
Grant Households/individuals the rest are expected to set theirs within three
Institutional investors years.32 To achieve these targets, many corporates
Unknown
Concessional project debt Commercial financial institutions are taking steps to reduce their carbon footprint
Corporations
by directly improving their operations and supply
0 500 1,000 1,500 chain in Africa. So far, more than 90 percent of this
$ millions investment has been in energy systems, mainly
Note: Funds refer to private equity, venture capital, and infrastructure funds. renewable energy projects.33 Creating incentives
Source: Staff calculations based on CPI’s Landscape of Climate Finance in Africa database. and conditions to catalyze private investments in

72 P rivate sector financing for climate action and green gro w th in A frica
other climate-­change limiting and green growth institutional investors at potentially lower costs and
enhancing sectors­—­such as infrastructure, trans- risk-­adjusted returns.38
port, and agriculture­—­will be important for Africa’s
green and inclusive growth agenda. Although green finance instruments are still
nascent in Africa, accounting for less than
Innovative sources of private finance 1 percent of the total global issuance, there is
for climate and green growth in Africa increasing interest in these instruments on the
continent
Although the global landscape for private The market for other sustainable finance instru-
sustainable green finance is expanding, Africa ments such as sustainability loans and bonds,
is still struggling to fully leverage this expansion sustainability-­linked loans and bonds, and social
and increase its share bonds remains concentrated in developed coun-
Private sustainable financial flows to develop- tries and led by the corporate sector. But African
ing economies reached $250  billion in 2021, banks are starting to become more interested in
59  percent of it in green bonds.34 Green loans, green lending and adopting the accompanying
sustainability bonds, sustainability-­linked loans, principles, which could foster a broader inves-
Private sustainable
sustainability-­ l inked bonds, and social bonds tor base­ —­ i nstitutional investors, philanthropic
accounted for the rest. Although most of this went and impact investors, and international financial financial flows
to Asia and Latin America, the emergence and institutions­—­more willing to invest in sustainable to developing
growth of this market show the potential of scaling finance in Africa. The keys to scaling up green
economies reached
these and other innovative instruments to drive cli- finance in African banks include adopting tools
mate action and green growth in Africa (table 2.1). to assess climate risk, sharing best practices, $250 billion in 2021,
For green bond issuance in 2022, Africa and adapting products for climate action projects 59 percent of it
accounted for just 0.1  percent of the global and various clients, including micro, small, and in green bonds
total, far below its economic size (2.8 percent of medium enterprises.
global GDP and 17 percent of the world popula- Debt-­for-nature and climate swaps have existed
tion).35 Just three countries­—­Benin, Egypt, and in different forms for decades but in recent years
South Africa­—­dominated the market, accounting have gained in popularity, especially as the cost
for more than 90  percent of total green bonds of sovereign borrowing has become prohibitive for
in 2022, with South Africa alone accounting for African countries. These instruments can reduce
more than 66  percent and Egypt and Benin for the fiscal burden of external debt and have been
25 percent together.36 In addition to Nigeria and used in countries such as Cameroon, Ghana, and
Morocco, which have also issued green bonds, Madagascar. Most of the swaps issued in Africa
Kenya, Namibia, and Tanzania have recently have been for deals of less than $10 million a year,
entered the market, broadening opportunities for much smaller than those in other regions. Since
improved liquidity and pricing. 1987, $318 million of total face value debt have been
Even with this optimistic trend, the deal sizes transacted through bilateral or multiparty debt-­for-
are much smaller than the global average (less nature swaps in Africa.39 For these instruments to
than $100  million, compared with $500  million enable significant financial flows into climate action
plus).37 Energy continues to dominate as the pre- and green growth, more players and bigger deals
ferred sector for green bond investment, though ($100–$500 million) are needed. In addition, improv-
transport, buildings, water, and waste manage- ing the financial terms­—­such as lowering the trans-
ment are gradually receiving more attention. Cor- action costs, negotiating times of the debt swaps,
porates are also increasingly issuing green bonds and addressing other barriers­—­can significantly
in Africa in addition to multilateral lenders such as improve a country’s external debt profile.
the AfDB and the World Bank, which have previ- The global voluntary carbon market (VCM) qua-
ously been the major issuers. Due to stricter regu- drupled in just a year, primarily driven by increased
lations in bank lending, project bonds could allow corporate pledges and higher prices, and was
project developers to get debt from corporate and valued at $2 billion in 2021.40 In Africa, the value of

P rivate sector financing for climate action and green gro w th in A frica  73
 retired carbon credits that year was $123 million. and sellers to determine the quality and reliability of
And although this is a good contribution to climate carbon credits and can limit the scale and impact
finance flowing into the region, it is much lower of the market. Another key challenge is that emis-
than the estimated potential (table 2.1).41 The VCM sion reduction projects are typically financed by
presents a good economic opportunity for Africa carbon project developers from the global North,
to generate new revenue streams and attract who pay African project developers relatively small
foreign investment for sustainable projects. But amounts for the credits, which are then aggre-
it faces integrity challenges such as lack of stan- gated and sold at a significantly higher price. Pre-­
dardization, difficulties in determining additionality, financing facilities can enable more African project
double counting, and the risk of greenwashing. developers to participate in this market and to sell
These challenges can make it difficult for buyers carbon credits at a higher price.

TABLE 2.1 Emerging innovative finance instruments for private climate finance in Africa

Green bonds, sustainable

debt financing, such
as sustainable bonds, Debt for swaps, such as Blended financing
Type of sustainability-­linked debt-­for climate/nature instruments, such as
instruments loans/bonds, social bonds swaps guarantees, first loss Carbon markets
Definition Debt instruments with Debt forgiveness on Instruments that use public/ Finance generated through
proceeds allocated to eligible the condition that debt donor finance to de-­risk investment in projects that
environmental and social repayments are instead and scale up private climate reduce GHG emissions.
projects or a combination of invested in climate change investments Purchased by corporates or
both adaptation and mitigation international actors to reduce
or offset their CO2 footprint
Current • 0.1 percent of global green Few investments in the last 3 Leading globally (Avg. 11 percent of total carbon
performance bond issuance. Issued in 9 decades (typically less than $1.5 billion) per year. Most credits generated originate
countries, with 3 countries $10 million per year) transactions concentrated in from Africa (global market
accounting for more than just 5 countries $2 billion)
90 percent
• Other green finance
instruments account for
less than 1 percent of
global issuance
Use case AfDB Green Bond program Portugal $150 million debt-­for- Africa Go Green Fund, Africa Carbon Markets
ADF-­guaranteed Benin SDG nature swap to Cabo Verde Acumen Fund, African Green Initiative
Bond Bank Initiative
Estimated $3 trillion over 2020–30a More than $500 million for High leverage ratios $5 to $30 billionb
potential every deal (5–10 times public finance)
Challenges to • Market conditions, policy • High transaction costs and • Several actors, so • Unregulated, highly volatile
scaling • Insufficient regulation and lengthy negotiating times ineffective coordination and market
governance • Challenges in freeing up at times unclear impact • Integrity of credits
• Smaller ticket project national resources • Dependent on public/donor • Challenges in freeing up
opportunities • Additionality-­swaps funding national resources
• Limited technical capacity substituting already • High capital intensity for
• Greenwashing planned government project development and
expenditure certification
Key success • Broader sets of investors • Reduction of complexity • De-­risking/First loss fund, • Increased carbon pricing
factors • Quality climate data/climate and time guarantee from public/ • Integrate social and
tagging • Need to be significant international actors environmental safeguards
• Attractive, bankable enough to relieve debt • Technical assistance/ • Strengthen VCM market
low‑carbon projects burden capacity building strategy and regulations
• Bonus/penalty if • An effective monitoring, • Clear impact and • Build capacity and
sustainable target is reporting, and verification additionality capabilities of developers
achieved/or not (MRV) framework to scale up projects
• Technical assistance including technical
to governments, local assistance for MRV
and national financial
institutions and projects

Notes:
a. https://allafrica.com/stories/202211170458.html.
b. McKinsey & Co. 2021a.
Source: Staff calculations based on data from African Development Bank, Climate Bonds Initiative, McKinsey & Co.

74 P rivate sector financing for climate action and green gro w th in A frica
PRIVATE FINANCING GAP FOR • A very ambitious scenario, where the private
CLIMATE ACTION AND GREEN sector covers all the existing shortfall in public
GROWTH resources to closing Africa’s climate finance
needs (annex 2.1).
Data constraints impede precise As a result, the private climate finance gap is
estimations of the private sector estimated to reach approximately $213.4  billion
financing gap for climate action and annually on average for the entire continent if the
green growth private sector is expected to cover all the resid-
Estimating the private climate financing gap in ual of the financing needs (figure 2.12). Under
Africa faces significant challenges due to impor- the conservative scenario, the gap is estimated
tant information gaps in countries’ NDCs. There at $50.6 billion per year, rising to $104.8 billion if
is limited information on the disaggregation of the private sector contributes to close half of the
climate financing needs from public or private residual finance needs, and $159.1  billion if its
sources. For example, in their NDC submissions, share increases to 75 percent.
not all African countries distinguished between Southern Africa has the highest climate
unconditional needs (to be covered by domestic finance gap, with South Africa alone account-
The private climate
public sources) and conditional needs (requiring ing for three-­quarters of the regional average. In
private or international support). The same case addition to the size of its economy and carbon finance gap is
applies to financing for green growth, as countries footprint, South Africa’s large climate finance gap estimated to reach
have not yet provided comprehensive estimates might also come from the detailed estimation of
approximately
of their needs or breakdowns across sectors. costs in its NDC, which relies on a goal-­based
Because of these data gaps, estimates of the estimation methodology with low and moder- $213.4 billion
private climate and green growth financing gap ate–high mitigation scenarios, unlike most other annually on
can be obtained only under certain assumptions, African countries. Other countries in this region average for the
leading to potential over or underestimation of the have much lower financing needs and carbon
actual gap (annex 2.1). footprints, with their private financing gaps rang-
entire continent
ing from 1 percent to 10 percent of GDP (figure
Africa’s private climate finance gap is estimated 2.13). East Africa has the second highest private
to reach approximately $213.4 billion on financing gap in the continent. While all the other
average annually until 2030, with important East African countries have a financing gap of up
cross-­country and cross-­regional differences to 14 percent of their GDP, it reaches 39.5 per-
Given their enormous climate finance needs and cent, 54.8  percent, and 129.2  percent of GDP
limited public resources, African countries could in Eritrea, Somalia, and South Sudan, respec-
target a contribution of the private sector of at tively. Central, North, and West Africa have
least 25  percent of the residual of the financing lower financing gaps than other regions in abso-
needs­—­the difference between climate finance lute terms. Most countries in these regions also
needs and public climate finance flows. In this have the lowest financing gaps in relative terms
case, four scenarios can be considered: (2–10  percent of GDP). These financing gaps
• A conservative scenario  w here the private provide significant investment opportunities in
sector contributes to closing 25 percent of the specific sectors, such as phasing out fossil fuels
residual climate finance needs. This is about such as coal (box 2.1).
10  percentage points higher than its current
level in the financing mix. Private climate finance flows to Africa need to
• A moderate scenario  w ith a 50  percent-­ increase by up to 36 percent annually to close
contribution from private investments, in line with the estimated climate finance gap by 2030
the average current contribution in other regions. On current trends, private climate finance flows
• An ambitious scenario, w  here public actors do not keep up with countries’ climate needs,
account for only a quarter of the total climate jeopardizing the continent’s climate action objec-
finance flows. tives. Efforts to unlock private financing must

P rivate sector financing for climate action and green gro w th in A frica  75
FIGURE 2.12 Regional breakdown of estimated annual private climate finance gap for selected rates of the potential
contribution of the private sector to the residual climate finance needs

25 percent 50 percent
$ billions $ billions
60 120

50 100 13.8 104.8

6.5 50.6

41.6
20.3
40 80

30 60

6.2 13.2
20 40
14.3 29.4

10 20

3.3 6.7
0 0
Central East North Southern West Africa Central East North Southern West Africa
Africa Africa Africa Africa Africa Africa Africa Africa Africa Africa

75 percent 100 percent

$ billions $ billions
180
250

150 21.1 159.1

28.5 213.4
200
63.0
84.4
120

150
90

20.2 100 27.2

60
44.6 59.7

30 50

10.2 13.6
0 0
Central East North Southern West Africa Central East North Southern West Africa
Africa Africa Africa Africa Africa Africa Africa Africa Africa Africa

Source: Staff calculations using data from submitted NDCs (as of April 2023) and CPI’ Landscape of Climate Finance in Africa database.

therefore be urgently scaled up. This Herculean 2.14), on the assumption that public climate
task is, however, not impossible if the barriers finance recorded in 2019–20 stays constant until
impeding private sector participation in climate 2030 and that the private sector covers the entire
and green growth sectors are addressed. To residual finance needs. The required annual
close the climate finance gap, private climate growth rate drops to 21 percent, 28 percent, and
finance flows to Africa would need to increase 32 percent if the private sector’s contribution is
annually by up to 36 percent during the current reduced to 25 percent, 50 percent, and 75 per-
NDC implementation period (2020–30) (figure cent, respectively.42

76 P rivate sector financing for climate action and green gro w th in A frica
FIGURE 2.13 Private sector climate financing gap of selected African countries

Percent of GDP
20

15

10

0
Private climate
Tu p.

Za p.
G i
yc a
s
rra an

Na ne
bia
ntr te bon
ric ire

Ma isia

ua Se ius

Gu l
a
Ta ger

Ni ia
Bo eria

a
Rw in
bo a
e
go
Mo ali

Gu o
Ug ea
Bu da
i

Ke t
Co a
ng M go
m. i

An ia
me a
n
Dj ad
da uti
uth ar

a
tin

ial ga

nd

De aw
yp
lle
Se han

ine

an

Ca nd

rd

ny

Ca gol

ric
roo
an

mb
n
Re

Re

So gasc
M
roc

in
Sie Sud

To

an

Ch
Ma ibo
Af Ivo

it
wa

mi

tor ne

Eg
Be

ru
Ni

Ve
he

o, al
Le

tsw

Af
Ce Cô Ga

finance flows to
ur

nz
an
al d’
Es

Eq

Co
Africa need to
Note: The figures give upper bound (100  percent­—­very ambitious scenario) and lower bound (25  percent­—­
increase by up
conservative scenario) private finance gap as a share of GDP. 50 percent­—­moderate scenario­—is reported in the
middle. Values are expressed in percentage of 2023 projected GDP. to 36 percent
Source: Staff calculations using African Development Bank Statistics, submitted NDCs (as of April 2023) and CPI annually to close the
Landscape of Climate Finance in Africa database.
estimated climate
finance gap by 2030
FIGURE 2.14 Required annual growth rate of private climate finance
flows to close Africa’s climate finance gap by 2030

Annual growth rate (percent)

40
36.0

32.0

30 28.1

21.2

20

10

0
0 25 50 75 100
Contribution of the private sector (percent)

Source: Staff calculations using submitted NDCs and CPI Landscape of Climate
Finance in Africa database.

P rivate sector financing for climate action and green gro w th in A frica  77
BOX 2.1 The Great Carbon Arbitrage

The world will be better off contributing to pay for the self-­interested coalitions of the willing, with one country or
phase-­out of coal and replacement with renewables in region at a time, to cumulatively add up to the global deal. If
Africa financing for renewables is offered conditional on the com-
One of the key pillars of green growth transitions is the grad- mitment to phase out coal, then carbon leakage (the prob-
ual phasing out of fossil fuels and their replacement with lem of coal production moving abroad when one country
renewable energy. But for a continent still characterized phases out coal) is limited. Conditional climate finance thus
by high levels of energy poverty, it is important to consider ensures that emission reductions are embedded in a coun-
the potential economic costs and benefits of green energy try deal.
transformation. Projections indicate that, factoring in the If Africa were to phase out coal and replace it with
total annual reductions over the period in which coal should renewables, how would it and its financier countries stand
be phased out (2024–2100) across coal mining companies to benefit? Africa faces a benefit gap because its costs are
in Africa, the total carbon emission reduction achieved by bigger than its benefits if it unilaterally phases out coal (box
phasing out coal in Africa would be 120 GtCO2. figure 2.1.1a, open red dot), even though in a global deal
On the cost side, phasing out coal requires new invest- its benefits would have been bigger than its costs (closed
ments to build sufficient renewable energy capacity to com- red dot). There are, however, considerable benefits to other
pensate for the reduced coal production in Africa and keep regions, such as the United States (green dot,) and Europe
up with projected growth in African energy demand. There (light blue dot), from Africa’s coal phase out (see box figure
are also opportunity costs of coal, consisting at a minimum 2.1.1a, left panel). So, advanced economies’ offering of cli-
of the missed cash flows, livelihoods, and incomes from mate finance for Africa is not just equitable (given inequali-
divestments from coal phase outs. The total value of climate ties in wealth and greater historical emissions of advanced
financing needs for Africa to replace coal with renewable economies) or charity, it is in their self-­interest! America
energy sources is estimated to be around $2.8 trillion over and Europe, for instance, could benefit around $3  trillion
2024–2100. Put annually, this cost amounts on average to and $1.5  trillion from Africa’s unilateral phase-­out of coal,
$36.4 billion (box figure 2.1.1a). whereas the financing needs to transition Africa away from
On the benefit side, phasing out coal avoids climate dam- coal are only about $2.8 trillion.
ages across the world from reducing coal emissions. Using Coase’s insight applies that it is a sound economic logic
the most conservative estimate by Pindyck (2019) of the to pay the polluter (pay for part of the investment costs in
average social cost of carbon, at $80/tCO2, and an emis- renewables and opportunity costs of coal) to stop polluting
sion reduction of 120 GtCO2, the global benefits of avoided if that makes one (the financier country) better off. Most of
coal emissions in Africa are conservatively estimated to be the climate finance needs can be drawn from capital markets
$9.6 trillion or $124.7 billion a year. Subtracting from this the if governments de-­risk investments using blended climate
present value of the costs ($2.8 trillion) gives a net gain to finance arrangements. Capital markets then come in simply
the world of phasing out coal and phasing in renewables in because it is good business. It is in the financial incentive of
Africa of about $6.4 trillion or $83.1 billion annually, further coal communities to partake in such deals if they are com-
generating $0.5 trillion in terms of avoided climate damages. pensated at least as much as their opportunity cost of coal.
So, the world will be better off contributing to pay for Africa’s The recently concluded blended conditional climate finance
phase-­out. Indeed, under a Coasian approach, it is sound deals (as part of the Just Transition Energy Partnership) in
economic logic to compensate for the missed revenues from South Africa (November 2021), Indonesia (November 2022),
closing coal mines down early and for the capital expendi- and Vietnam (December 2022) are evidence that phasing out
tures required to build replacement renewables in its place, coal in developing countries could be financed by developed
and to link these to the social benefits of avoided emissions. countries. Box figure 2.1.1b gives the present value of climate
One way of generating these funds is through striking finance needs to replace coal with renewables for the top nine
blended conditional climate finance deals of non-­g lobal coal mining countries in Africa, as well as for Africa as whole.

78 P rivate sector financing for climate action and green gro w th in A frica
 BOX 2.1 The Great Carbon Arbitrage (continued)

BOX FIGURE 2.1.1 The arbitrage deal for coal

a. Benefits and costs of phasing out coal and replacing b. Present value of climate financing needs to phase out
it with renewables in Africa, as well as benefits to other coal and replace it with renewables
regions from Africa’s phase-­out
PV climate financing ($ trillions) 2024–50 2051–70 2071–2100
PV country benefits ($ billions)
4
Benefits to Africa
(had a global deal
Asia been achieved)

North America
3

Europe
103 103

Latin America and 2

the Caribbean
Benefits to Africa
(unilateral deal)

102 Australia 102 1

and New
Zealand
Costs to Africa
Benefits to
other countries
0
a

nia

ia

ia
law

ge
ric

ric

iqu

bw

an

mb

iop
0 102
10 3

za

Ni
Af

Af

tsw

Ma
ba
mb

Eth
Za
n
uth

Ta
Zim

Bo
za

PV country costs ($ billions)

So

Mo

Note: “PV” stands for the present value of climate financing needs. The solid dot in red in the right panel of box figure 2.1.1 shows the ben-
efits to Africa, in terms of avoided climate damages, had a global deal­—­and thus global emission reductions from phasing out coal­—­been
achieved.
Source: Adrian et  al. 2022; Way et  al. 2022; Pindyck et  al. 2019; Rauner et  al. 2020; Ricke et  al. 2018; Coase 1960; and https://
greatcarbonarbitrage.com.

BARRIERS AND growth, level of development, levels of politi-

OPPORTUNITIES FOR cal risk, quality of infrastructure, level of income,
LEVERAGING PRIVATE inflation and interest rates.43 This report identi-
FINANCING FOR GREEN fies different drivers capturing the development
GROWTH IN AFRICA of domestic financial systems, macroeconomic
stability, the adoption of ICTs, quality of infrastruc-
Drivers of private climate finance ture and national public institutions or climate
flows to Africa risk score of African countries. These factors are
averaged between 2010 and 2018, to estimate
Private climate finance flows are mainly driven how they could have influenced on private climate
by existing public climate finance, the level of finance received in 2019/2020.
a country’s development and market size, its African countries with higher public climate
climate and investment risk profile, and the finance per capita and those with higher income
quality of infrastructure and public institutions per capita are found to be more likely to crowd
Overall, private investments in climate action and in private climate investments (figure 2.15). This
green growth are driven by macroeconomic and highlights the important role of public sector inter-
structural factors such as the level of investments ventions and policies that result in high public cli-
in public finance for climate change and green mate finance commitments thus sending positive

P rivate sector financing for climate action and green gro w th in A frica  79
 FIGURE 2.15 Key drivers of private climate finance flows to Africa and complementarity between public and private
climate finance

a. Key drivers of private climate finance inflows in Africa b. Complementarity between public and private climate finance in Africa

Private climate finance per capita ($)

15
Public climate finance per capita (log)***

GNI per capita (log)**

10

Investment risk profile**

Quality of infrastructure* 5

Market size*

0
Climate risk index score***

Quality of public institutions*

–5
–0.5 0.0 0.5 1.0 1.5 0 50 100 150 200 250
Coefficient with 95% confidence interval Public climate finance per capita ($)

Note: For panel a, (***), (**), and (*) denote coefficients at 1, 5, and 10 percent significance levels, respectively. The dependent variable is (log) private
climate finance per capita. Bars represent the min and max of the confidence interval. Non-­significant variables (ICT adoption, financing system
development, inflation, and so on) have been omitted from the figure. Ordinary least squares with cluster-­robust standard errors were used for the
estimation.
Source: Staff calculations based on CPI Landscape of Climate Finance in Africa database, the World Bank’s World Development Indicators and
Worldwide Governance Indicators, International Country Risk Guide dataset, GermanWatch’s Global Climate risk index dataset, and others.

signals to private sector investors about the attrac- investment opportunities.44 Finally, the level of
Demand-side barriers
tiveness of investments in specific sectors. a country’s climate risk index­—­measured using
limit the ability of The level of development­—­proxied by GNI per GermanWatch’s Global Climate Risk Index,45 aver-
African countries capita­—­achieved during the preceding decade is aged over 2000–19, and focusing on the level of
to engage with also found to be positively associated with current exposure and vulnerability to extreme events such
levels of private climate finance per capita insofar as storms, floods and heatwaves­—­is a push factor
potential private
as it provides a good signal of buoyancy of the for private climate finance flows, due to the cost
sector investors, economy. Unsurprisingly, countries with higher implications of climate change risks on private
while supply-side investment risk profile­—­one of the indicators of sector investments.
barriers limit political risk­—­are less likely to attract private cli-
the ability of mate investments. Better quality of infrastructure Barriers to mobilizing private sector
in a country positively affects the level of private finance for climate action and green
private sectors investments in climate and green growth sectors growth in Africa
to engage with as it decreases the cost of doing business in a Demand-­side barriers limit the ability of African
potential markets country and increases the firm profit and growth countries to engage with potential private sector
and recipients of potential. The size of a country’s market­—­both investors, while supply-­side barriers limit the ability
domestic and foreign markets­—­is yet another of private sectors to engage with potential mar-
climate change
driving factor of private climate finance in Africa. kets and recipients of climate change and green
and green growth Indeed, African countries’ thin markets have reg- growth private finance. Some of the underlying
private finance ularly been cited by investors as one of the key drivers to these barriers are structural, embedded
constraints in mobilizing private finance, leading to within institutions, and affect both green and non-­
a lack of bankable project pipelines and sizable green private sector investments.

80 P rivate sector financing for climate action and green gro w th in A frica
Demand-­side barriers Between 2010 and 2022, only 18 African coun-
Almost all African countries have developed cli- tries had policies and regulations on private par-
mate change strategies, including the NDCs. But ticipation in green growth. Since 2010, there has
not all have green growth strategies, and most been a steady increase in the number of policies
countries lack concrete action plans for mobiliz- and regulations issued by African public authorities­
ing private sector finance toward specific priority —­including governments, central banks, financial
sectors. Although the continent has already made regulators, and public financial institutions­—­to
a business case for private investments in climate attract private investments and finance in climate
action and green growth, many countries still lack change and green growth sectors. Their objec-
the tools and strategies to provide long-­term policy tives range from reallocating and raising of capital
guidance on green growth investment needs and to risk management, responsibilities of financial
opportunities. For instance, Long Term Strategies institutions, reporting and disclosure, and strate-
outline long-­term visions for climate action and gic resets. The number of regulations and policies
green growth. But as of March 2023, only seven in Africa has thus increased from 2 in 2010 to 41
African countries had developed and communi- in 2022 (figure 2.16), about 5.2 percent of all 784
cated these strategies. The outcome is a lack of policy and regulatory measures taken globally.
Only seven African
clarity on the needs and gaps in green growth tran- Only a third of African countries have at least one
sitions in most countries on the continent, which policy or regulation specifically targeting partic- countries have
might increase country investment risk profiles and ipation of the private sector in green growth ini- developed and
deter private actors from investing in green growth tiatives. And nearly half of these policies and reg-
communicated on
sectors. And although existing NDCs identify priority ulations focus on the reallocation of capital, with
adaptation and mitigation activities and pathways, very few covering risk management, reporting and their long-term
priority projects and costs of actions to meet cli- disclosure, and the responsibilities of institutions strategies so far.
mate action targets remain either wholly or partially in managing private sector investments. The lim- And only a third of
unquantified.46 So, investors lack clear and consis- ited coverage of policies and regulations across
tent signals on the needs and the costs of invest- the continent implies the need for more compre-
African countries
ments in climate action and green growth sectors. hensive development of policies and regulations have at least one
Another layer of barriers is the lack of standard- that can help address the different private sector policy or regulation
ized regulations at national, regional, and conti- investment needs in different contexts.
nental levels, a lost opportunity for encouraging Needs for green growth in different countries
specifically targeting
cross-­border private sector investment. Regula- would be expected to vary, with priorities chang- participation of
tions incentivize private sector investments by sig- ing over time, depending on success in mobiliz- the private sector
naling stability and political willingness to engage ing finance and implementing projects to address
in green growth
in green growth and an enabling environment these needs. However, the absence of clear pol-
for establishing these investments. Some Afri- icies and strategies to provide direction on green initiatives
can countries have tried to develop and stream- growth agenda means that the needs of many
line policies and regulatory structures for private countries remain unknown, and financing needs
investments, including targeted financial incen- unquantified. Moreover, most low-­income Afri-
tives to enable compliance with green growth can countries and those in fragile contexts (in or
measures. The lack of robust green growth poli- emerging from conflicts) are least likely to have
cies and strategies and an absence of economy-­ green growth policies or regulations, even though
wide and regional standardization in regulations they equally need transitions to green growth.
is driven by structural issues such as fragmenta- Given the high perceived risk for private invest-
tion between national institutions and the lack of ments, the absence of regulations for managing
regional integration.47 Hence, when one sector exit risk remains a barrier for new and existing pri-
prioritizes emission-­intensive investments while vate investors. Exit risk emerges when investors
another prioritizes low emission investments, this have no clear pathways or assurances of easily
fragments available private sector finance and fails exiting the markets by selling their stakes in proj-
to maximize impact of investments. ects and recouping their investments.48 Overall, the

P rivate sector financing for climate action and green gro w th in A frica  81
 FIGURE 2.16 Trends in regulations and policies for green growth in African countries since 2010

Number of measures Existing measures New measures

50

40

30

20

10

0
Despite the growth 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022
in African private Source: Staff calculations from Green Finance Platform’s Green Finance Measures database.
equity investments
number of exits from the continent between 2014 dispersed securities exchanges. Although there
and bond markets,
and 2021 was below 52 deals annually, except in are 27 securities exchanges across the conti-
Africa has narrow 2019, when 59 exit deals were recorded, and for nent, they are fragmented as securities are seen
and underdeveloped 2019, when the total value of exits rapidly increased as nationally owned, which increases transaction
financial markets, to $11.6 billion.49 But by the first half of 2022, 22 costs when selling investments,52 particularly from
exits were recorded, a 29  percent increase over countries without exchanges. All these are char-
which fail to 2021.50 Even in 2020 and 2021 during the crunch acterized by the nature of legal, regulatory, and
assure investors of the COVID-­19 pandemic when investors glob- institutional frameworks in African countries and
of exits when the ally experienced liquidity challenges, the continent at the regional level, most of which are weak and
recorded fewer exits than in 2017.51 unable to meet the investment requirements of the
need arises Exit challenges are linked to several structural private sector.
factors. Despite the growth in African private equity Most African countries have low technical,
investments and bond markets, Africa has narrow human, and institutional capacity, which limits
and underdeveloped financial markets, which fail the continent’s overall progress on climate action
to assure investors of exits when the need arises. and green growth. Countries face a variety of gaps
The exit challenges are a result of weak legal, that limit the ability to identify and engage with pri-
accountability, and transparency frameworks that vate sector investors across the complete project
fail to clarify investors’ rights and to provide quick value chain. A 2020 report found that 80 percent
resolutions to issues related to investments such of infrastructure projects in Africa do not get past
as labor laws and asset ownership. There is also a the feasibility/planning stage because they lack
lack of standardization in regulations, methodolo- access to the financial resources and capacity
gies, and taxonomies across the continent, so it is required to complete the necessary feasibility and
difficult to determine what counts as green invest- business planning analysis.53 Even for countries
ments in different jurisdictions. that have made headway in stipulating legal and
The difference in definitions of green growth regulatory reforms to address these challenges,
or investments that count toward green growth reports indicate the limited institutional and human
also means that investors consider these defini- resource capacity in enforcing them.54
tions project by project, not on a portfolio basis, The technical, human, and institutional capac-
increasing transaction costs. High transaction ity gaps are more acute within the climate action
costs also emerge from the relatively small and and green growth sectors. For instance, the

82 P rivate sector financing for climate action and green gro w th in A frica
limited availability of skilled local personnel (or lack MSMEs, usually exhibited in the form of con-
thereof) along the value chain can pose signifi- strained access to credit and other forms of
cant challenges to private investors to implement finance. For instance, it has been found that more
planned renewable energy projects, leading to than 37 percent of micro-­enterprises in Africa are
delays during the project development and con- partly and fully financially constrained compared
struction. Climate-­smart agriculture projects often with 26 percent of SMEs. Additionally, 16 percent
require skills in advanced agricultural and forestry and 36 percent of MSMEs owned by women are
techniques, the lack of which could inhibit the respectively wholly or partly constrained finan-
ability of private sectors to increase the quality cially compared with 14 percent and 34 percent
and quantity of their production and obtain high of MSMEs owned by men.57 These capacity gaps
returns on investment. also relate to literacy, poor record-­keeping (essen-
An assessment by AfDB and GGGI on green tial for access to finance, particularly affecting
growth readiness found that Morocco, Rwanda, micro and small enterprises), limited knowledge of
and Tunisia had more advanced soft infrastructure the financing landscape and its requirements, and
that enabled them to advance their green growth limited access to advanced technology to enable
ambitions. But other surveyed countries had business operations and risk management.
Project preparation
insufficient human resources to meet their green Lack of investment-­ready project pipelines
growth ambitions and had to implement innovative is yet another important impediment to unlocking costs are high
ways of addressing these gaps, for instance by private finance. Many existing green growth proj- for many African
mobilizing foreign specialists to train local person- ect plans or strategies in most countries across
countries primarily
nel. Some of these countries also lacked the tech- Africa are still in the idea stage. They lack con-
nical capacity to implement monitoring, reporting, crete short-­term milestones and targets as well due to the capacity
and verification systems for green growth. These as costed investment needs necessary for eval- gaps that must
capacity limitations are present mainly because uating the impact of investments. So, many of be addressed
some African countries, particularly those in fragile them are still considered by potential investors as
contexts, are comparatively new to the implemen- lacking investment readiness.58 The stage of many
before a project is
tation of climate action and green growth proj- investments has implications for the countries’ taken to market
ects which contribute toward strengthening these track record of delivering the project in key green
capacities. Structurally, capacity gaps are driven growth sectors and implications for liquidity.
by the overall drain in technical capacities toward Most of the private financing, particularly cli-
developed countries. As most large private sector mate finance, has gone to the energy sector.
projects in Africa are financed and implemented Other critical sectors for green growth such as
by foreign investors, expertise for technical tasks research and development, water, and agriculture
has largely been imported into these countries as receive lower proportions of finance. The result
opposed to being homegrown, since locals have is that green growth financing opportunities in
emigrated to developed countries.55 these sectors largely remain in the early stages,
Project preparation costs are high for many increasing the projects’ risks and costs likely to be
African countries primarily due to the capacity borne by private financiers. This has implications
gaps that must be addressed before a project is for the liquidity of such projects, which become
taken to market. Consequently, too few projects unattractive to private investors, particularly those
reach financial close, with one of the main rea- looking to recoup their investments in a very short
sons being difficulties in agreeing on balanced time. The underlying structural driver for this gap is
and bankable risk allocation.56 The outcome is the lack of human and technical capacity to ade-
huge project preparation costs and contracting quately develop and shepherd projects from idea
burdens eventually and disproportionately borne to maturity.
by African public and private institutions, limiting Another major structural barrier to Africa’s
their ability to further engage with the international mobilization of private sector finance is its lim-
private sector and mobilize additional resources. ited access to international capital markets.
Capacity gaps particularly affect women-­owned Between 2007 and 2020, only 21 African countries

P rivate sector financing for climate action and green gro w th in A frica  83
 gained access to global capital markets, many of finance for green growth from the international pri-
them for the first time.59 Many of these countries vate sector through these international platforms
issued Eurobonds to raise funding for different, will be unable to do so.
often brown, infrastructure projects. Their access High public debt faced by many African coun-
to these markets also unlocked scaled-­up lend- tries further limits the public finance available for
ing from bilateral lenders and strengthened their investments in blended financing instruments,
access to finance from multilateral finance institu- which are important for mobilizing additional pri-
tions. But Eurobond issuances for supporting the vate finance for climate action and green growth.
green agenda are limited, if not lacking altogether. This is also a structural issue, as debt accumu-
This means that access to green finance, particu- lated for both green and non-­green investments
larly from the private sector, that is offered through affects lending for both types of investment. High
international capital markets, is constrained for levels of debt come with greater responsibility for
African countries
African countries. One outcome is the low per- the servicing of debt, mainly due to the high inter-
are the lowest formance of African continent in the sustainable est and short-­term repayment terms of external
beneficiaries finance landscape. debt acquired by these countries.60
Although the issuance of sustainable climate As discussed in chapter 1, many African coun-
of sustainable
finance (particularly green loans and bonds) tries with a medium to high likelihood of debt dis-
climate finance, has rapidly increased over the past five years, tress or already in debt distress have been in this
accounting for less advanced economies and emerging market situation for the past decade. This means that
than 0.01 percent economies, which dominate international cap- these countries face higher borrowing costs from
ital markets, are the largest recipients. African domestic and international lenders, but they are
of issuances of countries are the lowest beneficiaries, accounting also likely to lose access to financial global mar-
green bonds and for less than 0.01 percent of issuances of green kets. Debt restructuring will likely increase tax
loans globally bonds and loans globally (figure 2.17). So, African rates to generate revenue to pay this debt and
countries looking to mobilize sustainable private a reallocation of government revenue toward

FIGURE 2.17 Climate-­related sustainable financing, by region, 2016–22

Issuance ($ billions) Green loan Social bond Sustainability bond Sustainability-linked loan Green bond Sustainability-linked bond
6,000

5,000

4,000

3,000

2,000

1,000

0
a
ia

a
ia

ca

ia

a
ia

a
ia

a
ia

a
ia
Ca pe
rth ean

ca

Ca pe
rth ean

ca

Ca pe
rth ean

ca

Ca pe
rth ean

ca

Ca pe
rth ean

ca

Ca pe
rth ean

ca

Ca pe
rth ean

ca
ric

ric

ric

ric

fric

ric
As

As

As

As

As

As

As
i
eri

eri

eri

eri

eri

eri

eri
he Euro

he Euro

he Euro

he Euro

he Euro

he Euro

he Euro
r
Af

Af

Af

Af

Af

Af
No ribb

No ribb

No ribb

No ribb

No ribb

No ribb

No ribb
A
Am

Am

Am

Am

Am

Am

Am
dt

dt

dt

dt

dt

dt

dt
an

an

an

an

an

an

an
ca

ca

ca

ca

ca

ca

ca
eri

eri

eri

eri

eri

eri

eri
Am

Am

Am

Am

Am

Am

Am
tin

tin

tin

tin

tin

tin

tin
La

La

La

La

La

La

La

2016 2017 2018 2019 2020 2021 2022

Source: Staff calculations based on BloombergNEF data.

84 P rivate sector financing for climate action and green gro w th in A frica
external debt obligations. Some African countries The high perceived risks result in African
are spending more than 50  percent of govern- countries being awarded poor and largely sub-
ment revenue servicing external debt, while those jective credit ratings in international markets.
with unsustainable debt levels have debt servicing For instance, most African debt issuers, includ-
taking up more than 90  percent of government ing those for sustainable and green finance, are
revenue. rated below investment grade by external rating
This diversion of resources away from key sec- agencies, leaving issuers almost entirely reliant on
tors, particularly those critical for green growth in demand from investors willing to take on high risk
the long term, as well as reduced rates of eco- investments.61 This in turn leads to high financing
nomic growth and overall resilience to climate costs for investments for African countries, which
and economic risks, might push away potential reduces the returns on potential investments
investors fearing the risk of debt default for highly in relation to those in developed countries and
indebted countries. And as African countries have emerging markets. Credit ratings are sensitive to
committed to unconditionally meeting on average even small changes in market conditions, mean-
African countries
about 15  percent of their NDC financing needs ing that they cannot be used to make long-­term
using domestic finance, the high public spending projections on investments.62 could benefit from
on servicing debt means that countries have lim- African countries could save nearly $74.5 billion an autonomous
ited headroom to invest in climate action identified in excess interest if credit ratings were based on
African credit rating
in their NDCs through blended finance invest- more objective assessments of risk.63 They could
ments. These countries thus have limited capacity benefit from an autonomous ­African credit rating agency that engages
to de-­risk investments in sectors and projects that agency that engages with international credit rating with international
are particularly important for climate action and agencies to ensure that ratings are more informed credit rating
green growth, such as those that provide social by Africa’s macroeconomic conditions.64 This
development outcomes but are generally too risky could be particularly important to lower the cost
agencies to ensure
or provide low returns on investments for the pri- of borrowing for African countries, which remains that ratings are more
vate sector. prohibitively higher than in other world regions and informed by Africa’s
is often not synchronized with countries’ degree of
Supply-­side barriers climate vulnerability and readiness. Indeed, Afri-
macroeconomic
International private sector investors perceive Afri- can countries, which have greater vulnerability to conditions
can markets as high risk, leading to a high cost of climate impacts, tend to have higher sovereign
capital and high required rates of return. High risk borrowing costs­—­while countries well prepared to
is a structural barrier for most African countries. deal with the risks of climate change, mostly devel-
Most private investors, particularly large interna- oped countries, enjoy low borrowing costs. African
tional investors, look to invest in portfolio projects countries on the other hand, are often encum-
that usually spread across national borders­—­not bered by high cost of debt (figure 2.18).
single projects­—­to leverage the economies of Some private actors, particularly those recently
scale in investments and returns and to limit invest- committing to greening their investments, have
ment costs. As many countries across Africa still limited experience in African markets. Although
have an emerging pipeline of investments beyond many private institutions have committed to chan-
the infrastructure and energy sectors, it is chal- neling their investments to sectors that generate
lenging for them to attract these types of investors. low carbon development outcomes, most have
And portfolio types of investment require common limited experience operating in the green growth
regulations, standards, and policies, mostly miss- landscape and particularly in the African market.
ing across the continent due to the differences in So, they are likely to be cautious when making
progress in defining green growth pathways. So, investments in green growth in Africa, and will
investors looking to invest across borders do not prioritize investments in proven markets, technol-
see comparable definitions of what counts as ogies, or sectors while avoiding other markets that
green investments, nor do they see monitoring potentially have greater impact for green growth
frameworks, increasing project risks. on the continent. For investors new to African

P rivate sector financing for climate action and green gro w th in A frica  85
 FIGURE 2.18 Sovereign borrowing costs, climate vulnerability and readiness

Climate vulnerability Climate readiness

10-year bond yield (percent) Africa Rest of the world 10-year bond yield (percent) Africa Rest of the world
40 40

Zambia Zambia
30 30

Egypt
Egypt
20 20
Uganda
Nigeria Uganda
Kenya
Kenya Nigeria

10 Angola
10
Botswana
Angola Botswana
Morocco Côte d’Ivoire Namibia Mauritius
Côte d’Ivoire
Mauritius Namibia Morocco

0 0
20 30 40 50 60 70 80 20 30 40 50 60 70 80

Climate vulnerability index Climate readiness index

Note: Unlabeled scatter points refer to non-­African countries.
Source: Staff calculations based on http://www.worldgovernmentbonds.com/ (extracted on April 21, 2023) and Notre Dame Global Adapta-
tion Initiative database.

markets, perceived risks and international credit lengthy import procedures, or inefficient conflict
ratings play a big role in determining whether (or resolution mechanisms. Most cost overruns for
not) to invest in African climate action and green projects are likely to be transferred to the investor,
High technical
growth markets. For many, this is a hindrance, as those looking to avoid these additional costs.
and operational these investors fail to gain confidence in market
inefficiencies performance. An underlying structural driver is Cross-­cutting barriers
asymmetric or limited information about the per- Since most investments in climate change and
in most African
formance of investments in different African mar- green growth are new and emerging, they lack
countries increase kets. So, international investors looking to invest data and information about the performance of
the costs of in Africa rely on credit ratings developed by inter- investments in specific markets, particularly in
investments national rating institutions, which rely on sparse least developed country contexts. And coupled
data and subjective assessments to assign these with the limited availability of comprehensive his-
ratings. And when these investors invest in Africa torical data and information on climate change
and other developing country markets, they risks, there is limited understanding on how cli-
require extremely high rates of return (figure 2.19). mate change risks affect different types of invest-
High technical and operational inefficien- ments. So, neither the African stakeholders nor
cies in most African countries also increase the private investors can clearly articulate and imple-
costs of investments. High risk is driven partly ment mechanisms to address these risks.
by the lack of physical infrastructure­—­poor road
and other transport connectivity, limited access to Sector-­specific opportunities for
reliable energy and water, and low connectivity to increasing private investments in
ICT services. These increase the operating costs climate and green growth sectors
of potential investors, reducing their likely rate
of returns. The levels of development in African Agriculture and water
markets carry risks of technical difficulties during The agricultural sector is perhaps the greatest
project development: project construction delays, lever for generating green growth outcomes from
delayed physical access to technologies due to private sector investments. Being the continent’s

86 P rivate sector financing for climate action and green gro w th in A frica
FIGURE 2.19 Sovereign credit ratings and required return from solar projects

Required return from solar project (percent) Africa Rest of the world
60

50

40
Zambia

30
Egypt

Ghana Nigeria Tanzania

20
Algeria Namibia

Morocco
10

0
Default 4 8 12 16 Best
rating Africa’s agricultural
Average credit rating
Note: Horizontal axis measures average credit rating of three major agencies: S&P, Fitch, and Moody’s, with ratings sector and
converted to a 0 (default) to 21 (best rating) scale. agribusinesses
Source: Staff calculations based on Trading Economics (2023) and CPI (forthcoming).
have the potential
major income generator as well as having the air-­cleaning buses, and air-­separation plants) is to transform into a
highest potential for transitions to low emissions, already growing, but has potential to expand with $1 trillion market
it is an opportunity for private sector to be part Africa not just as a technology consumer but also by 2030, while its
of this transition. Africa’s agricultural sector as a producer. The ICT market in Africa (excluding
and agribusinesses are estimated to be worth North Africa) is expected to grow from $95.4 billion
internet economy
$300  billion (in 2022) and have the potential to in 2020 to $104.2 billion by 2023, and its internet could reach
transform into a $1 trillion market by 2030.65 Other economy has the potential to reach $180  billion $180 billion by 2025
assessments indicate an investment potential of by 2025.67 But it is important to ensure that the
more than $79 billion in just 13 African countries.66 continent has the potential to use these technol-
Technologies with investment opportunities for ogies, through investments in infrastructure and
climate-­s mart agriculture include smart and skills. The intended shift from pure consumption
renewable energy-­powered irrigation, biocontrol to a mix of production and consumption means
products, They also include precision applicators that private investments can be used to develop
that increase agricultural input efficiency, renew- the skills and entrepreneurial systems that drive
able energy cold storage and post-­harvest han- innovation.
dling solutions, and digital platforms that bundle
information on climate-­smart goods and services Urban development and transport
and help to minimize transaction costs for con- The African continent is rapidly urbanizing, accom-
sumers and providers while increasing scale of panied by increasing demand for low-­ c arbon
reach. And they include climate-­resilient livestock transport options and privates sector investment
feed, smart systems for pest and weed control, opportunities that promote climate resilience in
livestock management technologies or different these areas. While there are regional differences
herd sizes, and soil management solutions as well in the projected rates of urbanization, it is esti-
as investments in the water and sanitation sector. mated that 50 percent of the African population
will be urban residents by 2030 and 65 percent
Information and communication technologies by 2060.68 With this increasing urban population
The investment in fourth industrial revolution tech- comes opportunities for private investments, in
nologies (such as robotic trees, parasitic drones, the provision of basic services such as access to

P rivate sector financing for climate action and green gro w th in A frica  87
 water, sanitation, housing, climate-­resilient trans- continent, coupled with projected climate change
port, and infrastructure to reduce inequalities risks that affect health, means that there are signif-
and contribute to green growth. For example, the icant opportunities for investments in low carbon
investment opportunities across 35 major cities in climate resilient health systems in Africa. This
Ethiopia, Kenya, and South Africa for the genera- potential is an opportunity for the private sector to
tion of more compact and connected cities could invest in the production of pharmaceuticals and
generate more than $1.1 trillion in benefits for the health service provision so as to be cost-­efficient
private sector by 2050.69 and generate maximum returns. Investment oppor-
tunities in the health sector lie in providing smart
Energy technologies for screening and treating illness and
Private investments can also be directed to the disease, creating services that increase wellness,
generation and provision of low- emissions energy producing pharmaceuticals using locally sourced
source to achieve universal energy access and products, and training healthcare workers that to
meet the increasing energy demand from industry. meet the growing demand for healthcare.
This provides an opportunity for the private sector
in solar energy technologies that reduce depen- Pathways to leverage existing
The projected
dence on biomass. Already, these technologies investment opportunities and
increase in are cost-­competitive across many parts of Africa, increase private finance for climate
population on the meaning that they provide very attractive returns. action and green growth in Africa
Africa has 44.8 percent of the total global techni-
continent, coupled
cal potential of renewable energy, more than any Policies, regulatory structures, and fiscal
with projected other continent (chapter 3), so private investments incentives for climate and green growth
climate change in this sector can supply the rest of the world. Developing regulations, standards, and policies
risks that affect This, coupled with the continental gap in access for climate and green growth investments and
to energy, presents a significant opportunity for pursuing cross-­continental standardization of pol-
health, means that private sector along the entire energy value chain icies, metrics, and taxonomies will provide positive
there are significant from generation, to storage, and to consumption. signals to private investors. First, African countries
opportunities for need robust green growth frameworks for shap-
Education ing narratives and progress on climate action and
investments in low Meeting the green industrialization needs of the green growth. These frameworks are made up of
carbon climate continent will require skills, particularly among the legal, regulatory, and institutional frameworks that
resilient health African youth who form the greatest proportion of leverage the synergies between climate action
the population and the backbone of the African and green growth. They should ensure transpar-
systems in Africa
economy. Green skills are needed for meeting the ency, stability, and predictability, and are useful
innovation and technology demands that come for building investor confidence in domestic and
with the transition to green growth, and private regional markets.72 They should also be devel-
finance will be important in establishing centers for oped for all sectors of the economy that contribute
innovation and in providing skill training. Equipping toward green growth, not just the energy sector.
the labor force with green skills can be integrated Second, African countries need to develop
into the education system, as can acquiring skills roadmaps for investments in climate action and
and expertise outside the classroom. green growth by articulating and costing their
Long-­Term Strategies to provide guidance to pri-
Health vate investors on priority green growth sectors
Africa’s pharmaceutical industry reached $28.6 bil- and areas for investments. These roadmaps and
lion in 2017, from $5.5 billion a decade earlier, and strategies should be based on good practice
is predicted to be worth $56–$70 billion by 2030.70 recommendations. They should be developed
However, as much as 70 to 90  percent of drugs in consultation with diverse national and interna-
consumed in most African countries are import- tional stakeholders, have clarity on financing and
ed.71 The projected increase in population on the other resource needs for its implementation, be

88 P rivate sector financing for climate action and green gro w th in A frica
embedded into national and sectoral planning sys- should be designed and offered. Tax incentives to
tems so that it can inform resource allocation, and firms are one and often not the determining factor
demonstrate strong country and institutional own- for private investment decisions. Some investors
ership.73 Besides developing green growth strat- (such as those that are efficiency-­seeking) may
egies and climate action plans, countries need to be more sensitive to incentives than others (such
develop comparable regulations across different as market-­seeking or natural resource-­seeking).
green growth sectors. That will make it easier for But that the effect of these incentives on invest-
investors to determine what count as investments ments in low-­income countries is smaller than
that contribute to climate and green growth across that in high-­income countries, and most firms
the continent. Taxonomies are essential for defin- would invest even without incentives.76 Tax incen-
ing terms, outlining expectations, and developing tives targeted at sectors producing for domestic
more comprehensive classification systems.74 markets or extractive industries generally have
Although green taxonomies have been under little impact, while those geared toward export-­
consideration for some time across the continent, oriented sectors and mobile capital appear more
only South Africa has so far developed a taxon- effective.77 Mainly, this is because private sector
omy for green investments. Countries should investments in general, and in green growth in
Managing exit risk
develop national green taxonomies, green and particular, depend more on the quality of institu-
sustainable finance standards and frameworks tional and policy frameworks and on other factors and overall private
that complement those developed by international of production such as infrastructure and labor. sector confidence
organizations to align with international best prac- The common narrative is that African coun-
in African green
tice. In doing so, countries can ensure that the tries need to eliminate harmful subsidies, but this
governance of private finance is streamlined, while should instead be framed as the need to align growth markets will
also demonstrating transparency and account- fiscal reforms with green growth objectives in both require stronger
ability in mobilizing and using private investments the short and long terms. These strategies should governance
and attributing impacts. identify clear roles for different energy sources
Although many African countries have still not and the mechanisms for phasing them in or out.
mechanisms based
implemented comprehensive fiscal incentives for Other types of incentives have also been offered on accountability
private finance, some show that there is still an in some countries. For example, some African and transparency
opportunity for others to do so. Ghana, Kenya, countries have been offering R&D incentives to
Mauritius, Morocco, Rwanda, and Tunisia have private sector investors in sectors or industries
to ensure that
devised policies and mechanisms to offer fiscal that have strong links to green growth or that are the needs of both
incentives to attract external private investments. conditional on achieving specific outcomes. South African countries
For example, Kenya, Morocco, Rwanda, and Tuni- Sudan provides a 100 percent R&D tax reduction
and private
sia have duty and value added tax (VAT) exemp- for private investments. Tunisia gives a 50 percent
tions for renewable energy and energy efficiency-­ bonus for companies investing in R&D in sectors investors are met
related investments. Ghana, Mauritius, South central to its green growth objectives.
Africa, Uganda, and Zambia have used auctions Managing exit risk and overall private sector
to enhance renewable energy generation. Kenya confidence in African green growth markets will
and Morocco have removed pre-­existing incen- require stronger governance mechanisms based
tives for activities that disincentivize green growth, on accountability and transparency to ensure
such as subsidies on petroleum products. that the needs of both African countries and pri-
In some cases, fiscal incentives could have vate investors are met. Many African countries
greater costs than benefits. For example, they lack strong transparency and accountability sys-
may be made available to investors that would tems, and thus fail to provide clarity on rights and
have invested anyway or whose investment deci- responsibilities of different groups of stakehold-
sions are influenced by other factors, such as geo- ers involved in private finance for green growth.
graphical location, and not whether (or not) they Achieving stronger accountability and transpar-
receive these incentives.75 African countries thus ency will require improving the capacity and effi-
need to think carefully about how these incentives ciency of commercial court systems to disputes,

P rivate sector financing for climate action and green gro w th in A frica  89
 streamlining the business environment ensure effi- ($5 billion). Kenya, Rwanda, Nigeria, South Africa,
ciency, generating clear policies on areas such as Ghana, and Côte d’Ivoire, in that order, rank among
labor markets and ownership of foreign assets, as the top 10 in mobilizing blended finance globally.
well as promoting transparency in procedures for
both investors and governments. Increasing leverage ratios of blended finance,
alongside the impact of investments, to unlock
Increasing the use of blended finance billions and trillions of private climate finance
Overall, climate and green growth investments can One of the main challenges in blended finance is
be too risky for private investors mainly because the low leverage ratio: public finance investments
they leverage new technologies and business in projects do not generate a higher proportion
models. In such cases, singly relying on mar- of private finance. Blended financing instruments
kets to eliminate or reduce these risks is subopti- have a key role in growing private climate finance.
mal. Blended finance can reduce these risks and These instruments have allowed public actors such
ensure that they achieve the desired outcomes. as MDBs and DFIs to leverage more private financ-
Blended financing instruments typically com- ing by taking on some of the political, governance,
bine concessional public finance resources with and economic risks associated with climate proj-
Sub-Saharan
other forms of private finance. Between 2016 and ects. Of the $4.5 billion of climate blended finance
Africa alone 2021, Africa accounted for more than 41 percent in Sub-­Saharan Africa over 2019–21, more than
mobilized more than of all blended finance deals globally, indicating the three-­quarters went to renewable energy projects.
potential for scaling up these instruments. Over the But even at this scale, the leverage ratio of private-­
$4.5 billion from
past seven years, Africa has registered the most to-public finance is still very low.
climate-blended deals in blended finance for climate change. Sub-­ In addition to increasing leverage ratios, coun-
finance vehicles Saharan Africa accounts for 41  percent of total tries need to ensure that blended climate finance
in 2019–21 deals, followed by Latin America and the Carib- is impact-­informed, important since the global
bean at 28 percent (figure 2.20). So, the volume of private sector landscape is transitioning into
blended finance has also been higher. Sub-­Saharan impact-­oriented investments. The African conti-
Africa alone mobilized more than $4.5 billion from nent, as a geographic frontier, offers great oppor-
climate-­blended finance vehicles in 2019–21 (figure tunities for generating impact, which can be the
2.21), just behind transactions with a global focus basis for engagement with the private sector. As

FIGURE 2.20 Proportion of climate blended finance deals by region

Percent 2016–18 2019–21

50

40

30

20

10

0
Europe and Middle East Global East Asia South Latin America Sub-Saharan
Central Asia and North Africa and Pacific Asia and the Caribbean Africa

Source: Convergence 2022.

90 P rivate sector financing for climate action and green gro w th in A frica
countries have already committed to uncondition- FIGURE 2.21 Climate blended finance by region, 2019–21
ally meet 15 percent of their NDC costs through
Sub-Saharan Africa South Asia Middle East and North Africa
public finance, they can direct part of this finance Latin America and the Caribbean Global
to blended finance instruments to mobilize pri- $ millions Europe and Central Asia East Asia and Pacific
6,000
vate finance toward key sectors for climate and
green growth. Because this committed finance
is scarce, it will need to be used effectively. One 5,000

way to advance the effectiveness of public finance

used for blending instruments is ensuring that 4,000

both needs (desired impact for climate action and

green growth) and markets (private sector risk 3,000

appetite) inform the allocation of finance.

Maximizing opportunities from blended finance 2,000
requires that countries ensure that this finance
generates additionality and proportionality through 1,000
developing robust country tools and methodolo-
gies to allocate public finance to different blended 0
finance instruments and deals.78 Globally, blended 2019 2020 2021
finance through projects, funds, and facilities Source: Convergence 2022.
accounts for 95 percent of blended finance mobi-
lized between 2016 and 2021.79 African countries regions globally (figure 2.22) and has been on a
can tap into this trend to generate much-­needed downward trend. Existing private participation is
Blended finance can
private finance. now mostly focused on financing energy infra-
structure, with limited investments in social infra- particularly be useful
Blended finance can increase private structure and other hard infrastructure in sectors in increasing the
participation in infrastructure for green growth such as agriculture, which are equally important
private participation
Blended finance can particularly be useful in for green growth (figure 2.23). In addition, although
increasing the private participation in infrastruc- most private participation in infrastructure (PPI) in infrastructure
ture projects in Africa, which are one of the lowest projects in Africa are greenfield, the total volume projects in Africa,
which are one
FIGURE 2.22 Number of public-­private partnership projects by region, 1990–2022
of the lowest
Number of projects PPP project Other PPI regions globally
4,000

3,000

2,000

1,000

0
Africa East Asia Europe and Latin America Middle South
and Pacific Central Asia and the Caribbean East Asia

Source: Staff calculations based on World Bank’s Private Participation in Infrastructure (PPI) Project Database.

P rivate sector financing for climate action and green gro w th in A frica  91
 FIGURE 2.23 Number of private participation in infrastructure projects by sector, 1990–2022

Number
500

400

300

200

100

0
nic sew t

nic sew t

nic sew t

nic sew t

nic sew t

nic sew t
Tra y

te

Tra y

te

Tra y

te

Tra y

te

Tra y

te

Tra y

oli ge

te
ICT

ICT

ICT

ICT

ICT

ICT
r

r
erg

erg

erg

erg

erg

erg
g

g
po

po

po

po

po

po
as

as

as

as

as

as
era

era

era

era

era

era
ns

ns

ns

ns

ns

ns
dw

dw

dw

dw

dw

dw
En

En

En

En

En

En
oli

oli

oli

oli

oli
ls

ls

ls

ls

ls

ls
Mu nd

Mu nd

Mu nd

nd

nd

nd
ipa

ipa

ipa

ipa

ipa

ipa
ra

ra

ra

ra

ra

ra
te

te

te

te

te

te
Wa

Wa

Wa

Wa

Wa

Wa
Mu

Mu

Mu
Africa East Asia and Pacific Europe and Central Asia Latin America and the Caribbean Middle East South Asia

Source: Staff calculations based on World Bank’s Private Participation in Infrastructure (PPI) Project Database.

of investments is lower than in other developing developing countries, allocations need to be diver-
regions. PPI projects require strong national legal sified to other social sectors important for green
structures that define the relationship between growth, such as agriculture, fisheries, and health.
Although
governments and private investors in these proj- According to the World Bank’s PPI database, of
infrastructure receives ects. Public-­ p rivate partnership frameworks the 495 greenfield PPPs either concluded or on-
the largest proportion should be anchored on local contexts and needs, going in Africa (between 2019 and 2022) for a
targeting sectors and regions with the greatest total value of $113 billion), 371 were in the energy
of climate-blended
need and private actors with the greatest poten- sector ($78 billion), more than ports and roads and
finance, particularly in tial to contribute to the projects. Good frameworks railways. And the investments were in the form
developing countries, provide information on how projects will be ini- of equity not debt, even though the global debt
allocations need tiated, procured, implemented, managed, and markets are the deepest globally for infrastructure
operated. They also communicate how risk will be financing. African infrastructure is attracting equity
to be diversified shared and demonstrate the presence of financial financing because most of the projects are green-
to other social mechanisms and institutions to ensure that inves- field financing, where upfront financing is required
sectors important tors have access to the capital they need to invest to get the project operationalized and which dis-
in these projects. Attracting private investments courages debt investors because the risk is too
for green growth, to local green projects first requires legislation high (due to construction and political risk).
such as agriculture, to allow fund managers to set up infrastructure
fisheries, and health funds. These infrastructure funds should have low African governments should strategically deploy
entry thresholds for subscribers, enabling low- or public finance while leveraging multistakeholder
middle-­income subscribers to invest in them. platforms for generating blended finance
Scaling up private finance for climate action
Diversify public investments to other types of and green growth through blended instruments
sectors and use different types of resources requires that governments strategically deploy
Although infrastructure receives the largest pro- available climate finance. This in turn requires gov-
portion of climate-­blended finance, particularly in ernance and accountability systems that enable

92 P rivate sector financing for climate action and green gro w th in A frica
the allocation and use of public finance for pre-­ the blending process. Such platforms should be
identified climate action and green growth objec- designed to enable the development of commer-
tives. Central to this deployment is a need for Afri- cially viable projects, while ensuring that financial
can countries to strengthen their public finance allocations reduce the country and currency risk of
management systems through strengthening tax investments while also promoting portfolio invest-
bases and legislative oversight of budget alloca- ments and not just single project investments.
tion and spending.80 Another important layer is
the need to mainstream climate action and green Strengthening domestic financial institutions
growth into public finance management across to address the financing gap for climate action
the public finance cycle­—­from strategic planning and green growth
all the way through to budget preparation and African firms, regardless of their size and sector, rely
approval, budget execution, accounting and mon- most on internal funds, such as retained earnings
itoring, evaluation and audit, policy review, and and informal sources to finance both their invest-
other policy interfaces such as through climate-­ ment and working capital. Africa has the lowest
Africa has the
responsive fiscal decentralization.81 share of firms that obtain financing from private
Many countries are implementing some of commercial banks for their working capital (7.7 per- lowest share of
these measures. Benin, Cabo Verde, and Uganda cent), just over half the average of 14.6 percent in firms that obtain
have climate change policies and plans, and Ethi- other world regions (figure 2.24). Between 2010 and
financing from
opia, Mozambique, and Rwanda have plans that 2021, about 32 percent of African firms identified
communicate the financial implications of their access to finance as a major obstacle for their busi- private commercial
implementation. Mozambique is reported to have ness, against 21.8 percent in Latin America and the banks for their
developed climate-­ i nformed macroeconomic Caribbean, 17.5  percent in South Asia, 15.5  per- working capital
forecasts, while Cabo Verde implements climate cent in Europe and Central Asia, and 11.1 percent
budget tagging. Countries should develop or in East Asia and Pacific. Addressing this constraint
(7.7 percent), just
leverage existing multistakeholder platforms for will require African public sector institutions to over half the average
blending finance for climate action and green create favorable conditions to incentivize private of 14.6 percent in
growth. Investment platforms create a market- sector financiers to serve domestic firms, particu-
place for public and private investors, accelerating larly those in climate and green growth sectors.
other world regions

FIGURE 2.24 Financing sources of investment and working capital of firms by region, average 2010–21

Investment Working capital

Percent Percent
100 100

80 80

60 60

40 40

20 20

0 0
Africa Middle South Europe and East Asia Latin America and Africa Middle South Europe and East Asia Latin America and
East Asia Central Asia and Pacific the Caribbean East Asia Central Asia and Pacific the Caribbean

Internal funds Banks Supplier credit Equity/stock sales Other

Source: Staff calculations using World Bank’s Enterprise Surveys.

P rivate sector financing for climate action and green gro w th in A frica  93
 The domestic banking sector can be devel- climate change risks in the financial systems, they
oped to address the financing gap for climate can also strengthen sustainable finance systems
action and green growth. Most domestic pri- by creating more ESG-­friendly financial systems
vate finance in Africa is obtained from banks, so and regulations. For example, central banks also
strengthening the domestic private sector’s con- determine countries’ monetary policies and incen-
tribution to green growth will need to leverage this tives to ensure that they favor investments in cli-
opportunity. Retail and corporate banking in Africa mate action and green growth.
holds more than 90  percent of financial sector Institutions for supporting innovations will be
assets.82 Taking advantage of this potential for essential for identifying areas where private sector
green growth will require that countries work on investments can have the greatest benefit. Green
expanding the breadth of financing instruments, industry facilities and green banks are an option
enhancing financial inclusion and encouraging for advancing access to finance for climate action
banking innovations. and green growth on the continent. The Kenya Cli-
Commercial financial institutions, mostly banks, mate Innovation Center and Nigeria Climate Inno-
are investing more in energy systems and cross-­ vation Center show how countries are generating
cutting sectors. But due to their responsibility to investment opportunities for the private sector and
De-risking
seek market or even higher-­than-market returns promoting start-­ups and MSME investment in cli-
mechanisms for for investments, they are very risk averse, requir- mate action. There is interest in these institutions,
green finance such ing that they invest in bigger ticket projects with but more needs to be done to ensure that they
high returns. And most banks have limited (due are spread across different parts of the continent
as guarantees by
diligence and technical) capacity and no formal depending on climate action and green growth
public actors, could mandate to embed climate and green growth into needs.
leverage more their investment decisions.83 The potential recip-
green financing at ients of this finance, especially MSMEs, often Expanding sustainable finance instruments,
cannot afford the high cost of these loans. More- such as green finance
better terms for over, MSMEs in the AFOLU sector often cannot Institutional investors provided more than 90 per-
different actors provide financial records and collateral to access cent of grants and all of the project debt and chan-
them in the first place. The informal sector is likely neled most of it to energy and AFOLU sectors. But
to be overlooked by financial institutions, so there pension funds, insurance companies and sover-
is a need to strengthen the provision of private eign wealth funds (SWFs) see Africa as one of the
finance to these actors. least attractive investment markets. Ticket sizes
De-­risking mechanisms for green finance such tend to range from $10–$100 million (quite large),
as guarantees by public actors, could leverage making it difficult to invest in smaller ticket sizes
more green financing at better terms for different (less than $1 million) climate finance opportunities
actors. In 2020, 44 percent of private flows to least that currently exist in Africa.85 For the Bank, the
developed countries were mobilized by guaran- average ticket size of approved projects with at
tees issued by DFIs.84 This shows the potential least 30 percent of climate finance content aver-
that exists for public actors to use guarantees to aged $18  million over 2018–22, with a median
catalyze more private climate finance for green of $6.5 million and a maximum of $268.5 million
growth that is affordable and inclusive. And due to (figure 2.25).
the long-­term nature of some climate-­related and Unlocking more capital from institutional inves-
green growth projects, patient capital is critical to tors remains a critical part of financing not just
realize their benefits. climate action and green growth but also the
African central banks are particularly important SDGs. But finance from SWFs should be based
for ensuring that policies and regulations for risk on sound macroeconomic and political safe-
management, particularly by private investors and guards to ensure that the financial reserves are
those implementing private funded climate action allocated toward green growth. Institutional inves-
and green growth projects. Just as central banks tors will be very important for mobilizing domestic
are responsible for monitoring and managing private sector finance through domestic capital

94 P rivate sector financing for climate action and green gro w th in A frica
markets. Institutional investor interest is increasing FIGURE 2.25 Ticket size of the Bank’s approved projects with
in alternative assets­—­those that fall outside of tra- at least 30 percent of climate finance content, 2018–22
ditional asset classes, and include private equity,
venture capital, securities, and other vehicles $ millions Median Mean
60
that have designated proceeds for infrastructure
financing.86 Although alternative assets made up
50
an even smaller share of assets under manage-
ment in African markets, the proportion has been
40
increasing over the past few years. Their growth
is mostly driven by national initiatives to direct
institutional investors into these alternative assets. 30

But enhancing these investments­—­particularly in

asset classes directly linked to climate action and 20

green growth­—­will require conducive regulatory

environments and macroeconomic conditions. 10
And these investors will need to have solid infor-
mation to be able to evaluate the risks and poten- 0
tial returns from these asset classes.87 2018 2019 2020 2021 2022

International and domestic capital markets Note: Values above the 95th percentile ($75 million) have been omitted.
offer an opportunity for African countries to Source: Staff calculations.
expand their use of domestic green bonds while
addressing the currency risk that comes with In both cases, the governments created regulatory
International and
bonds offered in foreign currency. Many countries and institutional frameworks to enable the use of
are already offering bonds in domestic currency these innovative mechanisms. domestic capital
while targeting the domestic private sector. Cap- markets offer an
ital markets in Africa are mainly stock exchanges Tapping into private equity and venture capital
opportunity for
and bond markets, with bond issuances mostly Although small, Africa’s private equity and venture
by governments and only a few large corporations actors are a critical source of financing for young African countries
listed on domestic stock exchanges.88 There are and innovative firms.91 African venture capital is to expand their
now 28 stock exchanges with listed equity and still small but has grown over the past decade. use of domestic
bonds in Africa, which have raised over $1 trillion Specifically, the number of venture capital trans-
in finance through bonds.89 But these exchanges actions in Africa reached a record 308 deals in
green bonds
are smaller than other frontier markets in devel- 2021, a 34 percent increase from 2020 (see figure while addressing
oping countries: other than the Johannesburg 2.10). However, given Africa’s growing demand the currency risk
and Casablanca stock exchanges, the other for green and innovative technologies, accom-
exchanges have very small listings. panied by the demonstrated venture private and
that comes with
The continent already has some good experi- equity capital investor interest in Africa, there is bonds offered in
ences in engaging with innovative climate finance scope to expand the volume of finance. A more foreign currency
mechanisms, and these can inform future direc- diversified investor base would bridge the existing
tions of innovative finance for climate action and MSME finance gap and accelerate green growth
green growth. Examples this include the issu- in sectors that contribute to social development.
ances of green bonds in Kenya, Namibia, Nigeria, The design of private equity and venture capi-
and South Africa,90 the first initial public offering tal enables the provision of patient risk-­agnostic
on the Blu-­X sustainable finance platform in Cabo finance, essential for supporting renewable energy
Verde (first blue bond at the Ocean Summit) in and the digital economy.
January 2023, and the utility financing for energy Besides private equity and venture capital,
efficiency and access in Kenya, through auctions there is need to create opportunities for MSMEs
to finance renewables. Other examples are local to engage with other types of investors, such as
currency green bonds in Nigeria and South Africa. angel investors and enabling their access to other

P rivate sector financing for climate action and green gro w th in A frica  95
 financing mechanisms such as guarantee instru- the expected results, so there is a need for a
ments, revenue-­ based financing etc. Besides step change if the continent is to fully capitalize
access to finance, domestic private sector, unlock- on the emerging potential for carbon markets.
ing private sector finance on the continent requires Africa accounted for only 10 percent of all Clean
provision of non-­financial technical support that Development Mechanism (CDM) projects issued
is essential for further developing the capacity of in developing globally between 2010 and 2021.93
these institutions to become competitive in the The private finance generated from the grow-
expanding climate action and green growth land- ing carbon markets ultimately depends on the
scape. This can be through mentorship, coaching, global price of carbon. But African countries can
knowledge and experience sharing, developing increase their benefits from current markets by
frameworks that promote local and regional busi- expanding the scope of production of credits,
nesses and investors and the development of net- increasing regulatory structures for credits and
works for partnership development. This can be ensuring that credits meet the social and envi-
achieved through mechanisms that support net- ronmental quality needed for the global market.
working between different types of institutions that In addition, the development of country plans for
could potentially benefit from one another, such as carbon markets will support the production and
Africa’s past
through incubators and accelerators to catalyze sale of carbon credits by identifying and assigning
experiences from the growth of the African private sector ecosys- responsibilities to different national and local insti-
participation in tem. African countries, through their governments, tutions, identifying the different sets of incentives
can also spearhead support for MSMEs through for participation in the carbon markets, and iden-
carbon markets
acquiring a deeper understanding of the national tifying conditions for participation in the carbon
have not generated and regional private sector and risk landscape to market space.
the expected inform policy and action.
results, so there Leveraging intra-­African collaboration to
Cautiously engaging with the emerging carbon enhance continental private investments
is a need for a markets Africa needs regional project preparation facilities
step change if the The Africa Carbon Markets Initiative is an oppor- to tap into continental private investment oppor-
continent is to fully tunity for countries to direct investments into the tunities for climate and green growth. As many
protection and growth of their natural capital. Afri- domestic and international investors are looking
capitalize on the ca’s carbon sink stock can be leveraged to gener- to invest at the regional scale to take advantage
emerging potential ate finance and enable investments in sectors such of the market scale, regional project pipelines will
for carbon markets as natural resources and biodiversity conservation, be important. One way to advance pan-­African
which have both environmental and social devel- collaboration is through the development of ded-
opment outcomes. With existing methodologies, icated regional funding, project preparation, and
Africa could generate about 2,000 MtCO2eq, worth capacity development mechanisms. The mecha-
$40 billion annually by 2030.92 With new or nascent nism should have specialized units for supporting
methodologies, it could generate an additional 400 low-­income countries and those emerging from
MtCO2eq across the continent, worth more than conflicts, as they will have much more nuanced
$7 billion annually by 2030, with the greatest bene- barriers and needs.
fits obtained from livestock management and agri- Africa’s strongest regional collaborations pres-
cultural and soil carbon sequestration. When fully ent an opportunity for countries to work together
developed, the carbon markets could provide sig- to generate a more nuanced understanding of
nificant opportunities for African countries to mobi- the barriers and opportunities for private invest-
lize climate finance for development and improve ments within states and across common markets.
their risk ratings by re-basing their GDP in the light This would involve leveraging regional economic
of the positive externalities associated with the and research institutions to develop stronger links
carbon sequestration value of forest ecosystems. between research and governance and the pri-
However, Africa’s past experiences from par- vate sector. For instance, the Alliance for Green
ticipation in carbon markets have not generated Infrastructure in Africa, a partnership between the

96 P rivate sector financing for climate action and green gro w th in A frica
African Union, African Development Bank Group, from Togo, the highest source of outflows for this
and Africa50, launched in 2022, aims to raise up period, were directed at other African countries.
to $500 million in project development and prepa- As countries recover from the pandemic and
ration funds to generate up to $10 billion in sustain- private sector actors’ balance sheets begin to
able green infrastructure.94 The Africa Investment demonstrate improving liquidity, it is expected
Forum (AIF)­—­a multistakeholder transactional plat- that FDI outflows will begin to increase too. Afri-
form and investment marketplace­—­is dedicated can investors can be encouraged to invest on
to advancing projects to bankable stages, raising the continent through special trade agreements.
capital, mobilizing private sector, and accelerating Strengthened regional integration through the
the financial closure of deals.95 And through the AU, AfCFTA is a good starting point for advancing
African countries are working to develop the African these trade agreements.
Credit Rating Agency, a pan-­African partnership African countries should commit to supporting
which could enable countries to access private cross-­border programming, particularly in green
sector finance and strengthen links between the growth sectors, to increase the market size for
continent’s and global financial markets.96 small countries and further attract private sector
As countries recover from the economic investments. The top-­5 destination countries­—­
African countries
effects of the COVID-­19 pandemic and the 2022 South Africa, Nigeria, Kenya, Morocco, and Egypt­
energy and food crisis, these regional facilities —­concentrated about 56  percent of all inflows should commit to
can leverage the FDI outflows from African coun- received on the continent on average in 2019/20 supporting cross-
tries. Although Africa is a net recipient of FDI (considering only country inflows). So, multi-­
border programming,
flows, some African countries have, over the past country projects could be a promising avenue
decade, proven themselves as potential sources of for African countries with thin local markets to particularly in green
FDI outflows. And even though recent economic explore. But multiple-­ c ountry private climate growth sectors,
crises have shrunk the total volume of FDI outflows finance is still nascent in Africa, accounting for only to increase the
within the continent, countries are showing signs about 8 percent of overall private climate finance
of recovery (figure 2.26). Before COVID-­19, Togo, in 2019/2020. The African Continental Free Trade
market size for small
South Africa, Egypt, Morocco, and Ghana were Area (AfCFTA) will be a game changer, creating countries and further
the highest sources of FDI outflows in the conti- the world’s largest free trade area and a single attract private
nent. But their outflows fell by two-­thirds in 2020 market for goods and services worth $3.4 trillion
to $1.6 billion from $4.9 trillion in 2019.97 Outflows for more than 1.3 billion Africans.
sector investments

FIGURE 2.26 FDI outflows from Africa, 2017–21

$ millions Central Africa East Africa North Africa Southern Africa West Africa
12,000

Africa

8,000

4,000

–4,000
2017 2018 2019 2020 2021

Source: Staff calculations based on UNCTADStat data.

P rivate sector financing for climate action and green gro w th in A frica  97
 Technical support for policy and project develop- average over 2018–20, about $15.5 billion (32 per-
ment will also be important if African countries are cent) targeted climate actions­—­with $12.2  bil-
to further mobilize private sector finance for climate lion (25  percent) for mitigation only, $1.8  billion
action and green growth. This requires that funds be (4  percent) for adaptation only, and $1.5  billion
set aside to support policy development and project (3  percent) for mitigation and adaptation (figure
origination. MDBs are planning to create a facility 2.27). It was distributed almost evenly across the
of around $250 million to support the preparation world’s main regions, with Africa, Asia, and Latin
Of $48.6 billion
of Long-­Term Strategies. When this is operational, America and the Caribbean receiving the largest
of annual private it will provide an opportunity for African countries shares. Africa received about $4.2  billion annu-
finance mobilized by to leverage these funds for capacity development ally (the same as Asia), while Latin America and
to accelerate the development of their strategies. the Caribbean benefited from $3.8  billion. Offi-
official development
cial development assistance-­ e ligible European
finance institutions countries got $1.6 billion a year on average, and
on average over THE ROLE OF MDBs AND the remaining $1.7  billion was unallocated. The
2018–20, about DFIs IN MOBILIZING PRIVATE top-­5 African recipients were Mozambique with
FINANCE $839  million (20  percent of Africa’s total), South
$15.5 billion Africa $365 million (8.7 percent), Egypt $331 mil-
(32 percent) targeted DFIs and MDBs are key players lion (7.9 percent), Kenya $314 million (7.5 percent),
climate actions in unlocking international and and Nigeria $274  million (6.5  percent). The con-
development finance centration in those countries could be primarily the
result of local market dynamics, the availability of
Around one-­third of private finance mobilized investment opportunities, and the development of
by DFIs and MDBs targeted climate action in large-­scale industrial projects.
2018–20, with Africa among the main recipients Despite increased official development finance
Of $48.6  billion of annual private finance mobi- for climate-­related projects, the total mobilized
lized by official development finance institutions on appears modest­—­and falls far short of Africa’s

FIGURE 2.27 Geographical distribution of private climate finance mobilized by official development finance institutions,
average 2018–20

Value Share
$ billions Percent
16 100

80
12

60

40

4
20

0 0
Africa Asia Europe Latin America Global Africa Asia Europe Latin America Global
and the Caribbean and the Caribbean

Mitigation only Adaptation only Adaptation and mitigation

Source: Staff calculations based on OECD (2023).

98 P rivate sector financing for climate action and green gro w th in A frica
climate finance needs. So, it is essential to develop requirements of developing countries: First, pro-
and implement policies and instruments that vide emergency liquidity to developing countries
improve the redistribution of private climate finance to stop the debt crisis. Second, expand multi-
both geographically and sectorally. These instru- lateral lending to governments. And third, mobi-
ments could provide soft commercial loans to Afri- lize private savings for climate action and green
can carbon project developers to generate and sell growth.98 Five actions and policies will be needed
their emission reductions at the market price. They to meet these objectives.
could be guarantees to facilitate lending to carbon
project developers by de-­risking climate projects. Becoming less risk averse
Non-­market instruments, such as the Adaptation MDBs and DFIs should become less risk averse
Benefits Mechanism being piloted by the Bank, as donors and the international financial com-
could also channel private sector finance into munity take the necessary steps to enable the
adaptation. Risk-­sharing remains critical to encour- financial institutions to maintain their credit rat-
age private sector investment; therefore, policies ings and continue to source climate finance at the
that help identify and manage risk are relevant. For cheapest rates. Needed first is a review of MDBs’
example, concessional loans, guarantees, first loss capital adequacy ratios, an indicator of MDB risk
Multilateral
equity, and grants are all important, and MDBs and aversion. An independent expert review found
DFIs could facilitate their implementation. that these ratios are too conservative and could development banks
In addition to private sector finance, are poten- be reduced without affecting the credit ratings and development
tial sources of increased public finance from official of these institutions.99 That would increase the
finance institutions
development finance institutions. Some have been amount of capital available for lending to devel-
highlighted in the recent Bridgetown Initiative, put oping countries, particularly for climate action and should become less
forward by the government of Barbados, and are green growth. Linked to this is the need for donor risk averse as donors
being further considered in the light of the calls to countries to set realistic and achievable DFI prof- and the international
reform the World Bank and by implication other itability targets, which determine cost of capital to
MDBs. Paragraphs 40 and 41 of the Sharm-­El developing countries.100
financial community
Sheikh Implementation Plan call on MDBs and Second, as highlighted in the Report of the take the necessary
their shareholders to reform and improve the effi- Independent High-­Level Expert Group on Climate steps to enable the
ciency of the provision of climate finance. Spe- Finance,101 MDBs also need to shift from project-­
cific examples include access to Special Drawing based finance to financing the system-­wide sus-
financial institutions
Rights, which could finance debt-­for-nature or tainable transition. They should do this mainly to maintain their
debt-­for-climate swaps. And there is a significant through leveraging the largely untapped potential credit ratings and
call to introduce climate disaster debt clauses into to pool and diversify risks across the development
continue to source
loan agreements, to delay interest payments on finance system to create new asset classes for
loans in the event of a climate or other disaster. private institutional investors. This should involve climate finance at
These could be NPV-­neutral if repayment terms the use of more innovative financing mechanisms, the cheapest rates
are extended, or public funds could make them such as mobilizing non-­voting capital and risk
so. The Bridgetown agenda team estimated that transfers to the private sector, to increase available
disaster risk debt clauses could have freed up capital from MDBs.102
$1 trillion of liquidity in developing countries during Overall, reducing risk aversion requires tailor-­
the COVID-­19 outbreak, and MDBs are being made capital and liquidity frameworks to reassess
encouraged to deploy such clauses. regulatory capital and other prudential norms
for MDBs and DFIs. For example, shareholders
Five actions and policies to enable should encourage MDBs and DFIs to leverage
DFIs and MDBs crowd-­in more private their own resources with ambitious targets for
climate finance mobilizing private capital through a range of de-­
The Bridgetown Initiative, unveiled at COP27 in risking measures. They should also agree on a
Egypt, proposes a three-­step process for MDBs timebound plan to implement the recommen-
(and DFIs) to step up and address the financing dations of the G20 Capital Adequacy Review,103

P rivate sector financing for climate action and green gro w th in A frica  99
 including greater use of shareholder guarantees to Shareholders should encourage MDBs and DFIs
enable them to lend more with the existing cap- to leverage their own resources with ambitious tar-
ital without threatening their long-­term financial gets for mobilizing private capital through a range
integrity. of de-­risking measures. MDBs and DFIs should
Last, donor countries should reduce the profit- also agree on a timebound plan to implement the
ability targets of DFIs. British International Invest- recommendations of the G20 Capital Adequacy
ment (BII, formerly CDC) lowered its profitability Review,105 including greater use of shareholder
target from 10.6 percent to 3.5 percent for its main guarantees to enable them to lend more with the
portfolio­—­the Growth Portfolio and to at least existing capital without threatening their long-­term
break-­even for its entire portfolio, enabling it to financial integrity.
invest in areas with higher risks and the likelihood
of losses.104 Financing system-­wide transforma- Increasing the use of results-­based payment
tions by MDBs also requires identifying areas instruments
for national priority for green growth and target- As highlighted in the AEO 2022, the global climate
ing them for financing from origination, planning, finance architecture is simply too complicated and
development, and operations. bureaucratic, seriously limiting its effectiveness,
Multilateral
Alternative financing mechanisms­—­s ay, particularly in low-­income, climate-­vulnerable coun-
development banks through voluntary carbon markets, adaptation tries. International climate funds typically do not
and development benefit mechanisms, and financing debt-­for-nature give grants to private operators. Most women and
finance institutions swaps­—­can also be a way for MDBs and DFIs to youth in Africa are unbankable, lacking assets to
become more risk averse. To engage in voluntary serve as collateral or technical project preparation
should agree on
and Article 6 market and non-­m arket mecha- skills. And many adaptation projects are perceived
a timebound plan nisms, DFIs and MDBs will need to recognize and as not economically feasible, either because they
to implement the value cash flows from the sale of nonconventional contribute to the global good and do not generate
recommendations assets, including voluntary emission reductions, any or sufficient revenues or because they target
of the G20 Capital mitigation outcomes, and certified adaptation the most poor and vulnerable communities living
benefits. Similar flexibility will be required if these at subsistence level and cannot invest or pay back
Adequacy Review, financial institutions are to finance debt-­for-nature commercial loans. There is renewed interest in
including greater swaps and value biodiversity. In 2016, Seychelles’ using results-­based payment instruments where
use of shareholder $21  million debt-­for-nature conversion directed the private sector shoulders all the implementation
guarantees to the debt relief achieved on debt service to fund risk and gets paid on delivery of the agreed results.
climate change adaptation, sustainable fisheries, Voluntary carbon markets, the Sustainable Devel-
enable them to
and marine conservation projects. The recent opment Mechanism under the Paris Agreement,
lend more with success of the US Development Finance Corpo- and the Adaptation Benefits Mechanism are exam-
the existing capital ration’s guarantee to close debt-­for-nature swaps ples of results-­based payment instruments. As
without threatening in Barbados and Belize increased calls for other noted, projects under these mechanisms still need
MDBs like the AfDB to scale up this financing tool short-­term project finance, and this is something
their long-term
for countries such as Gabon and Kenya. The Bank the MDBs and DFIs should be able to provide.
financial integrity is evaluating how to deploy its partial credit guar-
antee to backstop the sovereign issuance. Building capacity in integrating low-­carbon,
MDB and DFI member countries need to climate-­resilient perspectives into policymaking
strengthen their Paris Agreement participation Climate finance is becoming increasingly impor-
and documentation, specifically their LTSs, NDCs, tant in mobilizing and committing finance. MDBs,
and National Adaptation Plans. This suite of doc- DFIs, and other public and private financial insti-
uments will communicate to the international tutions need to build capacity to include low-­
community which green growth and low emission carbon and climate-­resilient metrics in investment
climate resilient pathways countries will rely on in and policymaking decisions. This calls for training
the future. The information will also make planning and awareness raising across the entire sector,
and investing much easier for the private sector. strengthening of tertiary education to ensure that

100 P rivate sector financing for climate action and green gro w th in A frica
new graduates are well equipped to deal with the enabling policies and regulations to scale up
new reality of investment decision-­making. And private investments, propose risk-­ m itigation
MDB and DFI decision-­making processes need to instruments such as guarantees, and prioritize
be reviewed to ensure that the right kinds of proj- concessional finance through blended finance.
ects are appraised and supported. Putting in place Such collaboration will also help to easily aggre-
the enabling factors for MDBs to respond to the gate small-­scale climate investment projects into
need for climate finance has implications for staff- large-­scale bankable projects that could attract
ing and organizational structure. To participate in the private sector through, say, blended finance
the Article 6 market and non-­market approaches, vehicles. And by working more closely with their
Regional Member Countries need support to build shareholder governments, MDBs and DFIs could
their internal capacity. Establishing local financial facilitate the standardization of the terms and con-
institutions such as national green banks and ditions related to low-­carbon and green growth
national development banks (with mandates for projects to unlock private investment, including
financing climate action and green growth) can those with different instruments, approaches, and
help create an investment ecosystem fit for pur- contractual agreements.
pose in a climate-­constrained future. Achieving these action points will require
To enable multilateral
that MDBs and DFIs to integrate the six building
Strengthening mandates, incentives, and blocks of the Joint MDB Paris Alignment Frame- development banks
internal capacity work107 into their operations. The principles and development
MDB and DFI activities are often dependent on and underscore ensuring that developing countries’ finance institutions
strongly influenced by their shareholder and client transition to low-­c arbon development through
to attract more
governments through, for instance, the provision of an equal emphasis on mitigation, adaptation,
capital and the review of policies and projects.106 and resilience. They also acknowledge that cli-
climate co-finance,
To enable these institutions to attract more climate mate finance, engagement, and policy develop- particularly from
co-­finance, particularly from the private sector, their ment support and reporting are integrated into the private sector,
shareholder governments must give them stronger the operations of MDBs and DFIs. But for them their shareholder
and more coherent mandates to deliver transfor- to achieve these goals, African countries will first
mative climate action and green growth outcomes. need to develop their LTSs to guide these institu-
governments must
This can be achieved by systematically integrating tions on priority areas for investments. give them stronger
climate and green growth goals with underlying and more coherent
development objectives, reflecting this in their cor- The transformative role of the African mandates to deliver
porate KPIs, and putting in place supportive inter- Development Bank in unlocking
transformative
nal incentive systems to encourage staff to scale private climate finance
up climate action. MDBs and DFIs must have the climate action
adequate internal capacity and staff skillsets to The African Development Bank is already heavily and green growth
move beyond traditional projects in infrastructure, involved in climate change and green growth outcomes
transport, and energy when assessing investment The Bank has committed to align its operations
opportunities. And they must also be able to dedi- with the Paris Agreement, and in November 2021,
cate efforts to other areas of intervention centered it approved its climate change and green growth
on climate change and green growth. policy strategy and framework. In addition, the
Bank has targets for climate finance and several
Working closely with governments to develop flagship initiatives designed to deliver on those tar-
enabling policies and regulations to scale up gets. Significant initiatives include:
private climate investment. • The use of the climate safeguard screening
Given the existing large climate finance needs, system to ensure that all projects are aligned
there is an urgent need for MDBs and DFIs to with the goals of the Paris agreement.
focus more on new investors and sources of cli- • The African Adaptation Acceleration Pro-
mate finance. This will require that they work in gram to double adaptation finance in Africa to
tandem with African governments to develop $25 billion by 2025.

P rivate sector financing for climate action and green gro w th in A frica  101
 • The Bank’s own target to mobilize $25 billion the first structure between a multilateral and the
by 2025 with equal shares to mitigation and private investor market. The program provided a
adaptation. $1 billion synthetic securitization transaction (SST)
• The climate action window within ADF 16, covering about 45 private sector loans from the
which will mobilize significant amounts of new Bank’s existing portfolio. The SST involved pri-
and additional climate finance. vate investors assuming emerging market risks
• Other flagship initiatives such as The Alliance on a portfolio of infrastructure projects in Africa,
for Green Infrastructure in Africa, the Sustain- creating at least $650 million in additional lending
able Energy Fund for Africa, the African Finan- headroom for the Bank to specifically target, on a
cial Alliance on Climate Change, Desert to best-­effort basis, renewable energy transactions
Power, Great Green Wall, and many others. using the unlocked risk capital.
Through its 2021–25 Private Sector Develop- Building on the initial success, the Bank has
ment Strategy, the Bank aims to address the bar- since launched two additional Room 2 Run Pro-
riers to private sector involvement in green growth gram rounds. With the second offering, the Bank,
financing through policy support, infrastructure in collaboration with institutional investors, created
development, and support to private enterprises credit insurance structured to cover a portion of
Through its 2021–25
across value chains, SMEs, entrepreneurs, and the Bank’s portfolio of non-­sovereign operations in
Private Sector multinationals. In addition, the Bank is working Africa. This transaction released sufficient capital
Development toward “greening” the financial sector through lend- to make almost $500 million in additional lending
Strategy, the Bank ing and the creation of a dedicated credit facility to headroom for the Bank through rating substitu-
support African financial institutions and SMEs to tion effects. In addition, the other lending facility
aims to address the
access climate finance and promote green invest- has afforded the Bank and institutional investors
barriers to private ments in the  continent. It is also supporting the to lengthen insurance terms and lower insurance
sector involvement African financial sector to identify and manage cli- and financing costs, leading to more trade and
in green growth mate related risks in their portfolio and new lending. investment in and among the private sector and
financing through And it has mobilized African sovereign investors, the African region.
pension funds, and insurance investment pools With the third and latest offering, the Bank, the
policy support, by signing a Letter of Intent with Africa50 (Africa’s government of the United Kingdom, and three
infrastructure premier infrastructure investment platform) and globally recognized insurance companies have ini-
development, and the Africa Sovereign Investors Forum to cooperate tiated a new and innovative risk-­sharing transaction
support to private on developing and financing green(er) and climate known as the Room to Run Sovereign. This trans-
resilient infrastructure across the continent. action is structured to allow the Bank to reduce the
enterprises across
risk capital currently consumed by its sovereign
value chains, The Bank has several innovative financing operations, thus creating headroom to enable up
small and medium mechanisms to scale up climate co-­financing to $1.8 billion in additional lending operations in pri-
enterprises, across the continent ority sectors, particularly climate finance, to sup-
Over the past decade, the Bank has increasingly port the Bank’s commitments to scaling up mitiga-
entrepreneurs, and
sought to leverage its equity and balance sheet tion and adaptation projects across the continent.
multinationals to assist African countries with climate financing Beyond BSO initiatives, the Bank has sought
through several key mechanisms/initiatives, includ- to mobilize additional resources for climate finance
ing blended finance, rechanneling SDRs through by strategically deploying its Partial Credit Guar-
MDBs, issuing hybrid capital, balance sheet opti- antee (PCG) to help sovereigns and corporates
mization initiatives, the ADF-­16 Replenishment, access the international capital markets under
and ADF market leveraging to allow the Fund to newly adopted Environmental, Social, and Gov-
tap capital markets directly. For instance, through ernance (ESG) Frameworks through green bonds.
its BSO initiatives, the Bank seeks to crowd in pri- Several countries ranging from Angola to Benin
vate partners to finance development, including to Egypt, are already adopting ESG Frameworks
climate projects. Using this approach, the Bank with the goal of mobilizing resources specifically
in 2018 executed the Room 2 Run Program,108 for climate-­resilient and sustainable investment

102 P rivate sector financing for climate action and green gro w th in A frica
projects. The Bank’s PCG helps sovereigns crowd through the MDB route, providing a unique oppor-
in commercial bank liquidity into such projects at tunity for the Bank to leverage the resources and
longer tenors and much-­improved interest rates. channel them to programs aimed at mobilizing
All financing under this proposed structure will be development finance for projects geared to cli-
exclusively earmarked for eligible expenditures in mate change and green growth. The advantages
sectors aligned with their country’s green frame- of the MDB re-­channeling option are numerous
work. Moreover, by working with MDBs like the and compelling, as MDBs present the best value
Bank on an unfunded basis, the client and other proposition and most efficient vehicle for the SDR
stakeholders often benefit from the Bank’s sup- reallocation to developing countries.
port in showcasing Environment and Social best
practices in such operations. The Bank is also pio- Collaboration between different MDBs and
neering the development of green banks across DFIs to generate common frameworks for
the continent to attract private sector financing for allocation of funds
climate and green growth (box 2.2). The Bank works closely with other regional and
Several options are in the making to re-­channel multilateral development banks to share knowl-
SDRs through the IMF’s existing Poverty Reduc- edge and experience on Paris alignment and
The Bank has
tion and Growth Trust for low-­income countries as mobilize resources for climate change. For exam-
well as the Resilience and Sustainability Trust, the ple, the banks are working to create a long-­term sought to mobilize
Bank is actively advocating a third mechanism, strategy facility designed to mobilize resources additional resources
the re-­c hanneling of a new general allocation to enable the MDBs to work together to develop for climate finance
by strategically
BOX 2.2 The African Green Bank Initiative
deploying its Partial
Credit Guarantee to
Among the chief hindrances to climate financing in Africa are the lack of tailored investments to help sovereigns and
suit country-­specific conditions, limited capacity of local financial institutions and insufficient trust corporates access
from private investors in green investments. In that regard, green bank models have shown great
promise in helping African countries access and mobilize climate finance, especially from private
the international
sources. The green bank model, initially developed in the UK and the US, has since spread to capital markets
other parts of the world such as Asia and South America. With the GCF-­Development Bank of under newly adopted
Southern Africa Climate Finance Facility and the Rwanda Green Investment Facility, Africa is also Environmental, Social,
creating regional/national Green Finance Facilities.
and Governance
As part of its new strategic framework on climate change and green growth adopted in October
2021, the Bank is committed to provide concrete, innovative solutions that will increase the share of Frameworks through
global climate finance benefiting the African continent. To accelerate the development of local Green green bonds
Finance Facilities throughout the continent, it launched the African Green Bank Initiative at COP27.
Supported by the African Green Finance Facility Fund (AG3F), the Initiative is fully integrated
within AfDB’s architecture as a pillar of African Financial Alliance on Climate Change (AFAC),
which aims at engaging with African financial institutions to promote investments in climate tran-
sition throughout the continent. Pursuant to AFAC’s key objectives, The Initiative will contribute
to deepen the current policy dialogue with key counterparts regarding climate change, help in
building adequate capacities of African financial Institutions to mainstream green investments, and
address climate risks in their decision-­making processes.
The African Green Bank Initiative is dedicated to structuring an enabling policy environment
and conductive ecosystem of local Green Finance Facilities (GFFs). Based on a blended finance
approach on both uses and sources of funds, this network of GFFs will help by customizing invest-
ments to local needs and creating a pipeline of bankable projects to enable more climate finance
mobilization toward a climate-­resilient, Paris-­aligned, green, and sustainable growth.

P rivate sector financing for climate action and green gro w th in A frica  103
 long-­term strategies in many developing coun- that have clear metrics and transparency and
tries. The MDBs work together to improve access accountability systems for institutions manag-
to international climate finance, from the green ing this finance. As highlighted in the Sharm
climate fund and climate investment funds to the El-­Sheikh Guidebook for Just Financing, these
adaptation fund. The Bank collaborates on the enabling policy and regulatory reforms will
preparation of investment plans and country plat- create incentives for the private sector to invest
forms. Information sharing will become important, in adaptation, a sector often neglected.110
especially as pressure builds to develop Long • They further need to implement public finan-
Term Strategies. MDBs and DFIs can also work cial management systems to ensure that ade-
together to crowd in commercial banks, which quate public finance is allocated and deployed
generally avoid investing in climate and green toward climate action and green growth.
growth sectors. These banks are often aware of • In the medium term, they should enhance
new opportunities brought about by green growth the expansion of domestic financial and non-­
transitions but face barriers relating to weak cus- financial institutions within countries and at
tomer demand for climate-­risk-related products, the regional level, including green innovation
the lack of data, tools, and models for understand- centers, to provide specialized and targeted
In the short term,
ing and assessing climate risks, and the lack of financial products to enable and enhance
African governments technical skills in the commercial banking sector. green investments to different groups of private
should develop actors, including large enterprises and formal
and cost Long and informal MSMEs.

Term Strategies POLICY RECOMMENDATIONS

Advance the use of blended finance
to provide strong Different stakeholders can take a range of actions instruments to leverage additional private
signals to domestic both in the short, medium, and long terms to col- finance
and international lectively contribute to the mobilization of private • In the short term, African countries should
stakeholders on finance for climate action and green growth. develop a deep and contextual understand-
ing of different types of private sector inves-
countries’ climate African national governments tors (present and potential), specific barriers,
action and green and private sector risk profiles and return
growth priorities, Develop country architecture to mobilize private thresholds.
and translate financing for climate action and green growth, • A medium-­term strategy could be to establish
including domestic financial institutions national standardized blended finance vehicles
these into sectoral
• In the short term, they should develop and cost­ that offer attractive returns, and use these vehi-
strategies, plans —­in line with the recommendations of the Inde- cles effectively by ensuring that financial alloca-
and regulations pendent High-­Level Expert Group on Climate tions demonstrate additionality and proportion-
Finance,109 Long Term Strategies to provide ality. The potential impact of these investments
strong signals to domestic and international should inform the allocation of finance for
stakeholders on countries’ climate action and blending, particularly by ensuring a balance
green growth priorities, and translate these between infrastructure financing and social
into sectoral strategies, plans and regulations. development and environmental management
Strategies should be comprehensive and cover projects.
all sectors and be fully mainstreamed into the
whole economy, not developed and imple- MDBs and DFIs (including the AfDB)
mented in silos.
• They should also strengthen governance and Support country efforts to address debt
accountability systems to ensure that proceeds sustainability and create an enabling
from private finance generate the expected and environment for climate investment
maximum impact for green growth, as through • In the short term, they need to commit to align-
impact monitoring and evaluation frameworks ing operations with the Bridgetown Initiative

104 P rivate sector financing for climate action and green gro w th in A frica
 agenda, through reorienting balance sheets Domestic and international private
toward funding climate and development sector
finance while supporting innovative financing
mechanisms that can unlock additional afford- Exercise stewardship that drives accurate
able capital from the private sector for African identification of barriers, investment risks, and
countries. opportunities for green growth in different
• They should also, in the short-­to-medium term, African contexts to inform decisions on
expand issuance of concessional finance for investments.
climate action and green growth projects to • Over the short-­to-medium term, they need to
avoid pushing countries into further debt while identify and articulate barriers and opportuni-
also enhancing the roll-­out of sustainable debt ties to investments to African country govern-
mechanisms to countries at risk of debt dis- ments and other stakeholders, and work with
tress, for instance through domestic capital MDBs and country governments to manage,
markets based on local currency. reduce, and share risks to investments.
• They should further, in the medium-­to-long • Credit rating agencies need to expand their
term, lead global efforts to support African framework to better reflect the potential for the
Multilateral
countries in creating a conducive environment African market. In the medium-­to-long term,
for climate investment and in advancing their this could involve reforming rating procedures development banks
transition to a low-­carbon pathway. This will to ensure that risk or credit ratings include the and development
require constant interactions by MDBs and true potential of African green growth mar- finance institutions
DFIs with African countries and complemen- kets. The increasing calls for the reform of
should increase, in
tary engagements of all stakeholders to objec- rating agencies and ongoing progress toward
tively assess country climate and investment the establishment of an autonomous African
the short-to-medium
risk profiles over time, develop mechanisms Rating Agency are steps in the right direction. term, the use of risk-
and tools to address them, and identify oppor- agnostic instruments,
tunities to enhance resilience. Developed country governments such as guarantee
Provide risk-­agnostic catalytic capital that can Meet international climate finance
instruments, to
demonstrate the potential of the African green commitments and increase investments toward reduce the level of
growth landscape for private investments green growth risk borne by private
• MDBs and DFIs should increase, in the short-­ • Developed countries should, without delay, investors and provide
to-medium term, the use of risk-­ a gnostic meet the $100  billion global climate finance
affordable capital,
instruments, such as guarantee instruments, to target identified in the Paris Agreement, and
reduce the level of risk borne by private inves- take steps to balance investment in adaptation particularly in early-
tors and provide affordable capital, particu- and mitigation. Prepare to commit to a higher stage investments
larly in early-­stage investments, and develop post-­2025 climate finance target that is suffi-
and roll out finance mechanisms for project cient to meet the needs in developing countries.
development to unlock the project develop- • With developed country governments making
ment gap­—­as through grants, guarantees, and up majority of the shareholders of MDBs and
concessional financing to support capacity DFIs, they should urgently champion discus-
development. sions and actions that enable reducing the risk
• And they should invest, in the medium-­to-long aversion of MDBs and DFIs through allocating
term, in plugging data gaps, such as data on more callable capital to MDBs, lowering MDB
climate risks and capacity building, to enable capital adequacy ratios, and reducing the prof-
more effective policymaking. itability targets of DFIs.

P rivate sector financing for climate action and green gro w th in A frica  105
 ANNEX 2.1 METHODOLOGY FOR CALCULATING THE PRIVATE
SECTOR FINANCING GAP

In this report, private climate financing is assumed Moderate scenario. The contribution from the pri-
to be a complementary option to public climate vate sector to financing Africa’s climate needs is at
finance, with public actors (such as national, bi- par with public actors (50 percent each). This is in
lateral, and multilateral DFIs, MDBs, governments, line with the current private climate finance contri-
and national and multilateral Climate Funds) taking bution globally, which was 49 percent on average
the primary responsibility for driving and imple- in 2019/2020.111
menting national climate actions. To estimate the
contribution by the private sector, climate finance Ambitious scenario. The contribution from the pri-
mobilized by public entities was first subtracted vate sector is set at 75 percent of the total finance
from each country’s climate finance needs to deter- needs, and public actors account for only a quar-
mine the residual required to be covered by non-­ ter of the total climate finance needs. This is in line
public resources, including the private sector and with African countries’ financial conditionalities
other actors such as philanthropic foundations or to fulfil their NDCs: while African countries com-
any other types of international support. In the two mitted to mobilize on average 15  percent of cli-
extreme cases, we considered that respectively mate finance needs from the public sources, the
0 percent and 100 percent of the residual needs­—­ remaining 85 percent should come from interna-
the difference between climate finance needs and tional support, and it is estimated that 75 percent
public climate finance flows­—­would be financed of the financial conditionality should come from
by the private sector. The intermediate cases refer the private sector.112
to a mix of private and non-­private resources. The
assumptions for main cases are as follows. Very ambitious scenario. 100  percent of the
residual climate finance needs is covered by the
Conservative scenario. The contribution from the private sector. This scenario considers that private
private sector is 25 percent of the residual finance investors take full advantage of all existing invest-
needs, and public actors cover 75 percent. In this ment opportunities across all climate and green
case, the private contribution is projected to grows growth sectors in the continent and that African
by about 10 percentage points from current levels countries put in place a conducive business envi-
to reach close to its pre-­pandemic level in Sub-­ ronment that address existing barriers to private
Saharan Africa (22.5 percent on average between investments.
2018 and 2019).

106 P rivate sector financing for climate action and green gro w th in A frica
NOTES 35. Climate Bonds Initiative 2022.
36. Climate Bonds Initiative 2022.
1. IRP 2019. 37. Climate Bonds Initiative 2022.
2. https://www.ipcc.ch/sr15/faq/faq-chapter-5/. 38. https://www2.deloitte.com/za/en/pages/finance/
3. AfDB 2016. articles/project-bonds-an-alternative-to-financing-
4. de Serres et al. 2010. infrastructure-projects.html.
5. OECD 2013. 39. African Natural Resources Management and Invest-
6. Based on Our World In Data database. ment Centre 2022.
7. UN DESA (2022). 40. https://climatetrade.com/voluntary-carbon-market​
8. IRENA and AfDB 2022. -value-tops-us2b/.
9. IEA 2022. 41. ACMI 2022.
10. Moody’s Investors Service 2022. 42. If only the 2023–30 period is considered, then the
11. AfDB and GGGI 2022. required annual growth rate would become 30.9
12. The 4 dimensions are, with each with several sub-indi- percent, 41 percent, 48 percent and 53 percent if
cators: i) efficient and sustainable resource use, related the private sector’s contribution is 25, 50, 75 per-
to efficient and sustainable energy, water and land use cent, 100 percent, respectively.
as well as material use efficiency; ii) Natural capital pro- 43. For a detailed literature review on the macro-
tection, comprising indicators capturing environmen- economic determinants of private sector investment,
tal quality, GHG emission reductions, biodiversity and refer among others to Suhendra and Anwar (2014),
ecosystem protection, and cultural and social value; Groh et al. (2018) and Osei-Kyei and Chan (2017).
iii) green economic opportunities, referring to green 44. OECD 2023.
investment, trade, employment, and innovation; and 45. Eckstein et al. 2021.
iv) Social inclusion, encompassing indicators reflect- 46. CPI 2022e.
ing access to basic services and resources, gender 47. Oloyede et al. 2021.
balance, social equity and social protection. For more 48. Eyraud et al. 2021.
discussions on the index, see Acosta et al. (2022). 49. Katz 2022.
13. UNEP 2021. 50. AVCA 2022.
14. Moll de Alba and Todorov 2022. 51. AVCA 2022.
15. Schiederig et al. 2011. 52. Katz 2022.
16. Eugenio and Sabado Jr. 2021. 53. McKinsey & Co. 2021b.
17. IRENA and AfDB 2022. 54. AfDB and GGGI 2022.
18. IPCC 2022. 55. Cha’ngom 2020.
19. UNECA 2020. 56. The Africa CEO Forum 2022.
20. AfDB 2022a. 57. IFC (2017).
21. IEA 2022. 58. Eyraud 2022.
22. IFC 2016. 59. https://www.imf.org/en/Publications/fandd/issues​
23. GCA 2019. /2021/12/Africa-Hard-won-market-access.
24. CPI 2022a. 60. United Nations Inter-agency Taskforce on Financing
25. AAI 2022. for Development 2021.
26. Geuskens and Butijn 2022. 61. EIB 2022.
27. Wodajo 2021. 62. EIB 2022.
28. https://businessfightspoverty.org/africa-farmers​ 63. UNDP 2023a.
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29. https://unfccc.int/annualreport. 65. AUDA-NEPAD (2022).
30. CPI 2022c. 66. These are Ethiopia, Nigeria, Kenya, Madagascar,
31. Coalition for Urban Transitions 2021. Ghana, Rwanda, Senegal, Cameroon, Mozam-
32. Net Zero Climate 2022. bique, Ivory Coast, Tanzania, Congo and Zambia.
33. Net Zero Climate 2022. Mungai et al. (2021).
34. Ehlers et al. 2022. 67. IFC and Google (2020)

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P rivate sector financing for climate action and green gro w th in A frica  113
NATURAL CAPITAL
FOR CLIMATE
FINANCE AND GREEN
3
GROWTH IN AFRICA

KEY MESSAGES

• Africa is blessed with enormous natural resources­—­such as oil and gas, miner-
als, land, sunshine, wind, and biodiversity­—­but their value is poorly measured
and they remain largely untapped. The continent has 65 percent of the world’s uncul-
tivated arable land, the second longest and second largest rivers (the Nile and the Congo),
the second largest tropical forest (the Congo basin), and an estimated 44.8 percent of the
total global technical potential of renewable energy.

• Africa’s measured natural capital was estimated to be $6.2 trillion in 2018, with

its mineral and fossil fuel resources respectively estimated at $290 billion and
$1.05 trillion. The continent also earned $38.5 billion in ecotourism revenues in 2019.
With an estimated 60 percent of its GDP coming from natural resources and essential eco-
system services, Africa still has huge potential to benefit further from its natural resources
to finance its development goals.

• International multilateral agreements, such as the Paris Agreement and the

Convention on Biological Diversity, provide new opportunities for African coun-
tries to tap into climate resources and carbon markets and those for genetic
materials and biodiversity. Global trade in emission permits could amount to $1 trillion
a year in 2050, with estimated cumulative sales proceeds of up to $1.5 trillion for Africa.
Similarly, the Convention on Biological Diversity, agreed at COP15 in Montreal, to raise
international financial flows of $20 billion by 2025 and $30 billion by 2030 from developed
to developing countries.

• Harnessing Africa’s enormous natural capital to complement its climate finance

needs and sustainable and green economic growth requires the following poli-
cies and actions by different stakeholders and at various levels:
• African governments need to use appropriate natural resource policies and instruments
to finance sustainable and green economic growth. These include fiscal instruments to
increase resource revenues and linkages with industrialization; increase local content
and value addition to natural resources and utilization along value chains; in-­country
value creation and retention; controlling illegal, unreported, and unregulated fishing and
curbing the high rate of deforestation; investing in human capital across the value chain
and build international negotiation capacity; and building transparent and accountable
institutions to govern their resources and guard against illicit trade, illicit financial flows
and corruption. It also is important to ensure that returns are used to build inclusive

 115
 and sustainable development. Sovereign risk and rating agencies, more needs to
wealth funds can be useful, but also need be done to adequately reflect the value
good governance. of natural capital assets in the credit risk
• African countries should also invest in profiles of African countries. They should
data collection for better valuation and also support Regional Member Countries
measurement of natural capital, including in enhancing their credit risk profiles by
implementing and integrating natural cap- integrating the true value of natural capital
ital and ecosystem services into the stan- to help them boost their creditworthiness
dard system of national accounts; imple- and mobilize foreign capital and bond
menting appropriate fiscal and market issuance as part of their climate finance in
instruments for optimal utilization of both the international market.
renewable and non-­ r enewable natural
resources that take climate change and
green growth into account; investing in INTRODUCTION
the capacity, technology, approaches and
tools needed to benefit from best prac- Africa has abundant renewable and non-­
While the share of
tices in exploration and licensing initiatives, renewable natural resources, including 30  per-
Africa’s agricultural and international agreements; and reform- cent of the world’s mineral resources and 65 per-
and forest land ing institutions to improve transparency cent of the world’s uncultivated arable land. It
and implement best practices for the gov- has a huge stock of fertile agricultural land and
in the world is
ernance of natural resource. some of the world’s most productive forests
considerable, the • The global community should honor both in timber and carbon retention. It is also
value of these pledges and commitments in international blessed with ample solar, wind, and hydropower.
resources is small agreements such as the agreement on a However, the returns from these resources have
Loss and Damage Fund, the post-­2020 persistently been below their potential. While
or not measured Global Biodiversity Framework, and the the share of Africa’s agricultural and forest land
appropriately Paris climate agreement. It should increase in the world is considerable, the value of these
collaboration and coordination among resources, which reflects the use to which they
stakeholders­—­including international and put, is small or not measured appropriately. Also,
regional multilateral organizations, national Africa has below-­average agricultural land pro-
governments, and the private sector­—­to ductivity and has developed its solar energy only
invest in the sustainable management of to a very limited extent. The trend over the past
Africa’s natural resources while ensuring quarter century also shows a decline in the value
equity in the distribution of rents despite of natural capital per capita­—­a strong indica-
competitive advantages between inves- tion that development has not been sustainable.
tors and investment destinations. Although the average natural capital sustainability
• Multilateral development banks, bilateral is not encouraging, not all indicators show a lack
donors, and corporations have a role in of progress as some countries have recorded an
promoting transparency in contractual increase in the value and efficiency of utilizing
negotiations and operations to ensure renewable and non-­renewable resources.
that African countries get good deals from Considering the significant challenge Africa
natural resource investments. Efficient use faces due to climate change and the gap in
of natural resources involves improving climate finances, this chapter discusses how
regional integration and for trade, sharing Africa­—­ a continent well-­ e ndowed with enor-
information, and learning from each other. mous natural resources­—­c an leverage its natu-
Furthermore, although natural capital is ral capital to finance a green transition. It starts
becoming relevant in the environmental by defining the concept of natural capital and
sustainability leg of the Environmental, discusses changes in natural capital stock over
Social, and Governance rating by credit time, efficiency, and performance. It analyzes the

116 N atural capital for climate finance and green gro w th in A frica
past performance of rents from natural capital to AFRICA’S NATURAL WEALTH
identify a wedge for improvement and resource
conservation benefits. It also connects relevant Natural wealth is that part of nature that generates
international agreements with Africa’s natural well-­being for people. In economic terms, natural
resource base, considering the meager gains for wealth is referred to as natural capital. The United
African countries from flexible mechanisms since Kingdom (UK) Natural Capital Committee defines
the Kyoto protocol in 1992. Next, it discusses natural capital as “that part of nature which
the opportunities from new agreements, such directly or indirectly underpins value to people,
as forest carbon sequestration in accordance including ecosystems, species, freshwater, soils,
with the Paris Agreement Article 6, and other minerals, oil and gas, the air, and oceans, as well
nature-­related opportunities, such as debt-­for- as natural processes and functions.”1 The Con-
nature swaps, the preservation of biodiversity vention on Biological Diversity defines the term as
hotspots related to the Convention on Biological the stock of natural assets, which include geology,
Diversity, and the potential to negotiate natural soil, air, water, and all living things.2 Natural capital
resource-­b ased compensation from the “loss is part of a country’s wealth, which includes other
and damage” fund. forms of capital­—­physical, human, and social.
Africa’s natural
The chapter also discusses challenges for The World Bank defines the value of a particular
leveraging Africa’s natural capital for sustain- natural capital asset as the discounted sum of the capital already is
able development, probing why Africa has not value of the rents generated over its lifetime.3 For a the bedrock for
been able to benefit fully from its enormous nat- renewable resource, the lifetime may be unlimited.
the livelihoods of
ural capital. Finally, it provides actionable rec- A similar approach is taken in the United Nations
ommendations for the global community, devel- Environment Programme “Inclusive Wealth” study a majority of the
oping countries, African countries, bilateral and to obtain estimates of natural capital.4 This chap- continent’s people.
regional institutions, multilateral development ter has adopted the World Bank’s narrow defi- It is essential
banks (MDBs), and other development partners. nition of measured natural capital derived from
The recommendations are articulated as a mix of Africa’s most abundant natural resources, noting
to ensure that
short, medium, and long-­term measures required its limitations when carried out in practice. When the resources
to harness natural capital and to contribute to the using rents to value natural capital, it is important are managed
estimated private climate finance gap of more than to recognize that these may undervalue the bene-
$200 billion annually by 2030 in Africa. fits of the resources, especially to the poor.
sustainably and
In its focus on how Africa’s natural capital can that important
be used to leverage finance for a green transition, Evolution of Africa’s natural capital ecosystem services
the chapter supplements the role of finance of Reliable, comprehensive, and harmonized data
are maintained
chapter 2. But it is important to point out that Afri- on natural capital are generally lacking due in part
ca’s natural capital already is the bedrock for the to the difficulty and complexity of precisely quan-
livelihoods of a majority of the continent’s people. tifying and valuing natural wealth on Earth. Con-
While the emphasis is on how its natural capital certed global efforts spearheaded by the United
could be used to raise more funds for investments, Nations and partner organizations are underway
it is essential to ensure that the resources are to integrate natural capital and ecosystem serv-
managed sustainably and that important ecosys- ices in standard systems of National Accounts
tem services are maintained. Africa’s natural cap- through new frameworks such as the System of
ital is challenged by climate change, biodiversity Environmental Economic Accounting (SEEA) and
loss, land degradation, exports of unprocessed the SEEA Ecosystem Accounting (SEEA EA). But
raw materials, and overutilization and other forms challenges remain.5 Without reliable data, the
of mismanagement. Future reports are needed analysis here uses the most recent and compre-
to deal with these important challenges to sus- hensive estimates of natural capital produced by
tain the role of Africa’s natural capital in contrib- the World Bank, covering 1995–2018.6 The report
uting to the future well-­being of Africa’s growing classifies natural capital into renewable and non-­
population. renewable asset classes. While renewable assets

N atural capital for climate finance and green gro w th in A frica  117
 include forest timber, forest non-­ timber, man- followed by the Americas, which cover North
groves, fisheries, protected areas, cropland, and America and Latin America and the Caribbean
pastureland, non-­renewable assets are separated ($14.4 trillion) and Europe ($9.5 trillion). The larg-
into oil, natural gas, coal, and minerals. It should be est increase in the value of natural capital between
noted, however, that these categories do not cover 1995 and 2018 was in Asia, at 71.5 percent, fol-
a range of non-­marketed benefits of ecosystems.7 lowed by the Americas (36.5  percent), Africa
The value of measured global natural capital (31.9 percent), and Europe (23.6 percent). Except
increased by about 50  percent between 1995 in the Asia region, the total value of natural cap-
and 2018, although there are significant varia- ital is dominated by renewable natural assets
tions across world regions. The increase in total (figure 3.1). Note that due to challenges of mea-
natural capital is primarily driven by the appreci- surement and valuation, the estimated values of
ation of the value of non-­renewable natural cap- natural capital do not consider several resources,
ital, which increased by 80  percent, while the which could mean the true value of natural wealth
value of renewable natural capital increased by in Africa­—­both renewables and non-­renewables­
28  percent. This change can be decomposed —­is largely underestimated. Examples include
into increases in volume, increase in unit value resources such as ecosystem services in the form
The distribution
and the lifetime of the asset. Globally, the biggest of land-­based sequestered carbon stocks, solar,
of natural wealth share of the increase (58  percent) was due to wind, and several other types of natural resources
varies significantly an increase in volume, while the increase in unit not accounted for in the data sets for this analysis.
value was only 14 percent on average, with that The distribution of natural wealth varies sig-
across regions
for cropland declining, and the lifetime effect was nificantly across regions within Africa. North
within Africa. negative (there was a decline in the life of renew- Africa is the richest in natural capital, accounting
North Africa is the able assets). Africa’s natural capital was estimated for 27.1 percent of the continent’s value in 2018,
richest in natural at $6.2  trillion in 2018. The actual value of Afri- which increased from 19.6 percent in 1995 (figure
ca’s natural capital could be much higher if reli- 3.2). This is largely due to the increase in the value
capital, accounting able data on recent minerals and other extractive of non-­renewable resources such as oil and gas.
for 27.1 percent resource discoveries were available. The second richest is West Africa, with 25.5 per-
of the continent’s Asia is by far the wealthiest region, with the cent of the continent’s natural capital. But com-
estimated value of its natural capital at $25 trillion, pared with 1995, this region’s share declined by
value in 2018
FIGURE 3.1 The value of natural capital by regions

Constant 2018 $ billions Renewable assets Non-renewable assets

30,000

25,000

20,000

15,000

10,000

5,000

0
1995 2018 1995 2018 1995 2018 1995 2018
Africa Europe Americas Asia

Source: AfDB staff calculations using data from World Bank (2021).

118 N atural capital for climate finance and green gro w th in A frica
FIGURE 3.2 The distribution of value of natural capital in Africa between 1995 and 2018 by regions

1995 2018

Non-renewable
11.7% Renewable
Renewable 14.4%
14.3% Non-renewable Non-renewable
Non-renewable Renewable 17.6%
1.6%
0.02% 8.0%
East Africa North Africa East Africa
14.3% 19.6% Renewable 16.0%
Renewable 8.7% North Africa
9.4% Central Central 27.1%
Non-renewable Africa
Africa
5.7% Non-renewable Renewable
Non-renewable 10.1% 11.2%
2.5% 9.6%
0.7% Region Southern Region
Africa
18.9%

Renewable West Africa

West Africa Renewable Southern Africa
13.1% 25.5% Non-renewable
37.0% 14.9% 20.3%
7.1%

Renewable
28.0%
Non-renewable Renewable
9.1% Non-renewable 13.2%
10.5%

Source: AfDB staff calculations using data from World Bank (2021).

12  percentage points, largely due to a large fall respectively, for about 90 percent and 78 percent
in the share of renewable resources from 28 per- of each region’s total in 2018.
cent in 1995 to 15 percent in 2018. With 20 per- Africa’s predominant types of natural capital
cent of the continent’s natural capital, Southern are renewables, primarily land, forest, cropland,
Africa is the third richest region, followed by East pasture, and protected areas. Consider a snap-
Africa (16 percent) and Central Africa (11 percent). shot of the estimated shares of the value of Afri-
Renewable assets dominate the total natural cap- ca’s natural capital by broad and narrow classifi-
ital of East Africa and Central Africa, accounting, cations in 1995 and 2018 (figure 3.3). Renewable

FIGURE 3.3 Value of natural capital in Africa by type

1995 2018
Protected areas Coal Minerals Protected areas Coal Minerals
3.0% 1.3% 1.7% Natural gas 4.8% 1.8% 2.8% Natural gas
Pasture 0.8%
Mangroves 3.5%
7.2% Pasture
0.1% Oil
Mangroves 8.5%
15.5%
0.1%

Non-renewable Oil
19% 21.5%
Non-renewable
30%

Land Land
30.0% Type 24.5% Type

Renewable Renewable
Cropland
81% 70%
22.8%

Cropland
16.0%
Forest: Timber
Forest: Timber 9.4%
Fisheries
9.5%
Forest: Non-timber 0.6% Forest: Non-timber Fisheries
8.0% 6.7% 0.3%

Source: AfDB Staff calculations using data from World Bank (2021).

N atural capital for climate finance and green gro w th in A frica  119
 natural capital­—­such as timber, non-­timber forest, shows that this was achieved in all regions, except
cropland, pasture, and protected land, mangroves­ Africa. But the increase in Africa was the lowest
—­accounted for about 73  percent of the con- at 18.5 percent for the period, but highest in East
tinent’s total natural capital in 2018, an 11  per- Asia at 139  percent. This could be the result of
centage point decline from 1995. Shares of the much greater accumulation of physical capital in
individual components in 2018 were cropland Asia relative to its population growth, or of better
(26 percent), timber (19 percent), pasture (12 per- valuation and pricing of natural assets.
cent), non-­timber forest (9 percent), and protected In addition to tracking weak sustainability, it is
areas (7  percent). The share of non-­renewables­ argued that the sustainability of growth needs the
—­such as fossil fuel energy (oil, natural gas, and value of natural capital to not decline over time.
coal) and minerals (metals and non-­ m etals)­
—­ Now consider the estimated values of renewable
increased from just 19 percent in 1995 to 27 per- and non-­renewable natural capital in 1995 and
cent in 2018. That increase could be driven by the 2018 on a per capita basis (figure 3.5). Although
increase in the share of oil, which accounted for as noted above weak sustainability has been
16 percent of the total value of natural capital of achieved in all regions over the last near quar-
Natural capital on
the continent in 2018 compared with 11 percent ter century,9 in per capita terms, Africa is the
a per capita basis in 1995. The share of natural gas and minerals only region that has not experienced sustainable
in Africa fell from also increased. Fossil fuel wealth benefited from growth over this period. The estimated total per
unit price increases, and mineral wealth from capita natural capital declined by 21  percent to
$4,374 in 1995 to
increases in stocks. $4,739 in 2018 compared with $6,001 in 1995.
$2,877 in 2018 The evolution of the value of natural capital per Natural capital on a per capita basis in Africa
capita is a better indicator of the sustainability fell from $4,374 in 1995 to $2,877 in 2018 (figure
of growth and provides a different picture of a 3.4). One factor behind the decline in the per
country’s wealth accruing to its citizens. While capita value is rapid population growth, increas-
the strong sustainability concept demands that ing from 737 million in 1995 to 1.31 billion in 2018,
the stock of natural capital not decline physically, an increase of nearly 78  percent­—­much more
the weak sustainability concept as applied by the considerable than in other world regions, such as
World Bank requires that the per capita value of 33.3  percent in Asia, 25.6  percent in Americas,
all capital not decline.8 The World Bank review and 2.3 percent in Europe. Other factors include

FIGURE 3.4 Per capita value of natural capital

Constant 2018 $ billions Renewable assets Non-renewable assets

15,000

12,000

9,000

6,000

3,000

0
1995 2018 1995 2018 1995 2018 1995 2018
Africa Asia Europe Americas

Source: AfDB staff calculations using data from World Bank (2021).

120 N atural capital for climate finance and green gro w th in A frica
illegal activities, lack of tenure, and poor natural value of natural capital between 1995 and 2018, six
capital governance and management, which led countries saw a decline. The most notable was in
to the depletion of resources, discussed in detail Nigeria, with a 67 percent decline in the value of its
below. Markets for natural resources are also a renewable resources between 1995 and 2018 (pri-
significant factor. In Sub-­Saharan Africa, all land marily due to deforestation). Other African countries
assets showed a decline in per capita terms. experiencing a decline include Burundi, Namibia,
Except cropland, which grew in total wealth, Mauritius, Tanzania, and Somalia. The increase in
other resources did not grow fast enough to aggregate renewable capital is largely the result of
overcome the growth in population. While most an increase in the area of cropland and pasture-
non-­renewable resources are tradable commod- land. The rest of the countries had an increase in
ities in well-­developed global markets, albeit vol- both forms of natural capital.
atile, such as oil, gas, and minerals, most non-­ Nigeria remains the wealthiest nation in the
renewables are not tradable, since markets could value of non-­renewable resources­—­thanks to its
be missing or underdeveloped. A time series plot large reserves of fossil fuel (oil and gas), with an
of the per capita value of natural capital for Africa estimated total value of $582.4 billion in 2018, fol-
The per capita
depicts the decline in the value of renewable nat- lowed by Algeria ($485.4 billion), Libya ($372.3 bil-
ural capital as approximately linear, whereas that lion), Angola ($205.8  billion), and South Africa value of renewable
of non-­renewables show cyclical trends, reflecting ($186.1 billion). However, while some resource-­rich natural capital for
volatility in market conditions among other factors countries experienced an increase in the value of
Africa depicts an
(figure 3.5). their non-­renewable resources, others registered
Some countries have abundant natural capital, a decline. Overall, of 53 African countries with approximately linear
and others do not. Figure 3.6 shows the level and data, the value of non-­renewable natural capital decline, whereas
change in the value of natural capital for African declined for 14, potentially indicating the depletion that of non-
countries between 1995 and 2018 and by type. The of some minerals­—­diamonds and gold, for exam-
Democratic Republic of Congo is the wealthiest ple, as in Botswana.
renewables shows
country in Africa in renewable resources, with an In per capita terms, however, the evolution of cyclical trends,
estimated value of $282.9 billion in 2018, followed natural capital is much less encouraging. Between reflecting volatility
by Nigeria ($260.1 billion), South Africa ($213.8 bil- 1995 and 2018, 36 of the 53 countries had a
lion) and Ethiopia ($195.8 billion). While most African decline in per capita renewable natural capital
in market conditions
countries experienced an increase in the aggregate (figure 3.7).10 And 25 countries had a decline in per among other factors

FIGURE 3.5 Trends in per capita values of natural capital

Constant 2018 $ Renewable assets Non-renewable assets

8,000

6,000

4,000

2,000

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: AfDB staff calculations using data from World Bank (2021).

N atural capital for climate finance and green gro w th in A frica  121
FIGURE 3.6 Changes in the value of natural capital for African countries, 1995–2018

Renewable Non-renewable

Congo, Dem. Rep. Nigeria

Nigeria Algeria
South Africa Libya
Ethiopia Angola
Egypt South Africa
Kenya Egypt
Algeria Morocco
Tanzania Sudan
Morocco Gabon
Ghana South Sudan
Angola Equatorial Guinea
Cameroon Congo, Dem. Rep.
Sudan Chad
Zambia Ghana
Côte d’Ivoire Mozambique
Mali Tunisia
Mozambique Zambia
Malawi Guinea
Madagascar Cameroon
Niger Mauritania
Uganda Côte d’Ivoire
Zimbabwe Tanzania
South Sudan Mali
Benin Zimbabwe
Chad Burkina Faso
Burkina Faso Niger
Guinea Togo
Senegal Eritrea
Rwanda Namibia
Tunisia Senegal
Central African Rep. Liberia
Sierra Leone Sierra Leone
Gabon Botswana
Liberia Ethiopia
Somalia Madagascar
Namibia Rwanda
Botswana Uganda
Mauritania Benin
Libya Eswatini
Eritrea Burundi
Togo Kenya
Guinea-Bissau Malawi
Equatorial Guinea Central African Rep.
Eswatini Somalia
Burundi Seychelles
Gambia São Tomé and Príncipe
Lesotho Mauritius
Mauritius Lesotho
Djibouti 2018 value Guinea-Bissau 2018 value
Cabo Verde Negative change Gambia Negative change
over 1995–2018 over 1995–2018
Comoros Positive change Djibouti Positive change
Seychelles over 1995–2018 Comoros over 1995–2018
São Tomé and Príncipe Cabo Verde

0 200 400 600 800 0 100 200 300 400 500 600
Constant 2018 $ billions Constant 2018 $ billions

Source: AfDB staff calculations using data from World Bank (2021).

122 N atural capital for climate finance and green gro w th in A frica
FIGURE 3.7 Changes in per capita value of natural capital for African countries, 1995–2018

Renewable Non-renewable

Gabon Libya
Seychelles Equatorial Guinea
Botswana Gabon
Eswatini Algeria
Zambia Angola
Namibia South Sudan
Equatorial Guinea South Africa
Guinea-Bissau Nigeria
Central African Rep. Mauritania
Cameroon Chad
Ghana Egypt
Angola Tunisia
Liberia Morocco
South Sudan Guinea
Benin Namibia
Côte d’Ivoire Zambia
Morocco Ghana
Mali Mozambique
Algeria Sudan
Malawi Botswana
Zimbabwe Congo, Dem. Rep.
Mauritania Zimbabwe
São Tomé and Príncipe Cameroon
South Africa Mali
Guinea Liberia
Kenya Togo
Sierra Leone Côte d'Ivoire
Congo, Dem. Rep. Burkina Faso
Chad Sierra Leone
Tanzania Niger
Cabo Verde Senegal
Tunisia Tanzania
Rwanda Eswatini
Mozambique Rwanda
Niger Madagascar
Madagascar Benin
Senegal Ethiopia
Burkina Faso Burundi
Libya Uganda
Djibouti Malawi
Egypt Central African Rep.
Ethiopia Kenya
Gambia Somalia
Togo Seychelles
Sudan São Tomé and Príncipe
Mauritius Mauritius
Comoros Lesotho
Lesotho 2018 value Guinea-Bissau 2018 value
Uganda Negative change Gambia Negative change
over 1995–2018 over 1995–2018
Nigeria Positive change Djibouti Positive change
Somalia over 1995–2018 Comoros over 1995–2018
Burundi Cabo Verde

0 5 10 15 20 0 10 20 30 40 50 60
Constant 2018 $ thousands Constant 2018 $ thousands

Source: AfDB Staff calculations using data from World Bank (2021).

N atural capital for climate finance and green gro w th in A frica  123
 capita natural capital for both types. Some coun- A decline in the value of that capital both in phys-
tries have experienced quite large declines in both ical quantity and unit value will result in poverty,
forms, notably in Nigeria (82  percent), Burundi exacerbate inequality, and increase vulnerability
(66 percent), Namibia (53 percent), Angola (52 per- to climate risks. With most African countries over-
cent), Somalia (52 percent), Tanzania (52 percent), reliant on primary commodities and unprocessed
and Uganda (51 percent). In addition to population raw materials exports, low and volatile global com-
increase, several factors are at play, including high modity prices have eroded their export revenues.
population growth, declines in unit rents from some Prices of agricultural commodities such as coffee
forms of natural capital, lack of tenure, and mis- and cocoa had been declining since the 1970s,
management, discussed below. Although 18 of 53 whereas prices of crude oil and natural gas and
countries experienced a decline in the value of their minerals exhibit volatility (figure 3.8). In addition to
non-­renewable resources, the majority registered a boosting efficient use and better measurement of
significant increase between 1995 and 2018. natural capital, sustainable growth necessitates
The decline in per capita value is a concern increasing the revenue per unit through various
for sustainability and green growth in developing policies. This includes adding value to the raw
countries where a large part of the population minerals and commodities including market form
With most African
depends on natural resources for their livelihood. of franchising, discussed further below.
countries overreliant
on primary FIGURE 3.8 Real prices of selected commodities, 1960–2020

commodities and US$ per kilogram

unprocessed 12

raw materials 9
exports, low and
6
volatile global Coffee, arabica

commodity prices 3
Cocoa
have eroded their 0
export revenues US$ per barrel
100
Crude oil, average
75

50

25
Natural gas, US

US$ per metric ton

8,000
Copper

6,000

4,000
Aluminum
2,000

0
1960 1980 2000 2020

Source: AfDB staff calculations using World Bank Commodity Price Data (The Pink Sheet).

124 N atural capital for climate finance and green gro w th in A frica
Africa’s unmeasured natural wealth continent’s natural wealth, generating services
Africa has enormous potential in unmeasured such as tourism. Although it is already making
and largely untapped natural wealth, such as some contributions, the potential is hugely under-
water, land, minerals, oil, gas, sunshine, wind, bio- developed: Africa’s share of global tourism is only
diversity, and the ecosystem services they pro- 5  percent.15 Tourism on the continent could be
vide. But the accounting of natural capital covered enhanced through investments in natural capital-­
by the World Bank and the UN does not cover the driven subsectors. The 2019 Tourism and Travel
implicit value of natural resources essential to well-­ Competitiveness Report shows that the regional
being, such as water, air, and sunshine. Freshwa- score for Africa for natural resources was 2.9 of 7,
ter and air are regarded as unlimited inputs and declining to 2.6 in 2022. The report also shows that
thus may assume a zero value. When they are during the same period, North Africa (clustered
inputs into producing a good or services, how- with the Middle East) recorded scores of 2.2 and
ever, such as drinking water or electricity, their 2.0 in 2019 and 2022. Despite the decline, Africa
value can be obtained by using the residual value has an enormous opportunity to take advantage
method. This can be estimated as the difference of its abundant natural resources for tourism. It
between the annual revenues earned from the should build its competitiveness through increased
Africa is by
sale of renewable electricity and the annual cost connectivity and investments to enhance the
of its production, including wages and return on value and attraction of tourism, including invest- far the world’s
produced capital.11 With the global conversation ments to stop the declining performance of nat- richest region for
around long-­term, low-­carbon, green transforma- ural and cultural resources. As highlighted by the
low-cost renewable
tion, and the energy transition taking hold now 2019 report, core challenges include an unfriendly
more than ever, the values of sunshine, wind, business environment, poor health and hygiene, energy potential,
and water for hydropower should be considered and weak human resources. The region has well-­ approaching half
renewable energy sources and valued as such. developed enablers to support tourism based on (44.8 percent) of
Africa is by far the world’s richest region for natural capital, such as digital connectivity and
low-­cost renewable energy potential, approach- operationalization of the African Continental Free
the total global
ing half (44.8  percent) of the total global techni- Trade Area (AfCFTA) clauses that enable the free technical potential of
cal potential of renewable energy.12 Given its movement of people across the continent. renewable energy
abundant solar and wind resources, the conti- There could be other opportunities for updat-
nent has the world’s best potential to produce ing the measures of sustainability of green growth,
cheap hydrogen, though it is yet to benefit from by further expanding the 12 indicator categories
this potential. So far, clean hydrogen projects and of the Green Growth Index. The 2019 GGI report
investments have grown quickly, almost all outside stated that the four dimensions of green growth­
Africa, despite its competitive advantage in several —­efficient and sustainable resource use, natural
areas. The story on untapped potential also holds capital protection, green economic opportunities,
for hydropower. Of its total exploitable hydro- and social inclusion­—­are closely interlinked. Effi-
power capacity, Africa harnessed only 11 percent, cient and sustainable resource use entails more
compared with 53 percent in Europe, 39 percent productive use of natural capital and more cumu-
in North America, 26 percent in South America, lative economic value with fewer resources to also
and 20 percent in Asia.13 Central, East, Southern, capture unmeasured natural wealth and their rel-
and parts of West Africa have many permanent ative contribution to climate or green finance. This
water bodies­—­rivers, streams, and river basins­—­ may provide a basis for a joint methodology to
providing nature-­based opportunities for hydro- track natural capital-­based financing and their rel-
power development. For instance, the installed ative contribution to climate finance in the future.
capacity of the Grand Inga Hydropower project
in Democratic Republic of Congo is estimated at Efficiency in natural capital use
more than 42,000 MW.14 There is vast potential to increase the productiv-
Landscape is also a form of natural cap- ity of renewable natural capital while sustaining
ital not fully measured and valued as part of the natural resources. With the right human capital

N atural capital for climate finance and green gro w th in A frica  125
 and industrial policies, physical assets and eco- of resources and production accounts for about
systems could provide a higher value of output 50  percent of global greenhouse gas (GHG)
without compromising environmental quality. emissions and more than 90 percent of impacts
But across world regions, the gap is widening on water stress and biodiversity loss owing to
between the actual and potential value of goods land use.18 Between 30 percent and 50 percent
and services from natural resources­—­such as of copper, gold, iron ore, and zinc production
carbon sequestration, crop, grazing, and forestry are concentrated in areas where water stress is
outputs. And Africa has the widest gap between already high.19 Promoting mineral stewardship to
the actual efficiency in natural resource use and responsibly guide the environmental, social, and
the potential efficiency.16 governance aspects of green minerals, together
There is also great variation in actual efficiency with increasing material reuse and recycling in the
across African countries and sectors, with some mineral and water sectors, can provide significant
scoring higher in efficiency and others performing win-­win opportunities for the investment in and
poorly, such as agricultural land resources. For productivity of nature-­based solutions and the
instance, agricultural productivity is the lowest in overall sustainability of both renewable and non-­
Africa. The value added per hectare of agricultural renewable natural capital.
The value added
land for Africa is only 37 percent of the world aver- The efficiency of sequestering carbon in terres-
per hectare of age (figure 3.9). Regions in Asia (mainly develop- trial ecosystems can be further increased. Glob-
agricultural land ing countries) have productivity between five and ally, GHG storage capacity was 429 billion metric
eight times greater. Moreover, a large amount of tons of carbon dioxide equivalent (MTCO2e) stored
for Africa is only
land in many parts of Africa can be used for agri- in terrestrial vegetation for 2017 for all lands.20
37 percent of the culture without causing deforestation. In Congo, By choosing land use and land management to
world average only 2 percent of the land is used for agriculture, increase GHG storage without compromising the
with rudimentary techniques.17 Similar observa- use for productive purposes, this amount can be
tions apply to many other countries. increased by 86  billion MTCO2e, or by around
The application of circular economy principles­ 20  percent. Much of this gain is in a few coun-
—­which involves recycling and recovering materi- tries, some of them in Africa.21 The ones with the
als when possible­—­has the potential to increase biggest gap between the actual and potential
the productivity of natural capital. The extraction sequestration are Burundi, Gambia, and Uganda.

FIGURE 3.9 Value added per hectare of agricultural land 2021

$
3,000

2,500

2,000

1,500

1,000

500

0
Sub-Saharan Middle East North Latin Europe World East Asia South
Africa and North America America and and Central and Pacific Asia
Africa the Caribbean Asia

Source: AfDB staff calculations using data from World Bank (2021).

126 N atural capital for climate finance and green gro w th in A frica
Using non-­renewable resources for in Africa have no access to electricity. To eliminate
low-­carbon transition energy poverty in Africa by 2030, the continent
Africa possesses significant mineral resources needs to expand the electricity generation capac-
that are key to the global transition to a net-­zero ity using reliable and clean sources by more than
carbon future. According to the United States 6 percent a year to support industrialization and
Geological Survey (USGS) data on global min- improve the quality of life for the people.24 Natu-
eral reserves, Africa is abundantly endowed with ral gas can be a key instrument in fighting energy
cobalt (52.4  percent), bauxite (24.7  percent), poverty, but for this to happen, African countries
graphite (21.2 percent), manganese (46 percent), need to develop robust energy transition plans to
and vanadium (16 percent). And more than half of attract private capital investment in the sector.
African countries have at least one of the metals Africa’s estimated 600  trillion cubic feet (tcf)
critical for the energy transition, placing the conti- of natural gas reserves, estimated at $210 billion
nent in a strategic position to influence the global in 2018, can fast-­track the continent’s energy
net-­zero transition. For instance, with its enormous access. Due to natural gas accessibility, gas-­to-
endowment in strategic minerals that are compo- power generation can help phase out more pol-
nents of lithium-­ion batteries, Democratic Repub- luting fuels and integrate green energy, supporting
Africa’s estimated
lic of Congo is at the heart of the battery value the energy transition.25 Increased use of natural
chain. It accounts for 70  percent of the world’s gas would also contribute to phasing out Africa’s 600 trillion cubic
cobalt production and at least 51 percent of global reliance on biomass for cooking, thus stemming feet of natural gas
reserves.22 deforestation and bringing about health and eco-
reserves, estimated
Despite its vast resource endowment, Africa nomic benefits. Countries with new discover-
participates only in the small value components of ies of natural gas, including Egypt, Mauritania, at $210 billion in
the total global value chain and has not invested Mozambique, Senegal, and Tanzania, are making 2018, can fast-track
adequately in green minerals. It is estimated to strides to commercialize gas resources. Both the continent’s
account for only about 10  percent of the total the demand for and the production of gas have
global value of such minerals, primarily exporting grown consistently over the last decade, a trend
energy access
raw materials with little or no local value addition. expected to continue as global decarbonization
Also insufficient is investment in green minerals efforts intensify.
and emerging energy storage using electrolysis However, much natural gas is still flared (leaked)
to produce green hydrogen. Deepening Africa’s by all global oil producers. African oil producers
critical minerals value chain calls for investments do not show up as the largest in gas flaring by
in infrastructure, new explorations, skills, and volume (except for Nigeria, which ranks seventh),26
digitalization, among others.23 That makes it im- and the amount of flared gas per barrel of oil pro-
portant for African countries to break the vicious duced has been falling for the rest of Africa since
cycle of excessive dependence on exporting nat- 1995. Even so, flaring per barrel in Africa is nearly
ural resources by creating more value on the con- double the world average (figure 3.10). Recovering
tinent, strengthening productive capabilities, and this gas would increase the use of gas as a transi-
expanding exports and intra-­African trade through tion fuel and reduce GHG emissions. It would also
the African Continental Free Trade Area (AfCFTA). make a major contribution to development in the
Africa can also promote green growth as part countries that undertake the recovery, which are
of the transition to a low-­carbon future through often short of energy (as with Nigeria).
the increased exploitation of its natural gas. The
energy transition to net-­zero carbon emissions will Natural capital accounting to track
not be immediate. A pragmatic transition process sustainable green growth
should be carefully managed to reduce emissions Data on natural capital has a key role in helping
while allowing communities to use their natural governments ensure that this form of wealth is
resources sustainably. Due to its lower carbon fully accounted for in its contribution to national
emissions, natural gas is widely considered a well-­being. Rents from natural resources need to
transition fuel. Today, more than half the people be measured accurately to ensure transparency

N atural capital for climate finance and green gro w th in A frica  127
 FIGURE 3.10 Annual gas flaring, 2012–21

Billions of cubic meters Central Africa East Africa North Africa Southern Africa West Africa
125

Rest of the world

100

75

50
Africa

25

0
Gas flaring per 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
barrel in Africa is Source: AfDB staff calculations using data from Earth Observatory Group (Zhizhin et al. 2021; Elvige et al. 2016;
nearly double the Elvige 2013). https://eogdata.mines.edu/products/vnf/global_gas_flare.html.

world average
and accountability and evaluate actions to analysis of trends also includes data on the phys-
improve resource use and efficiency. For renew- ical and unit value components of natural capital
able resources, a lack of data on the contribution that help further track progress (or lack of it) along
of ecosystems that form the basis of such natural a sustainable path.
capital for income generation­—­and an area where The use of environmental accounts that include
data are a huge challenge­—­c an result in their natural capital has already been carried out for
degradation. Oftentimes, key components of eco- several African countries, with some success.
system services provided by natural capital, such Environmental accounts bring together economic
as pollination, disaster risk management, protec- and environmental information in a common
tion of land against extreme events, assessment framework to measure the contribution of the
of the blue economy, wildlife, and parks, are lost environment to the economy and the impact of
because they were not recorded, and care was the economy on the environment. They enable
not taken to conserve them. In the UN System governments to set priorities, monitor economic
of Environmental–Economic Accounting (SEEA) policies more precisely, enact more effective
now being upgraded, guidelines are provided environmental regulations and resource manage-
on extending wealth accounting to include nat- ment strategies, and design more efficient market
ural capital. This will help record changes in the instruments for environmental policies. A review
value of assets as well as the value of the services of work in this area includes examples from the
provided now and expected to be provided in regional environmental accounting program in
the future under existing or alternative manage- Southern Africa. They address issues such as the
ment regimes. Only on this basis can policies to economic importance of non-­market forest goods
increase the sustainable use of such natural capi- and services in South Africa; and the socio-­
tal be implemented and tracked. economic impact of current water allocation and
There are enough data to track the pricing policies in Botswana, Namibia, and South
sustainability of economies in Africa. This review Africa.27
has made use of information on changes in One use of capital accounting is to track the
total wealth per capita as an indicator of weak extent to which the liquidation of natural capital
sustainability­—­and natural capital per capita as an has been used to increase other forms of capi-
indicator of sustainable growth. The World Bank’s tal (in Namibia and Botswana). Studies have also

128 N atural capital for climate finance and green gro w th in A frica
been conducted on the value of specific forms of contribute more than $30 billion annually to gov-
natural capital, such a wild animals and fisheries, ernment revenue by 2040.34 The continent’s value
to be able to better evaluate measures to con- of non-­renewable natural capital was estimated
serve and/or enhance these stocks.28 These kinds at $2.4 trillion in 2018, with mineral and fossil fuel
of studies are, however, often hampered by a lack wealth estimated at $215 billion and $1.06 trillion,
of data, something being addressed in the work respectively.35 The North African countries, includ-
reported in this chapter, but there is still a lot to be ing Egypt, Morocco, and Tunisia, contributed
done. For non-­renewable resources, a key issue approximately 26 percent and 15 percent to the
has been the availability of information to estimate continent’s mineral and fossil fuel wealth, respec-
the stock of mineral resources and total wealth. tively. Southern Africa and West Africa contrib-
Except for Botswana, there is a lack of compre- uted the highest to the continent’s mineral wealth
hensive data or statistics on wealth accounting in (32 percent) and fossil fuels (51 percent), respec-
Africa.29 The data assembled by the World Bank tively. East Africa contributed the least of the two
and UN at the country level is a major exercise natural resources.
in attempting to collect such data, but it is only a In resource-­ r ich African countries, oil and
beginning and needs to be developed further for mining, on average, account for more than a quar-
Africa’s abundant
details, accuracy, and reliability. Even so, the full ter of gross domestic product (GDP) and more
or even partial implementation of the UN SEEA than three-­q uarters of export earnings.36 The renewable and
System by all countries would be an important first value of minerals as non-­renewable natural capital non-renewable
step toward preserving, protecting, and enhanc- increased sharply between 2005 and 2012 before
resources and
ing their national wealth, thus building the founda- declining but remaining above the 1995 value
tion for the prosperity of all generations. (figure 3.11). In contrast, the value of fossil fuels essential ecosystem
rose from 1998 through 2014 before declining services account
Approaches to boost the value of (figure 3.12). Comparing the maximum recorded for approximately
natural capital value of natural wealth from minerals in 2012 with
Africa’s abundant renewable and non-­renewable the latest estimated value in 2018, there was a
62 percent of its
resources and essential ecosystem services 44.5 percent difference ($173 billion, in constant GDP and have the
account for approximately 62 percent of its GDP $ 2018). The corresponding difference in the value potential to drive
and have the potential to drive much-­needed eco- of fossil fuels was $675 billion, equivalent to about
nomic growth.30,31 The continent has the world’s 37 percent of the continent’s GDP in 2018.
much-needed
largest arable landmass, the second largest and For natural resource wealth to drive economic economic growth
longest rivers (the Nile and the Congo), and the development, African countries must ensure they
second largest tropical forest. In addition, Africa receive a fair share of resource rents and effec-
contributes significantly to the world’s capture fish tively manage revenues. Tax policies should be
production, and is also home to about 30 percent designed to internalize environmental opportunity
of global mineral reserves. For oil and natural gas costs associated with exploiting non-­renewable
reserves, Africa had estimated proven reserves of resources. The fiscal instruments used most are
125.3 billion barrels of oil in 202132 and natural gas royalties, income taxes, and corporate taxes.
accounting for around 7  percent of the world’s Income taxes may be neutral, corporate taxes
total reserves.33 Despite this abundance, the con- are generally progressive, while royalties (an ad
tinent’s natural capital is not effectively harnessed valorem tax) are regressive and may lead to a
for sustainable economic development. higher cut-­off grade of minerals (table 3.1).
When the extraction of a natural resource
Opportunities in non-­renewable generates a negative externality, such as envi-
resources ronmental damage, or when the costs of mining
The extractive sector contributes much to public are private information, governments can deploy
and private finance in many African countries, royalties (ad valorem taxes) to steer extraction
with some heavily reliant on these resources for paths toward the optimal.37 Revenues generated
public revenue. Africa’s extractive resources will from corporate taxes are typically low across the

N atural capital for climate finance and green gro w th in A frica  129
 FIGURE 3.11 The value of mineral wealth of Africa, 1995–2018

$ billions North Africa West Africa East Africa Central Africa Southern Africa
500

400

Africa

300

200

100

0
The value of 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
minerals as non- Source: AfDB staff calculations using data from World Bank (2021).
renewable natural
FIGURE 3.12 Africa’s fossil fuel wealth, 1995–2018
capital increased
sharply between $ billions North Africa West Africa East Africa Central Africa Southern Africa
2,000
2005 and 2012
before declining but Africa

remaining above 1,500

the 1995 value

1,000

500

0
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: AfDB staff calculations using data from World Bank (2021).

continent due to asymmetric information on pro- post-­tax internal economic rate of return on petro-
duction costs, which are often overstated despite leum extraction in Chad, Ghana, and Nigeria were
the high economic returns from oil and mineral between 41 percent and 34 percent, far above the
extraction. In 2020, the top four oil producing common hurdle rate of 12–14 percent that com-
countries in Sub-­Saharan Africa had the following panies aim to surpass for investment approval.38
rent to GDP ratios: Nigeria 4.4  percent, Angola Moreover, the negotiated royalty taxes are
24  percent, Congo 31.9  percent, and Equatoria often low in many African countries.39 In the Dem-
Guinea 15.6 percent. Mineral rent to GDP ratios ocratic Republic of Congo, the rates range from
were, on average, even lower, ranging from 2.5 percent to 10 percent, depending on the min-
7.2 percent in Mali to 0.1 percent in Botswana and eral. The royalty rate for gold in Ghana ranges from
Central African Republic. The average pre- and 3 percent to 5 percent, depending on the price of

130 N atural capital for climate finance and green gro w th in A frica
TABLE 3.1 Fiscal instruments for natural resource revenue extraction

Royalties Royalties are commonly set at a fixed percentage of production or gross revenues.
Royalties are normally regarded as easier to administer, as production and natural
resource prices are easier for the host state to determine and monitor than costs of
production. Royalties are normally regressive, as they increase with revenues and not net
cash flows. In some fiscal regimes, royalty rates vary with cumulative or daily production
or other factors.
Bonuses Bonuses can be paid by investors to the host state when the contract is signed,
a discovery is made or production commences. The amount of the bonus can be
negotiated, set by law or the result of a bidding process. Bonuses are relatively easy to
administer, but they are also likely to be regressive, as in most cases they do not increase
with net cash flows.
Additional profits/ Additional profits taxes aim to tax excess profits. The tax is therefore levied, or its rate
resource rent taxes increased, when the project exceeds some predefined internal economic rate of return.
Additional profits taxes are progressive, with government revenue increasing as a
percentage of net cash flows as net cash flows increase.
Corporate income Corporate income tax is charged as percentage of profits on sale of natural resource
tax production at the level of the corporation. It is a neutral and easy to administer by
revenue agencies.
Import duty Investors often need to import expensive equipment when exploring and developing
natural resources. Levying import duty on such imports would result in a significant
early revenue stream for the government, but would also discourage companies from
African governments
exploring and developing natural resources. In some countries, there are also concerns
that foreign companies with significant import duty needs will be targets of rent-seeking should deploy
behaviour.
different fiscal
Rentals Rentals are paid by the investor per period for the right to explore, produce or mine
in a specific area. The amount of the rental is often legislated, but can sometimes be instruments to
negotiated or determined by bidding. Rentals are easy to administer, but they are also
regressive, as they do not increase with net cash flows. obtain a fair share of
State participation In some countries, states hold equity positions in natural resource projects to enable the
government share in any post-tax economic rent which accrue from the project. revenues from non-
renewable resources
Source: Wilde 2016.

gold; that of Zimbabwe and South Africa ranges When there are excess profits due to high prices
from 4  percent to 6  percent and 0.05  percent of a natural resource, governments should be able
and 7 percent depending on the type and price to intervene and capture some of the rents.
of the mineral. For most countries on the conti- Despite the potential benefits of windfall taxes,
nent, the average royalty rate charged is 3  per- their design can be complex, requiring technical
cent, as mining companies argue that a higher and administrative capacity which is lacking in
rate will impair the profitability and investment in many resource-­rich countries in Africa. Until Afri-
mines. And the unfair concession agreements can countries develop the capacity in the long
signed with foreign mining companies restrict the term, some experts have recommended that
use of fiscal instruments, thus limiting the share flat rate regimes, which are easier to administer,
of resource revenue that remains within countries. are adopted rather than the tiered system. The
African governments should deploy different progressive R-­factor–based production sharing
fiscal instruments to obtain a fair share of rev- employed by Ghana and other countries is desir-
enues from non-­renewable resources. Royalty able, while rate-­of-return-­based fiscal instruments
rates may be used and set at higher levels than in Angola and elsewhere are considered too com-
currently if the overall fiscal system is progressive plex for some countries to adopt. The R-­factor
or the extraction generates environmental dam- mechanism is a standard procedure to calculate
ages. A study found only a marginal (2  percent) royalties based on the ratio of cumulative revenue
reduction in the internal financial rate of return to cumulative expenditure.
of mining operations when the royalty rate was However, obtaining a “fair share” of the rev-
increased from 0 to 3 percent.40 In addition, since enue from non-­renewable resources does not
international prices of minerals and oil are volatile, guarantee economic development. Corruption
governments should implement windfall taxes. in countries bedeviled with weak institutions has

N atural capital for climate finance and green gro w th in A frica  131
 FIGURE 3.13 Fiscal instruments in the African mining sector and year of enactment

Royalty (gold) Free carried interest (minimum) for the government Corporate income (profit) tax 

Congo
South Africa
Nigeria
Cameroon
Senegal
Namibia
Mali
Liberia
Côte d’Ivoire
Guinea
Gabon
Niger
Ghana
Congo, Dem. Rep.
Uganda
Morocco
Botswana developed Central African Rep.
a reputation for Burkina Faso
Tanzania
prudent fiscal Zambia
Sierra Leone
management of Mauritania
its mineral wealth, Botswana
50
and other African 0 10 20 30 40 60
Percent
countries can
Source: Gajigo et al. 2012.
learn from it
been noted as the source of Africa’s resource value of ANS implies that the nation’s wealth is
curse, with resource-­rich countries in Africa and increasing while a negative value denotes deple-
elsewhere in the developing world experiencing tion of the nation’s capital stock and future material
low economic growth and high poverty.41 For well-­being.43 Recent estimates show that Guinea,
instance, annual illicit financial flows are mostly Mozambique, Sierra Leone, and South Sudan reg-
tied to Africa’s natural resources.42 So, in addi- istered a negative average ANS over 2015–19,44
tion to ensuring that revenue taxation accounts while Nigeria had zero ANS, and Ghana, Sudan,
for the cost of depleting non-­renewable natural and Zambia registered positive values.
resources, including environmental damages, Botswana developed a reputation for prudent
revenues generated should be reinvested in pro- fiscal management of its mineral wealth, and other
ductive capital to deepen economic diversification African countries can learn from it. As part of its
and build strong and transparent institutions for efforts for sustainable development and economic
natural resource governance. stability, it implemented a Sustainable Budget
Resource-­rich nations on the continent should Index (SBI), which is the ratio of recurrent (non-­
take proper account of how rents obtained from investment) spending to non-­mineral revenues.45 If
non-­renewable resources are used. Adjusted the index equals 1, recurrent spending is financed
Net Savings (ANS) or Genuine Savings is often partly by mineral revenues. A value less than one
recommended as a guiding indicator. It is calcu- implies sustainability since non-­recurrent revenue
lated as the difference between gross savings (mineral revenue) is being saved or spent on public
and consumption of fixed capital (depreciation) investment in education.
and adjusting for changes in natural resource and As the world transitions toward a low carbon
environmental degradation such as the cost of and green economy, Africa’s fossil fuel reserves
air pollution damage to human health. A positive may risk becoming unusable or uneconomical.

132 N atural capital for climate finance and green gro w th in A frica
This could result in a substantial loss of value and protein comes from fish, and in Senegal, about
potential revenue. Stranding such assets due to 47  percent. Domestic fish protein consumption
the expected sharp decline in the demand for comes mainly (about 90 percent) from the land-
fossil fuels over the next three decades will reduce ings of artisanal fleets. Approximately 13  million
the viability of fossil fuel-­rich countries’ econo- people are engaged in fishing, fish processing,
mies.46,47 The extent of the effect will depend on and trading on the continent, with roughly 46 per-
how the risks associated with the transition are cent of them women.52 Despite the potential of
managed. It has been estimated that, depend- capture fisheries to generate these substantial
ing on the global climate policy pathways, global benefits in perpetuity, it has been reported that
fossil fuel wealth could decline by 13 to 18  per- 60  percent of wild fish stocks in Africa are fully
cent over 2018–50.48 Since low-­income fossil exploited, while 30  percent are overexploited.53
fuel-­rich economies are likely to face the brunt of The three categories of fishing fleets are local
the impact, African countries may have to convert small-­scale fleets, which provide 90  percent of
their underground energy wealth to alternative employment in the sector, industrial fleets with
assets such as human and produced capital and local and foreign ownership, and distant water
seek assistance to transition effectively.49 fleets, are organized through access agreements
with the coastal nation to fish within its exclusive
Opportunities in renewable resources economic zones.
Renewable resources replenish themselves over Africa’s fish stocks are, however, shrinking. The
time and can generate benefits in perpetuity if the estimated value of fish stock fell from $59 billion
extraction rate does not exceed the reproduction in 2003 to $20 billion in 2008, during which Africa
rate. If the resources are extracted sustainably, lost more than $38  billion worth of its fishery’s
their flow generates revenue streams (livelihoods, capital (figure 3.14). This is attributable to the low
profits, and foreign exchange earnings) and is not capture fish stocks due to biological overfishing.
capital depleting. So, it is important in supporting Key factors contributing to overfishing in Africa are
the livelihoods of several communities and Africa’s overcapacity; illegal, unreported, and unregulated
economic development. There are two main rea- (IUU) fishing activities; poor resource governance;
sons why such resources may generate less rev- insufficient knowledge and misperception of bio-
enue than their potential: if the resources are not physical dynamics; and climate conditions such
extracted at a level that generates the maximum as salinity, coastal upwellings, and sea level rise.
economic rents, and if the resource-­rich nation Assessing the economic impacts of IUU activities
does not receive a fair share of the resource rents, is difficult. In West Africa, for example, despite
especially when foreign capital is invested in the the declining fish population, fishing capacity
extraction of the resources. In nearly all African has increased by 50  percent since the 1970s,54
countries, renewable resources have exces- and the annual cost of IUU fishing activities is as
sive extractive capacity (over-­capitalization) and high as $2.3 billion.55 A recent study estimates a
are overexploited, with foreign direct investment loss of between 2 and 3  million tons of fish per
contributing significantly to the problem. The year (about 20 percent of total reported produc-
overextraction is typically due to open access or tion) for all African countries, with a gross value of
common pool resource management practices.50 $3–5 billion.56 It estimates revenue losses for the
industry at $2  billion and tax losses for govern-
Capture fisheries ments at a further $1.5 billion.
Africa’s annual capture fish production is esti- A composite index recently developed to char-
mated at 10 million tons­—­about 7 million tons from acterize the state of IUU fishing practices in global
marine fisheries and 3 million tons from inland fish- coastal African countries showed that Africa’s
eries.51 Fish provides much-­needed protein, min- coastal countries made just a marginal improve-
erals, and micronutrients for more than 400 mil- ment from 2.39 to 2.32 between 2019 and 2021
lion people on the continent. In Gambia, Ghana, on a score ranging from 1 to 5, where one is the
and Sierra Leone, more than 60 percent of animal best and five is the worst.57 There are, however,

N atural capital for climate finance and green gro w th in A frica  133
 FIGURE 3.14 The value of capture fisheries in Africa

$ billions North Africa West Africa East Africa Central Africa Southern Africa

60

50
Africa

40

30

20

10

0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
The estimated value
Source: AfDB staff calculations using data from World Bank (2021).
of fish stock fell
from $59 billion in variations across countries (figure 3.15). Mozam- capacity and financial resources for monitoring,
bique made the best progress, while Eritrea control, and surveillance.58
2003 to $20 billion
regressed. Over the past decade, several bilateral For fisheries access agreements to benefit Afri-
in 2008, during and multilateral development partners have sup- can countries by generating more revenue and
which Africa ported African states and their regional fisheries employment while also promoting sustainable fish-
lost more than organizations in building capacity to combat IUU eries management practices and protecting marine
fishing. For instance, in 2014, the African Develop- biodiversity, they should be structured in a way that
$38 billion worth of ment Bank stressed the importance of increasing the African countries receive a fair share of the eco-
its fishery’s capital its commitment to protecting coastal waters from nomic benefits. They should include provisions for
IUU fishing. Between 2016 and 2018, the Bank technology transfer and capacity building to enable
also supported several Central and West African African countries to develop their own fisheries
countries in adopting and implementing the Port sector and create jobs, which can consist of train-
State Measures Agreement and has supported ing in modern fishing techniques, equipment, and
the Fisheries Transparency Initiative since its infrastructure development. They should prioritize
inception in 2017. sustainable fishing practices to ensure the long-­
In addition to IUU fishing, access agreements term viability of fish stocks. They should include
tend to favor distant water fleets. By allowing measures to monitor and enforce compliance
foreign fishing fleets to access their waters, Afri- with fishing regulations, including satellite tracking
can countries could generate revenue that can of fishing vessels, onboard observers, and pen-
be used to fund important social and economic alties for non-­compliance. And they should foster
programs. Fisheries access agreements typically regional cooperation among African countries to
apply to the contractual framework that allows address common challenges and develop a coor-
industrial fishing vessels belonging to distant water dinated approach to fisheries management. This
fishing nations to fish in the waters of resource-­ can include sharing data and best practices, joint
rich third countries. In reality, most African nations research, and joint enforcement efforts.
are short-­c hanged. Access agreements make
foreign fleets prioritize short-­term economic gains Mangroves
over long-­term sustainability, hurting coastal com- In tropical and subtropical regions, coastal man-
munities’ livelihoods. Distant water fleets also groves provide several economic and ecosystem
engage in IUU practices due to political corrup- benefits including carbon sequestration, flood
tion in resource-­rich countries and their lack of protection, biodiversity conservation, and timber

134 N atural capital for climate finance and green gro w th in A frica
FIGURE 3.15 Changes in IUU scores between 2019 and 2021

Eritrea
Mauritania
Equatorial Guinea
South Africa
Seychelles
Somalia
Mauritius
Tunisia
Guinea-Bissau
Egypt
Algeria
Côte d’Ivoire
Senegal
Madagascar
Congo
Nigeria
Angola
Congo, Dem. Rep.
Ghana
Africa’s coastal
Libya
Morocco countries made
Gambia
Cabo Verde
just a marginal
São Tomé and Príncipe improvement in
Gabon
Comoros illegal, unreported,
Kenya
Liberia
and unregulated
Namibia fishing activities
Benin
Djibouti between 2019
Togo and 2021
Tanzania
Guinea
Sierra Leone
Cameroon
Sudan
Mozambique

–0.6 –0.3 0.0 0.3 0.6

Change in IUU score
Source: Global Initiative against Transnational Organized Crime (https://iuufishingindex.net/).

and non-­timber goods. The total mangrove wealth total mangrove area or extent decreased by about
of Sub-­Saharan Africa increased from $3.7  bil- 2 percent over the period between 1995 and 2018
lion to $7.6  billion between 1995 and 2018. For and less than 1 percent after 2010, its flood pro-
African countries with consistent data from 1995 tection value increased by 150 percent within the
and 2018, Ghana registered the highest gain in period, generating a net increase in mangrove
mangrove value of $975  million within the period wealth.60
(1995 to 2018) (figure 3.16. This is followed by Sen- Mangroves are under threat of habitat loss and
egal ($609 million) and Nigeria ($386 million), while degradation from coastal development, pollution,
Egypt registered the lowest gain of $28.7 million. and overexploitation as well as climate change
These values are based on the size or extent of and sea-­level rise. The sea-­level rise coupled with
mangroves, its flood risk protection capacity, and land-­use changes and coastal development can
the value of produced capital that could be dam- impede the flow of freshwater and sediments,
aged in the absence of mangroves59 Although the threatening mangroves. Strategies to protect them

N atural capital for climate finance and green gro w th in A frica  135
 FIGURE 3.16 Changes in the value of mangrove wealth for African countries, 1995–2018

Ghana
Nigeria
Senegal
Angola
Seychelles
Kenya
Mozambique
Madagascar
Cameroon
Mauritania
Guinea
Tanzania
South Africa
Equatorial Guinea
Côte d’Ivoire
Sudan
Liberia
Gabon
Comoros
Sierra Leone
Djibouti
Egypt
Gambia
Guinea-Bissau
Congo, Dem. Rep.
Zimbabwe
Zambia
Uganda
Tunisia
Togo
South Sudan
Somalia
São Tomé and Príncipe
Rwanda
Niger
Namibia
Morocco
Mauritius
Mali
Malawi
Libya
Lesotho
Ethiopia
Eswatini
Eritrea
Chad
Central African Rep.
Cabo Verde
Burundi
2018 value
Burkina Faso Negative change over 1995–2018
Botswana Positive change over 1995–2018
Benin
Algeria

0 500 1,000 1,500 2,000 2,500

Constant 2018 $ millions

Source: AfDB staff calculations using data from World Bank (2021).

136 N atural capital for climate finance and green gro w th in A frica
include establishing protected areas from fishing, $582.2 billion in 1995.62 In addition to the forest
logging, and any destructive practices, promoting timber wealth, the continent’s forest ecosystem
sustainable forest management practices, pro- wealth increased from $338.5 billion to $374.1 bil-
moting community-­based management of the lion between 1995 and 2018. As of 2018, Africa’s
resource and providing alternative and supple- total forest capital value (timber and ecosystem
mentary livelihood options for local communities. services) was about $1.1 trillion. The Democratic
Republic of Congo has the highest forest timber
Forests and forest ecosystem capital, valued at $126.8 bil-
Africa’s forest cover is estimated at 637  million lion and $51.1  billion, respectively. The gain in
hectares or 23  percent of the continent’s land forest timber value­—­d espite Africa’s recording
area, and wooded landscapes and trees out- the highest forest loss in the world, estimated at
side forests are estimated at 13  percent of land 7.9 million hectares between 2001 and 2018­—­is
area or 350 million hectares.61 Central Africa and likely due to rising timber prices.63 The forest loss
Southern Africa are more endowed regions in is equivalent to about $9.0 billion in natural capi-
forests than other parts of the continent. At the tal (timber value), using 2018 estimates. Between
continental level, while forest products (timber 2001 and 2021, the Democratic Republic of
Africa’s forest cover
and non-­timber) contribute about 6 percent annu- Congo recorded the highest forest cover loss,
ally to GDP, the natural capital value of Africa’s more than 5.9 million hectares due to illegal log- is estimated at
timber was about $725.5 billion in 2018, up from ging (figure 3.17). 637 million hectares
or 23 percent of
FIGURE 3.17 Forest cover loss in Africa between 2001 and 2021
the continent’s land
Congo, Dem. Rep.
Madagascar 5,909
area, and wooded
Cameroon landscapes and
Congo
Côte d’Ivoire trees outside forests
Liberia are estimated at
Gabon
Egypt 13 percent of land
Central African Rep.
Angola
area or 350 million
Nigeria hectares
Ghana
Ethiopia
Uganda
Equatorial Guinea
Kenya
Tanzania
Sierra Leone
Zambia
Guinea
South Africa
Mozambique
Guinea-Bissau
South Sudan
Zimbabwe
Rwanda
Malawi
Burundi
Togo

0 500 1,000 1,500 2,000

Hectares (thousands)

Source: AfDB staff calculations using data from World Bank (2021).

N atural capital for climate finance and green gro w th in A frica  137
 BOX 3.1 Debt-­for-nature swaps

Forest, biodiversity, and ecosystem services are derived from natural assets, and have the poten-
tial to finance climate change and green growth and support debt sustainability through inno-
vative financing mechanisms like debt-­for-nature swaps. A debt-­for-nature swap (DNS) is a type
of financial transaction in which a portion of a developing country’s sovereign debt is forgiven in
exchange for the country’s commitment to conserve its natural resources. This type of arrange-
ment is designed to encourage sustainable development and conservation efforts, while also help-
ing countries to reduce their debt burden.
With Africa’s rising debt stock coupled with the intense pressure to service its debts, DNSs
presents an opportunity for marginal relief. Currently less than $3 billion is spent on biodiversity
conservation in Africa, while it is estimated that the continent needs about $1.2 billion yearly to
protect wildlife alone.1 It is noteworthy that from 1989 to 2015, Africa was able to secure just about
$135 million in DNSs through bilateral and multilateral arrangements. Africa’s total external debt
in 2021 was estimated at $1.09 trillion, which is about 39.5 percent of the continent’s GDP. It is
Protecting Africa’s
estimated that debt service payment in 16 African countries with data will be $22.3 billion in 2023,
forests requires $25 billion in 2024, and $26.8 billion in 2025. Although funds allocated to DNSs so far are very
a multifaceted small, there are some benefits to the arrangement. If the environmental allocations are deployed
to capitalize conservation funds, it could grow over time and lead to better environmental pro-
approach involving
tection. And countries receiving such funds could have some budget flexibility owing to maturity
government extensions and reductions in interest on sovereign debts. The flexibility will enable the countries to
policies, community borrow more for socioeconomic development.
engagement, and While DNSs can be a powerful tool for promoting sustainable development and conservation
in Africa, they are not without challenges. For example, there may be difficulties in ensuring that
public education the conservation efforts are effective and that the benefits are distributed equitably among local
and awareness communities. Additionally, there may be concerns about the potential impact of debt forgiveness
on a country’s credit rating and ability to access future financing.

Notes:
1. African Natural Resources Management and Investment Centre 2022.
2. African Natural Resources Management and Investment Centre 2022.

Protecting Africa’s forests requires a multi- campaigns about the negative impacts of defor-
faceted approach involving government policies, estation and engaging local communities in man-
community engagement, and public education aging protected forests.
and awareness. Governments should promote One way to regulate excessive extraction and
and enforce policies and regulations, protect- promote environmental compliance is through
ing reserve areas and preventing illegal logging, performance guarantee bonds, which give long-­
increasing enforcement and setting penalties for term cutting rights and the responsibility for
illegal logging. Sustainable forestry practices, sustainable forest management rest to a lessee
such as selective logging practices and refor- through competitive bidding.64 The schemes can
estation should be promoted to reduce defor- be designed to enforce compliance with technol-
estation. And promoting sustainable agricultural ogy or performance standards. An alternative is
practices can reduce the need for farmers to clear to have a deposit refund (tax subsidy) mechanism
new land for farming. Deforestation can also be where an individual pays the up-­front bond but
slowed by raising public awareness through edu- receives a bond repayment as a subsidy if actions
cation campaigns, outreach programs, and media are taken that result in an improvement above a

138 N atural capital for climate finance and green gro w th in A frica
reference level. Performance bonds can effectively earner, competing with gold. Ecotourism has the
change the incentive structure and behavior of potential to encourage economic growth and
loggers,65 making them an enforcer with stronger generate employment in rural areas and nature
sanctions than just withdrawing concession. They conservation communities. It can promote cul-
can also reduce the burden and cost of monitor- tural exchanges between visitors and their host
ing. The benefit-­cost ratio of protecting the African communities, leading to a greater appreciation
forests 3:1.66 of cultural differences. Revenue earned from
Beyond generating revenue, Africa’s forests ecotourism could be reinvested to enhance provi-
and woods provide ecosystem services such sional ecosystem services derived from ornamen-
as watersheds and stream-­flow protection, con- tal resources and wildlife tourism.
trolling erosion, enhancing soil fertility, regulating
the climate, and protecting biodiversity.67 Tropical Opportunities in international
forests host at least two-­thirds of the world’s flora agreements
and fauna diversity and store 25  percent of the The limited benefits for Africa from past inter-
terrestrial carbon above and below ground.68 So, national agreements are in part attributable to
sustaining this natural capital is critical. The natu- countries’ limited capacity to negotiate better
The limited benefits
ral capital value of Africa’s forest ecosystems was positions,69 to take stock of its resources, or to
estimated at $374 billion in 2018, with Cameroon, identify and communicate gaps for assistance. for Africa from
Democratic Republic of Congo, South Africa, Tan- African countries also fail to negotiate for optimal past international
zania, and Zambia accounting for 40 percent. benefits from their natural resources with pri-
agreements are in
vate investors, partly due to the inability to carry
Ecotourism out surveys to ascertain the value of resource part attributable to
Ecotourism is growing in Africa, and many coun- reserves. In some cases, countries have imposed countries’ limited
tries are promoting it as a means of sustainable local content requirements without accompany- capacity to negotiate
development. The continent’s unique natural ing investments in local capacity to contribute to
assets­—­its iconic wildlife, mountains, waterfalls, value addition. The Marrakesh Accords in 2001
better positions,
rapids, majestic forests, unique bird populations, were partly a response to the realization that to take stock of
pristine beaches, and coral reefs­—­are a tremen- while Africa needs international support, many its resources, or
dous value that can be exploited to develop the countries cannot identify and communicate their
tourism sector and contribute to job creation and capacity needs, hence the need for special treat-
to identify and
livelihoods. ment. Other institutions have also come on board communicate gaps
Its many biodiverse wildlife reserves and to support capacity building among African coun- for assistance
national parks offer nature enthusiasts an ideal tries to improve the continent’s capacity to partic-
destination. With a range of landscapes, from the ipate effectively in international agreements. As a
expansive savannas of East Africa and Southern result, many African countries are now calling for
Africa to the lush rainforests of Central Africa and enhanced capacity that would support improved
the deserts of North Africa, the continent is home negotiations in international agreements.70
to impressive scenery. Visitors observe exotic There is a great need for capacity development
species, such as the Big Five (lions, elephants, to implement the Convention on Biological Diver-
leopards, rhinoceroses, and buffalo), in their nat- sity. This was a key point on the agenda at the
ural habitat through game drives, hiking, and 15th Conference of Parties in Montreal in Decem-
bird-­watching safaris, as well as whale watching ber 2022 and led to the decision to implement
on the coasts and underwater observation and a long-­term strategic framework for capacity-­
recreational fishing in the Red Sea and the Medi- building and development. African governments
terranean. East and Southern Africa are the main have much to benefit from engaging in the imple-
destinations for nature-­based tourism. For exam- mentation of this strategic framework.71 Other
ple, a fifth of employment in Namibia is linked to initiatives include the Green Climate Fund (GCF),
nature-­based tourism. In Tanzania, mostly nature-­ which, through the Readiness and Preparatory
based tourism is the largest foreign exchange Support Programme, has been providing funding

N atural capital for climate finance and green gro w th in A frica  139
 to support developing countries in building their has the lowest expected marginal cost for abate-
capacity to access GCF funding. Africa continues ment, and South Africa has the highest marginal
to be the leading beneficiary of this fund.72 abatement cost, so the potential to trade in ITMOs
is not evenly distributed across African regions
Trade in carbon credits under the Paris and countries (figure 3.19, panel a). But Africa as
Agreement a whole could be a net seller of emission cred-
Prices on emission reductions in compliance mar- its (figure 3.19, panel b).75 Sales could amount to
kets are much higher than in voluntary markets­—­a 881 MtCO2e per year by 2030 and a cumulative
compelling reason for African countries to focus 18,124 MtCO2e by 2050, estimated at a total value
on compliance carbon markets under the Paris of $1.5 trillion. Countries in North Africa and South
Agreement (figure 3.18). The wedge between Africa would buy emission credits. But a more
Prices on emission
compliance and voluntary markets is widening. In realistic outcome would be for these countries
reductions in 2017 it was just $3.41 per metric ton of emissions, to negotiate international agreements to support
compliance markets but in 2021 it was $52 per metric ton. So, there is their mitigation efforts, as with the International
much to gain for African governments to invest in Just Energy Transition Partnership with South
are much higher
proper MRV procedures under the Paris Rulebook Africa at COP 26 in Glasgow that mobilized an
than in voluntary and develop mechanisms to benefit from trade initial $8.5 billion to support the decarbonization
markets—a under the Paris Agreement’s Article 6. of the South African economy.76 The negative
compelling reason for The potential cost reductions through trade financial volumes, estimated to be $411  billion
in carbon credits instead of each country imple- cumulatively by 2050, should thus be interpreted
African countries to menting its NDCs on its own are about $250 bil- as the international financial support needed for
focus on compliance lion annually in 2030 and $1  trillion annually in mitigation in these countries (figure 3.19, panel c).
carbon markets under 2050.73 Thus, creating “internationally transferred Africa could be a major actor in the early period,
mitigation outcomes” (ITMOs) could be a huge particularly for sales, but this would ebb over time.
the Paris Agreement gain for African countries.74 Southern Africa region The early potential is primarily in land use, land
use change, and forestry, while various forms of
FIGURE 3.18 Prices per ton of emission reductions in the technical sequestration, such as carbon capture
EU Emissions Trading System and in voluntary markets, and storage, are expected to increase in the future
2016–21 (figure 3.19, panel d).
The Great Green Wall Initiative also provides
$ funding opportunities for carbon sequestration
60
through tree plantation. This initiative, started
EU Emissions Trading System more than a decade ago by GEF and the World
50
Bank primarily as a tree planting project, is now
supported by international conventions (UNCCF,
40
UNCCD, CBD) and initiatives (Bonn Challenge and
AFR100 for landscape restoration). The initial vision
30 has been updated to now focus on “integrated
approaches to natural resource management for
20 transforming livelihoods and landscapes.”77 In Jan-
uary 2021, during the One Planet Summit, Presi-
10 dent Emmanuel Macron of France and other world
Voluntary carbon market
leaders announced the launch of the Great Green
0 Wall Accelerator, which has since raised more than
2016 2017 2018 2019 2020 2021 $19 billion.78 The objectives are to restore 100 mil-
Source: EU Emissions Trading System mid-­year values are from lion hectares of currently degraded land, sequester
https://carboncredits.com/carbon-­p rices-today; voluntary carbon 250 million tons of carbon, and create 10 million
market values are from Ecosystem Marketplace annual reports green jobs by 2030.79 The initiative benefits 11
(https://www.ecosystemmarketplace.com). countries in the Sahel (figure 3.20).

140 N atural capital for climate finance and green gro w th in A frica
FIGURE 3.19 Potential emission and financial transfers based on the cooperative implementation of
universal net-­zero CO2 emission pathways

a. Estimated marginal abatement costs b. Potential annual trade flows

to meet the Glasgow NDCs under the Glasgow NDC

2015 $ per tCO2 Volume (MtCO2) Percent

400 1,200 3,000
Global Ratio of positive (right axis)

300 800 2,000

South Africa

North Africa
200 400 1,000
Central, East
and West Africa
100 0 0

Southern Africa Ratio of negative (right axis)

0 –400 –1,000
2020 2025 2030 2035 2040 2045 2050 2025 2030 2035 2040 2045 2050

c. Potential annual financial flows d. Potential carbon sequestration compared

under the Glasgow NDC with fossil emissions in Africa

2015 $ billions Percent MtCO2 per year

100 3,000 2,500
Ratio of positive (right axis) Tech sequestration
Land use, land-use change, and forestry
2,000
50 2,000
1,500
0 1,000 Gross FFI (emissions)
1,000
–50 0
500
Ratio of negative (right axis)
–100 –1,000 0
2025 2030 2035 2040 2045 2050 2025 2030 2035 2040 2045 2050

Central Africa East Africa North Africa West Africa Southern Africa South Africa

Note: Estimated marginal abatement cost for East Africa, West Africa and Central Africa are identical (averaged). FFI is CO2
emissions from fossil-fuel combustion and industry.
Source: Data from International Emissions Trading Association (IETA) and the University of Maryland related to IETA (2021).

Opportunities from the European Union Carbon Mechanism (CBAM). This was confirmed in a
Border Adjustment Mechanism (CBAM) high-­level agreement by the European Council of
A closely related issue to trade in carbon emission States in March 2022, and the European Parlia-
permits is trade in goods produced emitting CO2. ment amended the proposal before adopting it
The European Union has committed to a low-­ in June 2022.80 The CBAM will be limited to alu-
carbon transition by cutting emissions by 55 per- minum, cement, electricity, fertilizers, iron and
cent by 2030 and to net-­zero by 2050. To make steel, hydrogen, plastics, and organic chemicals.
this happen, the European Union has, among Importers need to present third-­party verifiable
other measures, an emissions trading system emission factors. Otherwise, a default emission
(EU-­E TS) that makes it increasingly expensive factor will be applied, equivalent to the emission
for European industries to emit CO2. But cleaner intensity of the dirtiest 10 percent of producers in
European goods could be replaced by imported the EU. The price of the embedded carbon will be
goods from highly emitting economies. To restrict the same as for carbon emission permits bought
this, the European Commission in June 2021 at the EU-­E TS.81
proposed that the carbon content of imports The European Parliament’s Amendment
be taxed through a Carbon Border Adjustment 40 states that “the Union should finance least

N atural capital for climate finance and green gro w th in A frica  141
 FIGURE 3.20 Country coverage of the Great Green Wall Acceleration

Mauritania
Mali Eritrea
Niger
Senegal Chad Sudan
Burkina Djibouti
Faso
Nigeria Ethiopia

The Great Green

Wall Initiative Participating
countries Focus area
provides funding
opportunities for
Source: Global Environment Facility 2022.
carbon sequestration
through tree developed countries’ efforts toward the de-­ expectation is that principles of solidarity and
plantation in carbonization of their manufacturing industries common-­ b ut-differentiated responsibility will
with an annual amount corresponding at least guide the Fund’s operation. The way the Fund
11 countries in to the level of revenues generated by the sale of distributes funds should be guided by vulnerability
the Sahel CBAM certificates.”82 This implies that Africa has criteria, and projects should be locally driven. To
the potential to benefit from the CBAM if its indus- ensure that the Fund supports the most vulner-
tries in the relevant sectors adopt the third-­party able countries and communities, it needs to be
verification of emission factors at the same time managed transparently and accountably.
as the continent benefits from European Union
climate finance. One promising avenue is through The Convention on Biological Diversity
investment in green hydrogen (box 3.2). Another international agreement closely related
to the African natural resource base is the Con-
The COP27 Loss and Damage Fund vention on Biological Diversity (CBD). The most
COP 27 in Sharm El-­Sheikh, Egypt in 2022 agreed prominent funding mechanism for CBD that Afri-
on the creation of a Loss and Damage Fund for can countries can benefit from is managed by the
vulnerable countries. The Fund aims to provide Global Environment Facility. For example, GEF-­6
financial assistance to developing countries that programming for the biodiversity focal area was
are most affected by the losses and damages of about $1 billion over a period of four years, 2014–
climate change, such as rising sea levels, higher 18. Findings from the GEF-­6 and GEF-­7 program-
temperatures, and extreme weather events. It will ming cycles indicate that programs addressing
complement mitigation efforts to avert impacts the drivers of environmental degradation using an
from climate change and adaptation measures to integrated framework result in more impact per
minimize the adverse effects of climate change. unit of investment than comparable GEF invest-
Vulnerable countries face significant economic ments and create the conditions for transitions
and social costs associated with climate change, towards lasting systems transformation.
such as crop failures, loss of biodiversity, and Recently, the GEF-­8 Integrated Programming
displacement of communities (figure 3.21). The was set in motion to invest in projects designed

142 N atural capital for climate finance and green gro w th in A frica
 BOX 3.2 Can Africa become the new green hydrogen El Dorado?

Can Africa become an El Dorado in the new green econ- BOX FIGURE 3.2.1 Cumulative power-­to-X capacity
omy?1 The global transition to lower-­carbon energy sources
Input (gigawatts)
places renewables and green hydrogen as alternatives
80
to fossil fuels. Green hydrogen consumption is expected
to grow significantly over the next decades as transport
(such as aviation and shipping) and heavy industry (such
60
as steel, aluminum, cement, and chemicals) decarbonize.
Box figure 3.2.1 shows the expected cumulative power-­to-X
capacity of green projects in Africa and the Middle East
40
per year.
Considering the renewable energy potential of many Afri-
can countries, green hydrogen presents a great opportu-
nity for the continent to transform its energy and economic 20

sectors. And as a source of green hydrogen, Africa has the

potential to emerge as a cost-­effective worldwide supplier.
Africa has a large land mass of sunlight for green power pro- 0
2021 2022 2023 2024 2025 2030 2035 2040 Unknown
duction. Egypt, Mauritania, Morocco, Namibia, Niger, and
South Africa are planning large-­scale hydrogen projects, and Note: The chart presents the annual expected cumulative capac-
the momentum is building (box figure 3.2.2). Collaboration ity of green hydrogen projects in Africa and the Middle East. The
Unknown category refers to projects with no disclosed commission-
between the European Union and interested African par-
ing date. The African projects with a disclosed capacity represent
ties would facilitate progress toward country and company-­
37 percent of the Unknown cumulative capacity.
specific plans aligned with 2050 net-­zero emissions targets. Source: IHS Markit 2022.

BOX FIGURE 3.2.2 African green hydrogen projects and renewable power plants

Source: IHS Markit 2022.

Note:
1. An El Dorado is a place where advanced science can be applied and contribute to improving the environment.

N atural capital for climate finance and green gro w th in A frica  143
 FIGURE 3.21 Losses and damages associated with climate change

Vulnerable countries
face significant
economic and social
costs associated
with climate Source: UNFCCC (https://www.climateforesight.eu/seeds/loss-­and-damage/).
change, such as
crop failures, loss by countries to address specific objectives and Framework (GBF), with an ambition to mobilize
integration across sectors, thematic areas, and financial resources for implementation. In addition
of biodiversity, drivers. Strategic partnerships, with specialized to the current $150  billion, an extra $800  billion
and displacement organizations, such as inter-­agency collaboration from private investment (about 0.7 percent of global
of communities under a proposed GEF-­8 Greening Transportation GDP), plus at least $60 billion from public finance is
Infrastructure Development Integrated Program, required, per year, to implement the GBF, to scale
are required to leverage the expected resources to up ecosystem restoration, reduce the extinction
support integrated planning for nature-­positive and risk of species, and protect 30  percent of land,
climate-­resilient systems. The CBD’s 15th COP in freshwater and marine areas by 2030. For Africa
Montreal in December 2022 adopted the Post-­ to benefit from such arrangements, it may be to
2020 Global Biodiversity Framework (GBF), with establish an Africa Biodiversity Fund to attract pri-
an ambition to mobilize at least $200  billion per vate capital. To service this demand, many project
year by 2030. To increase international biodiversity developers that offer a range of greenhouse gas
financial flows to developing countries and econ- emission offsets have emerged, many of them
omies in transition will require at least $20 billion nature-­based solutions (NbS) related to forestry
per year by 2025 and at least $30 billion per year and land use, agriculture and soil sequestration,
by 2030. For Africa to realize benefit from such and blue carbon. While African voluntary carbon
arrangements, there may be a need to establish an markets are growing slightly faster than global
Africa Biodiversity Fund to attract private capital. markets,83 their combined market share is only
about 15  percent of the global voluntary carbon
Voluntary carbon markets market in 2021.84 This could change. According
While carbon trade under the Paris Agreement’s to the African Carbon Markets Initiative (ACMI), the
Article 6 is linked to countries’ NDC compliance, potential for African carbon credits is estimated at
other actors­—­such as large corporations are also about 2,400 MtCO2 in 2030, with a value of up to
pledging to compensate for their CO2 emissions­ $50 billion.85 The ACMI was launched at COP27
—­opted for the Post-­2020 Global Biodiversity with the ambition to produce 300 million carbon

144 N atural capital for climate finance and green gro w th in A frica
FIGURE 3.22 Market size by traded value of voluntary carbon offsets

Annual value ($ millions) Cumulative value ($ millions)

2,000 8,000

1,500 6,000

Cumulative value (right axis)

1,000 4,000

500 2,000

0 0
Pre- 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021
Managed by the
2005
African Development
Source: Ecosystem Marketplace 2022. Bank, the Adaptation
Benefits Mechanism
credits annually by 2030 and 1.5  billion credits and only a small portion allocated to adaptation.
annually by 2050, unlock $6 billion in revenue by So, leveraging untapped private sector resources is an innovative
2030 and more than $120  billion by 2050, and is crucial to filling the adaptation financing. To this mechanism for
support 30  million jobs by 2030 and more than end, the ABM has been piloted by the African mobilizing new and
110 million jobs by 2050.86 Development Bank since 2019–23 (box 3.3).
As with MRV for compliance markets, it is im- The ABM creates an incentive for private sector
additional public
portant to ensure the integrity of certification of investments in adaptation projects by facilitating and private sector
voluntary carbon markets. Certification standards payments upon delivery of certified adaptation finance for enhanced
have been criticized for being too generous in benefits, thereby generating a new and additional
their calculations of the additional sequestration source of revenue for adaptation. ABM de-­risks
climate change
from carbon project implementation. There are and incentivizes investments by certifying the adaptation action
also concerns about leakages and the imperma- social, economic, and environmental benefits of
nence of sequestration. All these concerns can be adaptation activities. The value of adaptation action
addressed if state-­of-the art methods are used for captured in these certificates, including the incre-
certification.87 mental costs of generating the benefits, is pro-
Managed by the African Development Bank, moted to potential investors and lenders. A major
the Adaptation Benefits Mechanism (ABM) is an AMB contribution is that it verifies certificates of the
innovative mechanism for mobilizing new and benefits of specific adaptation activities based on
additional public and private sector finance for sound methodologies. Since this is done in consul-
enhanced climate change adaptation action. It is a tation with stakeholders and with the approval of
results-­based, nonmarket finance mechanism that the host government, it can increase the credibility
channels resources to projects enabling commu- of the adaptation activities and their attractiveness
nities, economies, and ecosystems to adapt and to potential investors and lenders.
build resilience to the negative impacts of climate
change. Climate finance needs for adaptation are Governance of natural resources
estimated between $249 and $407 billion in 2020– in Africa
30.88 But adaptation finance flows to the continent Despite substantial natural resource endow-
are well below what is desired, with an average ments, many African countries have been unable
of $19  billion in total climate finance in 2017–18, to fully harness their potential for economic

N atural capital for climate finance and green gro w th in A frica  145
 BOX 3.3 Recent green initiatives of the African Development Bank

The African Development Bank (AfDB) established the Africa Financial Alliance on Climate Change
(AFAC) in 2018 as a platform to engage Africa’s financial sector to de-­risk and direct capital flows
toward low-­carbon and climate-­resilient investments. AFAC is a network of African financial insti-
tutions whose mission is to mobilize and direct private capital flows toward Africa’s continent-­wide
low-­carbon and climate-­resilient development. It is designed to promote climate action through
knowledge sharing, climate risk-­mitigating financial instruments, climate risk disclosure, and mobi-
lizing climate finance. This mission is envisioned by ensuring that current and future financial risks
and opportunities are integrated into investment decision making.
Current global efforts to address climate vulnerability and debt distress in developing countries
and the lessons from COVID-­19 have reinforced the case for a strengthened AFAC to crowd in the
resources to transition Africa to a sustainable future. The finance sector stakeholder consultations
at COP27 in November 2022 provided a unique opportunity to advocate for enhanced support
for the African financial sector to enable it to play its full part in the transition to green growth and
One of the challenges
to have its voice heard in the global discourse on climate risk management and climate finance.
to good governance The African Green Bank Initiative (AG3F) launched at the COP27 supports the Bank’s objective
in natural resources of increasing the climate finance available for the continent from the 3 percent to 10 percent and
turn the $2.8 trillion in NDC implementation needs by 2030 into investments opportunities. The
in Africa is that the
initiative is built on the model of local specialized financing vehicles deploying blended financing
ruling political elites, using small portion of public resources for large private capital mobilization. It is supported by
and other domestic strategic partners such as the Climate Investment Funds, one of the major global climate finance
actors with influence, mechanism, Canada Climate Action Africa, the Green Bank Network, and the European asset
management firm Amundi. Amundi backs the initiative through technical assistance activities. It will
have control over also mobilize its investment vehicles dedicated to sustainable development in emerging markets
who has access and developing economies to support green facilities’ capitalization and thus participate in devel-
to resource rents oping green investments across the continent.
A pilot phase to provide technical assistance to governments and financial institutions to design
and set up Africa’s first Green Finance Facilities is planned, with initial discussions held with
Banque Nationale d’Investissement de Côte d’Ivoire and Caisse des Dépôts et Consignations du
Bénin. For its pilot phase, the AG3F aims to mobilize $10 million for the technical assistance and
$90 million to support capitalization.
In 2020, the AfDB and the Green Growth Knowledge Partnership joined forces with the World
Wide Fund for Nature and the Economics for Nature team to launch the Natural Capital for Afri-
can Development Finance initiative to lay the foundation for mainstreaming natural capital in Afri-
can development finance. Throughout the last few years, we have worked through key activities,
including generating evidence for integrating natural capital into AfDB’s development finance oper-
ations, prioritizing the role of natural capital in Africa’s post-COVID-19 recovery, and convening
peer signatory MDBs to develop a common vision for mainstreaming nature-based solutions in
support of the MDB Joint Nature Statement released at COP26 in 2021.

transformation and sustainable development. flow and amount of natural resource rents are
Using natural resources that allow sustainable affected by the bargaining between host countries
revenue flows and promote development while and multinational companies. But many African
safeguarding the environment will spur sustained, governments are not well equipped to negotiate
inclusive, and green growth, thus strengthening with large foreign private investors because of
economic resilience and regional integration. The weak bargaining and institutional capacity. So,

146 N atural capital for climate finance and green gro w th in A frica
deals between host countries and companies are captured by a small section of the ruling class and
often opaque. This lack of transparency can lead their associates, fueling corruption and conflict.92
to agreements that ultimately reduce the rents Increased natural resource rents can also provide
available for development. governments with opportunities and incentives to
In many resource-­ r ich countries, including pay off political supporters to stay in power. Since
those in Africa, resource rents have resulted in being in power means having access to resource
fierce contests between ruling elite factions in rents, politicians are willing to spend more today
creating, capturing, allocating, and distributing to stay in power tomorrow. By paying off their
the rents. This contestation has fueled a web of constituency­—­or investing in “security”­—­instead
patronage networks competing for rents, lead- of delivering reforms, natural resource rents may
ing to inefficient and unproductive use of natural weaken the accountability of governments to
resource rents.89 One of the challenges to good their citizens.93 Countries that have avoided the
governance in natural resources in Africa is that resource curse managed to do so because of
the ruling political elites, and other domestic successive governments with a long-­term vision
actors with influence, have control over who has that puts the national interest at the heart of natu-
access to resource rents. This can marginalize ral resource extraction.94
In many African
others from resource revenue distribution and
sometimes lead to a narrow nationalistic agenda­—­ Taxonomy of leakages countries, the
and at times ethnic and civil strife. There has also Africa has lost more than $1 trillion in illicit flows governance of
been a trend for natural resource rents to be exter- over the last 50 years,95 and it will likely still lose
natural resources
nalized, with illicit flows perpetrated by powerful about $89  billion annually.96 The money lost
local elites collaborating with foreign companies. through various leakages is more than the total is impaired by
Proper management of natural resources does of foreign direct investments and overseas devel- the conflicting
not automatically reduce poverty or sustain devel- opment assistance in Africa. Mining, oil, and gas mandate of various
opment. It needs conducive political, institutional, remain particularly prone to leakages: of $1.2 tril-
and governance environment that empowers the lion accrued from selling oil, gas, and minerals,
government
poor, women, and marginalized groups to share only 22 percent of the proceeds end up in national institutions and
the rents. For countries to maximize the capture treasuries.97 departments
and use of rents from natural resources, they have Africa also loses significant revenue from
to establish the necessary laws and regulations, its natural resources from tax avoidance. The
strengthen knowledge and information sharing, Tax Justice Network 98 estimated that Africa lost
ensure functional institutions, and have transpar- $17.1 billion in 2021 due to tax evasion alone. This
ent decision making to govern natural resource amount represented the equivalent of a third of
extraction. public health budgets in the midst of the COVID-­
19 pandemic. Similarly, an IMF study shows that
Manifestations of the resource curse tax avoidance by multinational extractive compa-
Extractable resources are not only blessings­—­ nies costs African countries up to $750 million a
they can also be a curse depending on their gov- year.99
ernance.90 Many resource-­rich nations experience
slow growth, are caught in a resource depen- Increasing the contribution of natural
dency trap, and struggle to diversify their econ- capital to green growth transitions
omies. Resource extraction can create enclave In many African countries, the governance of
economies and fail to link the resource sector with natural resources is impaired by the conflict-
the rest of the economy. This leads to poor eco- ing mandate of various government institutions
nomic performance, debt crises, and high pov- and departments. Some of these institutions are
erty, which can foster authoritarian regimes.91 involved in multiple and often conflicting functions
The political aspects of poor management of such as policymaking, regulation, licensing, and
natural resource rents are associated with weak commercial aspects that need to be separated.
governance and state intervention. Rents are This separation would create special authorities

N atural capital for climate finance and green gro w th in A frica  147
 to regulate and monitor various natural resources ESG factors, which predominantly reflect long-­
and special departments responsible for policy term issues, in their rating. Indicators reflecting
matters, leaving state-­ o wned enterprises to environmental issues have become very relevant
focus on commercial aspects across the natural in sovereign credit ratings. So, there is scope for
resource value chain. the current rating approach to reflect natural capi-
However, the process of separating policy, tal in sovereign credit rating methodologies.
regulation, and commercial functions of institu- Many factors related to a country’s long-­term
tions will play out differently in various countries sustainability­—­such as mineral wealth, natural
and may lead to mixed results depending on the gas, and forest capital­—­should be mainstreamed
technocratic capacity. Building up new regulatory in sovereign credit assessments. Integrating nat-
authorities, commercial entities, and policy divi- ural capital in sovereign credit ratings is still at its
sions requires a lot of capacity, may take time, and nascent stage, with a focus on qualitative assess-
investment in human capital and high-­level political ments, and can be further enhanced with a more
backing. While the separation of the government’s quantitative assessment.
policy, regulatory and commercial functions is crit-
ical, context matters.100 For such reforms to suc- Local content, value addition, capacity needs
For African countries
ceed, it is crucial to understand the political condi- and regional integration
to make the most of tions that make well-­delineated institutions thrive. To capture more value and maximize benefits from
local content policies natural resources, many African countries have
Natural capital and sovereign credit risk factors local content regulations. Their popularity is based
in natural resources,
In addition to the high perceived risks in African on the premise that once these regulations are
the policies should markets, the dependence on natural resource in place, countries will be able to foster linkages,
be integrated with wealth in Africa makes an easy case for the integra- create direct and indirect local jobs and capture
national industrial and tion of natural capital in credit risk profiles to earn more revenues across the natural resource value
higher scores by rating agencies. African countries chain. But existing local content policies have not
economic policies should earn a better rating on account of the rich been realistic enough about local capacity. As a
to facilitate linkages natural capital on the continent. Today, the rich nat- result, many countries struggle to engage with for-
with other sectors ural capital of the African countries is not reflected eign investors and fail to adopt frontier technolo-
in their creditworthiness by rating agencies and gies from multinational companies.
of the economy thus do not influence their borrowing costs. For African countries to make the most of local
Instead, credit rating methodologies consistently content policies in natural resources, the policies
overemphasize political risk, at about 50 percent should be integrated with national industrial and
of the composite rating.101 And while the qualitative economic policies to facilitate linkages with other
factors are judged purely based on the ideology of sectors of the economy. African countries must
the credit analysts, their perception of the political embrace green industrial policies to encourage
institutions in Africa is generally negative.102 structural transformations toward opportunities
Credit ratings assigned by the world’s three from natural resource booms, energy transitions,
dominant credit rating agencies­—­Moody’s, Stan- and global decarbonization efforts. For example,
dard & Poor’s, and Fitch­—­determine the govern- the projected rise in demand for critical miner-
ment’s access to international capital markets.103 als (cobalt, copper, lithium, nickel, graphite, and
Decades ago, sovereign credit risk factors had manganese) and green hydrogen and associated
included the rule of law, control of corruption, gov- value chains could be integrated into the design
ernment effectiveness, regulatory quality, voice, of medium to long-­term development and indus-
and accountability, political stability, transpar- trial policy planning. A Pan-­African vision will be
ency, and ease of doing business.104 However, needed to coordinate such efforts. Realistic poli-
recently, Environmental, Social, and Governance cies would allow strategic partnerships with state-­
(ESG) factors have become a part of the risk mit- owned enterprises and foreign investors, foster
igation process, and credit rating agencies have innovation, and create a conducive environment
adapted their methodologies to explicitly include for African-­owned firms to emerge and thrive.

148 N atural capital for climate finance and green gro w th in A frica
 Countries should also explore franchising governance can be ensured. Capacity will also
agreements with foreign firms to complement need to be built in areas such as fiscal and finan-
local content policies and requirements, espe- cial modeling and legal aspects to enable regula-
cially where capacity (both technical and financial) tory officials to engage well with foreign investors
is lacking, as in many local firms and state-­owned during contract negotiations. Mapping the battery
enterprises. The potential for franchising is huge, value chain will be needed to guide areas of the
but many countries have overlooked it. So, nego- value chain where capacity is available or lacking.
tiations under the AfCFTA should include oppor- As African countries strive to develop their geolog-
tunities offered by franchising to boost continen- ical, fiscal, and legal capacities, capacity-­building
tal trade. To maximize the benefits of franchising, efforts will hinge on regional collaboration. Many
countries must identify specific capacity gaps and countries face similar challenges, and it will be
opt for franchising models that suit their contexts. crucial to pull resources to co-­develop solutions
Regional integration will help countries to trade across countries and sub-­regions.
and learn from each other to build sustainable bat- However, African countries must strive to
tery and electric vehicle value chains.105 The geo- create an enabling environment to attract for-
graphical spread of minerals needed in the battery eign and private capital. In some cases, public
As African countries
value chain limits what individual governments can spending will be required to show responsibility
do without regional cooperation. Cobalt-­rich Dem- and ownership, hence private public partner- prepare to use their
ocratic Republic of Congo does not have all the ships (PPPs) may offer respite. Many African gov- natural resources,
resources needed to add value and develop an ernments lack the resources to finance natural
especially critical
effective battery value chain. It will require a range resources projects, and so will have to rethink and
of minerals from other African countries, including in some cases reform policies to make African minerals, to attract
copper from Zambia (which also produces cobalt), state-­owned enterprises an attractive destination foreign investment
graphite from Mozambique or Tanzania), lithium for foreign and private investments. Policy uncer- and build up a
from Zimbabwe, and manganese from Mada- tainty will likely lock out private capital, which
gascar or South Africa. The recent memoran- will be a missed opportunity for the continent. In
domestic battery
dum of understanding among the United States building capacity, African-­owned firms and African and electric vehicle
of America, the Democratic Republic of Congo, champions must be incentivized to invest in vari- manufacturing value
and Zambia on support for the development of an ous parts of the natural resource value chain. This
open and transparent electric vehicle supply chain will strengthen local content and foster linkages.
chain, capacity
exemplifies such collaborations and needs to be assessments will be
expanded.106 Leveraging AfCFTA to build and Environmental and social safeguards important given the
support the regional value chain in green develop- Almost all countries in Africa have enacted legis-
previous low levels
ment minerals is paramount. lation on Environmental Impact Assessment (EIA)
As African countries prepare to use their natu- for projects, and an increasing number of coun- of investments
ral resources, especially critical minerals, to attract tries have developed regulations also on Strate- in research and
foreign investment and build up a domestic battery gic Environmental Assessment (SEA) for sector-­
development
and electric vehicle manufacturing value chain, wide plans and programs to ensure appropriate
capacity assessments will be important given the environmental and social safeguards.107 But the
previous low levels of investments in research and performance of these assessments has generally
development. The capacity to conduct resource been below expectations. There is great potential
assessments and geological surveys across the to improve practice by improving public participa-
continent will be paramount to obtaining signif- tion in the assessment process and by making the
icant knowledge of available resources. There assessments publicly available so that they can
are great expectations about Africa’s richness of also contribute to improved accountability.108 For-
critical minerals, but very little is known about the eign and African-­based companies extracting nat-
exact amount of proven reserves of these miner- ural resources must strive to secure social licenses
als. Establishing proven reserves can also help to operate together with the Free Prior Informed
countries to strengthen their credit ratings if good Consent of communities likely to be affected by

N atural capital for climate finance and green gro w th in A frica  149
 their operations.109 The focus should be not only partners and subsidiaries) involved in natural
on how to increase the natural resources sector’s resource extraction.112 Subjecting the natural
economic contribution but also on how to reduce resource licensing process to beneficial owner-
negative environmental and social impacts from ship standards will help many African countries
resource extraction. to tackle illicit financial flows, prevent tax evasion
and detect loopholes for corruption, especially
Sovereign wealth funds in state-­owned enterprises (SOEs), which face
Sovereign wealth funds (SWFs) can act as a buffer bigger risks. Beneficial ownership is also one of
during economic downturns. The main source to the requirements of the Fisheries Transparency
capitalize SWFs is revenue from natural resources. Initiative standard to discourage African countries
According to data from the International Forum of from setting up joint ventures or flagging interna-
Sovereign Wealth Funds, there are more than 20 tional fishing vessels.
SWFs currently operating in Africa, and plans are With the projected rise in demand for critical
under way in various countries to create more. minerals, it is envisaged that SOEs will play a
Existing natural resource-­linked SWFs in Africa bigger role in natural resource extraction. How-
are expected to help countries manage their ever, many of these companies remain inefficient,
Subjecting the natural
resource wealth well. However, if not well gov- more indebted, and less profitable than their
resource licensing erned, a SWF can become a political tool for a few privately-­owned counterparts. They suffer from
process to beneficial ruling elites and their cronies to benefit through political interference, are highly vulnerable to cor-
ownership standards corruption and patronage at the expense of citi- ruption and state capture, and are often poorly
zens. To be an effective tool, transparency is key governed. Reforming SOEs is important to ensure
will help many
to preventing SWFs from elite capture and cor- that African countries secure good resource deals.
African countries to ruption. Robust oversight measures must be in Strategic areas for reforming African SOEs include
tackle illicit financial place, including proper due diligence and regular corporate governance, transparency, regulation,
flows, prevent reporting of key transactions, including deposits, and de-­politicizing their management.
tax evasion and withdrawals, and investments. Auditing and parlia-
mentary oversight are especially crucial.
detect loopholes for CONCLUSION AND POLICY
corruption, especially Dealing with illicit financial flows and CONSIDERATIONS
in state-owned corruption
enterprises, which The Extractive Industries Transparency Initiative Africa is a continent of abundant natural resources.
(EITI) process has proven useful in many countries If adequately and sustainably exploited, it can gen-
face bigger risks
so far; African states must leverage the opportu- erate revenues and wealth to complement climate
nities offered by EITI to maximize transparency finance for adaptation and mitigation and to invest
and accountability and reduce corruption risks. In in its green growth efforts. Proper valuation, pru-
addition, best practices such as open contracting dent management, and effective governance of
must be adopted.110 Blockchain technology is also Africa’s natural capital can contribute to increased
increasingly seen as a tool to minimize corruption climate adaptation financing and green growth.
and transparency challenges in various natural Several policy levers can be deployed to
resources value chain stages. From processing increase returns from natural resources to finance
to the sale of natural resources, blockchain tech- sustainable green growth and climate-­resilient
nologies can help to track transactions along the economic transformation. For Africa to truly
value chain.111 But implementing them in Africa change, its path to natural capital-­driven devel-
will require a strong grasp of the technology, its opment will need something akin to shock treat-
strengths, and its weaknesses. It is thus a critical ment of hyperinflation in the 1980s. This would
area for capacity building. entail a combination of policy recommendations
Beneficial ownership, championed by EITI, will encompassing:
help provide key information about companies • Investments in data collection for improved
(foreign and state-­owned, plus their joint-­venture valuation.

150 N atural capital for climate finance and green gro w th in A frica
• Implementation of natural capital accounting such as bio-­credits­—­and increase investments
to keep track of the most important stocks of in non-­recourse (collaterized loan) sustainable
natural capital. bonds, carbon bonds, resource-­backed loans,
• Implementation of a range of fiscal instru- certified adaptation benefits, debt-­for-nature
ments for both renewable and non-­renewable swaps, and natural capital funds. It is crucial
resources. to consider the nature and origin of the entities
• Investments in the capacity, technology, financing debt-­for-nature swaps, as some may
approaches, and tools to benefit from best have interests other than development or envi-
practices in exploration and licensing initiatives ronmental conservation. These swaps can be
and from international agreements. done in both voluntary and intergovernmental
• Deep institutional reforms to reduce illicit finan- sectors but should avoid depleting renewable
cial flows and corruption, improve transparency natural resources and promote responsible
and implement best practices when it comes extraction and use of non-­renewable natural
to governance of natural resources. resources.
• Enhanced credit risk profiles integrating the • Promoting a circular economy in nature-­
actual value of natural capital to increase finan- sensitive investments could responsibly
The global
cial volatility for foreign capital mobilization and guide the environmental, social, and gover-
bond issuance as climate finance in the inter- nance aspects of natural capital, together community needs to
national market. with increasing material reuse and recycling in develop long-term
non-­renewables (such as green minerals) and policy options to
Major policy recommendations for the renewables (sustainable fishing and forestry
establish markets for
global community management). This can provide significant
• Honor pledges and commitments in inter- win-­win opportunities for investment in nature-­
innovative financing
national agreements such as the agreement based solutions and the overall protection of mechanisms such
on a Loss and Damage Fund, the post-­2020 biodiversity. as bio-credits—and
Global Biodiversity Framework, and the Paris • Multilateral development partners could sup- increase investments
Climate Agreement. Developed countries need port African countries by supporting the design
to establish a global fund for nature that incor- of appropriate fiscal instruments and policies to
in non-recourse
porates and incentivizes the preservation of add more value to natural resources to increase sustainable bonds,
nature and sustainable natural resource man- beneficiation, revenues, and utilization of nat- carbon bonds,
agement. This includes funding the Global Bio- ural capital and ecosystem services, invest in resource-backed
diversity Framework and raising its ambition to human capital, and build capacity in interna-
loans, certified
meet the $200 billion per year financial require- tional negotiations. To increase international
ment by 2030. financing for climate adaptation, mitigation, and adaptation benefits,
• Increase collaboration and coordination nature, MDBs should play a role in de-­risking debt-for-nature
among stakeholders, including international climate and nature-­related investments, as in swaps, and natural
and regional multilateral organizations, national the Adaptation Benefits Mechanism.
capital funds
governments, and the private sector, to invest
in sustainable management of Africa’s natural Major policy recommendations for
resources. For improved governance of natu- Regional Member Countries
ral resources, there must be deliberate efforts • African countries need a strong and sus-
to safeguard biodiversity and ensure that tained commitment to carry out public policy
resource extraction is sustainable and equi- reforms to ensure that natural resource wealth
table, inclusive of communities, indigenous drives economic development. This will trigger
people, and human rights, especially in eco- actions to resolve myriad other management
logically sensitive areas where threats to bio- and governance issues, including internaliz-
diversity and habitat destruction are very high. ing environmental opportunity costs associ-
• Develop long-­term policy options to establish ated with the exploitation of natural resources
markets for innovative financing mechanisms and investment in natural capital. They should

N atural capital for climate finance and green gro w th in A frica  151
 develop Natural Capital Investment Plans that appropriate macroeconomic management and
complement National Biodiversity Action Plans sustainability indicators as part of the regular
(NBAPs). They should mainstream natural cap- system of national accounts. This could also
ital in development planning and finance. They help generate geological and geospatial data by
should integrate natural capital accounting investing part of their natural resource rents to
in national systems of accounts. They should support regional exploration, carry out required
develop specific fiscal instruments to improve environmental assessments, and strengthen
renegotiations of royalty rates and windfall their negotiation power with investors.
taxes to generate more revenue from Africa’s • Re-basing countries’ GDP in light of the pos-
natural resources. They should develop natu- itive externalities associated with the carbon
ral resource utilization policies and instruments sequestration value of forest ecosystems could
that link with industrialization and sustainable further expand their economic base, and will
development planning. They should reform align it with the inclusive growth agenda. The
state owned enterprises to promote beneficial benefits of carbon sequestration to overall GDP
ownership and work with global credit rating and as value for the purpose of Credit Rating is
institutions to feature natural capital more an area where Risk Rating Agencies and Afri-
prominently in fairer credit ratings so that they can scholars could explore more using grow-
can have better access to international capital ing opportunities of big data and innovative
markets. And they should formulate strategies models that will incorporate the pricing of these
that will give them the impetus to process at positive externalities as global public goods.
least 50 percent of their primary commodities • Africa’s endowments of green development
into consumable goods by 2030. Implementing needed in the battery value chain will require
these set of recommendations could fast-­track regional approaches, cooperation, and capac-
development in Africa, acknowledging that no ity building to ensure effective value addition.
country develops exporting raw materials. In addition, producing lithium-­ion batteries from
• Africa’s natural capital accounts need to its substantial mineral resources will be neces-
be transparent, and open to the public to sary to decarbonize the supply chains while
build investor confidence in the role of nat- creating employment. However, such invest-
ural capital in financing economic growth. ments need conducive and stable policies and
This would be a first step toward generating institutions to foster regional collaborations.

152 N atural capital for climate finance and green gro w th in A frica
NOTES 28. Hassan and Mungatana 2012.
29. Sopp and Leiman 2017.
1. https://assets.publishing.service.gov.uk/govern- 30. ACBF 2013.
ment/uploads/system/uploads/attachment_data/ 31. OECD 2011.
file/909202/ncc-terminology.pdf. 32. https://www.statista.com/statistics/1178138/crude​
2. https://assets.publishing.service.gov.uk​/government​ -oil-reserves-in-africa/.
/uploads/system/uploads/attachment ​ _ data/file​ 33. https://www.eia.gov/international/regions-africa/.
/909202​/ncc-terminology.pdf. 34. AfDB 2016.
3. Lange et al. 2018. 35. World Bank, 2021.
4. Managi and Kumar 2018. 36. Porter and Anderson 2021.
5. https://seea.un.org/ecosystem-accounting. 37. Akpalu and Parks 2007
6. World Bank 2021. The study covers 146 countries. 38. Wilde 2016.
It excludes those with no data, mainly small island 39. Gajigo et al. 2012.
states. In Africa, Djibouti is excluded from the list. 40. Otto et al. 2006.
7. Barbier, 2019. 41. Barbier 2011.
8. Pearce et al. 1989. 42. Thiao 2021.
9. It would be almost impossible to meet the conditions 43. World Bank 2021.
of strong sustainability, and data at that level of gran- 44. World Bank 2021.
ularity are not available. 45. Khama 2016.
10. No per capita data are available for Eritrea. 46. BP Energy Outlook 2020 (https://www.bp.com​
11. In the case of freshwater that is non-renewable /en/global/corporate/energy-economics/energy​
and has a scarcity value it should be included in -outlook.html).
the wealth accounts. This is done in some national 47. World Bank 2021.
wealth estimates but not in the global assessment. 48. World Bank 2021.
See NCAVES and MAIA, 2022 for examples from the 49. World Bank 2021.
Netherlands and the UK. 50. Hassan et al. 2019.
12. AfDB 2022a. 51. FAO 2022b.
13. https://www.afdb.org/en/topics-and-sectors​ / 52. AfDB 2022a.
initiatives-partnerships/sustainable-energy-fund-for​ 53. FAO 2022b.
-africa. 54. FAO 2002.
14. https://www.au-pida.org/view-project/324. 55. ODI 2016.
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16. Damania 2022. 58. AfDB 2022.
17. République du Congo 2021. 59. World Bank 2021.
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19. Africa Natural Resources Management and Invest- 61. Bromhead 2012.
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20. IPCC 2000. 63. FAOSTAT-Forestry database. https://www.fao.org​
21. Damania 2022. /faostat/en/#data/FO.
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23. AfDB 2022b. 65. Macpherson et al. 2010.
24. AfDB 2022a. 66. AfDB 2022a.
25. Africa Energy Chamber. https://www.africa-energy​ 67. Jax 2005; MEA 2005.
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27. Lange et al. 2003. 72. GCF 2022.

N atural capital for climate finance and green gro w th in A frica  153
 73. IETA 2021. 98. https://taxjustice.net/reports/the-state-of-tax​
74. The scenarios presented in this section come from -justice-2021/
an Integrated Assessment Model, Global Change 99. Albertin et al. 2021.
Analysis Model, developed by the Joint Global 100. Thurber et al. 2011.
Change Research Institute of the University of 101. https://www.moodys.com/Pages ​ / How​ M oodys​
Maryland and the Pacific Northwest National Lab- Rates​Sovereigns.aspx.
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market equilibrium model which represents the 103. Brogan 2022.
global economy by disaggregating the world into 104. https://www.moodys.com/Pages ​ / How​ M oodys​
32 geopolitical regions, 235 river basins and 384 Rates​Sovereigns.aspx.
agro-ecological land-use regions. Central to the 105. BNEF 2021.
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75. IETA has modelled several scenarios. We are here 109. Free, prior, and informed consent is all about obtain-
presenting results based on a scenario where there ing consent from local communities or Indigenous
is global cooperative implementation of the Paris Peoples before any activity takes place in their land.
Agreement to reach net-zero by 2050 (IETA 2021). It emphasizes prior consultation and consent from
76. https://ec.europa.eu/commission/presscorner/ those likely to be affected.
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N atural capital for climate finance and green gro w th in A frica  159
COUNTRY NOTES

 161
 CENTRAL AFRICA

162 C ountry notes

 Cameroon
Recent macroeconomic and 3.3% in 2024, thanks to continued tightening of mon-
financial developments etary policy by the Bank of Central African States. The
Real GDP growth slipped to 3.4% in 2022 from 3.6% budget deficit is projected to further narrow to 0.8%
in 2021 due mostly to continued investment and higher of GDP in 2023 and 0.6% in 2024, though the current
nonoil activity. Inflation rose to 6.2% in 2022 from 2.3% account deficit is projected to widen to 2.9% of GDP
in 2021, above the Central African Economic and Mon- in 2023 and 3.1% in 2024. Public debt is projected
etary Community (CEMAC) target of 3%. The increase to reach 45.8% of GDP in 2023. Possible headwinds
can be attributed largely to higher import costs. Con- include the effects of geopolitical tensions—notably
trol of persistent inflation pressures in the CEMAC area Russia’s invasion of Ukraine, which has increased
led to tighter monetary policy by the Bank of Central uncertainty around supply chains, most notably in the
African States. The tender interest rate was raised energy sector.
twice, from 3.5% to 4.0% in March 2022 and to 4.5% in
September 2022.
The budget deficit narrowed from 2.4% of GDP in Climate change issues and policy
2021 to 1.9% in 2022. The current account deficit nar- options
rowed to 1.7% of GDP from 4.0% in 2021. The risk of The private sector’s contribution to green growth
overindebtedness is high. The banking and financial finance is vital. An estimated $57.6 billion in climate
system is weakening due primarily to the nonperforming finance is needed to achieve the objectives set for
loans ratio (nearly 15%), as well as strong exposure to 2030. But over 2015–20, Cameroon mobilized only
the outstanding debts of public enterprises, estimated $162.4 million a year as part of its commitments under
at 478 billion Central African CFA francs in 2021. Pov- the Paris Agreement. Of the $380 million committed
erty was estimated at 37.5% in 2014, down slightly from to climate finance, only 3% is from the private sector.
39.9% in 2007. The sector’s participation is thus one of the main chal-
lenges to implementing climate actions through cli-
mate finance instruments, such as green bonds and
Outlook and risks green climate funds. Cameroon could take advan-
Real GDP is projected to grow 4.2% in 2023 and 4.5% tage of its substantial natural capital to finance green
in 2024 thanks to the gradual improvement in the inter- growth. Reducing illicit trade and flows linked to the
national economic context and higher national gas exploitation of natural resources as well as improved
production and global commodity prices. Inflation is management could lead to higher revenue to finance
projected to decline gradually, to 5.9% in 2023 and green growth.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 4 8 0 0
4.5 –0.6
2 6
4 –2 –2
1.9
3.6 0 4 –2.4
–3.1
2 3.3 –4 –4
–2 2 –4.0
2.3
1.0
0 –4 0 –6 –6
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 163

 Central African Republic
Recent macroeconomic and and rigidity in food prices. The primary budget deficit is
financial developments projected to narrow to 4.1% of GDP in 2023 and 3.9% in
Real GDP grew 0.5% in 2022, down from 1% in 2021 2024, driven by budget savings from lower government
and 2020, due to the prolonged shortage of oil products subsidies and substantially higher nontax revenue,
and the effects of Russia’s invasion of Ukraine. Infla- especially public service revenue. The current account
tion rose to 7.9% in 2022 from 4.3% in 2021, driven by deficit is projected to narrow to 12.2% of GDP in 2023
higher oil and food prices. Monetary policy was accom- and 10.5% in 2024 due to revitalized logging and better
modative in 2022, with a 4.5% prime rate, facilitating a governance in extractives. Prospects depend strongly
29.7% increase in domestic credit. External assets con- on security in the country and in the corridor with Cam-
tracted 102% from 2021 to 2022, which correlated with eroon, public budget financing, and fuel supplies.
a drop in external financing and a rise in import costs.
The primary budget deficit narrowed to 4.6% of GDP
in 2022 from 6% in 2021 on a markedly weak tax base Climate change issues and policy
and undiversified revenue. The current account defi- options
cit widened to 13.8% of GDP in 2022 from 10.8% in The Central African Republic benefits from rich and
2021 on undiversified and low exports. Public debt was diverse natural capital (arable land, crude oil, natural
an estimated 49.0% of GDP in 2022, up from 47.8% gas, diamonds, gold, and the like), with exceptional
in 2021 and 44.1% in 2020. Risk of both external and forest density of more than 87 million cubic meters of
overall debt distress remains high. The financial position exploitable mixed species. However, average need
is exemplified by higher bank balance sheets (up 14.7% over 2020–30 for mitigation, adaptation, and loss and
in 2022) and lower outstanding receivables due to the damage is $393.8  million a year. The private sector
resumption of economic activity after the COVID-19 should be encouraged to become an alternative to
pandemic. The Central African Republic ranked 188th the public sector in order to boost green finance.
of 191 countries on the Human Development Index in Between 2010 and 2020, despite a small carbon foot-
2021. Almost 80% of the population are vulnerable to print, the country mobilized only $715 million, or 10%
chronic poverty, 68.8% of them live below the national of the resources mobilized by Central African Eco-
poverty line (€1.10 a day), and 10.1% are vulnerable to nomic and Monetary Community countries and 50% of
poverty in case of a shock. the resources mobilized by Chad. Between 2019 and
2020, an average of $101 million was mobilized, 97% of
it from public sources and only 3% from private ones.
Outlook and risks These results are due to a sluggish and embryonic pri-
Real GDP is projected to grow 2.0% in 2023 and 2.9% vate sector, specifically the banking sector (with four
in 2024 due mainly to encouraging prospects in the pri- commercial banks), as well as the lack of suitable and
mary sector (which is projected to grow 4.1% in 2023 advantageous instruments (green bonds, carbon credit
and 5.3% in 2024) and the tertiary sector (which is pro- pledges, lines of credit and guarantees with secondary
jected to grow 3.2% in 2023 and 3.9% in 2024). The banks, targeted refinancing lines with the Central Bank,
engines of this growth are expected to be export agri- and so on). Supported by an incentivizing regulatory
culture, extractives, manufacturing and food industries, framework, such instruments would allow companies
trade, and telecommunications. Inflation is projected to to invest in agricultural and forest projects, legal ex-
remain high, at 6.4% in 2023, driven by rising oil prices tractives, the renewable energy sector, and the like.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
4 0 8 0 0
2.9 –0.2
3 –1.2 6 –2
–1
5.9 –5
–3.9
2 –2 4 –4
4.3
–10.5
1.0 –10 –10.8
1 –3 2 –6
–6.0
0 –4 0 –8 –15
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

164 COUNTRY NOTES

 Chad
Recent macroeconomic and projected to decline to 3.5% in 2023 and 3.2% in 2024,
financial developments close to the Economic Community of Central African
Real GDP grew 2.4% in 2022, up from 1.1% growth in States target of 3%. The current account is projected to
2021 and a 2.2% contraction in 2020, due mainly to return to a deficit, of 1.2% of GDP in 2023 and 4.4% in
the resumption of oil production driven by higher global 2024, due to increased imports of high-cost food prod-
prices and Russia’s invasion of Ukraine. On the demand ucts. In January 2023, the International Monetary Fund
side, growth was driven mainly by exports and, to a approved the first and second reviews of the extended
lesser extent, household consumption. Inflation rose credit facility approved in December 2021, worth $570
to 5.3% in 2022 after deflation of 0.8% in 2021 due to million. Possible headwinds include deteriorating living
global inflation, particularly for food prices (including conditions among poor households due to global
18.4% for cereals at the end of December 2022). The inflation and high exposure to the impacts of climate
budget balance turned to a surplus of 0.5% of GDP in change, oil price volatility, and political and security
2022 from a deficit of 2.4% in 2021 thanks to substantial shocks.
oil revenue.
Public debt was 55.9% of GDP in 2021, with exter-
nal debt of 25.5% of GDP and internal debt of 30.4%, Climate change issues and policy
resulting in high risk of debt distress. Chad was among options
the first countries to benefit from the Debt Service Climate change is a major problem for a country such
Suspension Initiative, which shifted the composition of as Chad, which is highly exposed to the resulting
external public debt considerably toward commercial adverse effects. The estimated financing needed to
debt. The current account balance turned to a surplus adequately respond to climate change is $16.4 billion
of 0.5% of GDP in 2022 from a deficit of 4.5% in 2021. over 2020–30, or $1.5 billion a year. Chad has set up
Global inflation also led to deteriorating living standards a Special Fund for the Environment, but private climate
for poor households, aggravated by the 2022 floods, finance remains very low despite substantial potential.
which affected more than 340,000 people. Beyond corporate social responsibility, the extractive
sector, the economy’s main driver, has huge potential
for green financing. Extractive companies could con-
Outlook and risks tribute to financing green infrastructure to offset the
Real GDP is projected to grow 3.6% in 2023 and 3.7% huge shortfall in electricity supply. Strengthening gover-
in 2024, fueled by strong momentum in the oil sector. nance in the extractive sector could increase public rev-
Since 2020, the budgetary position has been stable, enue to fund the green economy. Chad has substantial
with a deficit of less than 3% of GDP. The fiscal sur- natural resources and thus a large stock of environmen-
plus is projected to widen to 6.1% of GDP in 2023 and tal capital, including oil and gas deposits, minerals, and
5.3% in 2024. Following the second round of debt rene- solar and wind energy potential, as well as Lake Chad,
gotiations in 2022, the country is expected to return which constitutes an important regional ecosystem for
to moderate risk of debt distress by 2024. Inflation is the survival of the neighboring population.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
4 2 6 8 2
3.7 0.6 5.3
6
2 0 4 0
4
3.2
0 –2 2 2 –2
0
–2 –1.1 –4 0 –4
–4.3 –2
–0.8 –4.5 –4.4
–6 –2.4 –6
–4 –2 –4
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 165

 Congo
Recent macroeconomic and be 3% in 2023 and 2.9% in 2024, linked to increased
financial developments economic activity and the effects of Russia’s invasion
Real GDP grew 3.2% in 2022, up from 1.5% in 2021, of Ukraine on the price of imported commodities. The
thanks to strong performance in both the oil and nonoil budget surplus is projected to slip to 6.4% of GDP in
sectors, which grew 45.3% and 3.4%, respectively. The 2023 and 5.6% in 2024, and the current account sur-
main sources of nonoil growth were agriculture (with plus is projected to narrow to 9.8% of GDP in 2023
4.9% growth) and lumber (with 6.5% growth), the clear- and 2.6% in 2024. Rising domestic demand and a 5%
ing of domestic arrears, and public investment spend- increase in the pump price of oil products, coupled with
ing. In response to risks linked to low foreign exchange adverse weather conditions exacerbated by climate
reserves and concerns raised by inflationary pressures, change, could affect the availability of agricultural prod-
the Bank of Central African States raised the bench- ucts or lead to food insecurity and additional inflationary
mark rate to 4% in 2022, following a 25 basis point pressures.
increase to 3.5% in 2021. Overall inflation was 3% in
2022, with food inflation, at 6.3%, due to rising food
prices and the effects of Russia’s invasion of Ukraine. Climate change issues and policy
Credit to the economy rose 6.2% in 2022, up from 1.6% options
in 2021, buoyed by the economic recovery and house- Estimated climate finance need is $13.0 billion over
hold and business consumption. The nonperforming 2020–30, or $1.2 billion a year. If Congo receives the
loans ratio fell, reducing banking system vulnerability. same $62.4 million a year that it received over 2010–20,
The budget surplus reached 6.5% of GDP in 2022, it will face a deficit of $1.1 billion a year. With no sover-
up from 1.5% in 2021, driven by higher oil revenue eign fund, no pension fund, and no investment capital
and greater mobilization of nonoil revenue due to tax to contribute to this deficit, Congo has started to mobi-
administration reforms. Debt fell to 109.7% of GDP from lize private investment. The government signed partner-
114.4% in 2021. Higher export revenue and a strong ship agreements with Total Nature Based Solutions (for
exchange rate against the US dollar led to an exter- a 150 billion CFA franc investment in 40,000 hectares
nal current account surplus of 19.2% of GDP, up from of forests for carbon sinks) and with Renco Green Sarlu
11.9% in 2021. Foreign exchange reserves were 2.6 (for a 53 billion CFA franc investment in a 30 million ton
months of import cover in 2022, up from 1.5 months carbon garden). The country’s bogs and 23.5 million
in 2021. hectares of forest form a stock of natural capital capa-
ble of supporting climate finance. Alongside a green
bond market, Congo could mobilize substantial private
Outlook and risks finance by selling carbon offsets to private companies.
Real GDP is projected to grow 4.2% in 2023 and To increase private finance, legislation is needed on the
4.4% in 2024, driven by consumption, investment, and carbon market and tax incentives promoting climate
exports on the demand side and by growth in the oil change adaptation and mitigation. National capacities
and nonoil sectors (projected at 3.8% and 4.2% a year, and technical skills on innovative climate finance also
respectively) on the supply side. Inflation is projected to need to be strengthened.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 4 4 8 20
4.4 2.2
3 6 15
4 2 2.9 5.6
2 4 10 11.9
2.0
2 0 2.6
1 2 5
1.5
–0.8 1.5
0 –2 0 0 0
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

166 COUNTRY NOTES

 Democratic Republic of Congo
Recent macroeconomic and the bank is expected to adopt a restrictive monetary
financial developments policy in 2023. The budget deficit is projected to narrow
Real GDP grew 8.5% in 2022, up from 6.2% in 2021, to 2.6% of GDP in 2023 and 2.2% in 2024, with aver-
thanks to momentum in the extractive sector (which grew age debt stabilizing at 24.1% of GDP between 2023
20.8%) and recovery in the nonextractive sector (which and 2024. The current account deficit is projected to
grew 3.2%), driven by services despite a deteriorating narrow to 4% of GDP on average between 2023 and
security situation in the east of the country. Economic 2024. The extractive sector has the potential to boost
growth was driven on the demand side by robust exports climate finance, and foreign exchange reserves could
(which grew 23.8%) and investment (which grew 18.6%), reach $6.4 billion (1.9 months of import cover) on aver-
despite a global energy crisis. Inflation reached 9.1% in age over 2023–24. Possible headwinds include uncer-
2022 due to high food and imported energy prices. The tainties linked to Russia’s invasion of Ukraine, a drop in
budget deficit widened to 2.8% of GDP in 2022 from raw materials prices, high imported inflation, and inse-
0.9% in 2021 due to exceptional spending (security, elec- curity in the east of the country.
tions) and despite the exceptional increase in revenue and
aid, which rose to 17.2% of GDP from 13.7% in 2021.
The risk of overindebtedness remains moderate Climate change issues and policy
despite a 1 percentage point increase in public debt options
from 2021 to 2022, to 24.7% of GDP. To mobilize local The private sector accounted for only 1.9% of the $424
savings and finance the economy, the African Devel- million in climate finance between 2019 and 2020.
opment Bank is supporting the country in developing Overall finance has been earmarked for infrastructure
financial markets and local currency bonds. The Cen- (24%) and agriculture (13%) and has benefited adap-
tral Bank of the Congo is also supporting this initiative, tation (66%), mitigation (25%), and various other goals
which is compatible with its monetary policy goals. (9%). The National Adaptation to Climate Change Plan
Despite the increase in the prime rate from 7.5% in Jan- (2022–2026) calls for developing public–private partner-
uary 2022 to 8.25% in November 2022, credit to the ships to mobilize private finance. The experience of the
private sector more than doubled from 17.8% in 2021 World Wide Fund for Nature in the Democratic Republic
to 39.6% in 2022 due to economic dynamism. Interna- of Congo with the carbon market is imperfect and has
tional reserves rose 54%, to 1.7 months of import cover, yielded $1.3 million to the North Kivu province. The esti-
in 2022, due to increased mining exports. But the cur- mated cost of adaptation and mitigation through 2030
rent account deficit widened from 1% of GDP in 2021 to is $48.7 billion, but government revenue was only $11.7
6.4% in 2022. Income poverty was estimated at 56.2% billion in 2022. The estimated finance needed to sustain
in 2020. green growth for 2021–30 totals $66.0 billion, or $7 bil-
lion a year, leaving a climate finance deficit of $6.2 billion
a year. The mining sector, which dominates the econ-
Outlook and risks omy (accounting for 98.9% of exports), could finance
Real GDP is projected to grow 8% in 2023 and 7.2% in this deficit. Good governance is a priority for exploiting
2024, driven by the extractive sector, which is expected natural capital (wood, copper, cobalt, oil, gas, water
to grow at least 12% between 2023 and 2024. Priority resources, and the like) to fulfill ecological, economic,
investment by the agricultural transformation program social, and cultural goals. Natural capital per capita fell
could boost growth even further. Inflation is projected more than 5% between 1995 and 2018. Meanwhile, the
to rise to 13.2% in 2023 before falling to 6.5% in 2024, African Development Bank has mobilized a $2 million
below the central bank’s 7% target. To fight inflation, multinational, climate finance project.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
10 6 15 0 0 –1.0
–0.9
8 –2
–1
4 10 9.0
7.2 –3.7
6 3.9
6.2 –2 –2.2 –4
4 3.0
2 5 6.5
–3 –6
2

0 0 0 –4 –8
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 167

 Equatorial Guinea
Recent macroeconomic and energy prices, the government is negotiating with for-
financial developments eign suppliers of basic foodstuffs to facilitate imports,
Real GDP grew 3.1% in 2022, after contracting 0.9% including through transportation subsidies. Inflation is
in 2021, driven by the strength of the nonoil sector. thus projected to fall to 4.0% in 2023 and 2.2% in 2024
Growth was also boosted by household demand. The due to government measures to mitigate the effects of
budget surplus widened to 4.8% of GDP in 2022 from rising food prices. But the prospect of lower oil prices
2.6% in 2021. Public debt dropped from 42.8% of GDP combined with aging oil wells is a risk for planned social
in 2021 to 27.1% in 2022. Inflation was an estimated 5% programs.
in 2022, after 1.3% deflation in 2021, due to higher food
prices resulting from Russia’s invasion of Ukraine. The
Bank of Central African States raised the marginal lend- Climate change issues and policy
ing rate from 5.25% to 5.75% in March 2022 and the options
compulsory reserve ratio to 7% on demand liabilities Estimated climate finance need over 2020–30 is $6.7
and 4.5% on term liabilities. billion, or $620 million a year. Estimated finance mobi-
Economic recovery widened the current account lized in 2020 was $41 million—$3 million (8%) from the
surplus to 3.9% of GDP in 2022 from a deficit of 4.0% private sector and $37 million (92%) from the public
in 2021. International reserves rose from 2.7 months of sector. Private finance comes exclusively from institu-
import cover in 2021 to 3.5 months in 2022, above the tional investors, and public finance comes principally
target of 3 months. Higher prices for consumer goods from multilateral development finance institutions ($32
and transportation reduced household purchasing million, or 78%), multilateral climate funds ($4 million,
power and accentuated urban poverty, which reached or 9%), and the government ($2 million, or 4%). For-
67% of the population during the COVID-19 pandemic, estry and other land use and fishing account for $32
leading to an overall poverty rate of 67% in 2022. million (80%), and multisector activities account for
$8 million (20%). The country has considerable natu-
ral capital, including the Congo Basin, a major source
Outlook and risks of carbon credits and climate resilience. It is also rich
Real GDP is projected to decline 1.4% in 2023 and in bays, rivers, and mangroves; has a well developed
6.3% in 2024 due to aging oil wells and the effects of river system; and maintains a maritime environment
Russia’s invasion of Ukraine. The budget deficit is pro- that favors productivity in economically valuable fisher-
jected to narrow to 2.5% of GDP in 2023 and 3.9% in ies resources that could contribute to climate finance
2024. The current account deficit is projected to con- and green growth. However, the government needs to
tinue to widen, to 8.1% of GDP in 2023 and 9.0% in put in place a regulatory environment and policies that
2024. To reduce the social impact of higher food and incentivize this type of financing.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
4 2 6 6 5
0
4 3
0 –2 2.6 0
–0.9 –4 2 0
–3.3 2.2
-4 –6 –5 –4.0
–8.7 0 –3 –3.9
–8 –9.0
–6.3 –1.3
-8 –10 –2 –6 –10
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

168 COUNTRY NOTES

 Gabon
Recent macroeconomic and current account balance is likely to narrow to 1.9%
financial developments of GDP in 2023 before widening slightly to 2.1% in
Real GDP grew 3.0% in 2022, up from 1.5% in 2021, 2024. Inflation is projected to rise to 3.8% in 2023,
due to the healthy state of the oil sector (which grew still above the 3% target due to effects of Russia’s
7.1%) and the nonoil sector (which grew 2.3%). Growth invasion of Ukraine, before dropping to 2.9% in 2024.
in the oil sector was driven by the 45.3% rise in oil price Possible headwinds include the continuing COVID-19
associated with the 6.1% increase in oil production in pandemic, effects of Russia’s invasion of Ukraine, and
2022, and growth in the nonoil sector was driven by political instability linked to presidential elections in
agriculture (which grew 4.9%), forestry (which grew August 2023.
6.5%), and transportation (which grew 4.2%). The Bank
of Central African States tightened monetary policy
in 2022 by raising key rates several times to respond Climate change issues and policy
to inflationary pressures and boost foreign reserves. options
Inflation rose to 4.2% in 2022 from 1.1% in 2021 due Green finance remains limited despite the country’s sub-
to higher food prices and the effects of Russia’s inva- stantial natural capital, which consists of forests, arable
sion of Ukraine. The fiscal balance turned to a surplus land, minerals, oil, waterways, and the like. About 88%
of 0.8% in 2022 from a deficit of 1.1% in 2021 due to of the country is covered by forest, a massive carbon
higher oil revenue (up 51.8%). Debt fell to 52.6% of GDP sink, which according to the REDD+ initiative allowed
in 2022 from 66.0% in 2021 thanks to lower financing the country to absorb 187 million tons of carbon diox-
needs. Reserves, which are used to finance the debt, ide between 2010 and 2018. In July 2022, the country
dropped from 3.0 months of import cover in 2021 to committed to being carbon-neutral by 2050. The esti-
2.64 in 2022. The current account deficit was 1.2% in mated finance needed to adequately respond to climate
2022 thanks to 45.7% growth in exports of goods and change for 2020–30 is $658 million a year, while an
services. average of $83 million a year was received in 2010–
Despite natural resources wealth and high GDP per 20. All these funds came from the public sector: 57%
capita ($8,017 in 2021), social indicators remain poor, from the government, 37% from multilateral partners,
with poverty estimated at 33.4% and unemployment and 5% from climate funds. The two national financial
estimated at 28.8% in 2021. institutions accredited by the Green Climate Fund to
mobilize green finance are the Caisse des Dépôts et
Consignations and the Fonds Gabonais d’Investisse-
Outlook and risks ments Stratégiques. The private sector has only limited
Real GDP is projected to grow 2.7% in 2023 and 2.8% involvement in financing climate objectives due to low
in 2024 due to high demand for export products (oil, financial returns on associated projects. The govern-
manganese, wood, palm oil) and continued economic ment could encourage private investment in sustain-
reforms. The budget balance is projected to remain able climate projects through tax incentives, innovative
in surplus, at 1.6% in 2023 and 1.2% in 2024. The financing mechanisms, and favorable regulation.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
4 2 5 2 0

2.8 0.9 4
3 1 1 1.2 –2.1
–2
3
2 0 2.9 0
2
–4
1 1.5 –0.6 –1
–1 1
1.1 –1.1
–2 –6 –5.3
0 –2 0
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 169

 EAST AFRICA

170 C ountry notes

 Burundi
Recent macroeconomic and in 2024. Public debt is projected to grow to 67.6% of
financial developments GDP in 2023 before falling to 65.5% in 2024 thanks to
Real GDP grew an estimated 4.0%, up from 3.1% in budget consolidation, exchange rate unification, and
2021, led by public investment. The effects of Russia’s higher mining exports. Possible headwinds include
invasion of Ukraine worsened the budget deficit, which sociopolitical instability and disruptions in access to fer-
widened to 5.1% of GDP in 2022 from 2.9% in 2021. tilizer, which could reduce agricultural returns and lead
The deficit was financed by external grants and loans to inflationary pressures. Boosting security and partner
as well as domestic loans and arrears. Public debt fell support to develop the agricultural sector could mitigate
slightly in 2022, to 66.4% of GDP from 66.6% in 2021, these risks.
but the risk of overindebtedness remains high.
The higher cost for imports of oil products, fertilizer,
and food products, exacerbated by Russia’s invasion of Climate change issues and policy
Ukraine, worsened both inflation and the trade deficit. options
Inflation more than doubled from 8.4% in 2021 to 18.7% If Burundi receives the same $186 million a year in
in 2022. The trade deficit rose from 28.0% of GDP in climate finance that it received during 2016–20, the
2021 to 28.7% in 2022, and the current account defi- resulting climate finance deficit for 2020–30 will grow
cit rose from 11.0% of GDP in 2021 to 13.4% in 2022. from $178.4 million a year to $215.0 million. This would
The widening foreign deficit exacerbated the currency severely limit capacity to strengthen climate resilience
shortage, leading to a 2.9% depreciation of the Burundi and promote green growth. Despite this considerable
franc against the US dollar between late August 2021 need, the country has yet to mobilize substantial cli-
and August 2022. Reserves were estimated at 1.7 mate finance from the private sector due to the dis-
months of import cover in late August 2022, down from couraging business climate. Burundi could capitalize
3.1 months a year earlier. The poverty rate declined on its rich natural capital—504,116 hectares, or 17.5%
from 64.6% in 2014 to 62.8% in 2020. of its territory, including 8.7% of forest ecosystems
and 9.5% of aquatic and semiaquatic ecosystems—to
contribute to climate finance and green growth. This
Outlook and risks could include debt-for-environment swaps, which could
Real GDP is projected to grow 4.5% in 2023 and 4.6% provide a double dividend of environmental protection
in 2024 thanks to public investment in transporta- and improved public debt sustainability. Due to its low
tion and energy. Measures aimed at boosting agricul- carbon footprint, Burundi could also cash in on refor-
tural production and stabilizing the exchange rate are estation by participating in the carbon market, which
expected to reduce inflation, which is projected to drop could mobilize private finance to support green growth.
to 10.3% in 2023 and 9.0% in 2024. Intensified mining, The country’s natural attractiveness is an opportunity to
international economic and financial aid, and migrants’ mobilize private investment in tourism (whose revenue
remittances may help narrow the current account defi- accounted for 4.3% of GDP in 2019) by developing and
cit, projected to be 12.1% of GDP in 2023 and 6.3% exploiting tourism sites through private operators.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 4 20 0 0
4.6
3 15 –4
–2 –6.3
4 –2.9
2.0
2 10 –3.7 –8
3.1 –11.0
2 8.4 9.0 –4
1 0.4 5 –12

0 0 0 –6 –16
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 171

 Comoros
Recent macroeconomic and on the demand side. Inflation is projected to decline due
financial developments to downward trending global prices. The budget deficit is
Real GDP grew an estimated 2.9% in 2022, up from projected to remain high due to increased public spend-
2.2% in 2021, despite the surge in global prices following ing linked to continued government subsidies for certain
Russia’s invasion of Ukraine. On the supply side, agricul- products and support for the economic recovery, spe-
ture held up better, benefiting from the high prices of cifically public investment. The current account deficit is
major export commodities. On the demand side, growth projected to widen to 4.5% of GDP in 2023 due to an
was driven by household final consumption spending, anticipated drop in the trade deficit following economic
sustained by fund transfers from the diaspora. Inflation recovery and reduced external aid. Public debt is pro-
rose to 12.4% in 2022 from 0.1% in 2021 on the spike in jected to rise moderately, and foreign exchange reserves
energy and food prices. The central bank implemented are projected to remain high. Possible headwinds are
a restrictive monetary policy in 2022, raising the mini- escalation of Russia’s invasion of Ukraine, reduced aid
mum reserve requirement from 10% to 15% and con- and external financing, and sociopolitical turmoil.
ducting several liquidity-absorbing operations.
The budget deficit widened to 3.0% of GDP in 2022
due to rising public spending caused by higher prices Climate change issues and policy
and government subsidies on rice and flour. Debt options
was an estimated 32.7% of GDP in 2022, but the risk Climate finance depends on development partners.
of overindebtedness is high due to limited repayment Having experienced a series of external shocks,
capacity for nonconcessional loans. Foreign exchange Comoros must commit to green growth funded with
reserves were an estimated 9.5 months of import cover private support to achieve sustainable development,
in 2022, down from 10.4 months in 2021. The current economic growth, and climate action. The country has
account balance turned to an estimated deficit of 3.2% great potential for green growth, specifically its unique
of GDP in 2022 from a surplus of 0.4% in 2021 due to biodiversity and renewable energy potential. Since
a structurally high trade deficit and lower foreign aid. 2020, private international developers have started to
The nonperforming loans ratio fell from 16.8% in 2021 invest in mini solar power stations, following the liberal-
to 13.9% in 2022. The poverty rate was an estimated ization of electricity production and a commitment from
39.8% in 2022, up slightly from 39.7% in 2021. the National Electricity Distribution Company to buy
electricity produced from imported fossil fuels. Trans-
fers from the diaspora—almost $232 million in 2021,
Outlook and risks equivalent to 16.5% of GDP—could also be used to
The medium-term economic outlook is favorable, though finance low-carbon flagship infrastructure projects. This
fragile, with GDP projected to grow 3.5% in 2023 and would require improving climate data, strengthening the
4.0% in 2024, supported by implementation of both the public–private cooperation framework, and developing
Plan Comores Émergent and the four-year arrangement innovative climate finance instruments. The estimated
under the IMF Extended Credit Facility for around $43 value of natural capital—primarily forests, coastal eco-
million, expected to be approved in 2023. The engines of systems, and agricultural land—was $1.3 billion in 2018.
growth are expected to be services and agriculture on the Properly exploiting this natural capital could support cli-
supply side and household final consumption expenditure mate finance and sustainable green growth.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 3 15 0 2
0.4
4.0 2.1
0
4 2 10 –2 –2.4 –2.6
–2

2 1 5 –4
2.2 0.3 –4
2.0 –4.8
0.1
0 0 0 –6 –6
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

172 COUNTRY NOTES

 Djibouti
Recent macroeconomic and and 2024 due to current spending and higher invest-
financial developments ment. The current account surplus is projected to con-
Real GDP growth fell to 3.7% in 2022 from 4.8% in 2021 tinue to narrow in 2023–24 due mainly to lower exports
due to reduced port traffic attributable to the Tigray and stagnation in revenue from foreign military bases.
war and lower public investment. In 2022, the socio- Public debt is projected to increase to 73% of GDP over
economic impacts of the COVID-19 pandemic eased, 2023–24 thanks to foreign loans used to finance infra-
and inflation rose to 5.3% from 1.2% in 2021 due mainly structure projects. Foreign exchange reserves are pro-
to higher food prices. Expansionist monetary policy jected to remain at approximately 3 months of import
aims to support economic activity and counteract cover over 2023–24. Possible headwinds include a
the impact of numerous external shocks. The budget return of instability in Ethiopia, difficulties in repaying
deficit narrowed to 1.0% of GDP in 2022 from 1.3% in external debt, a prolongment of Russia’s invasion of
2021 due to reduced aid and higher tax revenue. The Ukraine, the recurrent impact of climate change, and a
deficit was financed largely by accumulated external resurgence of COVID-19.
arrears, bank loans, and external borrowing. The cur-
rent account surplus narrowed from 28.0% of GDP in
2021 to 25.1% in 2022 due to exports falling more than Climate change issues and policy
imports and transfers dropping with no counterparts. options
Risk of external overindebtedness is high. Public Djibouti is particularly vulnerable to climate change,
debt fell from 74.1% of GDP in 2021 to 71.6% in 2022. which threatens food security and water resources.
Foreign exchange reserves were an estimated 3 months Despite the country’s negligible contribution to global
of import cover in 2022. Although the banking sector greenhouse gas emissions, the government has com-
remains stable and liquid, performance was mixed in mitted to reducing emissions 40% by 2030. This volun-
2022, with deposit withdrawals and a resumption in tary commitment requires major investment in mitigation
bank financing. The nonperforming loans ratio fell to and adaptation. In 2015, climate finance need totaled
5.5% in September 2022 from 16.2% at the end of 2019 $5.5 billion, some of which has been mobilized. Climate
due to the strict consolidation policy on outstanding finance requires an additional 2.2% of GDP, and green
receivables. The poverty rate fell from 16.9% in 2021 to economy 8.4%. Energy, water, transportation, industry,
16.5% in 2022 due to government measures to mitigate and waste management are priority areas for green
multiple shocks. economy opportunities. Private finance for climate
change and a green economy remains undeveloped
and low. Despite limited natural resources, the potential
Outlook and risks for developing renewable energies, ecotourism, fishing,
With peace returning to Ethiopia, Djibouti’s medium- and salt is strong. Strengthening the legal, regulatory,
term economic outlook is favorable. GDP is projected and incentive framework and planning capacities could
to grow 5.4% in 2023 and 6.5% in 2024. Inflation is pro- mobilize further private financial resources. The inter-
jected to drop to 3% on average over 2023–24 as the national community’s contribution remains decisive in
price of essential goods remains high. The budget defi- meeting the country’s finance needs for climate change
cit is projected to widen to 2.1% of GDP between 2023 and a green economy.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 6 8 0 30
6.5 5.1
28.0
6 6 -1
4.8 4 3.4 20
–1.3 21.5
4 4 -2

2 –2.2 10
2 2 2.8 -3
1.2
0 0 0 -4 0
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 173

 Eritrea
Recent macroeconomic and in 2023 and 1.2% in 2024 on account of fiscal consoli-
financial developments dation. The current account surplus is projected to drop
Real GDP growth slowed to an estimated 2.3% in 2022 to 10.8% of GDP in 2023 and 10.2% in 2024 due to fluc-
from 2.5% in 2021 due partly to the impact of Russia’s tuations in international commodity prices. Headwinds
invasion of Ukraine on energy, fertilizer, and food prices. include climate change and the effects of Russia’s inva-
Russia and Ukraine account for nearly 100% of Eritrea’s sion of Ukraine and the conflict in northern Ethiopia on
wheat imports, and oil constitutes 71% of the country’s supply chains. Poverty is expected to remain high as
energy consumption. Other factors include the effects the share of the working poor, those who earn $3.10 (in
of COVID-19 on value chains, climate shocks, and the purchasing power parity terms) a day, in total employ-
conflict in northern Ethiopia. Growth in 2022 was led by ment was an estimated 75.2% in 2019.
industry and services on the supply side and by private
consumption and investment on the demand side.
The recovery in public revenue due to higher interna- Climate change issues and policy
tional prices for metals (copper, gold, and ores consti- options
tute 50% of exports) and fiscal consolidation narrowed Eritrea is among the most climate-vulnerable coun-
the fiscal deficit to 2.2% of GDP in 2022 from 4.1% in tries globally, with the least readiness. The estimated
2021. The fiscal deficit was financed by drawdowns of average climate finance gap for Eritrea over 2020–30 is
government deposits with the central bank. Despite a $1.202 billion a year, greatly limiting the country’s ability
drop in the public debt–to-GDP ratio to 164.7% in 2022 to build climate resilience. During 2009–19, the country
from 176.3% in 2021, reflecting debt servicing, Eritrea responded to climate change hazards through several
remains in debt distress. The current account surplus projects, financed largely through grants and loans from
narrowed to 12.2% of GDP in 2022 from 13.5% in 2021, bilateral and multilateral partners. Most climate finance
reflecting the uptick in imports due to higher interna- was allocated to adaptation programs, notably interven-
tional prices for energy and food. International reserves tions to restore degraded land and capacity building.
were estimated at 4 months of import cover in 2022. The private sector remains small, with low capacity and
Inflation rose to 7.5% in 2022 from 4.5% in 2021 on access to finance. Limited awareness and the absence
account of higher energy and food prices. The financial of catalytic risk-sharing instruments are among the key
sector remains bank-based with limited products. The bottlenecks to private finance for climate and green
nakfa is fixed at 15 per US dollar in the official market. growth. Consequently, there is a need to develop
national platforms for exchanging knowledge and infor-
mation related to climate change adaptation and miti-
Outlook and risks gation. Eritrea has substantial endowments of copper,
Real GDP is projected to grow 2.6% in 2023 and 3.1% silver, zinc, gold, and potash, which accounted for
in 2024 due to higher international prices for metals, led about 10% of GDP and 50% of exports during 2010–19.
by industry and services on the supply side and pri- Strong potential also exists for wind and solar energy.
vate consumption and investment on the demand side, In this context, implementing economic and financial
reflecting the uptick in public and private consumption governance reforms to boost competitiveness and
consistent with the reopening of economic activities. enhance the enabling environment for private finance of
The fiscal deficit is projected to narrow to 1.9% of GDP climate and green growth is equally important.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
4 3 8 0 15
3.1 –1.2
3 6 13.5
2.5 –2
2 10
10.2
2 1.3 4 5.0
4.5
1 –4 5
1 2 –4.1
0.7
0 0 0 –6 0
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data on the budget balance correspond to Eritrea’s fiscal year, which runs from July 1 to June 30.

174 COUNTRY NOTES

 Ethiopia
Recent macroeconomic and The fiscal deficit is projected to grow to 3.1% in 2023 and
financial developments 2.5% in 2024 due to the expected increase in govern-
Real GDP growth fell to 5.3% in 2022 from 5.6% in 2021 ment revenue driven by domestic resource mobilization
but remained above East Africa’s average (4.7% in 2021 improvements, implementation of the fiscal consolidation
and 4.4% in 2022). Supply-side drivers of growth were strategy, and resumption of donor inflows. The current
industry and services, and demand-side drivers were pri- account deficit is expected to narrow to 3.7% of GDP
vate consumption and investment. Inflation rose to 34% during 2023–24 as merchandise and service exports and
in 2022 from 26.6% in 2021. Both growth and inflation foreign direct investment rise and imports of capital inputs
were adversely impacted by internal conflict, drought, continue to decline. Headwinds include interethnic con-
and the effects of Russia’s invasion of Ukraine on com- flicts in different parts of the country, drought, debt vulner-
modity prices. The fiscal deficit widened to 4.2% of GDP abilities, and the impact of Russia’s invasion of Ukraine.
in 2022 from 2.8% in 2021 due to higher defense spend-
ing and weak revenue performance. The banking sector,
dominated by state-owned banks, is stable, although the Climate change issues and policy
nonperforming loans ratio was 5.4% in 2021, above the options
required 5.0% due to conflict-induced project stalling. Over $316 billion is required to finance Ethiopia’s adap-
The current account deficit deteriorated to 4.0% of tation (87% of the total) and mitigation (13%) targets
GDP in 2022 from 3.2% in 2021 due to higher prices for for 2021–30. However, only $63.2 billion of financing
commodity imports. International reserves declined to is expected to be mobilized from domestic sources,
about 1 month of import cover in 2022 from 2.2 months with the rest from international sources. The average
in 2021. Public and publicly guaranteed debt declined financing gap for 2021–30 is about $33.1 billion a year,
to 50.1% of GDP (with external debt at 23.6% of GDP) hampering Ethiopia’s ability to build climate resilience.
in 2022 from 51.0% in 2021. Ethiopia benefited from the Limited financing, low technical capacity, and the use
G20 Debt Service Suspension Initiative in 2020–21. How- of poor technologies restrain the operationalization of
ever, Ethiopia’s application for the G20 Common Frame- climate and green growth strategies. Economic reforms
work for debt restructuring in 2021 saw Fitch and S&P and the establishment of money and capital markets
downgrade its sovereign rating from B to CCC. Income will help increase the scope for financing green growth.
per capita grew 2.7% in 2022, but internal conflict and Tax relief and other incentives are needed to encourage
drought increased humanitarian support requirements private companies to invest more in climate and green
from 15.8 million people in 2021 to 20 million in 2022. growth as part of their strategic goals and corporate
social responsibility. Ethiopia launched its Natural Capital
Accounting Initiative to build a robust information system
Outlook and risks for natural capital to underpin national priorities and
GDP is projected to grow 5.8% in 2023 and 6.2% in 2024, strategies. Natural capital accounts for about 40% of
driven by industry, private consumption, and investment. wealth, with natural resource rents amounting to about
The peace dividend, rebounding tourism, and prospect 5% of GDP. Raising awareness of and mainstreaming
of liberalizing more sectors are expected to boost the climate and green growth policies in public and private
growth outlook. Inflation is projected to decline to 28.1% investment, especially in the natural resource sectors,
in 2023 and 20.1% in 2024, following the peace dividend. are important to exploit the natural capital potential.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
10 6 40 0 0

8
30
6.2 4 3.6 –2 –2.5 –2
5.6 –2.8
6 3.0 26.6 –3.2
20 –3.6
4 20.1
2 –4 –4
10
2

0 0 0 –6 –6
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 175

 Kenya
Recent macroeconomic and in 2024, in line with the fiscal consolidation path. The
financial developments current account deficit is projected to narrow to 5.2% of
Real GDP growth slowed to 5.5% in 2022 from 7.5% in GDP in 2023 and 5.0% in 2024, attributable to a recov-
2021, attributable to the drought, increased commod- ery in global demand. The outlook is subject to consid-
ity prices, and tight global financial conditions. Growth erable risks, including the effects of a prolongment of
was driven on the supply side by services and on the Russia’s invasion of Ukraine on commodity prices, tight
demand side by household consumption. Inflation rose global financing, drought, and slow global economic
to 7.6% from 6.1% in 2021, driven by food and energy recovery. Possible risk mitigation measures include
inflation. Inflation was moderated by subsidies and rais- diversifying exports and market destinations, enhanc-
ing the policy rate to 8.25% from 7% in 2021. The fiscal ing domestic resource mobilization, deepening financial
deficit narrowed to 6.3% of GDP from 8.2% in 2021 due sector reforms, and accelerating structural reforms.
to improved revenue collection and adherence to the
International Monetary Fund–supported fiscal consola-
tion path. Public debt rose to 70% of GDP from 68% in Climate change issues and policy
2021, driven by higher interest payments and exchange options
rate depreciation. Kenya’s Green Growth Index stagnated in the 48%–
The current account deficit widened to 6.0% of GDP 51% range during 2010–21, about halfway to its green
in 2022 from 5.5% in 2021, driven by the lower trade defi- growth target. This implies that if Kenya were supported
cit. It was financed by drawing down foreign exchange by green growth policies, it could promote economic
reserves, which fell to $7.42 billion (4.2 months of import growth while reducing vulnerability to climate change.
cover) at end-2022 from $9.5 billion (5.8 months) at end- Kenya’s national and sectoral green growth strategies
2021. The Kenyan shilling depreciated to 123.3 per US and policies are aligned with its Nationally Determined
dollar at end-2022 from 110.2 at end-2021. The capital Contribution (NDC). In 2019/20, NDC financing need
adequacy ratio of 18.9% and liquidity ratio of 55% were totaled $8.6 billion. Inflows from public and private
higher than the respective targets of 14.5% and 20%. sources amounted to $1.9 billion, 21% of which was
The nonperforming loans ratio remained high, at 14%. from the private sector. Kenya has the potential to scale
Credit risk concentration is high in manufacturing, energy up private climate finance through innovative financ-
and water, and agriculture. High extreme poverty (18%), ing approaches, such as green bonds, debt-for-nature
unemployment (12.3%), and income inequality (Gini co- swaps, blended financing, and climate markets. Renew-
efficient of 0.408)—manifestations of slow structural able natural capital rose slightly, whereas nonrenewable
change—remain challenges. natural capital rose 110% between 1995 and 2018. This
suggests the potential to leverage private climate finance
with natural resources. Notable initiatives enhancing nat-
Outlook and risks ural capital include continuing oil exploration, increas-
GDP is projected to grow 5.6% in 2023 and 6.0% in ing tree cover from 8.8% in 2022 to 30% by 2032,
2024, driven by services and household consumption. transitioning to 100% clean cooking by 2028, restoring
Inflation is projected to rise to 8.6% in 2023 and 5.9% 10.6 million hectares of degraded landscapes by 2032,
in 2024, driven by food and energy inflation. Monetary and increasing land under irrigation from 500,000 acres
policy is expected to remain tight. The fiscal deficit is in 2021 to 1.4 million acres by 2030. About 21%–30% of
expected to narrow to 6.1% of GDP in 2023 and 5.4% national territory is under forest cover.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 6 10 0 0
5.5
7.5 6.0 8 –2
6 4.0 –2
4 –4
6
5.9 –5.4 –4
4 6.1
–6 –5.0
4 –5.5
2
2 –6
2 –8
–8.2
0 0 0 –10 –8
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data on the budget balance correspond to Kenya’s fiscal year, which runs from July 1 to June 30.

176 COUNTRY NOTES

 Rwanda
Recent macroeconomic and to decline to 8.0% of GDP in 2023 and 6.8% in 2024
financial developments due to continued fiscal consolidation and higher domes-
GDP growth reached 10.9% in 2021 before declining to tic revenue. Debt is projected to remain at moderate
8.2% in 2022 due to climate shocks on domestic food risk. The current account deficit is projected narrow to
production; high energy, food, and fertilizer prices; and 11.3% in 2023 and 10.8% in 2024 on account of a tem-
weak external demand on exports. Inflation rose from porary reduction in capital imports, recovery in confer-
0.8% in 2021 to 17.7% in 2022, reflecting higher costs ence tourism, and strong remittances from the diaspora.
for imported goods and low domestic food production. Overall moderate economic performance is attributed to
The policy rate was raised 50 basis points, from 6.5% elevated risks from a prolongment of Russia’s invasion of
in November 2022 to 7% in February 2023, to reduce Ukraine and political tensions in the Great Lakes region.
increasing inflation. The government introduced fertilizer
and public transport subsidies to prevent a spiral in the
cost of living. Climate change issues and policy
The fiscal deficit was an estimated 8.8% of GDP options
in 2022, up from 8.5% in 2021, attributed to domestic Rwanda has articulated a bold vision to become car-
revenue mobilization that extra tax revenue equivalent bon-neutral by 2050, with ambitious climate adapta-
to 0.2% of GDP, while public debt remained at moder- tion and mitigation interventions, at a cost of $11 billion
ate risk. The current account deficit was an estimated by 2030. But the country faces challenges mobilizing
12.6% of GDP in 2022, up from 10.7% in 2021, because private financing due to high upfront capital needs for
of a high import bill. The capital adequacy ratio at the key projects, financing costs from banks, and collateral
end of September 2022 was 22.3%, far above the pru- requirements. To address these challenges, it launched
dential limit of 15%, while the average return on assets the Rwanda Green Investment Fund at the 2022 United
was 3.0% and the average return on equity was 5.1%. Nations Climate Change Conference. Capitalized with
The nonperforming loans ratio fell to 4.1% in September $104 million, the fund has been financing project prepa-
2022 from 5.1% in September 2021. The extreme pov- ration and providing concessional credit facility loans
erty rate declined from 47% in 2019 to 45% in 2021, and and guarantees to support small and medium enter-
unemployment worsened to 17.9% in 2020 from 15% prise investment in green projects. The fund aims to
in 2019, with youth unemployment up to 22.4% from mobilize climate finance at speed and scale to finance
18.2% during the same period. a pipeline of innovative projects in clean energy, smart
mobility, sustainable cities, climate-smart agriculture,
increased forest cover, and waste and the circular
Outlook and risks economy. These investments are expected to crowd in
Real GDP growth is projected to reach 7.6% in 2023 at least $364 million, create at least 372,000 jobs, and
and 8.0% in 2024 on account of continued slow recov- eliminate 1 million tons of carbon dioxide emissions by
ery in domestic agricultural production and recovery in 2030. The country’s stock of natural capital, economic
exports and conference tourism. Inflation is projected to value, and potential to support climate finance and the
fall to 7.4% in 2023 and 5.6% in 2024 on account of a transition to green and sustainable growth have not
drop in imported inflation. The fiscal deficit is projected been adequately estimated.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
12 10 20 0 0
10.9 8.5
10 8 –2
8.0 15 –5
8 5.7
6 –4
–10.7 –10.8
6 10 –10
4 –6 –6.8
4
5 5.6 –8.5 –15
2 –8
2
0.8
0 0 0 –10 –20
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data on the budget balance correspond to Rwanda’s fiscal year, which runs from July 1 to June 30.

COUNTRY NOTES 177

 Seychelles
Recent macroeconomic and accommodative, and inflation is projected to rise to
financial developments 4.3% in 2023 and 4.4% in 2024 on slower growth and
GDP growth rebounded to 7.9% in 2021 and 9.5% in higher import prices. The fiscal deficit is projected to
2022, exceeding the East Africa averages of 4.7% and decline to 1.6% of GDP in 2023 and 0.4% in 2024,
4.4%. Growth was driven by tourism and fisheries on driven by recovery in tourism and increased revenue,
the supply side and by household consumption and while the current account deficit is projected to narrow
investment on the demand side. A successful vacci- to 5.4% in 2023 and 4.9% in 2024 amid buoyant tour-
nation program helped reduce the COVID-19 pandem- ism. Debt is projected to fall below 70% in 2023 due
ic’s impact on the economy. Overreliance on imports to continued GDP growth and effective debt manage-
exposed the economy to external shocks. Monetary ment. Uncertainty about the global economic recovery
policy remained accommodative, and inflation declined and supply chains remain major risks. Economic diver-
to 2.8% in 2022 from 9.8% in 2021 as supply disrup- sification and climate adaptation are crucial to build
tions eased but remained higher than before the pan- resilience.
demic. The Seychellois rupee appreciated 33% in 2022,
to 14.4 per US dollar, on higher tourism. The fiscal defi-
cit narrowed to 3.6% in 2022 from 6.8% in 2021 as rev- Climate change issues and policy
enue collection improved. The current account deficit options
also narrowed, to 7.0% of GDP in 2022 from 10.8% in The government’s climate change policy and strategies
2021, on buoyant tourism performance. Both deficits prioritize transitioning to a low-carbon economy through
were financed by concessional loans and domestic bor- reforms in energy, refrigeration and air conditioning,
rowing. Reserves remained strong at around 4 months transport, and waste. For 2020–30, Seychelles needs
of import cover in 2021/22. Debt declined to 75.0% an estimated $61.3 million a year and faces an average
of GDP in 2022 from 89.5% in 2020 amid rebounding financing gap of $14.4 million a year. The government
GDP and an effective debt management strategy. The has had several financing arrangements for climate
financial sector is well developed, though highly con- resilience. It raised $15 million through a blue bond
centrated, with the three largest firms holding 80% of backed by the World Bank and introduced the world’s
assets, deposits, and loans. The nonperforming loans first debt refinancing for ocean conservation, protect-
ratio remained low, at less than 6% in 2021 and 2022. ing a third of its ocean territory against climate change.
With 15 social welfare programs, the COVID-19 pan- The government spends more than 4% of its budget
demic’s impact on poverty was low, though unemploy- on the environment and climate change, and to com-
ment increased to 4.8% in 2020 from 2.3% in 2019. plement this, it introduced the sustainable environment
Income inequality is also low, with a Gini coefficient of levy for visitors as of April 2023. While Seychelles aims
0.28 in 2017/18. to address the bulk of its climate resilience through con-
cessionary financing, the private sector can comple-
ment these efforts given the country’s clear strategies
Outlook and risks and climate resilience commitments; a public–private
GDP growth is projected to slow to 5.1% in 2023 and partnership law that can facilitate investment in green
4.2% in 2024 amid global supply chain disruptions energy and eco-friendly transport; and the country’s
due to Russia’s invasion of Ukraine. Tourism and fish- well developed and capitalized financial sector, capa-
eries remain key growth drivers, but opportunities in ble of facilitating investment in eco-friendly energy and
knowledge-intensive services (notably digital finance) transport. Seychelles should capitalize on its globally
are untapped. Monetary policy is projected to remain recognized brand of natural beauty.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
10 10 10 0 0
9.8
–0.4
8 8 8 –2 –4.9
7.9 –5
6 6 7.0 6 –4
4.4
4 4 4 –6
4.2 –10
3.7
2 2 –8 –6.8 –10.8
2

0 0 0 –10 –15
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

178 COUNTRY NOTES

 Somalia
Recent macroeconomic and in 2024, calling for stronger public revenue mobilization.
financial developments The current account deficit is projected to remain high, at
Real GDP growth dropped to 1.7% in 2022 from 2.9% 15.8% of GDP in 2023 and 14.1% in 2024, reflecting the
in 2021 due to drought, insecurity, and food and fuel high import bill due to elevated energy and food prices.
inflation triggered by Russia’s invasion of Ukraine. Pri- Headwinds include vulnerability to climate change (nota-
vate consumption was boosted by remittances, which bly poor rainfall leading to persistent droughts), insecurity,
remained stable at 27.3% of GDP in 2021 and 2022, slippages in reaching the completion point of the HIPC
and private investment remained buoyant despite for- Initiative by the end of 2023, and weaker remittance
eign direct investment (FDI) falling to 7.8% of GDP in inflows. A prolongment of Russia’s invasion of Ukraine
2022 from 8.0% in 2021. could further aggravate global energy and food prices,
Monetary policy is held back by widespread causing additional headwinds given Somalia’s heavy reli-
dollarization, but reforms are under way to establish ance on imported food and oil for energy generation.
a framework for monetary and exchange rate policy.
Inflation increased to 6.8% in 2022 from 4.6% in 2021
due to high energy and food import prices. The banking Climate change issues and policy
sector remains stable. While the nonperforming loans options
ratio rose from 1% in 2021 to 5% in June 2022, the Somalia is highly susceptible to climate change, includ-
capital adequacy and liquidity ratios remain sufficient. ing droughts, floods, cyclones, and storm dust. Drought
Somalia achieved a balanced budget in 2022, consis- in 2022 caused crop and livestock failure, food inse-
tent with its completion point commitments under the curity, water scarcity, and loss of livelihoods, reduc-
Heavily Indebted Poor Countries Initiative (HIPC), com- ing real GDP growth from 2021, and displaced about
pared with a deficit of 1.1% of GDP in 2021, which was 7.8 million people. If Somalia receives the same $280
financed by the 2021 Special Drawing Rights allocation million a year in climate finance that it received over
($203 million, or 4.1% of GDP). Somalia remains in debt 2016–20, the resulting average financing gap would be
distress but is expected to reach its HIPC completion $4.42 billion a year during 2020–30, greatly limiting the
point by the end of 2023, reducing the risk of debt dis- country’s ability to build climate resilience. Somalia’s
tress to moderate. The current account deficit widened 2021 Nationally Determined Contribution was $55.5
to 17.1% of GDP in 2022 from 10.8% in 2021, driven billion and identified options for private support to miti-
by the growth of food imports and the suspension of gation and adaptation, notably in energy and transport
budget support by some development partners prior infrastructure, water, waste, food supply, forestry, and
to the May 2022 elections. The current account deficit disaster risk response. Somalia has yet to fully har-
was financed by aid, remittances, and FDI. ness its natural capital, including land, forests, coast-
line water and marine resources for fishing, minerals,
and hydrocarbons. Enhancing institutional capacity will
Outlook and risks enable Somalia to harness its 2020 petroleum legisla-
GDP growth is projected to be 2.8% in 2023 and 3.5% tion and the National Blue Economy Strategy (2023–
in 2024, driven by private consumption and external 2027) to accelerate the mobilization of private finance
demand. Inflation is projected to be 4.2% in 2023 and and investment. Capacity building for relevant ministries
4.0% in 2024 as supply chains stabilize. The fiscal defi- in preparing bankable adaptation projects to crowd-in
cit is projected to reach 0.3% of GDP in 2023 and 1.9% private investment and finance is equally important.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 2 1.2 400 0 0
359.1
3.8 –1.4
4 –2.3
0 300 –2
–2
2
–2 200 –4
0
–4
–4 75.5 –6
–2 100
–4.7 –6.0
–1.9 –4.6
–4 –6 0 –6 –8
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 179

 South Sudan
Recent macroeconomic and and 10.9% in 2023/24, reflecting higher food prices. The
financial developments fiscal deficit is projected narrow to a surplus of 3.0% of
Real GDP contracted an estimated 2.9% in 2021/22, GDP in 2022/23 and 6.8% in 2023/24 due to fiscal con-
after contracting 4.9% in 2020/21, driven by the oil solidation and higher global oil prices, though lower tax
sector. Oil production declined to 156,000 barrels a day revenue mobilization could hold back poverty-reducing
in 2021/22 from 169,000 in 2020/21 after several oilfields and growth-enhancing public spending. The current
were damaged by floods. The sector was the leading account balance is projected to narrow to a surplus of
contributor on the supply side (–0.6 percentage point) to 7.0% of GDP in 2022/23 and 6.6% in 2023/24, reflecting
the real GDP contraction in 2021/22. Agriculture, which higher oil export revenue.
contributed –0.1 percentage point, was affected by
floods and drought. On the demand side, the contrac-
tion was driven by net exports (–1.3 percentage points). Climate change issues and policy
Tight monetary policy and reduced monetization of options
the fiscal deficit reduced inflation to an estimated 0.9% The financing gap to achieve South Sudan’s climate
in 2021/22 from 43.5% in 2020/21. High lending rates and green growth ambitions is an estimated $9.94 bil-
(averaging 12% in 2022) remain a challenge for capital lion a year over 2020–30. Climate adaptation and mit-
investment. The fiscal deficit widened to 6.6% of GDP igation needs are substantial in agriculture, livestock,
in 2021/22 from 3.7% in 2020/21, owing to higher public and disaster risk management, among others. Data
spending. The fiscal deficit was financed by domestic on private financing for climate and green growth are
and external borrowing. Overall and external public debt not readily available. However, the private sector faces
remains sustainable but with a high risk of debt distress. several bottlenecks, including inadequate infrastructure,
The current account deficit narrowed to 1.4% of GDP skills gaps, capacity shortages to develop bankable cli-
in 2021/22 from 4.9% in 2020/21 due to reduced finan- mate finance proposals, limited access to capital, and
cial transfers to Sudan under the Transitional Financial high lending rates. These hold back the sector’s contri-
Arrangement for oil transit fees. The Special Drawing bution to economic transformation, including financing
Rights allocation (3.8% of GDP) boosted international climate and green growth. Consequently, developing
reserves. Poverty remains high, with an estimated 7.7 mil- policy and regulatory frameworks for green financing to
lion people requiring emergency food assistance in 2022. crowd-in private investment and finance remains criti-
cal. South Sudan is endowed with considerable natural
resources, including oil, minerals, forests, water, land,
Outlook and risks and biodiversity, which if well harnessed could lead to
GDP is projected to contract 0.4% 2022/23 and recover economic transformation and diversification away from
to 4.6% growth in 2023/24, driven by increased domes- oil and other extractive resources. Development part-
tic oil production and higher global oil prices. The oil ners, including the Bank, need to support South Sudan
sector is projected to drive growth on the supply side, in designing suitable instruments for mobilizing finance
and private consumption and investment are projected for conflict or postconflict regions, such as security-in-
to do so on the demand side. Headwinds include dis- dexed financing. Furthermore, the government could
ruptions to the peace process and climate change. establish a natural capital accounting framework to
Inflation is projected to increase to 16.5% in 2022/23 support investment in green projects and programs.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 4 50 8 8
43.5
40 6.6
3 2.9 4 6.8 4
4.6
0
30
0 0 0
20 –3.7
–4
–3 –4.9 –4 –4
10
10.9 –4.9
–6.2
–6 –8 0 –8 –8
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data on the budget balance correspond to South Sudan’s fiscal year, which runs from July 1 to June 30.

180 COUNTRY NOTES

 Sudan
Recent macroeconomic and political instability, tighter global financial markets, and
financial developments the effects of Russia’s invasion of Ukraine. However, on-
GDP grew 0.7% in 2022 after contracting 1.9% in 2021 going efforts to implement the Framework Agreement
on account of political instabilities and spillover effects are expected to restore political stability and accelerate
of Russia’s invasion of Ukraine. Growth in 2022 was the rollout of structural reforms. Consequently, inflation
driven by agriculture and mining on the supply side and is projected to moderate to 83.2% in 2023 and 75.5%
by private consumption on the demand side. The cen- in 2024. Sustained rationalization of public spending
tral bank adopted reserve money targeting, reducing is projected to reduce the fiscal deficit to 1.4% of GDP
money supply growth to 48% in 2022 compared with in 2023 and 2024. The fiscal deficit will be financed by
153% in 2021. Inflation eased from 359.1% in 2021 to domestic and external borrowing. The current account
139% in 2022 due largely to unifying the exchange rate deficit is projected to narrow to 2.5% of GDP in 2023
and reducing monetization of the fiscal deficit. Banks and 2.3% in 2024 as exports stabilize.
dominate the financial sector, accounting for over 80%
of assets. Fiscal consolidation and improvement in
public revenue reduced the fiscal deficit to 1.5% of GDP Climate change issues and policy
in 2022 from 4.7% in 2021. options
Sudan’s $56 billion external debt (163% of GDP) Sudan faces land degradation, temperature increases,
in 2020 was expected to fall 50% by 2022 after the frequent droughts and floods, erratic rainfall, and locust
country achieved its decision point under the Heavily invasions, which have reduced agricultural output,
Indebted Poor Countries Initiative (HIPC) in June 2021. slowed GDP growth, and destroyed livelihoods. If Sudan
However, progress toward its HIPC completion point receives the same $160 million a year in climate finance
stalled due to the military takeover in October 2021. that it received over 2016–20, the average financing gap
The current account deficit narrowed to 3.4% of GDP in would be $2.39 billion a year during 2020–30, limiting
2022 due to higher exports following the normalization its ability to build climate resilience. Sudan is unlikely to
of operations at Port Sudan. The current account deficit mobilize this huge financing from public sources; this
was financed by portfolio investment and remittances. calls for active engagement of the private sector, which
International reserves increased to 2.7 months of import spends $50 million a year on climate-related activities.
cover in 2022 from 2.3 in 2021. The poverty rate rose Sudan has strong natural capital, with huge natural
from 64.6% in 2021 to 66.1% in 2022, and unemploy- resource endowments, including arable land, livestock,
ment remained high, at 20.6% in 2022, due partly to and minerals. Hindered by financing deficiencies, Sudan
reduced economic activity, owing to political instability. has yet to harness these resources for economic trans-
formation, as less than 40% of GDP is generated from
natural capital. Private engagement in climate finance is
Outlook and risks held back by lack of government incentives, high risks,
GDP is projected to grow 2.0% in 2023 and 3.8% in 2024 and low returns on investments in nature-based solu-
on account of reduced political instability following the tions. Consequently, enabling policy frameworks to facil-
Framework Agreement signed between the military and itate the establishment of natural capital-based markets
civilians. Growth is projected to be driven by agriculture to crowd-in private investment and finance are critical.
and mining on the supply side and private consumption Such policies include carbon taxation, clean technology
and investment on the demand side. Headwinds include subsidies, and bank loans linked to net-zero emissions.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
4 2 400 0 0
359.1
3.8 –1.4
1.2 –2.3
2 0 300 –2
–2
0 –2 200 –4
–4
–2 –4 100 75.5 –6
–1.9 –6.0
–4.6 –4.7
–4 –6 0 –6 –8
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 181

 Tanzania
Recent macroeconomic and 4.0% in 2024 due to better agricultural performance.
financial developments The fiscal deficit is projected to widen to 3.5% of GDP
Real GDP growth slowed to 4.7% in 2022 from 4.9% in 2023 and 2024 due to higher spending on infrastruc-
in 2021 due in part to the impact of Russia’s invasion ture, financed by domestic and external borrowing. The
of Ukraine, notably on food and energy prices. Growth current account deficit is projected to narrow to 4.8% of
was driven by services and agriculture on the supply GDP in 2023 and 4.4% in 2024 due to higher merchan-
side and by investment and consumption on the dise exports and tourism receipts and is projected to
demand side. The accommodative monetary policy be financed mainly by external borrowing. Headwinds
was tapered in June 2022 to contain inflationary pres- include the lingering possibility of new COVID-19 vari-
sures while supporting the growth recovery. But rising ants and the effects of Russia’s invasion of Ukraine,
food and fuel prices pushed inflation to 4.3% in 2022 which could aggravate food and oil prices.
from 3.7% in 2021. Exchange rates remained stable,
supported by high gold exports and tourism receipts.
The fiscal deficit narrowed to an estimated 3.4% of Climate change issues and policy
GDP in 2022 from 3.8% in 2021, in line with the pickup options
in revenue performance, and was financed by external The financing gap for Tanzania to respond adequately to
and domestic borrowing. Public debt remains sustain- climate change over 2020–30 is an estimated $3.4 bil-
able and stabilized at 40.4% of GDP in 2021 and 40.9% lion a year. Potential exists for private financing to bridge
in 2022. The current account deficit widened to 5.7% of this gap, including through carbon taxes and green-listed
GDP in 2022 from 3.4% in 2021, driven by the uptick in equity. However, many private investors are less attracted
the import bill due in part to higher oil prices, and was to climate mitigation investments due to perceived low
financed mainly by external commercial debt as other returns and poor incentives. Of the $5.5 billion in climate
financial flows including foreign direct investment and finance received over 2010–20, $3.0 billion (approximately
grants declined. International reserves dropped to 4.7 54%) came from the private sector, but uncertainty about
months of import cover in December 2022 from 6.6 incentive policies is a major risk to the sustainability of this
months in December 2021, reflecting the tighter external trend. In addition, Tanzania has vast natural capital that
financing environment. The poverty rate increased from can complement public and private financing of climate
26.1% in 2019 to 27.7% in 2020 due to the economic change and green growth. Hydropower, with a poten-
slowdown induced by the COVID-19 pandemic, while tial of 7 gigawatts, accounts for only 561 megawatts of
inequality, measured by the Gini coefficient, increased installed capacity. Geothermal potential is estimated at 5
from 0.42 in 2015 to 0.44 in 2021. gigawatts; solar photovoltaics potential, with average sun-
shine of more than 9 hours per day, is estimated at 34
gigawatts; and on-shore wind potential, with windspeeds
Outlook and risks of 0.9–9.9 meters per second across the country, is esti-
Real GDP growth is projected to rise to 5.3% in 2023 mated at 8 gigawatts. Tanzania has about 57 trillion cubic
and 6.3% in 2024, driven by the sustained recovery in feet of discovered natural gas reserves, with 8.3 trillion
tourism and gradual stability in supply and value chains. cubic feet earmarked for generating 7.09 gigawatts of
Inflation is projected to increase to 4.7% in 2023 due electricity. By 2022, 100 million cubic feet had been har-
to higher food and energy prices before moderating to nessed for 527 megawatts of electricity.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 4 6 0 0
3.3
6.3
6 3 -1
4.9 4 –2
1.9 3.7 4.0 –3.4
4 2 –2
2 –4 –4.4
2 1 –3
–3.8 –3.5

0 0 0 –4 –6
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data on the budget balance correspond to Tanzania’s fiscal year, which runs from July 1 to June 30.

182 COUNTRY NOTES

 Uganda
Recent macroeconomic and the final agreements in 2022, the oil sector is ramping up
financial developments investments, underpinning growth beyond the medium
Real GDP grew an estimated 6.3% in 2022, more than term. Although inflation is expected to slow, it is pro-
the 5.6% in 2021, despite higher commodity prices, jected to remain above the central bank’s medium-term
tighter financial conditions fueled by Russia’s invasion target of 5%. The fiscal position is projected to improve,
of Ukraine, and continued global supply chain disrup- reflecting consolidation efforts. External risks are tilted
tions. Agriculture, notably food crops, performed well, toward the downside, notably a prolongment of Rus-
supported by good rains, while growth in industry sia’s invasion of Ukraine and continued supply chain
weakened as output in construction waned. Services disruptions, while pockets of regional insecurity con-
also performed well as trade and repairs and the health tinue to pressure security-related spending. Domestic
subsector demonstrated strong growth. During 2022, risks relate to unexpected increases in public spending
the Uganda shilling depreciated 3.8% against the US on infrastructure amid weak tax revenue.
dollar. Inflation was 7.2%, driven by a 14.9% increase
in food prices and a 12.7% increase in energy prices.
Higher food and energy prices pressed households, Climate change issues and policy
especially subsistence farmers and urban dwellers. options
To curb inflation, the Bank of Uganda raised the policy Uganda’s estimated climate finance needs are $17–$28
rate four times in 2022, from 6.5% to 10%. The financial billion during 2020–30, with an average financing gap
sector remains well capitalized, with a capital adequacy of $1.3–$2.2 billion a year. The government will need to
ratio of 21.7% in 2022. mobilize private investment to close this gap. The pri-
Higher public investment in roads, interest costs, vate sector is financing projects in agriculture, forestry,
and other nonwage spending stoked fiscal deficits until and renewable energy, but more is required. To achieve
2020. Since then, the government has slowed the pace the Nationally Determined Contribution targets, invest-
of investment, reducing the deficit to 7.4% of GDP in ment of $880 million–$2.3 billion is needed in renewable
2021 and an estimated 5.3% in 2022. The deficit was energy. Uganda can tap into its natural capital to finance
financed through public borrowing, rising to 50.3% of climate change and green growth while emphasizing
GDP in June 2022. Risk of public debt distress is mod- sustainability. The country already faces overexploitation
erate, and public debt remains sustainable. The cur- of renewable natural capital, especially forest land,
rent account deficit remains elevated, at 8.6% of GDP, which has shrunk to 9% from 25% in 1990. Sustain-
attributed to rising imports and lower tourism receipts able exploitation and replenishment of forests must take
after the COVID-19 pandemic, which were exacerbated center stage. Uganda has large deposits of nonrenew-
by a short Ebola outbreak in 2022. able natural capital: oil and gas, iron ores, and “green”
metals that can be sustainably exploited. The country
is expected to produce 230,000 barrels of crude oil a
Outlook and risks day from 2025, generating substantial revenue. These
GDP is projected to grow 6.5% in 2023 and 6.7% in resources could be channeled into green technologies.
2024, assuming any global growth slowdown will be Green metals and iron-ore deposits could be developed
short lived. This expansion is projected to be supported using technologies for greening manufacturing and
by stronger growth in East Africa, while the Chinese construction to provide the basis for transforming to a
economy has eased lockdowns, reducing global supply green economy. To attract the right investors, stronger
chain disruptions, supporting higher growth. Following accountability and transparency will be required.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 5 8 0 0
6.7 4.0
4 –2 –2
6 6
6.0 –3.9
5.6 3 –4 –4
4 4
2 2.3 –6 –6
2 2 –8.3
1 2.2 –8 –7.4 –8 –9.0

0 0 0 –10 –10
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data on the budget balance correspond to Uganda’s fiscal year, which runs from July 1 to June 30.

COUNTRY NOTES 183

 NORTH AFRICA

184 C ountry notes

 Algeria
Recent macroeconomic and is projected to decline to 7.7% in 2023 and 6.7% in 2024.
financial developments Constraints on global grain supplies could maintain pres-
Real GDP growth climbed to 3.0% in 2022 from 3.4% sure on food prices, and due to the monetary financing
in 2021, stimulated by the rebound in oil prices in 2022. of the budget deficit, monetary policy is expected to
Monetary authorities implemented a refinancing plan to remain expansionist. The budget deficit is projected to
grant new loans to the government and the rest of the widen to 4.6% of GDP in 2023 and 5.0% in 2024 due to
economy. Inflation continued to rise, to 9.3% in 2022 lower tax revenue and higher budgetary spending pres-
from 7.2% in 2021, due to global inflation. The budget sured by social spending. The external current account
deficit fell from 6.9% of GDP in 2021 to 0.2% in 2022, is projected to achieve a surplus of 3.0% of GDP in 2023
while budgetary revenue rose, especially revenue and 2.4% in 2024, both below the 2022 surplus. The
related to the oil sector. The current account swung to economy’s strong dependence on the oil sector poses a
a surplus of 7.8% of GDP in 2022 from a deficit of 2.8% risk for the medium-term economic outlook.
in 2021 thanks to higher volume and value of oil exports
as well as import compression measures. In 2022, for-
eign exchange reserves reached 18 months of import Climate change issues and policy
cover, up from 11.1 months in 2021. Public debt, pri- options
marily domestic, dropped to 52.4% of GDP from 62.1% An estimated $22 billion is needed over 2020–30, $2.3
in 2021, encouraged by the smaller budget deficit and billion a year, to adequately respond to climate change.
nominal GDP growth. Financial system moderniza- But the share of private finance in the energy transition
tion showed progress in 2022, with a denser network and green growth remains low. The private sector is
of insurance companies (170 additional agencies) and hampered by difficult access to long-term resources
improved financial inclusion, notably the deployment of and a business climate inconducive to mobilizing for-
Islamic finance products. eign direct investment. But initiatives are being under-
Algeria’s Human Development Index rank improved, to taken as part of the National Climate Plan, including
91st of 191 countries. The multidimensional poverty rate implementing the National Fund for Energy Manage-
declined to 1.4% in 2019 from 2.1% in 2013 despite high ment and Renewable Energies and Cogeneration,
unemployment (14.5% in 2021 and 14.9% in 2022). In which is expected to encourage private investment
2021, the government launched an unemployment bene- through compensation schemes, given the additional
fit of 15,000 Algerian dinar (approximately $110) a month. cost of generating electricity from renewable energy
resources and cogeneration systems. These initia-
tives are all the more necessary given Algeria’s large
Outlook and risks stock of natural capital, which includes an abundant
Real GDP growth is projected to reach 3.1% in 2023 supply of renewable energy (solar, wind, geothermic),
before dropping to 2.1% in 2024. While crude oil prices fossil energy (oil and gas), and mineral resources (iron,
are expected to remain high, capacity to expand produc- helium, uranium). Nevertheless, due to the shortage of
tion could be limited in the short term. As a result, growth freshwater resources, the threat of drought, and the
may decline due to the lack of an explicit economic possible depletion of its fossil energy resources (oil and
diversification policy and constraints on the capacity to gas) in the medium term, Algeria scored 37.1 out of 100
expand natural gas production in the short term. Inflation on the 2021 Natural Capital Index.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
4 4 10 2 8
3.4
8 0
3 3
7.2 4 2.4
6 6.7 –2
2 2.4 2 1.7
4 –4
0
1 1 –5.0
2 –6
0.9
0 0 0 –8 –6.9 –4 –2.8
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 185

 Egypt
Recent macroeconomic and 2.4% in 2023/24 thanks to higher tourism revenue and
financial developments oil exports. In December 2022, the International Mone-
In 2021/22, real GDP growth increased to an estimated tary Fund Executive Board approved an Extended Fund
6.6%, driven by gas extractives, communications, Facility Arrangement of $3 billion for Egypt, which aims
agriculture, and construction. But manufacturing per- to maintain economic and financial stability and enhance
formed below its potential. On the demand side, growth comprehensive structural reforms. Moreover, the govern-
was driven by household consumption and investment. ment announced the privatization of $40 billion worth of
The fiscal deficit fell from 6.9% of GDP in 2020/21 to state-owned enterprises over 2023–27 to give the pri-
an estimated 5.8% in 2021/22, with a primary surplus vate sector more room to grow. Need for large external
of 1.2% of GDP. Total spending increased but was financing remains an important risk.
compensated by a 15% rise in value added tax reve-
nue and a 40% jump in receipts from property taxes
over the previous fiscal year. Public debt fell modestly, Climate change issues and policy
from 92.0% of GDP in 2020/21 to an estimated 89.6% options
in 2021/22, because of a lower budget deficit. The financing needed for Egypt to adequately respond
Inflation increased from 4.5% in 2020/21 to 8.5% to climate change is an estimated $19.75 billion a
in 2021/22, led mostly by rising international food and year. If Egypt receives the same $1.25 billion a year
energy prices and the depreciation of the Egyptian pound in climate finance that it received over 2010–20, the
against the US dollar by 16% in May 2022. The current resulting financing gap will be $18 billion a year over
account deficit narrowed to 3.5% of GDP in 2021/22 from 2020–30. The private sector is involved in several proj-
4.4% in 2020/21 thanks to tourism revenue rising to $10.7 ects financed by the Green Climate Fund, the Clean
billion from $4.9 billion. The banking system remained Technology Fund, and multilateral financial institu-
profitable and well capitalized, and the nonperforming tions, accounting for about 13% of climate finance in
loans ratio was limited to 3.2% in June 2022. Subsidies 2019–20. However, the private sector is facing some
and social protection programs have reduced the impact challenges to scaling up its participation in addressing
of high food and energy prices on vulnerable households. climate change, including lack of technical knowledge,
The poverty rate was 29.7% in 2020. Unemployment limited access to funds, unclear laws and regulations,
remained stable at 7.2% in June 2022. and a weak case for adaptation. Key long-term strate-
gic opportunities for the private sector include creating
a carbon market, issuing green bonds, establishing
Outlook and risks 15 new green cities, and implementing the Integrated
The outlook remains clouded by uncertainty related to Sustainable Energy Strategy, which steps up renewable
the global economic context. Growth is projected to energy in the electricity mix to 42% by 2035. Also, min-
slow to 4.4% in 2022/23. The fiscal deficit is projected to erals are in large quantities but are yet to be exploited
widen slightly, to 6.0% of GDP in 2022/23, and inflation to to their full potential. As of 2021, Egypt ranks 28th in
increase to 20.0%, as a result of high food and nonfood proven oil reserves and 18th in proven gas reserves.
prices and the devaluation of the Egyptian pound against Egypt’s natural capital could be a source of climate
the US dollar. The current account deficit is expected actions and green growth financing, with important
to remain at 3.5% of GDP in 2022/23 and improve to involvement of the private sector.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 6 25 0 0

20 –1
6 5.1 –2
4 3.5
15 –2 –2.4
4 –4 –4.7
10 –3
3.3 2
2 7.9 –6 –6.9
1.7 5 –4
4.5
0 0 0 –8 –4.4
–5
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data in the figure correspond to Egypt’s fiscal year, which runs from July 1 to June 30.

186 COUNTRY NOTES

 Libya
Recent macroeconomic and surplus of 18.8%–22.1% of GDP in the short term due
financial developments to high oil revenue. Continuing oil sector recovery is
In 2022, real GDP contracted sharply, by 12.1%, after projected to boost exports more than imports—which
growing 28.3% in 2021. The recession was driven by may boost the current account surplus, projected to
rising conflict and lower performance of hydrocarbon, reach 24.5% of GDP in 2023—and to result in a large
services, and, to a lesser extent, manufacturing. Infla- accumulation of foreign reserves. Headwinds include
tion increased to 4.6% in 2022 from 2.8% in 2021, fol- increased political instability and conflicts, leading to
lowing the rise in prices of food and essential goods. an oil blockade and additional humanitarian needs. On
As of January 2023, no agreement had been reached the global side, tighter financial conditions could further
on unifying the Central Bank of Libya with its Eastern slow global economic growth, reducing oil demand.
branch, affecting the country’s monetary policy and
banking system. The fiscal surplus rose to 13.8% of
GDP in 2022 from 11.3% in 2021, due mainly to higher Climate change issues and policy
oil revenue. In 2022, spending also increased, driven options
mainly by higher spending on salaries and an extraor- Libya has elaborated neither a national climate change
dinary budget outlay for the National Oil Corporation to strategy nor a National Determined Contribution. The
fund operations and investments. potential of the domestic private sector to close the cli-
The current account surplus remained in 2022 but mate finance gap remains very low, following prolonged
dropped nearly 5 percentage points from 2021, reflect- conflict and macroeconomic uncertainty. Although
ing volatility in oil exports. Public debt is domestic and international private financing could be an alternative,
estimated at $33 billion in 2021, or 83% of GDP. Polit- it depends heavily on stabilizing the political situation.
ical turmoil has affected the banking system’s operat- Over 2010–20, Libya received $328.2 million in climate
ing environment and performance, while the liquidity finance, mainly from the Global Environment Facility
crisis persists. Domestic credit to the private sector and the Green Climate Fund. In 2019–20, 94% of cli-
represented 16.6% of GDP in 2020. In 2022, 2% of the mate finance in the country, or $44 million, was from
population was multidimensionally poor, and 11.4% was the private sector. Attracting private climate finance
vulnerable to becoming multidimensionally poor. About requires appropriate regulatory policies and investment
800,000 people in need require humanitarian assis- incentives. Libya is well endowed with hydrocarbon
tance. The unemployment rate reached 19.6% in 2022, resources, holding 3% of the world’s proven crude oil
and acute food insecurity continues to escalate. reserves at the end of 2021, the largest endowment in
Africa (39% of the continent’s total) and the ninth largest
globally. In 2021, Libya was the third largest producer
Outlook and risks of crude oil in Africa, after Nigeria and Algeria. Only
Real GDP is projected to grow 17.9% in 2023, reflect- 25% of Libya’s territory has been explored for hydrocar-
ing a base effect, and 8.0% in 2024, buoyed by hydro- bons. The country also holds important untapped min-
carbon sector recovery and high oil prices. Inflation is eral resources such as iron ore, limestone, magnesium
projected to remain under control, at 4.5% in 2023 and salts, potassium salts, gold, and uranium, in addition to
4.6% in 2024. The fiscal balance is projected to post a phosphate and silica deposits.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
60 60 10 30 30
4.6 22.8
8 24
28.3 27.1
30 30 20
6 18
8.0 6.9 18.8 13.9
4 2.8 12
0 0 10 11.3
2 6

–30 –30 0 0 0
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 187

 Mauritania
Recent macroeconomic and term, ensuring that risk of debt distress remains mod-
financial developments erate. The current account deficit is projected to narrow
Real GDP growth rose to 5.3% in 2022 from 2.4% in to 11.1% of GDP in 2023 and 8.5% in 2024 thanks to
2021, underpinned mainly by higher extractive and anticipated gas exports. Possible headwinds include
agricultural production and trade. The major driv- security tensions in the Sahel, high prices for imported
ers of growth on the demand side remain household food and energy products, price volatility for exported
consumption and investment. Inflation rose to 9.6% in raw materials (mainly iron), and recurrent droughts and
2022 from 3.8% in 2021 due to higher global prices for floods, which impact food security. In addition, the effi-
imported foodstuffs and petroleum products. The Cen- ciency of public spending and debt management needs
tral Bank of Mauritania pursued a restrictive monetary to improve.
policy in 2022 by raising its key rate 300 basis points
to 8%. The banking sector increased financing to the
private sector 16.4% from 2021. Climate change issues and policy
Higher current spending (17.0% of GDP in 2022, up options
from 12.0% in 2021), particularly subsidies for energy and The estimated finance needed to reduce greenhouse
food products, led to a budget deficit (1.2% of GDP in gas emissions 11% by 2030 is $4.8 billion a year over
2022, following a 2.2% surplus in 2021) for the first time 2021–30, 72.1% of which is earmarked for mitigation.
since 2018. Tax revenue remains insufficient at 12.5% of But the country lacks a dedicated climate finance mech-
GDP in 2022, up from 10.8% in 2021. Debt restructuring anism. The private and banking sectors have almost
agreements with Kuwait and Saudi Arabia reduced debt no presence in climate finance. Most of the $1.0 billion
to 48.4% of GDP in 2022 from 57.9% in 2018. The cur- received over 2010–20 came from international part-
rent account deficit widened to 13.7% of GDP in 2022 ners. Obstacles to private sector participation include
from 7.9% in 2021 due to higher prices for food imports the lack of knowledge of climate change risks and
and petroleum products. The COVID-19 pandemic had a opportunities, the high cost of investment related to cli-
negative impact on the social wellbeing of the population, mate change adaptation, and the limited availability of
particularly on unemployment (11.5% in 2021, up from private resources devoted to green investment. Essen-
10.4% in 2019) and multidimensional poverty (56.9%). tial actions include adopting green financial instruments
such as green bond issues to increase resource mobi-
lization, establishing a special green fund dedicated to
Outlook and risks the private sector, adopting tax incentives to encour-
Real GDP is projected to grow 4.3% in 2023 and 5.9% age green private investment, and involving the private
in 2024, supported by the primary and extractive sec- sector in strategies for climate change adaptation. Mau-
tors and the expected benefits of gas development. ritania has substantial natural capital (gas, green hydro-
Inflation is projected to rise to 10.4% in 2023 before gen, iron, fishery resources, and agricultural land) valued
dropping to 6.5% in 2024 with the central bank’s restric- at $24.3 billion in 2018, whose sustainable develop-
tive monetary policy. The budget balance will remain in ment could support climate finance and green growth.
deficit (1.9% of GDP in 2023 and 1.6% in 2024), con- In addition, phase 1 of the Grand-Tortue/Ahmeyim gas
sistent with higher current and investment spending. project should provide additional room for budgetary
Debt is projected to stabilize at 49% of GDP in the short adjustments of at least 0.5% of GDP in 2024.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 4 15 3
3.2 2.2 0
5.9 2
4 2 10 1 –5
–7.9
0 –8.5

2 0 5 6.5 –1
2.4 –1.6 –10
–0.2 3.8 –2
0 –2 0 –3
–15
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

188 COUNTRY NOTES

 Morocco
Recent macroeconomic and is projected to fall, albeit slowly, given ongoing social
financial developments security reforms. The current account deficit is pro-
Real GDP grew 1.1% in 2022, down from the buoyant jected to decline to 4.4% due to expected lower energy
recovery of 2021 (7.9%). Agricultural value added fell prices in 2023. Limited rainfall could impact agricultural
15% from 2021 due to the worst drought of the past 40 output as well as the fill rate of dams. Moreover, a stron-
years. Manufacturing, tourism, and transport performed ger than anticipated slowdown in the European Union
well. The drought and inflation weighed negatively on could hamper exports, while a dramatic rebound of
household consumption, while foreign direct investment food and nonfood commodity prices would imply infla-
was up 31.5% and public investment 20.6%. Inflation tionary pressures and a deteriorating fiscal stance.
rose sharply, to 6.6% in 2022 from 1.4% in 2021, driven
by food inflation of 11% and higher commodity prices.
Since 2022, the central bank has raised its key inter- Climate change issues and policy
est rate by 1.5 basis point, to 3%. Measures to miti- options
gate inflationary pressures pushed fiscal spending up in The cumulative financing needed to adequately respond
2022, but the fiscal deficit eased to 5.1% of GDP from to climate change is an estimated $93.91 billion over
5.9% in 2021, on strong fiscal revenues. 2020–30. Adaptation costs are an estimated $40 bil-
Rising commodity prices impacted the current lion, mitigation costs $38.8 billion, and damage costs
account deficit, which widened to 4.6% of GDP in $15.1 billion. Private investment has been substantial,
2022 from 2.3% in 2021. Credit to the private sector at 17% of climate finance in 2019–20, mainly in adap-
increased in 2022, to 67% of total credit. However small tation projects such as renewable energy. Most climate
and medium enterprises, which account for 74% of change adaptation projects have been backed by public
employment, received only 12% of bank loans. Foreign funds, as private investment in adaptation faces hurdles
exchange reserves reached 6 months of import cover such as cost estimates, expected returns, and risks as
at end-2022. In 2022, the shares of people living in pov- well as the current narrow classification of adaptation
erty (4.9%) and vulnerable to living in poverty (12.7%) actions. To unleash the potential for private operators
returned to their 2014 rates due to inflation and the in projects such as seawater desalination as well as
impact of the drought on agricultural revenue. climate-smart agriculture and insurance, the country
could adopt a broader green national classification and
a public de-risking system. Moreover, private financing
Outlook and risks could further anchor green growth using natural capital.
GDP growth is projected to rise to 3.3% in 2023–24, The Mediterranean and Atlantic coasts make Morocco
driven by a recovery in agriculture. Nonagricultural GDP one of the largest fish producers in Africa. To entrench
growth is projected to remain modest, at 2.7%, because the sustainability of the fisheries sector, the country has
of the anticipated worldwide economic slowdown. developed an environmental and economic accounting
Inflation is projected to ease to 5.4% in 2023 thanks to system, and its Blue Strategy aims to develop coastal
higher agricultural output. However, the central bank clusters. Morocco also benefits from the largest forest
could raise its key interest rate further. The fiscal deficit cover in North Africa.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 10 8 0 0
7.9
8 6.9
6 6 –2
–2 –4.6
6 –3.9
4 3.5 4 –4
4 3.6 –4.0
2.5 –4
2 2 –6
2 –5.9
1.4
0 0 0 –8 –6
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 189

 Tunisia
Recent macroeconomic and which could limit access to external financing. Possible
financial developments headwinds include social tensions triggered by rising
Real GDP grew an estimated 2.4% in 2022, driven by prices in a difficult economic context for households,
industry and services, down from 4.3% in 2021 due to a restrictive fiscal policy that penalizes public invest-
a catching-up effect. Inflation rose from 5.7% in 2021 to ment, and worsening political uncertainties. To stabilize
8.3% in 2022 due to Russia’s invasion of Ukraine, which its macroeconomic framework, Tunisia should adopt a
led to higher oil and food prices. The budget deficit nar- medium-term sovereign debt reduction strategy, imple-
rowed from 7.6% of GDP in 2021 to 6.8% in 2022, with ment a plan to restructure public enterprises and reduce
the wage bill, subsidies, and debt servicing accounting their external debt underwritten by the government, and
for roughly two-thirds of government spending. The cur- conclude a preliminary agreement with the International
rent account deficit widened from 6.0% of GDP in 2021 Monetary Fund to restore fiscal sustainability backed by
to 8.5% in 2022 as food and energy import prices rose. a 48-month loan of $1.9 billion to send a positive signal
In November 2022, foreign exchange reserves cov- to private investors and donors and unlock concessional
ered 3.2 months of imports, down from 4.2 months in financing from other development partners.
November 2021. Tunisia faces downgrading of its sov-
ereign rating in addition to difficulty mobilizing resources
from multilateral donors. Public debt, over two-thirds Climate change issues and policy
of which is external, was an estimated 90% of GDP in options
2022. The government’s recourse to domestic debt is Estimated climate finance need over 2020–30 is $24.4
putting pressure on bank liquidity. And the quality of billion, with adaptation costs estimated at $4.2 bil-
major banks’ portfolios deteriorated due to high inflation, lion, mitigation costs at $14.4 billion, and losses and
rising interest rates, and weak economic growth. damages at $5.0 billion. There is a promising range of
Unemployment was 15.3% in the third quarter of options for engaging the private sector: capital markets
2022, with higher rates among women (20.5%), young (green bonds and the carbon market), outcome-based
people age 15–24 (37.2%), university graduates, and financing that can be used as a catalyst for mixed
residents of the interior of the country. The poverty rate, (public-private) financing instruments, Islamic financ-
15.3% overall, was higher in rural areas (26%) than in ing, and expatriate-friendly financial products designed
small and medium municipalities (15%) and much lower to turn remittances into green investment. But private
in large urban centers (6.3%). sector participation in climate finance has barely gotten
off the ground. Barriers include a lack of transparency
surrounding the profitability of green projects, difficul-
Outlook and risks ties evaluating and pricing risks, investment horizons
Real GDP is projected to grow 1.9% in 2023 and 2.8% that can be extremely long, and challenges in quantify-
in 2024, driven by manufacturing and services. Inflation ing profits. New regulatory frameworks and government
is projected to rise to 9.2% in 2023 before falling to 6.8% incentives will be key to channeling private finance into
in 2024, assuming prudent monetary policy and easing green growth. Tunisia’s 1,300 kilometer coastline sup-
external inflationary pressure. The fiscal and current ports over two-thirds of the country’s 12 million inhabi-
account deficits are projected to narrow as a result of the tants. Natural capital has enormous potential for various
National Reform Program launched in 2022 to strengthen forms of green energy, from solar and wind power to
private investment, consolidate public finances, and ecotourism and organic farming. The country also has
improve the performance of public enterprises. But this large and, for the most part, underexploited phosphate
outlook could worsen due to the high risk of debt distress, and hydrocarbon deposits.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 4 10 0 0
3.5
4.3 8 –2 –2
3
4 –4.7
2.8 2.0 6 6.8 –4 –4
2 –5.4
5.7 –6.0
4 –6 –6
2 –7.6
1
2 –8 –8

0 0 0 –10 –10
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

190 COUNTRY NOTES

SOUTHERN AFRICA

 191
 Angola
Recent macroeconomic and drop further, to 13.2% in 2023 and 9.6% in 2024, as the
financial developments availability of export revenue in a flexible exchange rate
Real GDP growth reached 3.0% in 2022, up from 1.1% setting eases pressure via exchange rate pass-through.
in 2021. Income per capita growth remained negative The major risk to the outlook is oil price volatility; to
(0.2%) in 2022 due to high population growth (3%). GDP mitigate that risk, the 2023 national budget assumes
growth was spurred by sustained high oil prices in 2022 a stable oil price. If the price of oil remains stable, a
because of Russia’s invasion of Ukraine; the average budget surplus of 0.3% of GDP is projected, with the
price per barrel for Angola’s crude was $100.65, above debt-to-GDP ratio falling further, to 52.5%, and the cur-
the conservative $59.00 that the 2022 national budget rent account staying in surplus, at 4.3% of GDP in 2023.
was based on, generating estimated additional reve-
nue of $17.18 billion. High oil revenue further widened
the fiscal surplus to 3.0% of GDP in 2022 from 1.9% in Climate change issues and policy
2021. However, moderated oil exports took the current options
account surplus down to 8.9% of GDP in 2022 from Angola developed its National Climate Change Strat-
11.2% in 2021, while the debt-to-GDP ratio declined fur- egy (2018–2030), which establishes a vision for tackling
ther, to 56.1% from 82.9% over the same period. climate change in the context of its Paris Agreement
Global inflation pressure from Russia’s invasion of commitments. In its Nationally Determined Contribution
Ukraine1 was eased by improved terms of trade. The (NDC), the country committed to reducing its green-
increased export revenue and agricultural production house gas emissions 24% by 2025 and established
reduced food inflation and overall inflation from 25.8% a Climate and Environmental Observatory to monitor
in 2021 to an estimated 21.3% in 2022. The banking emissions. Angola’s NDC identifies climate finance
sector also improved, with more positive economic per- needs of $44.1 billion for 2021–25 to spur the green
formance and lower private sector debt in 2022. Nev- growth agenda, with mitigation accounting for 99.7%
ertheless, unemployment remains high, at 30%, and and adaptation for 0.3%. Despite potential for private
the country continues to face challenges in curbing the investment in green energy, particularly photovoltaic
poverty rate (40.6% in 2019). off-grid projects to rural communities, internal financ-
ing opportunities are limited. Unlocking the potential
for climate finance requires institutional improvements
Outlook and risks in regulatory frameworks to allow private participation
The price of crude oil, influenced by Russia’s invasion of as independent power producers and structuring of
Ukraine and post-COVID-19 economic recovery, is likely public–private partnerships in the context of a highly
to remain above the $75.00 per barrel assumed in the subsidized electricity tariff regime. Creating a dedi-
2023 national budget, improving medium-term growth cated national climate fund and strengthening public
prospects. GDP is projected to grow 3.5% in 2023, resource generation systems with green taxes can be
leading to low projected GDP per capita growth of 0.2% key to promoting green growth initiatives with private
given high population growth. Inflation is expected to participation.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 4 30 8 15
11.2
3.9 2 25.8 3.8
4 0.9 20 4 10
0

2 10 0 5 3.9
–2 9.6 –0.4
1.1 –2.1
0 –4 0 –4 0
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

1 The Board of Governors agreed on this text during their meeting in 2022. However, Algeria, China, Egypt, Eswatini, Namibia, Nigeria, and South Africa
entered a reservation and proposed “Russia-Ukraine Conflict.”

192 COUNTRY NOTES

 Botswana
Recent macroeconomic and supply-chain disruptions linked to Russia’s invasion of
financial developments Ukraine, lower diamond earnings if diamond market
Real GDP grew 11.9% in 2021 after contracting 8.7% economies go into recession, persistent droughts, and
in 2020 due to the COVID-19 pandemic. The broad- lower exports and Southern African Customs Union
based 5.8% growth in 2022 was driven by a diamond revenue if weak economic conditions persist in South
market rebound, consumption-supportive government Africa. With the economy operating below full capacity,
policies, and an effective vaccination drive (over 67% of inflation is projected to fall to 5.8% in 2024, within the
the population has been vaccinated). At 12.2%, average central bank’s target range. The projected fiscal surplus
inflation in 2022 remained above the Bank of Botswa- of 0.6% of GDP can be supported by full implementation
na’s medium-term objective of 3%–6%, reflecting the of the government’s consolidation and public financial
domestic pass-through of high global commodity prices management reforms. The current account may stay in
from Russia’s invasion of Ukraine. The government tem- surplus as the diamond and tourism industries rebound.
porarily reduced the value added tax rate to 12% from Unemployment may be mitigated by the government’s
14% and zero-rated cooking oil and gas to ease living planned well targeted social protection system.
costs. The Bank of Botswana raised the policy rate to
2.65% in August 2022 from 1.65% in May 2022. Climate change issues and policy
The 2021/22 budget was balanced, after a fiscal defi- options
cit of 9.5% of GDP in 2020/21, with higher mineral earn- Given its semi-arid climate, Botswana is vulnerable to
ings and an underexecuted development budget. The multiyear droughts. For 2020–30, estimated climate
2022/23 deficit of 1.0% of GDP was financed through mitigation financing need stands at $9.2 billion. Over
borrowing and reserves drawdown. Public debt, at 2010–20, the country received $570 million in climate
23.9% of GDP in 2021/22, is sustainable. The current finance, an average financing gap of $834 million a year.
account surplus of 2.2% of GDP in 2022 signaled rising The stock of natural capital consists mainly of minerals
diamond sales and receipts from the Southern African (97% diamonds). Other resources are water and energy.
Customs Union. International reserves stood at $4.6 Given the finite characteristic of minerals, earnings from
billion in November 2022 (9.7 months of import cover), natural capital may dwindle over time. Botswana’s
compared with $4.8 billion at end-2021 (9.9 months). The National Climate Change Policy provides for climate
banking sector’s capital adequacy ratio averaged 19.1% finance mobilization. Private climate finance is low due
from November 2021 to November 2022, above the to the less comprehensive costing of climate finance
12.5% prudential requirement. The nonperforming loans needs for adaptation; limited institutional investor inter-
ratio fell to 3.8% in November 2022 from 4.3% in Decem- est, compounded by low expertise and an inadequate
ber 2021. Botswana had a low poverty headcount ratio, regulatory environment; perceptions of higher transac-
20.8% in 2021, but high unemployment, 25.4%, driven by tion costs in developing green bankable projects; and
youth unemployment of 39.9% in 2022. a less developed renewable sector to support green
bond issuances. Better adaptation data will require
Outlook and risks sufficient national technical expertise to cost relevant
GDP growth is projected to moderate at 4.0% in 2023, adaptation pathways. Botswana’s 84 metric tons of irre-
supported by anticipated higher economic activity from coverable carbon in the Okavango Basin make it vital to
the liberalized beef sector, higher diamond prices, and establish secure markets for carbon trading, by ensur-
ramped-up copper and vaccine production. The fore- ing that value chains linked to development and inclu-
cast hinges on the fast-tracked implementation of the sive growth strategies are effective. Botswana should
government’s Economic Recovery and Transformation continue deepening regulatory reforms to improve the
Plan. Headwinds include higher global inflation from private investment climate.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
15 15 15 4 4
11.9 2.5
3.8
10.2 2
10 10 10 2
0.0
0
3.9 6.7 0
5 5 5 5.8
2.3 –2
–0.5
0 0 0 –4 –2
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. The fiscal years start in the named April and conclude the end of March in the following year.

COUNTRY NOTES 193

 Eswatini
Recent macroeconomic and rebound in Southern African Customs Union (SACU)
financial developments receipts. With the forecasted higher growth trajectory,
Real GDP growth fell to 3.6% in 2022 from 7.9% in 2021, the public debt–to-GDP ratio is projected to decline to
reflecting the spillover effects from South Africa’s weak 41% in 2023 and 38% in 2024. The current account sur-
growth and the disruptive effects of Russia’s invasion plus is projected to average 0.9% in the medium term
of Ukraine, which induced a slump in demand due to due to higher secondary income flows spurred by SACU.
an upsurge in inflation, an increase in the cost of credit, Economic tailwinds include the huge increase in SACU
and fiscal constraints. Inflation rose to 4.8% in 2022 revenue windfalls and the proposed SACU Stabilisa-
from 3.7% in 2021, driven mainly by food and transport tion Fund, expected to foster fiscal stability. Headwinds
costs. To tame rising inflation, monetary policy was remain higher global inflation, weak growth in South
tightened, with the discount rate gradually increased Africa, and the difficult sociopolitical context.
to 7.25% in March 2023 from 3.75% in January 2022.
The lilangeni and rand depreciated 9.5% against the US
dollar in 2022 due largely to weak investor sentiments Climate change issues and policy
on South Africa over its persistent energy crisis. options
The 2022 fiscal deficit is an estimated 4.6% of GDP, Eswatini has diverse land and climatic conditions, and its
similar to the rate in 2021, a result of fiscal consolidation. natural resources include arable land, water, and miner-
Public debt stood at 42.7% of GDP in December 2022, als. The mining industry’s contribution to GDP is around
up from 40.4% in December 2021. The current account 2%, concentrated in coal and quarry mining. The scope
deficit dipped to an estimated 0.9% of GDP in 2022 due to leverage natural capital to finance climate programs
to weak trade and secondary income inflows. Interna- remains minimal. Eswatini’s 2021 Nationally Determined
tional reserves stood at 2.6 months of import cover in Contribution (NDC) suggests that the country needs
December 2022, below the recommended 3 months. $0.95–$1.5 billion to achieve its climate goals, resources
The nonperforming loans ratio increased from 6.5% in beyond its capacity. The 2021 Climate Public Expenditure
January 2022 to 6.9% by end-2022, while private sector and Institutional Review indicated that Eswatini received
credit increased 7.8%. Unemployment remained high, about $209 million from international financiers over 2015–
at 33.3% in 2021, exacerbating the poverty rate (58.9%) 20 and that $103 million was leveraged as co-finance,
and inequality (Gini coefficient of 0.546) amid high HIV mainly from domestic sources. The private sector’s par-
prevalence (27.9%). ticipation in NDC actions, though nascent, is imperative.
Banks and large companies, such as sugar corporations,
are key potential partners. Eswatini adopted the Strat-
Outlook and risks egy to Enhance Private Sector Engagement for climate
In 2023, GDP growth is projected to be maintained at finance, but barriers include lack of affordable long-term
3.5%, supported by a rebound in domestic demand and financing, market imperfections, inadequate enabling pol-
rejuvenation of consumption and investment spending. icies, perceived financial and technology risks, and high
Inflation is projected to remain elevated, averaging 5.3% upfront capital costs. An enabling policy and regulatory
over 2023–24, attributed to persistent global inflation and environment to enable private innovation and investment
a weaker rand. The fiscal deficit is expected to narrow to in NDC actions is important, including creation of invest-
3.0% of GDP in 2024 from 5.1% in 2023 due to a strong ment incentives that will minimize costs and reduce risks.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 8 6 0 4
7.9 6.9

6 6 5.1 3 2.7
4.9 –2
4
3.9 –3.0
4 4 3.7 2

2 –4 –4.6
2 2 1 0.5

0 0 0 –6 0
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data on the budget balance correspond to Eswatini’s fiscal year, which runs from April 1 to March 31.

194 COUNTRY NOTES

 Lesotho
Recent macroeconomic and and 5.5% in 2024, owing to further projected marginal
financial developments increases in food prices. The fiscal deficit is projected to
Despite global disruptions caused by Russia’s invasion increase to 5.5% in 2023 and 5.1% in 2024, owing to a
of Ukraine, the economy remained resilient, growing projected decrease in government revenue arising from
2.5% in 2022, driven by growth in services (2.6%) and a drop in Southern African Customs Union revenue. The
construction (8.1%), fiscal stimulus, and COVID-19-re- current account deficit is projected to narrow to 5.8% of
lated spending. This is an improvement on the 1.6% GDP in 2023 and 5.1% in 2024, due to projected recov-
growth in 2021. Inflation rose to 8.3% in 2022 from 6.1% ery in remittances. The main risk to the macroeconomic
in 2021, owing to higher inflation in South Africa, the outlook remains the fragile fiscal situation, given the
country’s main trading partner. In 2022, the fiscal deficit huge fiscal gap. Russia’s invasion of Ukraine will also
narrowed to 4.3% of GDP from 4.8% in 2021 due to a present headwinds to growth by increasing inflation,
rebound in Southern African Customs Union revenue. weakening demand for Lesotho’s exports, and reduc-
It was financed with government savings in the bank- ing investor confidence.
ing sector and borrowing. The current account deficit
increased to 6.8% of GDP in 2022 from 4.2% in 2021,
owing to higher imports. It was financed with South Climate change issues and policy
African capital transfers. options
Real GDP per capita grew 1.5% in 2022, up from Private climate finance and its role in financing climate
0.3% in 2021, and is projected to grow 1.0% in 2023 and green growth are very limited. Lesotho received an
and 1.5% in 2024. The nonperforming loans ratio rose average of $238 million a year in climate finance over
from 4.1% in 2021 to 4.4% in 2022. The return on assets 2019–20. Challenges to attracting private climate finance
increased from 1.0% in 2021 to 1.4% in 2022, and the include lack of a culture of support at the national level,
return on equity increased from 8.3% in 2021 to 11.7% inadequate policy and legal frameworks, and unfavorable
in 2022. Poverty remains endemic, with half the popu- market conditions for private investment in cleantech
lation living below the national poverty line in 2017. The solutions. Natural capital includes water and diamonds,
Gini coefficient is projected to increase from 0.446 in valued at $3.2 billion—about 88% of the country’s GDP—
2020 to 0.48 in 2021 and 2022. Youth unemployment in 2018. However, Lesotho does not use these resources
stands at 33.2% compared with overall unemployment for climate finance, instead relying on trust funds. The
of 24%. And 500,000 people are food insecure. estimated cumulative financing needed to adequately
respond to climate change is $511–$582.53 million, or
$54.71 million a year over 2020–30, excluding the cost of
Outlook and risks adaptation. Looking forward, Lesotho should strengthen
GDP is projected to grow 2.1% in 2023 and 2.6% in the private sector’s capacity and systems to support the
2024, driven by the Highlands Water Project’s huge implementation of climate finance activities, develop a
infrastructure construction works involving tunnels and strategy to create a conducive environment for attracting
dams. Other tailwinds include higher government capi- private investment, and undertake ambitious tax reforms
tal spending. Inflation is projected to fall to 6.5% in 2023 that cover green taxes and subsidies.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
4 4 10 0 0

2.6 8 –2 –2
3 3
6
6.1 –4 –4 –4.2
2 2 1.5 –5.1
5.5 –5.1
4
1.6 –6 –4.8 –6
1 1 0.3 2

0 0 0 –8 –8
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data on the budget balance correspond to Lesotho’s fiscal year, which runs from April 1 to March 31.

COUNTRY NOTES 195

 Madagascar
Recent macroeconomic and demand side. Inflation is projected to rise to 9.5% in
financial developments 2023 before falling to 8.2% in 2024. The budget deficit
Real GDP grew 4.2% in 2022, down from 5.7% in 2021, is projected to narrow to 3.0% of GDP on average over
due to the effects of tropical storms and cyclones, the 2023–24 thanks to higher revenue from oil products as
COVID-19 pandemic, and Russia’s invasion of Ukraine. the result of an agreement with distributors in Decem-
Growth was boosted by the mining sector (up 23.6%) ber 2022. The current account deficit is projected to
and the recovery in tourism, especially the hotel and remain stable in 2023 and to narrow slightly, to 5.2% of
restaurant sector, on the supply side and by investment GDP, in 2024. Possible headwinds include new waves
(23.4% of GDP) and higher exports on the demand of COVID-19 infection, higher energy and food prices,
side. Inflation reached 8.1% in 2022, driven by higher tighter global financial conditions, climate shocks, and
energy and food prices. To mitigate the effects of infla- sociopolitical tensions during the 2023 presidential
tion, the government capped the price of basic prod- elections.
ucts (rice, sugar, cement), raised government employee
wages 17% on average, and reduced the value added
tax on fuel from 20% to 15%. The 62% increase in Climate change issues and policy
spending widened the budget deficit to 6.8% of GDP options
in 2022 from 2.8% in 2021, 58% of which was financed An estimated $29.1 billion in finance—or $2.6 billion a
by external resources and 42% by treasury bills and year—is needed over 2023–30 to adequately respond
advances from the central bank. The risk of overindebt- to climate change. But the private sector’s contribu-
edness remains moderate, with outstanding debt at tion to climate finance is low: of the $353 million in
57% of GDP in 2022. climate finance raised over 2019–20, only $15 million
The current account deficit widened to 5.7% of GDP (4%) came from the private sector. This is due mainly
in 2022 due to an increase in imported services and a to the absence of a regulatory framework encouraging
decline in remittances received, with foreign exchange the sector to develop natural resources, the failure to
reserves covering 4.3 months of imports. The financial prioritize the development of natural capital, insufficient
sector remains sound overall, with the nonperforming technical and financial capacities, the lack of bankable
loans ratio at 7.7% in 2022. Poverty is high, at an esti- green investment projects and opportunities, and the
mated 81% in 2021. The unemployment rate is 2.6%, poor governance of natural resources. But there are
70% of which is young people age 15–30. opportunities for the private sector. The country has
rich natural capital, with dense forests, a 4,828 kilo-
meter coastline, an exclusive economic zone of 1.2
Outlook and risks million square kilometers, substantial mining potential,
Real GDP is projected to grow 4.2% in 2023 and 5.0% abundant water resources, and rich biodiversity. How-
in 2024, driven by a rebound in mining and quarrying ever, mobilizing private climate finance will require fiscal
and continued recovery in tourism on the supply side incentives, financing models, and technical and finan-
and by investment and exports of minerals contribute cial support for businesses involved in developing nat-
to the energy transition (graphite, nickel, cobalt) on the ural capital.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 6 10 0 0
5.0
5.7 8 –2 –2
8.2 –2.8
4 4 3.3 –3.2
6
2.6 5.8 –4 –4 –5.0
4 –5.2
2 2
–6 –6
2

0 0 0 –8 –8
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

196 COUNTRY NOTES

 Malawi
Recent macroeconomic and prolongment of Russia’s invasion of Ukraine. Despite
financial developments tight monetary policy, inflation is expected to rise to
Despite the reopening of the economy after almost two 22.8% in 2023 before falling to 15.4% in 2024. The cur-
years of COVID-19 containment measures, GDP growth rent account deficit is projected to narrow to 11.7% of
fell to 0.8% in 2022 from 2.2% in 2021. Russia’s inva- GDP in 2023 and 12.3% in 2024 due to weak growth
sion of Ukraine, global logistical challenges, and climate and domestic demand. Fiscal consolidation to achieve
shocks dampened growth. The largest contributor to medium-term debt sustainability was expected to
2022 GDP growth was agriculture (22.1%), followed by narrow the fiscal deficit, but a mixed picture is emerg-
wholesale and retail trade (12.6%) and real estate and ing. In 2023, the fiscal deficit is projected to rise to 7.8%
construction (6.5%). The downward trend in manufac- of GDP due to the impact of Cyclone Freddy before fall-
turing’s contribution to growth reversed to 12.7% in ing to 7.7% in 2024. Using the baseline assumptions,
2022. Monetary policy was tightened, with the key policy the debt-to-GDP ratio is likely to fall to 72.6% by 2026
rate hiked to 18% in October 2022 from 12% in 2021. from 76.6% in 2022.
Inflation jumped from 9.3% in 2021 to 21.0% in 2022 on
account of higher food and nonfood prices. The local
currency was devalued in May 2022, dropping from Climate change issues and policy
824.8 Malawi kwacha per US dollar to 1,036.2. Banking options
sector liquidity tightened in 2022, and nonperforming Natural resource rents fell from 10.9% of GDP in 2016 to
loans ratio rose to 6.1% from 4.5% at the end of 2021. 4.0% in 2020. Malawi updated its Nationally Determined
In 2022, the fiscal deficit narrowed marginally, to an Contribution, prioritizing agriculture, water resources,
estimated 7.2% of GDP from 7.4% in 2021 due to fiscal health, infrastructure, land-use planning, transport,
consolidation. Malawi continues to face structural bal- population and human settlements, and disaster risk
ance of payments challenges on account of COVID-19- management for adaptation. The financing needed
induced economic weaknesses in China and Russia’s for mitigation and adaptation in these sectors through
invasion of Ukraine, the country’s key tobacco export 2040 is an estimated $46.3 billion. Private sector credit
destinations. Foreign currency shortages reduced averaged $3.3 billion a month in 2022, only 15% of
imports, narrowing the current account deficit to 12.9% which was allocated to climate-related sectors. Esti-
of GDP in 2022 from 13.8% in 2021. mated costs for damage and loss caused by climate
events in 2019 alone amounted to $220 million. The
public sector’s dominance in climate-related sectors
Outlook and risks also crowds out the private sector, which grapples with
GDP growth is projected to rebound to 2.0% in 2023 the lack of clear frameworks for involvement. With the
and 3.5% in 2024, driven by a recovery in agriculture, help of development partners, government capacity to
tourism and exports, and foreign direct investment. develop frameworks for private sector participation in
Headwinds include weather-related shocks and the climate-related activities would be required.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
5 2 25 0 0
0.9
4 3.5 1 20 –2 –3

3 0 15 –4 –6
2.2 15.4
2 –1 –0.4 10 –6 –9
–7.4 –7.7
9.3 –12.3
1 –2 5 –8 –12 –13.8

0 –3 0 –10 –15
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data on the budget balance correspond to Malawi’s fiscal year, which runs from July 1 to June 30.

COUNTRY NOTES 197

 Mauritius
Recent macroeconomic and also weigh on domestic demand. The fiscal deficit is
financial developments projected to further narrow to 5.4% of GDP in 2023 and
Real GDP growth rose to an estimated 8.7% in 2022, 4.7% in 2024, financed predominantly through domes-
up from 3.4% in 2021, spurred by sustained policy sup- tic borrowing and, to a lesser extent, external borrow-
port and the lifting of travel restrictions and buoyed ing. Inflation is projected to moderate to 7.0% in 2023
by recovery in the tourism sector. Monetary policy and 5.5% in 2024. The trade deficit is also projected to
remained accommodative to support economic activ- fall to 7.7% of GDP in 2023 and 5.1% in 2024.
ity, taking advantage of low inflation. However, inflation
rose sharply in 2022, to an estimated 10.8% from 4.0%
in 2021, driven largely by surging imported food and Climate change issues and policy
energy prices because of Russia’s invasion of Ukraine. options
Public finances have been under pressure in recent Very few ecosystem assessments have been carried out
years. The fiscal deficit stood at 10.4% of GDP in 2021 in Mauritius, and the level of natural capital deterioration
and narrowed to an estimated 6.1% in 2022 as the econ- or enhancement remains unknown. The lack of quantita-
omy continued to recover and the government resumed tive assessment, along with increasing demand for infor-
fiscal consolidation, which had been suspended during mation on environmental sustainability, has led to projects
the COVID-19 pandemic. Public debt reached 100.7% such as Maurice Ile Durable, which aims to make Mauri-
of GDP in 2021, owing to increased COVID-19-related tius a world model of sustainable development. Natural
spending and the contraction in GDP. It started a down- capital management will be a major factor in Mauritius’s
ward trajectory in 2022 thanks to strong economic response to climate change. The country accounts for
recovery and government plans to sell nonstrategic only 0.01% of global greenhouse gas emissions, but it is
assets to allow for early repayment of debt. among the most exposed to natural disaster shocks and
The current account suffers from structural deficits, ranks low in adaptive capacity. Adaptation to and mitiga-
driven by a large trade deficit. Its financing depends on tion of climate change effects need to be strengthened.
resilient financial and capital flows in the global busi- Estimating the cost of climate adaptation and mitigation is
ness sector. Gross international reserves remain high, problematic, primarily because there is no agreed quanti-
estimated at 10.2 months of import cover in December tative target. Mauritius’s Nationally Determined Contribu-
2022, down from 17.6 months of import cover at end- tion suggests the country requires $2 billion for mitiga-
2021. The social landscape is mixed, with a low pov- tion and $4.5 billion for adaptation by 2030. About 35%
erty headcount ratio (9.6% in 2017), high inequality (a of the total would be covered by government resources
Gini coefficient of .40 in 2017), and 9.1% unemployment and domestic private sector contributions and the rest
(with 27.7% youth unemployment in 2021). Its Human by external sources. While Mauritius’s financing need is
Development Index value remains high (0.802 in 2021). among the highest in dollar terms across small islands
states, it is much lower as a percentage of GDP. The
government is seeking new sources of finance, espe-
Outlook and risks cially from the private sector, through public–private part-
The economy is projected to grow 5.0% in 2023 and nerships and innovative financing instruments such as
4.2% in 2024 thanks to tourism. But growth is expected bonds (green bonds, blue bonds, resilience bonds, and
to slow in 2023 as Europe (a key market) experiences a catastrophe bonds) and de-risking instruments. Blended
downturn because of higher living costs and the effects debt, equity, and grant finance may be used strategically
of Russia’s invasion of Ukraine. Monetary tightening will to attract private investment.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
10 10 15 0 0
8 8 –4.7 –5.1
10 –5 –5
6 6

4 4
4.2 4.1 5 –10 –10
3.4 3.3 5.5
–10.4 –13.3
2 2 4.0

0 0 0 –15 –15
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

198 COUNTRY NOTES

 Mozambique
Recent macroeconomic and and then drastically increase to 35.9% in 2024, given
financial developments imports of liquefied natural gas projects. Headwinds
Real GDP growth rose from 2.3% in 2021 to an esti- include climate shocks and the insurgency in northern
mated 3.8% in 2022, consolidating the recovery from Mozambique. Tailwinds include the liquefied natural gas
recent shocks such as the COVID-19 pandemic, con- sector as an energy supplier for the country’s electri-
flict, and global geopolitical tensions. Growth was fol- fication and just transition, government investment in
lowed by higher inflation, which jumped from 5.7% in agricultural productivity, and overall subregional growth,
2021 to 10.3% in 2022, driven mostly by fuel and food leading to higher usage of Mozambique’s logistics
price increases. The Bank of Mozambique raised the corridors.
reference interest rate from 15.25% in 2021 to 17.25%
in August 2022. The exchange rate remained stable.
The current account deficit widened to 39.1% of GDP Climate change issues and policy
in 2022 from 23.6% in 2021, given a one-off import of options
a liquefied natural gas offshore platform estimated at Despite being one of the lowest contributors of green-
25% of GDP. International reserves fell to 3.2 months of house gas emissions, Mozambique is among the 10
import cover in June 2022, due to high imports. countries most affected by climate change. At the
The budget deficit narrowed from 4.8% of GDP in 2021 United Nations Climate Change Conference,
2021 to 3.7% in 2022 due to increased revenue from Mozambique set a target of reducing Nationally Deter-
higher economic activity, despite a pressing wage bill mined Contribution emissions from 76 metric tons of
and high debt service. Debt also fell marginally, from carbon dioxide equivalent to 99, with adaptation the
106.4% of GDP in 2021 to 102.6% in 2022, although highest priority to ensure a long-term path toward
new borrowing came from more expensive domestic green growth. The country’s need for 2020–30 totals
finance. The financial sector remained stable in the first $53 billion, well above the $3.7 billion mobilized over
half of 2022, with an increase in the solvency ratio from 2011–20 and roughly three times its GDP. The Mozam-
26.6% in June 2021 to 27.3%. The poverty rate fell mar- bique National Climate Change Adaptation and Miti-
ginally, from 64.5% in 2021 to 64.2% 2022, following a gation Strategy 2013–2025 is the first comprehensive
1.0% increase in GDP per capita. instrument to address climate change. Given the finan-
cial gap, it is critical for the government to emphasize
private investment, particularly on the green growth
Outlook and risks front, with low-carbon energy, agriculture, and climate-
GDP growth is projected to rise to 4.8% in 2023 and resilient infrastructure and insurance schemes to meet
8.3% in 2024, pushed by extractives and agriculture, its goals. To mobilize resources more efficiently, the
leading GDP per capita growth to jump from 2.0% in country could habilitate national institutions to interna-
2023 and 5.5% in 2024. Inflation is projected to fall to tional governance standards for accessing worldwide
9.5% in 2023 and to return to the target of 7.0% in 2024. climate finance; foster a more attractive investment
The fiscal deficit is projected to slightly deteriorate in environment, particularly for smaller hydro dams, wind,
2023, to 4% of GDP, impacted by the wage bill, before and solar farms; and advance a debt-for-climate swap
turning to a deficit 3.6% of GDP in 2024. The current proposal, which offers an opportunity to tackle both
account deficit is projected to decline to 14.0% in 2023 debt and climate issues.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
10 6 15 0 0
8.3 5.5
8
4 –10
10 –2
6
2 –3.6 –20 –23.6
4 7.0
5 –4
0 5.7 –30
2
2.3 –0.6 –4.8
0 –2 0 –6 –40 –35.9
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 199

 Namibia
Recent macroeconomic and struggles with rising global commodity prices due to
financial developments international supply chain disruptions, low COVID-19
Real GDP growth rose to 4.6% in 2022 from 3.5% in vaccine uptake (27% of the population was vaccinated
2021, supported by the lifting of COVID-19-related as of May 2022), higher global inflation, and higher
restrictions in July 2022 and the continued recovery in global interest rates. With the tight monetary policy
primary and secondary industries. Inflation averaged stance, inflation is projected to remain below the cen-
6.1% in 2022, up from 3.6% in 2021, driven by elevated tral bank target of 6.0% in the medium term. The fiscal
global commodity prices linked to the COVID-19 pan- deficit is projected to decline, driven by strong domestic
demic and Russia’s invasion of Ukraine. The Bank of resource mobilization and tax compliance efforts by the
Namibia progressively increased the policy rate to new Namibia Revenue Authority and spending rational-
7.25% in April 2023 from 6.75% in November 2022 and ization efforts. The current account deficit is projected
3.75% in 2021. to decline on higher diamond and tourism earnings.
The fiscal deficit averaged 7.5% of GDP in 2021/22,
as Southern African Customs Union (SACU) receipts
and diamond earnings declined. The public sector wage Climate change issues and policy
bill remained high, taking public debt to 67% of GDP. In options
May 2022, Namibia launched a $15 million sovereign Namibia’s low-lying and southern desert regions fre-
wealth fund that supports debt sustainability through quently experience rainfall variability. Its river basin
spending stabilization. The current account turned to areas and coastline are susceptible to flooding. Private
a deficit of 9.8% of GDP in 2021 and 8.4% of GDP in climate finance is still low compared with public funding.
2022, from a 2.8% surplus in 2020, after higher fuel In 2019/20, Namibia received on average $202.3 million
import payments and declining SACU receipts. Interna- in climate finance flows: $32 million (16%) from the pri-
tional reserves rose marginally, to 5.7 months of import vate sector and $170 million (84%) from public sources.
cover in December 2022 from 5.6 months in 2021. The The government secured $544 million in climate finance
capital adequacy ratio of 17.0% in 2022 was above the at the 2022 United Nations Climate Change Conference
10% statutory requirement. The nonperforming loans in November 2022. Natural capital comprises minerals
ratio fell to 5.6% at end-2022 from 6.4% the year before. (diamonds, uranium, copper, magnesium, zinc, silver,
The headcount poverty ratio stood at 17.4% in 2019. gold, lead, semiprecious stones, and industrial miner-
Unemployment stood at 33.4% in 2018, with youth als), land (8.1% forest cover in 2020), and a blue econ-
unemployment at 46.1% and female unemployment at omy (more than 1,570 kilometers of coastline). Natural
48.5%. Inequality is high, with a Gini coefficient of .572 capital is valued at $19.6 billion, $17.2 billion of which
in 2015. is renewable. However, these resources are threatened
by both climate change and weak resource gover-
nance. Between 2018 and 2022, several commercial
Outlook and risks banks issued green bonds to finance eligible renewable
Real GDP is projected to grow 3.5% in 2023 and 3.0% energy projects, showing the potential for private cli-
in 2024, buoyant on the continued economic recovery, mate finance. Namibia needs to harness this potential
particularly in diamond processing and export, and by creating a strong enabling environment for private
increased consumption in wholesale and retail trade climate investment through regulatory reforms that sup-
and tourism. Headwinds include a higher import bill port climate-resilient sectors and de-risk low-emission
and lower SACU revenue for Namibia as South Africa private investment.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 6 8 0 0

–2 –2
6 –4.0
4 4
–4 –4.9 –4
3.5 4 4.6
3.0 –6 –6
2 2 –7.5
1.9 2 –8 –8
1.4 –7.5 –9.8
0 0 0 –10 –10
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data for the budget balance as a % of GDP reflect a financial year that begins April 1 and ends March 31 the following year.

200 COUNTRY NOTES

 São Tomé and Príncipe
Recent macroeconomic and in 2024, while international reserves are projected to
financial developments rise to $20.3 million in 2023 and $25.2 million in 2024,
Real GDP growth declined moderately, from 1.9% urged by inflows of multilateral and bilateral loans and
in 2021 to an estimated 0.9% in 2022. The decline is grants. A new International Monetary Fund program
attributed to the lingering effect of the COVID-19 pan- is projected to stir economic activity and drive growth
demic on tourism, coupled with Russia’s invasion of by supporting the government in achieving macro-
Ukraine, which disrupted global trade. As a small island economic stability, reducing debt vulnerability, alleviat-
development state, the country relies on tourism, which ing balance of payments pressures, and creating the
accounted for 43.7% of foreign currency revenue in foundations for stronger growth. However, headwinds
2021, as one of the main contributors to the economy. include an escalation of Russia’s invasion of Ukraine,
The economic slowdown was further constrained climate change events, poor infrastructure, and slower
by the impact on the local market of higher food and oil global trade, which can dampen economic growth.
prices in the international market. São Tomé and Príncipe
imports 100% of its oil and half of its food. As a result,
inflation rose to 17.9% in 2022 from 8.1% in 2021, on the Climate change issues and policy
back of the enduring COVID-19 pandemic effect. The options
fiscal deficit reached an estimated 7.2% of GDP in 2022, As a small island developing state, São Tomé and
up from 5.9% in 2021. At the same time, the current Príncipe is prone to climate shocks. The country thus
account deficit climbed to an estimated 19.4% of GDP developed its Nationally Determined Contribution (NDC)
in 2022 from 16.9% in 2021 due to a sharp increase in aiming to increase the renewable energy share in the
oil and food prices on the global market. The current national grid, reduce power grid losses, and increase
account deficit is financed mainly through credit for oil energy efficiency, while substantially reducing the trans-
and multilateral loans. Net international reserves declined port sector’s carbon footprint. The estimated cost of
from $29.9 million in 2021 to $14.3 million in 2022 due to the NDC from 2020 to 2030 to reduce emissions 27%
the associated increase in import costs of oil and food by 2030 is $150 million. The measures will reduce the
products. The return on assets rose from 1.0% in Sep- country’s vulnerability to climate change while spurring
tember 2021 to 1.4% in September 2022, and the return private investment in power, agriculture, tourism, and
on equity followed the same trend, rising to 8.4% in Sep- transport. The private sector may pursue climate-smart
tember 2022 from 5.7% in September 2021. agriculture practices and technology to enhance adap-
tation and resilience to climate change. The country has
a target of 100% organic agricultural products, led by
Outlook and risks the private sector, aiming to promote sustainable local
Real GDP is projected to grow a mere 1.6% in 2023 and agriculture production for internal consumption and
1.9% in 2024 due to the slow return to global trade after export while preserving biodiversity. Furthermore, the
the COVID-19 pandemic. The fiscal deficit is projected blue economy can be a new source of growth based on
to decline to 5.5% of GDP in 2023 and 4.5% in 2024 marine and biodiversity preservation. The current energy
due to prudent public spending and austerity mea- mix, with 95% of power generated by fossil fuels, can
sures to contain inflation. Export and tourism earnings be altered with private sector support. The government
are projected to rebound, helping narrow the current is expected to adopt new legislation to facilitate private
account deficit to 16.2% of GDP in 2023 and 13.9% investment in the transition to green and clean energy.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
5 2 20 0 0

4 1 15 –2 –5
3 –0.2 0.0
0 10 –4 –4.5
1.9 1.9 –10
2 9.5 –13.9
8.1 –5.9
–1 5 –6 –15 –16.9
1

0 –2 0 –8 –20
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 201

 South Africa
Recent macroeconomic and Outlook and risks
financial developments The economy is projected to grow marginally, by 0.2%
Real GDP growth dropped to 2.0% in 2022 from 4.9% in 2023 and 1.5% in 2024, supported by growth in
in 2021, mainly on account of persistent electricity trade, tourism, mining, and manufacturing. Inflation is
shortages, flooding in KwaZulu Natal, and constraints in projected to ease to 5.9% in 2023 and decline fur-
the transport sector, coupled with the global downturn ther to 4.5% in 2024 on account of reduced fuel and
following Russia’s invasion of Ukraine. Inflation rose to food prices, subject to evolving global dynamics. The
6.9% in 2022 from 4.5% in 2021, driven by higher food fiscal deficit is projected to increase marginally, to
and fuel prices. To curb rising inflation, the Reserve 6.2% of GDP in 2023 and 6.7% in 2024 due to fiscal
Bank of South Africa raised the base interest rate to consolidation, including higher tax revenue. The cur-
6.25% in September 2022 from 5.5% in July 2022. The rent account deficit is projected to widen to 2.2% of
rand depreciated from 15.3 per US dollar in January GDP in 2023 and 2.4% in 2024 due to an anticipated
2022 to 17.3 in December 2022. drop in commodity prices. Headwinds include contin-
The budget deficit widened marginally, to 4.9% of GDP ued electricity supply constraints, weak governance
in 2022 from 4.6% in 2021, due to higher growth in priority in state-owned enterprises, and the global economic
spending, including spending related to the COVID-19 for downturn.
the most vulnerable. The current account deficit also nar-
rowed, to an estimated 0.5% of GDP in 2022 from a sur-
plus of 3.7% in 2021, mainly because prices and volume Climate change issues and policy
of imports exceeded those of exports. External reserves options
increased from $58.4 billion in August 2021 to $63.4 bil- South Africa has embraced the private sector in its
lion in October 2022 (about 5.5 months of import cover), efforts to tackle climate change. It was among the
boosted by higher export earnings. Public debt increased top-five recipients of private climate finance in Africa in
marginally, to 71.4% of GDP in 2022 from 68.0% of GDP 2019/20, with $656 million (40% of climate finance). But
in 2021, due to increased budget financing requirements this compares poorly with climate finance needs; hence
and fluctuations in interest and exchange rates. The finan- the focus on mobilizing more private financing. The
cial sector continued to recover strongly from the impacts country has taken measures to restructure the energy
of the COVID-19 pandemic, with the nonperforming loans sector by moving toward renewable and cleaner energy
ratio declining from 4.5% in 2021 to 4.0% in 2022. Poverty sources. Natural capital was valued at $400 billion in
remains high, with an estimated 30% of people living in 2018 ($213.8 billion of it renewable). Its National Climate
extreme poverty in 2022. Inequality is also high, with a Change Response Policy calls for including the financial
Gini coefficient of 0.63 in 2021. Unemployment was an services sector in shaping climate and green finance
estimated 32.7% as of December 2022. architecture.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 6 8 0 4
4.9 3.7
3.9 –2
4 6 2
4 –4.6
–4
2 4 4.5 4.5 0
0.5 –6
2 1.5
0 –6.7 –2 –2.4
2 –8

0 –2 0 –10 –4
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data on the budget balance correspond to South Africa’s fiscal year, which runs from April 1 to March 31.

202 COUNTRY NOTES

 Zambia
Recent macroeconomic and growth in real GDP per capita is projected, to 1.2% in
financial developments 2023 and 1.4% in 2024. Inflation is projected to decline
Real GDP recovered to 4.6% growth in 2021 and 3.0% to 8.5% in 2023 and 7.1% in 2024, within the 6%–8%
in 2022 after contracting 2.8% in 2020. The recovery target range. Upside risks include higher fuel prices and
was driven mainly by wholesale and retail trade, agricul- electricity tariffs and fluctuation in global fertilizer prices.
ture, and mining and quarrying. Inflation dropped from The fiscal deficit is projected to persist at 8.1% of GDP
22.1% in 2021 to 10.1% in 2022, driven mainly by the in 2023 and 7.3% in 2024, owing to increased social
reduced food price shocks. The policy rate was main- spending. Headwinds include perennial drought, fluctu-
tained at 9.0% in 2021 and 2022, owing to inflationary ating copper prices, and the impact of Russia’s invasion
pressures, weaker medium-term growth prospects, of Ukraine on fertilizer and fuel prices.
and vulnerabilities and risks to the financial sector. The
fiscal deficit was 8.1% of GDP in 2021 and 8.9% in
2022, down from 13.8% in 2020. Climate change issues and policy
There was a trade surplus of 12.1% in 2021 on options
account of higher export volumes and prices and Zambia’s overall need for climate finance is an esti-
subdued imports of consumer goods. International mated $50 billion through 2030, which is expected to
reserves rose from 2.4 months of import cover in 2021 be mobilized predominantly through new climate finance
to 3.6 months in 2022 on account of the Extended mechanisms such as the Global Climate Fund and
Credit Facility and the Special Drawing Rights alloca- other climate-related bilateral, multilateral, and domestic
tion from the International Monetary Fund. Zambia financing. This includes the private sector, which already
remains in high debt distress, with debt above 104% provides climate finance through corporate social
of GDP. The financial sector’s performance improved responsibility, in addition to investment with returns.
in 2021 and 2022, with the nonperforming loans ratio A good example of private financing is the $53 million
rising from 9.0% in 2021 to 6.1% in 2022 due to busi- Green Outcomes Fund that was recently established by
ness recoveries. Credit to the private sector was 8.9% Zambia National Commercial Bank, Kukula Capital, and
of GDP in 2021 and 9.2% in 2022. Slightly over 50% of the World Wide Fund for Nature–Zambia. The Develop-
the population lives below the national poverty line, and ment Bank of Zambia also attained an accreditation by
the poverty rate is higher in rural areas (77%) than in the Green Climate Fund to receive and submit proposals
urban areas (23%). on behalf of developers of green projects. Carbon-mar-
ket financing mechanisms remain underexploited but
have great potential. Weather-indexed insurance instru-
Outlook and risks ments are already being used, as are infant-stage green
GDP is projected to grow 4.0% in 2023 and 4.2% in bond initiatives. Zambia is endowed with many natural
2024, underpinned by the continued recovery in mining, resources (land, water, forest, and wildlife). The mining
services, and manufacturing; higher global copper sector accounts for 12% of GDP, and the forest sector
prices; and the market confidence associated with on- accounts for 5%–7%. More than 300,000 people make
going fiscal consolidation measures. A slight uptick in their living directly or indirectly from fishing.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 4 25 0 15
22.1 12.1
4.6
4.2 20
3 10
4 –5 –7.3
15
1.7 –8.1
2 5
1.4 10 7.1 –10
2
1 0
5
–0.4
0 0 0 –15 –5
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 203

 Zimbabwe
Recent macroeconomic and had recorded 259,942 cases of COVID-19 infection and
financial developments 5,635 deaths. Some 12.69 million COVID-19 vaccine
Real GDP growth moderated to 3.0% in 2022, down doses have been administered, and over 31% of the
from 8.5% in 2021, due largely to exogenous and population is fully vaccinated against the virus.
endogenous shocks. Floods and drought adversely
affected agricultural output, which contracted 14% in
2022. Total output was further constrained by macro- Outlook and risks
economic instability in 2022, arising from exchange rate Real GDP growth is projected to recover to 3.2% in 2023
depreciation and hyperinflation. The Zimbabwe dollar and 2024, anchored largely by agriculture, mining, and
depreciated 521% against the US dollar in 2022, fall- services. Tight monetary and fiscal policy is expected
ing from 108 per US dollar in January 2022 to 671 in to increase macroeconomic stability in 2023. Inflation is
December 2022. This triggered an increase in inflation: projected to ease further, to 132.2% in 2023 and 36.1%
from 60.6% in January 2022 to 285% in June 2022. in 2024, supported by economic stability, subject to
Russia’s invasion of Ukraine exerted further pressure evolving global dynamics. The fiscal deficit is projected
on the economy by triggering increased fuel and food to narrow to 0.2% of GDP in 2023 on account of higher
prices. Inflation moderated at 243.8% in December revenue mobilization and stringent budget execution. The
2022 as the government introduced measures to arrest current account is projected to show a surplus of 0.8% of
the rapid currency depreciation, such as selling gold GDP in 2023 and 0.5% in 2024, supported by favorable
coins and raising the interest rate from 100% to 200%. commodity export prices and increased remittances. But
The fiscal deficit narrowed to 0.9% of GDP in 2022, the uncertain global economic outlook due to geopolitical
reflecting fiscal consolidation. The current account sur- tension coupled with climatic shocks, power shortages,
plus also narrowed to 1.0% of GDP in 2022 from 2.9% and exchange rate volatility remain major risks.
in 2021 due to higher fuel and imported commod-
ity prices. Debt stood at $17.5 billion in 2022 (66% of
GDP). External debt was estimated at $14 billion, while Climate change issues and policy
domestic debt stood at $3.5 billion as of 30 September options
2022. Zimbabwe has started implementing the Arrears Zimbabwe has prioritized private financing to achieve
Clearance, Debt Relief and Restructuring Strategy to its climate change targets in transitioning to green and
resolve long-outstanding debt and external arrears with inclusive growth. The country is developing the National
creditors. Gross international reserves were an esti- Climate Change Fund and Climate Finance Facility to
mated $540 million (0.9 month of import cover) in 2022. crowd-in the private sector through blended finance
As of September 2022, Zimbabwe had used $582 mil- and results-based approaches to de-risk markets and
lion of the International Monetary Fund’s $960 million scale up investment and boost participation in scaling
additional Special Drawing Rights allocated in August up climate actions. Zimbabwe received about $990 mil-
2021. Poverty and inequality are high due to deterio- lion in climate finance between 2010 and 2020, aver-
rating economic conditions. The extreme poverty rate aging $90 million a year. This leaves a financing gap of
was an estimated 44% in 2022, and the Gini coefficient $440–500 million a year, thus greatly limiting the coun-
was 0.503 in 2023. As of 27 January 2023, Zimbabwe try’s ability to build climate resilience.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
10 8 200 2 6
8.5
6.4
8
6 150 1
0.4 4
6 143.3
2.9
4 100 0
4 3.2
2
2 2 1.1 50 –1
–1.8 0.5
36.1
0 0 0 –2 0
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

204 COUNTRY NOTES

WEST AFRICA

 205
 Benin
Recent macroeconomic and of climate change. Furthermore, the unfavorable evolu-
financial developments tion of Nigeria’s economic situation and the worsening
Real GDP growth was steady at 6% in 2022 following security situation in Benin’s northern areas could com-
a remarkable 7.2% in 2021, led by the primary, second- promise the economic outlook. Inflation is projected
ary, and tertiary sectors. The economy has shown resil- to rise to 2.8% in 2023 and 2.3% in 2024 as global oil
ience to the effects of recent crises: the COVID-19 pan- prices stabilize. Budgetary policy is likely to benefit from
demic, Russia’s invasion of Ukraine, and the security an ongoing International Monetary Fund program that
situation in northern parts of the country. Inflation rose provides $638 million in funding. The budget deficit is
to 2.5% in 2022 from 1.7% in 2021 due to the rising cost projected to drop slightly, to 4.5% of GDP in 2023 and
of basic necessities. 4.1% in 2024. The current account deficit is projected to
The budget deficit remained high, at 5.5% of GDP fall to 4.0% of GDP in 2023 and 3.8% in 2024 due to the
in 2022 compared with 5.7% in 2021, due to looser decline in raw material prices (food products).
fiscal policy. Outstanding government debt climbed
2.5 percentage points, to 52.8% of GDP in 2022 from
50.3% in 2021. In December 2022, risk of debt distress Climate change issues and policy
was moderate. The current account deficit widened options
slightly, to 4.9% of GDP in 2022 from 4.1% in 2021, with The estimated climate finance needed over 2020–30
imports rising more rapidly than exports. The depth is $13.8 billion, or $1.3 billion a year. If the country
of the financial sector remains weak overall, with pri- receives the same $2.3 billion a year that it received
vate bank lending representing only 15.2% of GDP in over 2010–20, it will face a finance deficit of at least
2022. The nonperforming loan ratio improved to 12.6% $910 million a year. Private climate finance remains
in late December 2021 from 16.8% in late December largely nonexistent. In 2019–20, climate finance
2020. Over 70% of credit was concentrated among the reached $360 million, 98.6% of it from the public
five largest borrowers in 2021, up from 64.6% in 2020. sector and only 1.4% of it from the private sector. To
About 38.5% of the population was living in poverty in boost private sector participation in climate finance,
2019, and underemployment was 72.9%. Social pro- the government needs to create a green investment
tection programs (health and retirement insurance), bank that, for example, issues green bonds, pro-
essential to strengthening social inclusion, are still in vides debt relief for small and medium enterprise and
development. startups. Moreover, to achieve green growth based
on green industrialization, Benin should further cap-
italize on its natural capital, which consists of nearly
Outlook and risks 121 kilometers of coastline and a continental plateau
Real GDP growth is projected to remain steady at with 3,100 square kilometers of lagunas, brackish
6.2% in 2023 and 6.0% in 2024 thanks to momentum lakes, and a river system comprising 700 kilometers
in the primary, secondary, and tertiary sectors. The of waterways. The country also has large, yet under-
main risks to the economy are unfavorable variations utilized, mineral assets (gold, construction materials,
in global cotton and oil prices and the negative effects iron, phosphates, nickel, and zircon).

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 5 5 0 0
4.4
7.2 4 4
6 –2
6.0 –2
3 3.3 3 –4.1
4 –4
–3.8
2 2 2.3 –5.7 –4.1
–4
2 1.7 –6
1 1

0 0 0 –8 –6
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

206 COUNTRY NOTES

 Burkina Faso
Recent macroeconomic and to fall to 6.1% of GDP in 2023 and 5.2% in 2024, despite
financial developments increased needs to address security and humanitarian
Real GDP growth dropped to 3.2% in 2022 from 6.9% challenges, thanks to higher tax revenue. Public debt is
in 2021 because extractive activities fell 13.6% in 2022 projected to remain sustainable, rising to 62% of GDP
despite growing 7.3% in 2021, following the closure of in 2023 and 2024 due to an increase in treasury bonds
several mines for security reasons. Other factors in the issued to fill the budget deficit. The current account
economic slowdown were sociopolitical instability, mil- deficit is projected to narrow to 3.1% of GDP in 2023
itary coups, a deteriorating security environment, and and 2.9% in 2024. Possible headwinds include a delay
the effects of Russia’s invasion of Ukraine. Contribu- in re-establishing constitutional order, pronounced
tors to growth included agriculture (up 10.3% in 2022 deterioration in the security situation, inflationary pres-
after declining 12.3% in 2021) and the tertiary sector (up sures, and lower prices for exported raw materials (gold
6.6% in 2022 compared with 13.5% in 2021). On the and cotton).
demand side, public investment fell. Inflation jumped to
14.4% in 2022 due to higher imports of food products
and oil. Private sector funding in the banking sector Climate change issues and policy
rose 16% in 2022. The budget deficit widened to 8.5% options
of GDP in 2022 from 6.3% in 2021 after public spend- Burkina Faso remains highly vulnerable to climate
ing rose to 26.1% of GDP in 2022 from 25.6% in 2021 change and aims to reduce its greenhouse gas emis-
to address security and humanitarian challenges and sions 29.4% by 2030. An estimated $636.9 million a year
provide oil subsidies. But tax revenue also increased, in climate finance is needed over 2021–30 for adaptation
to 16.3% of GDP in 2022 from 15.2% in 2021. Public and mitigation, but only $284.5 million a year was mobi-
debt was an estimated 57.2% of GDP in 2022, up from lized over 2010–20, primarily from international partners.
47.1% in 2021, suggesting moderate risk of overindebt- Both the private and banking sectors are involved in cli-
edness. The current account balance turned to a deficit mate finance through the Intervention Fund for the Envi-
of 5.2% of GDP following a surplus of 0.4% in 2021 due ronment and through Coris Bank International (from the
to higher costs for food and energy imports and a weak Green Climate Fund). Yet the private sector faces several
rise in exports. obstacles, including low availability of resources dedi-
The security context and resulting humanitarian cated to green investment, high cost of investment in cli-
crisis have exacerbated poverty in rural areas (esti- mate change adaptation, and lack of awareness of how
mated at 51.1% in 2019) as well as unemployment (57% to access climate funds. The country should thus adopt
of the population age 15 and older). green financial instruments such as green bonds to mobi-
lize additional resources, adopt tax incentives to encour-
age green investment, and strengthen private capacity
Outlook and risks to design bankable ecological projects. The agricultural,
Real GDP is projected to grow 3.7% in 2023 and 3.9% forestry, and pastoral sectors, which accounted for 22%
in 2024, less than the 6% average for 2017–19, due of GDP over 2011–22), and the mining sector (10.7%) are
to sociopolitical instability and the deteriorating secu- key to creating wealth. These sectors employ nearly 80%
rity environment. The restrictive monetary policy of the of the labor force. If sustainably exploited, natural capital,
Central Bank of West African States and improved food estimated at $50.8 billion in 2018, could contribute to cli-
availability are expected to reduce inflation to 6.1% in mate finance and green growth.
2023 and 3.7% in 2024. The budget deficit is projected

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 6 15 0 2
6.9
0.4
4.2 –2
6 0
4 10
3.9 –4
–5.2
4 –2
–6.3 –2.9
–6
2 1.4 5
2 –4
3.9 –8
3.7
0 0 0 –10 –6
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 207

 Cabo Verde
Recent macroeconomic and by imported food and energy prices. Monetary policy,
financial developments although accommodative to support economic recov-
Real GDP grew by 7.0% in 2021 and 10.5% in 2022, ery, could be tightened to mitigate inflationary pres-
supported by transport, the digital economy, construc- sures. The fiscal deficit is projected to narrow from 4.5%
tion, and tourism. Renewable energy (22% of total of GDP in 2023 to 3.5% in 2024, reflecting improved
power supply) also stimulated growth through reduced tax collection. The current account deficit is projected
energy import costs on the supply side, and private con- to shrink to 5.4% of GDP in 2024 from 7.0% in 2023,
sumption and exports bolstered growth on the demand as recovery in tourism and remittances helps preserve
side. Credit guarantees and social safety nets targeting international reserves at 5.5 months of import cover. The
24,406 workers helped boost income per capita 6.0% poverty rate is projected to fall to 34% in 2023 with the
in 2021 and 9.6% in 2022. The exchange rate peg to progressive resumption of economic growth.
the euro anchored the central bank’s accommodative
monetary policy. Inflation increased from 1.9% in 2021
to 8.0% in 2022 due to higher food and energy prices Climate change issues and policy
induced by Russia’s invasion of Ukraine. options
Spending efficiency and improved tax collection Limited fiscal buffers exacerbate the gap in Cabo Verde’s
reduced the fiscal deficit from 7.2% of GDP in 2021 to private climate finance over 2020–30 to $120.3 million
4.7% in 2022. The deficit was financed mainly by exter- (2% of GDP). Private climate finance in 2019/20 aver-
nal disbursements and domestic loans. Public debt fell aged $21 million—98% of it from public and multilateral
from 143.0% of GDP in 2021 to 128.1% in 2022, reflect- climate funds and 2% from institutional investors, and
ing higher nominal GDP growth. High concessionality, targeted transport, energy, the blue economy, and the
long maturity (22 years), and fixed interest rates sug- digital economy. The regulatory framework for public–
gest debt sustainability. The current account deficit private partnerships is stable. Cabo Verde gained expe-
narrowed from 12.8% of GDP in 2021 to 7.8% in 2022, rience in blended finance, notably from independent
driven by tourism revenue and remittances. The cur- power producers in solar and wind energy. However,
rent account was financed by foreign direct investment, private climate finance experience remains limited, as
which boosted international reserves from €591 million evidenced by the disparity between private ($12.20) and
in 2021 to €601.1 million in 2022 (5.7 months of import public ($157.50) climate finance per capita. Challenges to
cover). The financial sector is stable, adequately capital- private climate finance include a weak financial system,
ized, and liquid. The poverty rate increased from 31.6% poor economies of scale, and skills constraints. Cabo
in 2021 to 35.5% in 2022, exacerbated by effects from Verde has promoted innovative climate finance instru-
Russia’s invasion of Ukraine, as 80% of food is imported. ments, such as the social bond envisaging environmen-
tal sustainability, the blue fund launched on the Blu-X
sustainable finance platform, and a $150 million debt-
Outlook and risks for-nature swap with Portugal. Going forward, deploying
Real GDP is projected to grow by 5.7% in 2023 and public capital to crowd-in private investment is critical to
6.2% in 2024, supported by agriculture, energy, the dig- harness climate finance. Cabo Verde’s natural resource
ital economy, and tourism. Headwinds include effects wealth, comprising marine fisheries and minerals (such
from Russia’s invasion of Ukraine, rising global interest as salt), is threatened by climate change. As a result,
rates, climate change, and potential recession in Europe, natural capital’s contribution to GDP underperforms its
which accounts for 80% of imports. Inflation is projected potential, with agriculture accounting for 5%, fisheries
to remain high, at 7.8% in 2023 and 6.5% in 2024, driven 1%, and extractives 0.3%.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
15 15 10 0 0

8 –2 –5.4
–3.5 –5
10 10
6 –4
6.5
6.2 –10
5.3 4 –6
5 7.0 5 6.0
–15 –12.8
2 –8 –7.2
1.9
0 0 0 –10 –20
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

208 COUNTRY NOTES

 Côte d’Ivoire
Recent macroeconomic and trade, telecommunications, and agriculture), as well as
financial developments investment and consumption. Inflation is projected to
Real GDP growth dropped from 7.4% in 2021 to 6.7% in fall to 3.7% in 2023 and 2.7% in 2024 due to increased
2022 due to the ongoing effects of Russia’s invasion of local food supplies and the continued fight against the
Ukraine and the COVID-19 pandemic. Growth is driven high cost of living. The budget deficit is projected to
mainly by the extractive industry, manufacturing, con- narrow to 5.2% of GDP in 2023 and 4.1% in 2024 due to
struction, retail trade, telecommunications, private and greater mobilization of domestic resources and better
public investment, and private consumption. Inflation control of public spending. The current account deficit
rose from 4.2% in 2021 to 5.2% in 2022, induced mainly is projected to widen to 6.1% of GDP in 2023 and 6.0%
by higher food prices due to inadequate local supplies in 2024 due to higher NDP investment. Possible head-
and by the higher cost of transportation caused by winds include a deteriorating political climate following
increased global energy prices. To maintain the popula- local elections in 2023, the ongoing effects of Russia’s
tion’s purchasing power, the government subsidized oil invasion of Ukraine, a resurgence of the COVID-19 pan-
prices in the first quarter of 2022, upgraded civil service demic, and a decline in the price of agricultural raw
salaries, and capped the price of mass market prod- materials.
ucts. This widened the budget deficit from 4.9% of GDP
in 2021 to 6.8% in 2022. Outstanding debt rose from
52.1% of GDP in 2021 to 56.0% in 2022. The risk of Climate change issues and policy
overindebtedness remains moderate, as in 2021, even options
with less capacity to absorb shocks. The climate finance deficit averages $2.7 billion a year
The current account deficit widened from 4% of GDP over 2020–30, with limited potential for private con-
in 2021 to 6.9% in 2022 due to the deteriorating terms tributions. The country has no sovereign fund, and
of trade. Import prices rose more than export prices, investment funds are limited and difficult for small and
exacerbated by the euro’s depreciation against the US medium enterprises to access. But the country can
dollar. Despite higher average interest rates for bank rely on its network of insurance companies and on two
loans (6.1% in 2022 compared with 5.6% in 2021), credit pension funds (Caisse Nationale de Prévoyance Sociale
to the economy rose 11.4%, against 12.5% in 2021, due and Caisse Générale de Retraite des Agents de l’État).
to momentum in economic activity. Due to resource mobilization difficulties, private climate
finance remains extremely low. Resolving this problem
should focus on addressing the inadequate legal frame-
Outlook and risks work, specifically for the carbon market, and tax incen-
GDP is projected to grow 7.2% in 2023 and 7.0% in tives; the lack of awareness of existing finance; and
2024 as the reforms and investments in the National poor national capacity and technical skills in innovative
Development Plan (NDP) 2021–2025 accelerate and climate finance. Natural capital, worth an estimated
production starts at the Baleine gas and oil field dis- 45% of the national economy, is a major asset that
covered in 2021–22. Growth could be fueled by sev- should be promoted as the country seeks to establish
eral sectors (energy, construction, mining, agribusiness, sustainable economic growth.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 6 6 0 0
4.9
7.4 4.5
6 7.0 –2 –2
4 4
4.2 –4.0
–4.1
4 –4 –4.9 –4

2 2 2.7 –6.0
2 –6 –6

0 0 0 –8 –8
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 209

 Gambia
Recent macroeconomic and energy, and tourism. These shocks could also intensify
financial developments fiscal pressures and affect the debt profile. Inflation is
After muted 0.6% growth in 2020 due the COVID-19 pan- projected to be 11.7% in 2023, reflecting high fuel and
demic, GDP growth remained subdued at 4.3% in 2021 food prices and exchange rate depreciation, but to fall to
and 4.4% in 2022, as the effects of Russia’s invasion 9.1% in 2024 as commodity prices normalize. The central
of Ukraine disrupted agriculture, tourism, construction bank is expected to continue tightening monetary policy
activities, and private investment. Increased COVID-19 to address inflationary pressures. The fiscal deficit is pro-
spending (0.5% of GDP) and food support (0.7% of GDP) jected to decline from 2.9% of GDP in 2023 to 1.4% in
protected livelihoods and businesses, bolstering real GDP 2024, owing to restrained spending and improved tax
per capita growth from –2.0% in 2020 to 1.9% in 2022. collection efforts. The current account is projected to
High food and fuel prices induced by Russia’s invasion of narrow from 12.5% of GDP in 2023 to 9.9% in 2024 as
Ukraine, freight charges, and the strong US dollar raised tourism strengthens and export disruptions dissipate.
inflation from 7.4% in 2021 to 9.6% in 2022. In response,
the policy rate was raised from 10% in May 2022 to 12%
in September 2022 and 13% in December 2022. Climate change issues and policy
Improved revenue collection and spending ratio- options
nalization contained the fiscal deficit at 4.4% of GDP in The Gambia’s Green Growth Index rose from 42.8%
2022, financed mostly by grants and $20 million in Spe- in 2010 to 44.6% in 2021, still short of its green growth
cial Drawing Rights. Public debt declined from 83.8% of target. This implies that by enforcing appropriate green
GDP in 2021 to 80.8% in 2022, yet risk of debt distress growth policies, The Gambia could promote economic
remains high. The current account deficit, financed by for- growth while reducing vulnerability to climate change. The
eign direct investment, widened to 13.1% of GDP in 2022, country’s 2050 Climate Vision and sectoral green growth
reflecting disruptions in cashew and timber exports and strategies are aligned with its Nationally Determined Con-
weak remittances. Gross international reserves dropped tribution (NDC). NDC financing need over 2020–30 totals
from $520 million in 2021 (7 months of import cover) to $1.64 billion. In 2019/20, private climate finance inflows
$420 million in 2022 (4.4 months). The financial sector amounted to $65 million, mostly from public, bilateral,
remains resilient, with the capital adequacy ratio at 26.9%, and multilateral institutions. The private sector accounted
well above the statutory ratio of 10%. The nonperforming for 1% and targeted only a few initiatives on carbon mar-
loans ratio rose from 5.1% in 2021 to 4.2% in 2022. The kets in forests and renewable energy. Challenges to pri-
poverty rate increased from 48.4% in 2019 to 53.4% in vate climate finance include a heavy tax regime, currency
2022, exacerbated by the COVID-19 pandemic. risk, and technical capacity. The Gambia has the poten-
tial to scale up private climate finance through innovative
approaches such as green bonds, debt-for-nature swaps,
Outlook and risks blended financing, and carbon markets. Renewable natu-
GDP growth is projected to remain below pre-COVID-19 ral capital increased 86.2% between 1995 and 2018. This
levels, at 5.2% in 2023 and 5.6% in 2024, as uncertainties suggests the potential to leverage private climate finance
about Russia’s invasion of Ukraine, tighter international with natural resources. The Gambia boasts more than 500
financial market conditions, and climate change could marine fish species and 47.5% of land area covered by
weaken economic activity in agriculture, construction, 505,000 hectares of forests, 10% of which is woodland.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 4 15 0 0
5.6 3.1 –1.4
4.3
3
4 10 –2 –5
1.7 9.1 –8.1
2
7.4 –9.9
2 –4 –10
5
1
–5.6

0 0 0 –6 –15
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

210 COUNTRY NOTES

 Ghana
Recent macroeconomic and in 2024, driven by the base effect and food and energy
financial developments inflation. The fiscal deficit is projected to narrow to 8.9%
Real GDP growth slowed to 3.3% in 2022 from 5.4% of GDP in 2023 and 9.0% in 2024 on account of new
in 2021 due to macroeconomic instability, global finan- revenue enhancement measures. The current account
cial tightening, and spillover effects of Russia’s invasion deficit is projected to widen to 3.0% of GDP in 2023 and
of Ukraine. Inflation was an estimated 31.5% in 2022, to narrow to 2.5% in 2024 following global growth trends.
up from 10% in 2021, driven by food and energy prices Headwinds include delays in international financial sup-
and depreciating local currency. The Bank of Ghana port, volatility in key export commodity prices, and finan-
tightened monetary policy; the policy rate was hiked to cial stress. Possible mitigation measures include interna-
27% in 2022 from 14.5% in 2021. The fiscal deficit wid- tional financial assistance, enhanced fiscal consolidation,
ened slightly, to 9.3% of GDP from 9.2% in 2021, due to economic diversification, and private sector growth.
higher spending. Public debt hit 93.5% of GDP in 2022,
up from 82.0% in 2021, driven by primary fiscal deficits
and exchange rate depreciation. The current account Climate change issues and policy
deficit narrowed to 2.8% of GDP from 3.2%, driven by options
an improved trade balance. The capital and financial Ghana’s Green Growth Index is estimated at 51%, or
accounts recorded deficits. about halfway to its green growth target. This indicates
Foreign exchange reserves declined to $6.2 billion that with the right green growth policies and strategies,
in 2022 (2.9 months of import cover) from $9.7 billion Ghana could achieve economic growth while reducing
in 2021 (6.9 months). The financial sector remained vulnerability and building resilience to climate change.
sound. At 14.2%, the capital adequacy ratio is above This requires boosting financing from public and private
the target of 13.0% but declining. Credit risk, measured sources. An estimated $1.9 billion a year in financing
by the nonperforming loans ratio, remained elevated at is needed to meet the country’s Nationally Determined
14.8%, and real credit growth declined to 14.5% due to Contribution. The main source of climate finance has
rising inflation. The poverty rate declined from 11% in been the public sector, which contributed $100 million,
2021 to 10% in 2022. However, living standards have leaving a gap of $1.8 billion a year for 2020–30. The
been negatively impacted by the rising cost of living and private sector has the potential to raise climate finance
unemployment. The latter increased from 11.9% in 2015 equivalent to 8.8% of GDP. The government is exploring
to 13.4% in 2021, with youth (ages 15–24) unemploy- practical solutions to close the financing gap, includ-
ment an estimated 7.2% in 2021, up from 7.3% in 2020. ing private equity, carbon markets, and climate impact
bonds. It is also working on policies and regulations to
enable participation in the global climate finance market.
Outlook and risks Ghana could explore ways of attracting sovereign wel-
The outlook is tilted negative due to possible shocks fare and pension funds. Factors constraining private
from a prolongment of Russia’s invasion of Ukraine and climate finance include risks and barriers associated
a tighter global financial market. GDP growth is projected with inadequate regulations. Natural capital (renewable
to fall to 1.7% in 2023 and to recover to 3.0% in 2024, in and nonrenewable) increased slightly between 1995
line with global demand trends. Inflation is projected to and 2018, suggesting the potential to leverage private
remain elevated at 44.7% in 2023 and to decline to 20.4% finance with natural capital.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 6 50 0 0

5.4 40 –4 –1
6 4 3.3
30 –2 –2.5
4 2 –8 –9.2 –9.0
3.0 1.1
20 –3
20.4
2 0 –12 –3.2
10 –4
10.0
0 –2 0 –16 –5
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 211

 Guinea
Recent macroeconomic and seeds as well as improved supply chains for imported
financial developments consumer goods and equipment. Possible headwinds
Real GDP grew an estimated 4.8% in 2022, up from include weak recovery in nonextractives, the effects of
4.4% in 2021, driven by output in the mining sector. The Russia’s invasion of Ukraine, low mobilization of internal
sustained growth demonstrates the country’s resilience resources (12.6% of GDP in 2022 compared with a norm
to sociopolitical shocks, the COVID-19 pandemic, and of 20% in Economic Community of West African States
Russia’s invasion of Ukraine. Inflation dropped to 12.2% members), and sociopolitical tensions. The budget deficit
in 2022 from 12.6% in 2021. Imported inflation was par- is projected to widen to 2.6% of GDP in 2023 and 2.9%
tially offset by the appreciation of the Guinean franc. in 2024, linked to high electricity subsidies and elec-
The budget deficit narrowed to an estimated 1.3% of tion-related spending. The current account deficit is pro-
GDP in 2022 from 1.7% in 2021. Performance improved jected to drop to 6.7% of GDP in 2023 and 4.6% in 2024,
due to higher revenue from the mining sector but was linked to mining exports. The foreign trade deficit will be
constrained by rising electricity subsidies due to low financed by foreign direct investment in mining, loans,
tariffs for hydroelectric power. and grants. Foreign exchange reserves are projected to
Public debt fell to 35.5% of GDP in 2022 from 40.4% fall to 2.2 months of import cover in 2023 and 2024.
in 2021. The risk of external overindebtedness is mod-
erate, but the fiscal space for absorption of shocks is
limited. The current account deficit widened to 7.4% of Climate change issues and policy
GDP in 2022 from 2.1% in 2021, as debt service pay- options
ments resumed after the freeze implemented by the In 2020, Guinea ranked 146th of 182 countries in vulnera-
G20, the Paris Club, and the International Monetary bility and preparedness for climate change. The effects of
Fund in response to the COVID-19 pandemic. The defi- climate change will be felt in water resources, agriculture,
cit was financed by foreign direct investment in mining, hydroelectric power production, and the economy as a
loans, and project funding grants. Foreign exchange whole. Climate finance mobilized over 2016–20 averaged
reserves totaled 2.5 months of import cover in 2022, $200 million a year compared with average need of $1.6
down from 2.8 months in 2021. The banking sector was billion a year. Forecasts for 2020–30 are similar, with an
stable, but the nonperforming loans ratio rose to 11% in average finance gap of $1.4 billion a year. The resilience
2022 from 10% in 2019, with most nonperforming loans of the economy and its ability to transition toward inclusive
in transportation and commerce. The poverty rate fell and green growth may be limited. Structural weaknesses
from 55.2% in 2012 to 43.7% in 2019, and unemploy- include the narrowness of the nonextractive private sector,
ment followed a bell curve, rising from 3.8% in 2012 to the shallowness of the financial sector, the limited diver-
5.2% in 2014 and dropping again to 4.8% in 2018. sification of National Social Security Fund financing, and
the near lack of alternative instruments such as a stock
market or private equity. Reforms to mining sector gov-
Outlook and risks ernance and the business framework as well as a deeper
Real GDP is projected to grow 5.5% in 2023 and 5.6% financial market will be needed to channel public and
in 2024, stimulated by mining production, energy avail- private finance into green investment. The main driver for
ability, and infrastructure investment. Inflation is pro- mobilizing public resources to close the climate finance
jected to fall to 11.2% in 2023 and 9.9% in 2024 thanks gap is mining, described as a geological scandal, which
to reduced tensions resulting from Russia’s invasion of accounts for 80% of exports and generates 20% of GDP
Ukraine and related imports of fertilizers and agricultural but contributes very little to government revenue (2%–3%).

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 6 15 0 0
–2.1
5.6 –1 –2
6 12.6
4.4 4 3.2 10 –4.6
–2 –4
9.9 –1.7
4
–3 –6
2 5 –2.9
2 1.9 –4 –8

0 0 0 –5 –10
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

212 COUNTRY NOTES

 Guinea-Bissau
Recent macroeconomic and ensure debt sustainability. The current account deficit
financial developments is projected to narrow to 4.3% of GDP in 2024, reflect-
Real GDP growth dropped to 3.7% in 2022 from 6.4% ing an expected increase in cashew exports. Possible
in 2021 due to inflationary pressures that limited private headwinds include deteriorating terms of trade (par-
consumption on the demand side and lower manu- ticularly in cashew export prices), sociopolitical insta-
facturing and primary sector on the supply side. Infla- bility, delayed implementation of reforms, and climate
tion rose to 7.9% in 2022 from 3.3% in 2021, driven by shocks. Persistent inflationary pressures would affect
higher prices for imported food and oil. The budget food security and poverty.
deficit widened to 6.3% of GDP in 2022 from 5.6% in
2021 due to temporary measures to curb the effects of
Russia’s invasion of Ukraine, irregular hiring of workers, Climate change issues and policy
and expenses linked to upcoming elections. The defi- options
cit was financed by grants and loans as well as bond Guinea-Bissau is among the countries most affected by
issues. Risk of overindebtedness is high after public climate change. An estimated $688.8 million in climate
debt rose from 78.5% in 2021 to more than 80.0% in finance is needed to address mitigation and adaptation
2022. The current account deficit widened to 5.8% of over 2021–30 and reduce greenhouse gas emissions
GDP in 2022 from 0.8% in 2021 on higher prices of 30%. Committed finance has been mobilized from
imported commodities and lower exports of cashews. development partners and climate funds. Investment
The financial sector is solid except one undercapitalized from the private sector, including banks, is practically
systemic bank. The nonperforming loans ratio dropped nonexistent, mainly because of the absence of a suit-
from 21.8% in 2020 to 14.6% in June 2022. able regulatory framework, the lack of expertise and
Poverty rose from 63.0% in 2019 to 68.4% in 2021 experience, and the high cost of investment. The sec-
due to the COVID-19 pandemic. In 2022, higher prices tors that are particularly adapted to private investment
affected private consumption and thus the quality of life of include renewable energy, energy efficiency, forestry,
households, which spend most of their income on food.  and biodiversity. To attract private finance, the coun-
try must develop a regulatory framework dedicated to
climate finance, put in place fiscal incentive measures,
Outlook and risks promote good governance, and increase technical
Real GDP is projected to grow 4.6% in 2023 and 5.1% capabilities. While the public accounts make it difficult
in 2024 thanks to planned infrastructure investment to access sustainable financing markets and innova-
and the health of agriculture and industry. Inflation is tive instruments, the country could create a national
projected to reach its target of 3% in 2024 thanks to green fund with the help of partners and target impact
the central bank’s tighter monetary policy. The budget funds that are increasingly directed toward forestry, bio-
deficit is projected to narrow to 5.7% of GDP in 2023 diversity, and sustainable agriculture. The country has
and 3.1% in 2024 thanks to higher revenue and control considerable agricultural potential, natural resources
of public spending. Public debt is projected to fall to that could be exploited (large deposits of bauxite, phos-
75.4% of GDP in 2024 as a result of reforms supported phates, hardwood, and heavy sand), and oil reserves
by a new International Monetary Fund program to estimated at 1.1 billion barrels in 2019.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 6 8 0 0
–0.8
6.4
4.2 –2
6 6 –3.1
5.1 –2
4 –4
3.0
4 4 –5.6
–6
2 3.3 –4 –4.3
3.0
2 2 –8

0 0 0 –10 –6
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 213

 Liberia
Recent macroeconomic and 6.5% in 2024 due to a stable exchange rate and calm
financial developments after the election. The fiscal deficit is projected to be
GDP growth fell to an estimated 4.0% in 2022 from 4.1% of GDP in 2023 and to stabilize at 4.0% in 2024
5.0% in 2021, driven largely by growth in mining and on account of fiscal consolidation. The current account
construction on the supply side and increased infra- deficit is projected to be 16.7% of GDP in 2023 and
structure spending on the demand side. Growth 16.2% in 2024 due to higher exports. Public debt is
was slower due to the impact of Russia’s invasion of projected to rise to 55.3% of GDP in 2023 and 56.9%
Ukraine, including higher commodity prices and tight in 2024. The exchange rate and financial market are
fiscal space. Inflation eased from 7.9% in 2021 to 7.4% projected to remain stable. Headwinds include the pro-
in 2022 on a steady decline in domestic food prices. longment of Russia’s invasion of Ukraine and a deteri-
The fiscal deficit widened to an estimated 4.8% of GDP oration of terms of trade on gold and rubber. Possible
in 2022 from 2.4% in 2021 due to higher spending on mitigation measures include stepping up support to the
infrastructure and wages. As of October 2022, public vulnerable.
debt had increased to 54.6% of GDP from 53.2% in
2021, reflecting increased borrowing.
The current account deficit narrowed to 17.4% of Climate change issues and policy
GDP in 2022 from 17.7% in 2021 thanks to a smaller options
trade deficit, as export receipts increased, driven by Liberia’s Green Growth Index stagnated in the 49%–
gold exports. International reserves stood at $691 53% range during 2010–21. The country is highly vul-
million in December 2022 (4 months of import cover), nerable to the adverse effects of climate change, with
down from $700 million (4.2 months) in 2021. The a vulnerability score of 0.606 (ranking it 177th of 181
exchange rate appreciated 4.6% against the US dollar, countries). This requires huge financial needs. The gov-
from 159.34 Liberian dollars per US dollar in Decem- ernment needs an estimated $490.6 million to achieve
ber 2021 to 152.38 in December 2022, due to higher its climate and green growth ambitions through 2025
net remittances and export receipts. The financial and faces a gap of $460 million based on its Nation-
sector remained sound, with a capital adequacy ratio ally Determined Contribution, with zero financing yet
of 34.03% in September 2022 compared with the 10% from the private sector. Some of the main reasons
target, although the nonperforming loans ratio remained are difficulty accessing financing to pay for adaptation
high, at 23.43%, compared with the 10% target. The actions, lack of financial incentives to motivate private
share of people living below the international poverty actors to invest in new products or markets that sup-
line ($2.15 a day) remains high, at 35.4%. Unemploy- port adaptation, and lack of de-risking opportunities
ment was an estimated 4.1% in 2021. in investments—particularly large-scale infrastructure
investments that support green growth. Liberia has
great potential as a carbon sink for the world, given its
Outlook and risks huge forest reserves. In 2018, natural capital was worth
GDP is projected to grow 4.3% in 2023 and 4.8% in $24.7 billion, or $5,134 per capita, including forest cap-
2024, driven by expansion in mining, services, and ital per capita of $1,035. Natural capital could therefore
agriculture. Inflation is projected to edge to 8.2% due serve as a potential source of climate action and green
to election-related speculation in 2023 but will ease to growth financing with private sector involvement.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 6 30 0 0
5.0 4.8
–5
4 4 20 –2 –2.4
–10
2.9 2.6
–4.0 –15 –16.2
7.9 –4 –17.7
2 2 10
–20
6.5
0 0 0 –6 –25
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team. Data on the budget balance correspond to Liberia’s fiscal year, which runs from July 1 to June 30.

214 COUNTRY NOTES

 Mali
Recent macroeconomic and Service Management System. Public debt is projected
financial developments to rise to 53.4% of GDP in 2023 but decline to 53.3%
Real GDP grew 3.7% in 2022, up from 3.1% in 2021, in 2024, with a crowding-out effect on credit to private
driven by the primary and secondary sectors, partic- companies from 2023 and domestic debt (27.6% of
ularly cereal production (up 16.7%) and industrial gold GDP) likely to exceed external debt (25.8%). The cur-
production (up 4.4%), and higher consumption by rent account deficit is projected to narrow to 6.6% of
households and government agencies. Inflation rose to GDP in 2023 (with the Export Development Strategy
9.7% in 2022 from 3.9% in 2021, leading to three 25 2022–2025 set to raise exports 25% by 2025) but widen
basis point increases in key Central Bank of West Afri- to 6.8% in 2024. Possible headwinds include new sanc-
can States rates. tions by the Economic Community of West African
The budget deficit widened to 5.0% of GDP in 2022 States resulting from changes to the consensus time-
from 4.9% in 2021. Of the 1,348.0  billion CFA francs table for elections, the lack of security, and the impact
($2.3 billion) in funding need in 2022, 83.3% was cov- of climate change.
ered through domestic financing, especially from the
West African Economic and Monetary Union financial
market (96.8% of domestic financing), where Mali’s Climate change issues and policy
Public Treasury raised only 71.9% of its resource objec- options
tives. Public debt declined to 49.9% of GDP in 2022 The cost of mitigation measures for 2020–30 is $3.0
from 52.0% in 2021, but the risk of overindebtedness billion, and adaptation finance is likely to be $8 bil-
remains moderate. The current account deficit nar- lion. To mobilize these resources, Mali will have to rely
rowed to 7.2% of GDP in 2022 from 7.7% in 2021, as on a range of internal and external finance sources.
exports rose more than imports (20% versus 10%). The The financing gap could be substantial, although the
banking system (comprising 14 banks and 3 bank-like number of parties involved makes it difficult to estimate.
financial institutions) recorded a marked improvement in The private sector has considerable potential, includ-
portfolio quality, with a decrease of the nonperforming ing the Private Sector Guarantee Fund. The govern-
loan ratio to 4.2% in December 2022 from 4.7% in ment has designated the National Bank for Agricultural
December 2021. Social conditions deteriorated in 2022, Development and the Development Bank of Mali to be
with the poverty rate rising to 45.4% from 44.6% in accredited by the Green Climate Fund. A strategic plan
2021, 1.3 million additional people in need of humanitar- has been developed to ensure that the private sector
ian aid, 20% of schools closed, and 2.5 million people has an active role in climate finance. Private climate
lacking health coverage. investment is being directed toward energy, waste man-
agement, forestry, and agriculture. The private sector
could profit from the country’s enormous potential,
Outlook and risks as Mali has some of the greatest solar power poten-
Real GDP is projected to grow 5.1% in 2023 and 5.3% tial and the largest reserves of natural hydrogen in the
in 2024, driven by recovery in cotton production, world. The obstacles to private climate finance are the
extractive activities (discovery of lithium), industrial gold lack of information concerning opportunities, the lack
production, the launching of new industries, and the of training in procedures for accessing climate finance,
restructuring of struggling industries. Inflation is pro- low participation in the development of climate change
jected to moderate at 2.6% in 2023 and 2.4% in 2024 as strategies, and limited access to international finance.
a result of strong cereal production (expected to jump Solutions include training, awareness-raising, issuing
7.7% in 2023 and 5.1% in 2024) coupled with the tem- green bonds, providing access to clean development
porary suspension of grain exports. The budget deficit mechanisms, selling carbon credits, adopting eco-
is projected to narrow to 4.8% of GDP in 2023 and 4.1% logical taxation, and creating a private sector lending
in 2024 thanks to the introduction of the Integrated Civil window for the Green Climate Fund.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 5.3 4 10 0 0

2.2 8 –2 –2
4 2
–4.1
6 –4 –4.9 –4
3.2
2 0
4 –6 –6 –6.8
–0.1
3.9 2.4 –7.7
0 –2 2 –8 –8
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 215

 Niger
Recent macroeconomic and expected to consolidate, with a substantial increase
financial developments in public revenue from oil production, and the quality
Real GDP growth rebounded to 7.2% in 2022, on strong of public spending is improving under the new public
performance across all sectors, particularly primary finance reform strategy. Public debt is projected to
and tertiary services (which grew 7%), on the supply remain sustainable, with most external borrowing con-
side and ongoing major infrastructure projects on the tracted on concessional terms. The current account
demand side. Inflation exceeded the West African Eco- and trade deficits are projected to narrow. Social con-
nomic and Monetary Union (WAEMU) target of 3%, ditions are also expected to improve thanks to eco-
fueled by higher consumer food prices and the deterio- nomic recovery and the resilience-building measures
rating international economic situation. in the new Economic and Social Development Plan
The budget deficit widened to 6.6% of GDP in 2022 2022–2026.
from 6.1% in 2021 due to public spending rising more
than public revenue. Constraints on budgetary perfor-
mance continue to be both structural (tax base, eco- Climate change issues and policy
nomic structure, economic and social needs, and the options
like) and cyclical (lower global price for uranium, clos- Niger is highly exposed and vulnerable to the effects
ing of the border with Nigeria). The budget deficit was of climate change, with substantial energy requirements
financed primarily by external resources (budgetary for its economic and social development. The country’s
support and projects), mainly grants. Public debt rose objective is to fulfill its commitments under the Paris
slightly to 51.2% of GDP in 2022 from 50.9% in 2021. Agreement, particularly in terms of limiting the rise in
Foreign loans accounted for 65% of public debt—below temperature to less than 2°C or even 1.5°C by 2050. To
the WAEMU target—resulting in moderate risk of exter- meet this challenge and implement the revised Nation-
nal debt distress. The chronic current account deficit ally Determined Contribution roadmap, Niger has devel-
widened to 15.1% of GDP in 2022 from 13.9% in 2021, oped a private sector financing strategy. The strategy
financed by concessional loans and foreign direct sets out five intervention areas: mobilizing and involv-
investment, which rose substantially between 2017 ing private industry and professional organizations in
and 2020. The social situation remains precarious, with adaptation planning, implementation, and monitoring
extreme poverty at 42% in 2021. and evaluation; updating the overview of the market’s
state of progress by identifying the sectors that are
most promising and of the most interest to companies,
Outlook and risks compiling an inventory of companies in these sectors or
Real GDP is projected to grow 7.0% in 2023 and 11.8% with the potential to participate in them, and conduct-
in 2024, with all sectors growing at least 5%. Con- ing a financing needs assessment; mobilizing financial
sumption and higher oil investment as well as exports resources from private funders as well as private stake-
enabled by the new pipeline are projected to boost holders and corporations and implementing an annual
GDP growth. Possible headwinds include lack of secu- work plan and budget; promoting climate technology
rity, climate change, a deteriorating international eco- innovation; and building capacity for company train-
nomic situation, and the like. Inflation will be contained ing and support structures as well as for companies
below the WAEMU target of 3%. Public finances are themselves.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
12 8 5 0 0
11.8 7.9
4
–2 –5
8 4 3.8
3 –3.9
–4 –10
2 2.4 –13.9 –13.5
4 0 –6.1
1.4 –6 –15
1
–2.4
0 –4 0 –8 –20
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

216 COUNTRY NOTES

 Nigeria
Recent macroeconomic and maturities. Higher oil exports may not offset subdued
financial developments capital inflows, with the current account projected to be
Real GDP growth fell to 3.3% in 2022 from 3.6% in 2021, in deficit, averaging 0.2% of GDP in 2023–24. Peaceful
precipitated mainly by a decline in oil production. This resolution of the court challenge of the 2023 presiden-
led to 5% shrinkage in overall industry, which was offset tial election could confirm Nigeria’s maturing democ-
by expansion in services (7%) and agriculture (2%). On racy, boosting investment. Headwinds include insecu-
the demand side, the decline in GDP growth was driven rity and potential social resistance to removing the PMS
by contraction in public consumption (2.5%) and net subsidy. Maintaining the subsidy could further increase
exports (80%). Growth in income per capita declined fiscal risks, exacerbated by high debt service costs.
to 0.8% from 1.2% in 2021. The fiscal deficit narrowed
to 4.9% of GDP in 2022 from 5.2% in 2021 and was
financed by borrowing, bringing public debt to $103.1 Climate change issues and policy
billion (about 22% of GDP) from $92.6 billion in 2021. options
Inflation peaked at a two-decade high of 18.8%, Natural capital was an estimated $842.4 billion in 2018,
fueled by energy and food price increases and pass- $582.4 billion of it nonrenewable and $260.1 billion of
through effects of exchange rate depreciation. The it renewable. These resources can drive sustainable
Central Bank of Nigeria successively raised the policy and inclusive green growth. Exploiting Nigeria’s large
rate, which peaked at 16.5% in November 2022 from gas reserves, estimated at 206.53 trillion cubic feet,
11.5% at the start of the year, to tame rising inflation. and addressing gas flaring can support the net-zero
Buoyed by relative improvement in oil exports, the cur- transition. Abundant solid and critical minerals pres-
rent account recorded a small surplus of 0.1% of GDP ent opportunities for green development. With the dis-
in 2022, reversing three years of deficit. Gross inter- covery of more than 3,000 lithium pegmatite bodies,
national reserves declined 7.5% to $37.1 billion (5.7 Nigeria can lead lithium-ion battery manufacturing. The
months of import cover). The nonperforming loans ratio benefits include green job creation and climate change
stood at 4.2% in 2022, below the regulatory require- mitigation. Such opportunities require a blueprint to
ment of 5%. The capital adequacy ratio, at 13.8%, attract green financing and investment. From 2019 to
exceeded the regulatory benchmark of 10% in 2022. 2020, average climate finance amounted to only $1.9
The multidimensional poverty rate (63%) and unemploy- billion from both public ($1.5 billion) and private ($435
ment (33.3%) remained high. million) sources. Across sectors, $798 million was in
energy, followed by $626 million in cross-sectoral proj-
ects, $300 million in agriculture, $128 million in trans-
Outlook and risks port, and the rest in other sectors. Nigeria needs $247
Real GDP growth will remain subdued, averaging 3.3% billion in climate finance through 2030 to implement
in 2023–24, with inflation elevated at 19.6% in 2023 its Nationally Determined Contribution. Investment is
before declining to 13.6% in 2024, reflecting efforts to needed in clean energy, including 8 gigawatts of solar
shore up domestic food supply and the effects of con- energy. The private sector has the potential to mobi-
tractionary monetary policy. The planned removal of the lize climate finance. Innovative financing opportunities
subsidy on Premium Motor Spirit (PMS) and increased include green bonds for energy efficiency and sukuk
revenue could further narrow the fiscal deficit to below bonds for resilient transport infrastructure. Restructur-
5% of GDP in 2023–24. The deficit will be financed by ing the sovereign wealth fund also presents an opportu-
borrowing, biased toward concessional debt and longer nity for climate finance.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
4 4 20 0 2

3.6
3 3.2 3 15 17.0 1
–2
13.6 –0.1
2 2 10 0
1.2
–4 –4.8 –0.4
1 1 5 –5.2 –1
0.8
0 0 0 –6 –2
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 217

 Senegal
Recent macroeconomic and in 2024 due to tighter monetary policy. The budget
financial developments deficit is projected to narrow to 5.8% of GDP in 2023
Real GDP growth dropped to 4.0% in 2022 from and 4.5% in 2024 thanks to the expected rationalization
6.5% in 2021 due to the effects of Russia’s invasion of of subsidies and domestic revenue mobilization. Debt
Ukraine, a sharp slowdown in the secondary sector, is projected to fall below 70% of GDP in 2024 thanks
and contraction in the primary sector (which shrank to the narrower public deficit and growth prospects.
0.5%) caused by an unfavorable agricultural season The current account deficit is projected to drop below
and sanctions against Mali, the leading customer for 10% of GDP in 2024 for the first time since 2020, with
Senegalese exports, by the Economic Community of the start of hydrocarbon exports. Possible headwinds
West African States. Inflation reached a record high of include prolongment of Russia’s invasion of Ukraine,
9.7% in 2022, driven by soaring food prices. To contain declining terms of trade, effects of climate change and
these inflationary pressures, the Central Bank of West the regional security situation.
African States revised the minimum liquidity injection
rate to 3.0% and the marginal lending rate to 5.0%, and
the government raised energy subsidies to 4% of GDP Climate change issues and policy
and drastically reduced public investment. The budget options
deficit narrowed slightly to 6.1% of GDP in 2022 from Despite having a carbon footprint well below that of
6.3% in 2021 thanks to a 23% increase in public rev- developed countries, Senegal is experiencing substantial
enue. Public debt rose from 64.0% of GDP in 2019 to economic impacts due to vulnerability to climate change.
75.0% in 2022 because of public deficits accumulating About $2.8 billion a year is needed in compensation. The
since the COVID-19 pandemic. estimated climate finance needed to strengthen climate
The current account deficit is projected to widen to resilience is $13 billion, or $1.1 billion a year. Climate
17.5% of GDP in 2022 from 12.1% in 2021 following the finance thus needs to be pursued both locally and inter-
sanctions on Mali and higher import costs. The bank- nationally to ensure the energy transition and build resil-
ing sector remains resilient, with a 20.2% increase in ience to climate change. The private sector’s contribution
loans to the economy. The nonperforming loans ratio to climate finance remains low. The country has initiated
fell slightly from 11.5% in 2021 to 11.2% in 2022. The a range of actions to attract private investment, particu-
poverty rate remained stable at around 37% in 2022 larly by implementing a clear regulatory framework and
as growth was driven by the urban services sector, innovative financing mechanisms, but the private sector
whereas poor people live in rural areas and depend on makes far too little use of these financing sources. Crédit
farming. Agricole’s accreditation with the Green Climate Fund in
2020 represents an important step in mobilizing the pri-
vate sector around climate finance. To increase private
Outlook and risks participation, an incentive system (fiscal or preferential) is
Real GDP is projected to grow 5.0% in 2023, driven by needed that will promote climate change adaptation and
an upturn in agricultural output as well as gradual nor- mitigation. Added to this is the need for further technical
malization of the effects of Russia’s invasion of Ukraine, capacity-building and guaranteed access to information
and to 9.8% in 2024 thanks to expected oil production. on private investment opportunities and how to structure
Inflation is projected to drop to 3.4% in 2023 and 2.6% and implement projects.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
10 8 10 0 0
9.8
8 7.3 8
6.5 6 –2 –5
6 6 –9.3
3.8 –4.5 –10 –12.1
4 –4
4 4
–6.3
2 –6 –15
2 2 2.8 2.6
0 0 0 –8 –20
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

218 COUNTRY NOTES

 Sierra Leone
Recent macroeconomic and GDP in 2023 and 2.3% in 2024 due to higher tax revenue
financial developments supported by economic recovery and spending rational-
Real GDP growth declined to 2.8% in 2022 from 4.1% in ization. The current account deficit is projected to narrow
2021 due to the impact of Russia’s invasion of Ukraine. to 8.0% of GDP in 2023 and 7.4% in 2024 as the trade
Growth was driven by mining exports (iron ore) on the deficit narrows and official and private grants increase.
demand side and by the recovery in key sectors on the Headwinds include the likelihood of a global economic
supply side. Inflation rose to 26.1% in 2022 from 11.9% recession, a prolongment of Russia’s invasion of Ukraine,
in 2021, driven by food and fuel inflation and deprecia- sustained increases in food and fuel prices, lower inter-
tion of the leone. The fiscal deficit declined to an esti- national financial assistance, and a re-emergence of
mated 4.8% of GDP from 7.3% in 2021 due to higher COVID-19 and other public health emergencies.
grants. Public debt increased to an estimated 92.9% of
GDP from 79.8% in 2021. The country remains at high
risk of debt distress. Climate change issues and policy
The current account deficit narrowed to an estimated options
to 10.3% of GDP from 15.0% in 2021, attributable to Sierra Leone’s Green Growth Index deteriorated from
an improved trade balance and higher net transfers. 45.3% in 2010 to 44.9% in 2021, highlighting the chal-
The current account deficit is financed by the financial lenges associated with achieving the green growth
account. Gross foreign reserves fell to $599.5 million target. This was due to weak performance in green
(3.3 months of import cover) in September 2022 from economic opportunities. Despite this, supported by
$932 million in December 2021 following measures to green growth policies and strategies, Sierra Leone has
increase food and fuel supplies in local markets. The the potential to foster economic growth while reducing
exchange rate depreciated sharply after mid-2021 due vulnerability to climate change. Its national and sectoral
mainly to the widening trade deficit. The financial sector green growth policies and strategies are aligned with its
is underdeveloped but generally sound, with most indi- Nationally Determined Contribution, whose financing
cators above the recommended minimum, except the need is an estimated $276 million. Inflows amounted to
nonperforming loans ratio (at 14.8% in 2021 against a $164 million, 12% of which came from the private sector.
regulatory target of 10%). Sierra Leone is characterized Sierra Leone can mobilize private climate finance through
by high poverty (59.2% in 2020), income inequality (Gini innovative instruments, including a carbon market, debt-
coefficient of 0.357 in 2018), and high youth unemploy- for-climate swaps, and climate-related debt. Between
ment (70%), compounded by skills mismatch. 1995 and 2018, its nonrenewable natural capital rose
94% in real terms, and its renewable natural capital rose
70%. This provides a major chance to leverage private
Outlook and risks climate finance with natural resources. Ongoing initia-
GDP growth is projected to increase to 3.1% in 2023 and tives to enhance natural capital include pursuing oil and
4.8% in 2024, driven by the mining sector and the contin- gas exploration and strengthening the legislative frame-
ued recovery of agriculture, manufacturing, construction, work around forest protection and related environmental
and tourism. Inflation is projected to rise to 27.1% in 2023 issues to leverage climate finance from forests, including
but decline to 20.8% in 2024 as external shocks sub- carbon credits, REDD+ payments, and grants for forest
side. The fiscal deficit is projected to narrow to 3.2% of conservation or reforestation.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
6 6 30 0 0
4.8
4.1 –2.3 –5
–2 –7.4
4 4 20 20.8
2.7 –4 –10
1.8
2 2 10 11.9
–6 –7.3 –15
–15.0
0 0 0 –8 –20
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

COUNTRY NOTES 219

 Togo
Recent macroeconomic and agricultural production and yields. Inflation is projected
financial developments to fall to 3.8% in 2023 and 2.6% in 2024 thanks to
Real GDP growth declined to 5.5% in 2022 from 6.0% purchasing power support from the government. The
in 2021 due to the security crisis in the far north of the current account deficit is projected to widen slightly
country and Russia’s invasion of Ukraine. Inflation rose to 6.1% of GDP in 2023 and 6.3% in 2024 on higher
from 4.6% in 2021 to 7.8% in 2022, driven by higher import growth than export growth. The fiscal deficit is
food and energy prices. The fiscal deficit widened from projected to narrow to 6.6% of GDP in 2023 and 5.1%
4.7% of GDP in 2021 to 8.4% in 2022 due to purchasing in 2024 due to continued public financial management
power support measures (subsidies and tax exemp- reforms. Possible headwinds include unfavorable fluc-
tions for basic products) as well as additional security tuations in global phosphate and oil prices, prolong-
spending. The current account deficit widened from ment of Russia’s invasion of Ukraine, repeated terror-
0.9% of GDP in 2021 to 3.7% in 2022 due to higher ist attacks in the country’s northern regions, and the
costs of imported goods (oil and food) brought about effects of climate change.
by the disruption of supply chains during the COVID-
19 pandemic and the effects of Russia’s invasion of
Ukraine. Climate change issues and policy
Loans to the private sector to boost economic activity options
increased 14.3%, to 32.8% of GDP. The nonperforming Obtaining private financing for climate change and
loans ratio fell from 12.0% in 2021 to 8.1% in 2022 due green growth is challenging for Togo. The estimated
mainly to the recovery of overdue loans and favorable finance needed to adequately address climate change
monetary conditions in the West African Economic and is $7.0 billion over 2020–30, or $702.6 million a year.
Monetary Union, which allowed banks to lighten their The estimated cost of losses and damages due to
balance sheets to restore their capacity to finance the adaptation is $2.7 billion, or 38.8% of total financing
economy. Risk of debt distress is moderate. Public debt need, and the financing gap averages $560 million a
dropped to 55.9% of GDP in 2022 from 63.1% in 2021 year. This gap could severely limit the country’s ability
thanks to debt management measures. to build climate resilience and promote green growth
and calls for private sector mobilization. Of the $126 mil-
lion in climate finance over 2019–20, only $17.4 million
Outlook and risks (14%) was provided by the private sector. The private
Real GDP is projected to grow 6.3% in 2023 and 6.6% sector is thus being called on to strengthen access to
in 2024 thanks to the government’s 2025 roadmap for electrical power by providing individual solar kits and to
infrastructure projects and economic, financial, and fight coastal erosion in order to ensure environmental
structural reforms, including those aimed at boosting sustainability and mitigate the effects of climate change.

Real GDP growth (%) Real GDP per capita growth (%) CPI inflation (%) Budget balance (% of GDP) Current account (% of GDP)
8 6 8 0 0
6.6 –0.9
6.0 4.3 –2
6 6 –2
4 3.6
–4 –4.7 –5.1
4 4 4.6 –4
–6
2
2 2 2.6 –8 –6
–6.3
0 0 0 –10 –8
2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024 2021 2022 2023 2024

Source: Data are as of April 2023 and are from domestic authorities; figures for 2022 are estimates and figures for 2023 and 2024 are projections by the
African Economic Outlook team.

220 COUNTRY NOTES

ABBREVIATIONS

AAI Africa Adaptation Initiative DRC Democratic Republic of Congo

ABM Adaptation Benefits Mechanism DSA Debt Sustainability Analysis
ACBF African Capacity Building Foundation DSSI Debt Service Suspension Initiative
ACMI African Carbon Markets Initiative ECAD African Development Institute
ADF African Development Fund ECCAS Economic Community of Central African
AEO African Economic Outlook States
AFAC Africa Financial Alliance on Climate Change EFF Extended Fund Facility
AfCFTA African Continental Free Trade Area EIA Environmental Impact Assessment
AfDB African Development Bank Group EIB European Investment Bank
AFMI African Financial Markets Initiative EITI Extractive Industries Transparency Initiative
AFOLU Agriculture, forestry, and other land use EM Ecosystem Marketplace
AFR100 African Forest Landscape Restoration Initiative ESG Environmental, Social, and Governance
AFSM African Financial Stability Mechanism ETS Emissions trading system
AG3F African Green Bank Initiative EU European Union
AIF Africa Investment Forum EU-ETS European Union-Emissions Trading System
ANS Adjusted Net Savings EV Electric vehicle
AU African Union FAO Food and Agriculture Organization of the
AUDA-NEPAD African Union Development Agency– United Nations
New Economic Partnership for Africa’s FDI Foreign Direct Investment
Development FFI Fossil-Fuel combustion and Industrial
AVCA African Private Equity and Venture Capital G20 Group of 20
Association G7 Group of 7
BII British International Investment GBF Global Biodiversity Framework
BNEF Bloomberg New Energy Finance GCA Global Center on Adaptation
bp Basis points GCF Green Climate Fund
BSO Balance Sheet Optimization GDP Gross domestic product
CBAM Carbon Border Adjustment Mechanism GEF Global Environment Facility
CBD Convention on Biological Diversity GFF Green Finance Facility
CDM Clean Development Mechanism GFI Global Financial Integrity
CDN Contribution déterminée au niveau national GGGI Global Green Growth Institute
CEMAC Central African Economic and Monetary GGI Green Growth Index
Community GHG Greenhouse Gas
CEO Chief Executive Officer GNI Gross National Income
CFA Communauté Financière Africaine/ GPCA Global Private Capital Association
Coopération Financière en Afrique GSCPI Global Supply Chain Pressure Index
CO2 Carbon dioxide GtCO2 Gigaton of Carbon Dioxide
COP27 Conference of the Parties, 27th session HIPC Heavily Indebted Poor Countries Initiative
COVID-19 Coronavirus disease HIV Human immunodeficiency virus
CPI Climate Policy Initiative/ Consumer Price Index ICT Information and communication technologies
DAC Development Assistance Committee IDA International Development Association
DEFPA Database on Energy and Food Price Actions IEA International Energy Agency
DFI Development Financial Institution IETA International Emissions Trading Association
DNS Debt-for-nature swap IFC International Finance Corporation

A bbreviations  221
IFS International Financial Statistics PMI Purchasing Managers’ Index
IFSwF International Forum of Sovereign wealth Funds PMS Premium Motor Spirit
IMF International Monetary Fund PPI Private Participation in Infrastructure
IPCC Intergovernmental Panel on Climate Change PPP Private public partnership
IQR Interquartile range RCRWA Regulatory Capital to Risk-Weighted Assets
IRENA International Renewable Energy Agency REDD+ Reducing Emissions from Deforestation and
IRP International Resource Panel Forest Degradation
ITMO Internationally transferred mitigation outcome RMC Regional Member Country
IUU Illegal, Unreported, and Unregulated ROA Return On Assets
KCIC Kenya Climate Innovation Center SACU Southern African Customs Union
KNOMAD Global Knowledge Partnership on Migration SADC Southern African Development Community
and Development SBI Sustainable Budget Index
KPI Key Performance Indicators SDG Sustainable Development Goals
LAC Latin America and the Caribbean SDR Special Drawing Rights
LIC Low-Income Country SEA Strategic Environmental Assessment
LTS Long-term strategy SEEA System of Environmental Economic
LULUCF Land use, land-use change, and forestry Accounting
MAIA Mapping and Assessment for Integrated SEEA EA SEEA Ecosystem Accounting
Ecosystem Accounting SME Small and Medium-sized Enterprise
MDB Multilateral development bank SOE State-owned enterprise
MEA Millennium Ecosystem Assessment SST Synthetic Securitization Transaction
MEO Macroeconomic Performance and Outlook SWF Sovereign wealth fund
MRV Monitoring, reporting, and verification UK United Kingdom
MSME Micro, Small, and Medium Enterprises UN United Nations
MtCO2 Metric tons of carbon dioxide equivalent UN DESA United Nations Department of Economic and
NBAP National Biodiversity Action Plan Social Affairs, Population Division
NbS Nature-based solutions UNCCD United Nations Convention to Combat
NCAVES National Capital Accounting and Valuation of Desertification
Ecosystem Services UNCTAD United Nations Conference on Trade and
NCIC Nigeria Climate Innovation Center Development
NDC Nationally Determined Contribution UNDP United Nations Development Programme
NDP National Development Plan UNECA United Nations Economic Commission for
NEER Nominal Effective Exchange Rate Africa
NEPAD New Economic Partnership for Africa’s UNEP United Nations Environment Programme
Development UNFCCC United Nations Framework Convention on
NPL Non-Performing Loan Climate Change
NRGI Natural Resource Governance Institute UNWTO World Tourism Organization
OCCRP Organized Crime and Corruption Reporting US United States
Project USGS United States Geological Survey
ODA Official Development Assistance VAT Value Added Tax
ODI Overseas Development Institute VCM Voluntary Carbon Market
OECD Organisation for Economic Cooperation and VIX Chicago Board Options Exchange’s CBOE
Development Volatility Index
OPEC Organization of the Petroleum Exporting WAEMU West African Economic and Monetary Union
Countries WAMU West African Monetary Union
PCG Partial Credit Guarantee

222 A bbreviations
Africa’s real GDP growth is projected to rebound to 4.0 percent in 2023 after slowing down
to 3.8 percent in 2022. The projected recovery will be underpinned by expected improve-
ments in global economic conditions with China’s reopening and slower pace of interest
rate adjustments.
The outlook is, however, subject to significant downside risks, including subdued global
growth weighing on Africa’s exports, persistently tight global financial conditions exa-
cerbating debt servicing costs, significant losses and damages due to frequent extreme
weather events accentuating fiscal pressures, Russia’s prolonged invasion of Ukraine,
increasing global uncertainty and continuing disruptions to global supply chains. Other
factors include elevated geopolitical risks due to upcoming national elections in some
countries.
The dynamics of Africa’s macroeconomic fundamentals remain mixed. Inflation has risen
in many countries and is projected to increase further in 2023, to 15.1 percent. In contrast,
fiscal performance has improved, reversing the effects of pandemic-induced expansionary
spending across the continent. Current account positions improved in oil-exporting coun-
tries, but this was not enough to mitigate weaknesses in other economies.
Navigating the headwinds that threaten Africa’s recovery will require a combination of
policies to rein in inflation while accelerating growth’s momentum. In the short term,
strong anti-inflationary monetary policy supported by greater fiscal discipline and macro-
prudential policies will be essential. In the medium and long terms, countries have to scale
up domestic revenue mobilization, define a coordinated debt-restructuring strategy, and
promote economic diversification.
This year’s report, Mobilizing Private Sector Financing for Climate and Green Growth
in Africa, outlines options to fast-track private investments in climate action and green
growth in Africa and to prudently harness the continent’s natural capital as a complemen-
tary financing source to drive the continent’s inclusive and sustainable development.
The Bank’s new research on Africa’s climate finance needs estimates that private sector
financing will need to grow annually by 36 percent until 2030 to close the continent’s cli-
mate finance gap, evaluated on average at $213.4 billion per year. Unlocking private cli-
mate financing will require addressing demand- and supply-side barriers while developing
innovative financing instruments to tap into the continent’s enormous investment opportu-
nities in climate and green growth.
The report finally highlights the important role of Africa’s huge natural capital, valued at
$6.2 trillion in 2018, in bridging the prevailing climate finance gap and promoting green
growth transitions. Through sustainable management, Africa’s abundant natural capital
can be transformed into financial assets to complement financing for climate adaptation
and mitigation, as well as into investments that support green growth transitions. This
will require the deployment of appropriate policies and instruments, including fiscal ins-
truments, to better understand the true value of Africa’s natural capital, strengthen local
content and value addition, build institutional capacity to address gaps in governance that
have prevented the continent from realizing the full potential of its natural endowments,
and create regional value chains and markets to benefit from cross-regional synergies.

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