Boasting rich natural resources, the world’s largest free trade area and a market of well over 1-billion people, Africa has the potential to forge a more robust development path. The continent can benefit from the current positive economic outlook by maximising the potential of its resources and youthful population and by building resilience into its developmental pathways.
After four turbulent years following the Covid-19 pandemic, the outlook for Sub-Saharan Africa is gradually improving. According to the IMF, growth is projected to rise from 3.4% in 2023 to 3.8% in 2024, with nearly two-thirds of African countries expecting higher growth. Economic recovery is expected to continue beyond 2024, with growth projections reaching 4% in 2025.
In addition, gas, hydro, solar, wind and mineral resources offer substantial economic opportunities for Sub-Saharan Africa’s economies during their low-carbon transition.
Access to energy remains one of the most profound development challenges Sub-Saharan Africa faces. In 2022, 600-million people in Africa (43% of the continent) lacked access to electricity. Most of these people — 98% — were in Sub-Saharan Africa. Africa needs the power to ensure sustained, resilient and globally competitive economic growth, but with its abundant natural resources the continent’s electrification journey can be a low-carbon one.
The World Economic Forum (WEF) recently highlighted Sub-Saharan Africa’s progress in energy transition. Though European countries (Sweden, Denmark, Finland, Switzerland, and France) lead the WEF’s energy transition index 2024 rankings, the gap in energy transition performance between advanced and developing economies continues to narrow, even though disparities in investments and regulation persist.
The report highlights that though economic volatility, heightened geopolitical tensions and technological shifts have affected the speed and trajectory of energy transitions, “the increasing global investments in renewables and significant growth in energy transition performance in Sub-Saharan Africa over the past decade” are cause for optimism.
The report states: “While the world remains off track to meet net-zero ambitions by 2050 and keep global warming to no more than 1.5°C, as called for in the Paris Agreement, there has been notable progress in energy efficiency and a marked increase in the adoption of clean energy sources.”
Catalysts
A pressing challenge for Africa is leveraging its improving economic growth rates to realise economic transformation and build growth resilience. Africa remains vulnerable to external shocks, rising political instability and frequent climate events. But by prioritising economic transformation that builds resilience, African countries can sustain their economic trajectories and enhance inclusive growth.
Post-Covid research from the African Centre for Economic Transformation shows that prolonged and at times sharp reversals in economic growth reveal the weak resilience of African economies when faced with global shocks, which is closely related to weak transformation outcomes.
Overall, economic transformation in Africa peaked in 2007 and has experienced a sharp decline since 2014 due to weak productivity growth in agriculture and services industries, a lack of diversification of the production base and slow growth in manufacturing.
The World Bank highlights three policy priorities that can help African nations to improve resilience:
- Improving public finances without undermining development;
- Monetary policy focused on ensuring price stability; and
- Implementing structural reforms to diversify funding sources and economies.
Structural change is at the heart of transformation, which occurs when resources are channelled from lower- to higher-productivity activities that build growth resilience. Diversification in production, export competitiveness, productivity increases and technological upgrading are vital drivers of structural change.
The continent can also improve its growth potential by promoting manufacturing, since the sector holds higher relative labour productivity than agriculture and services. Jobs remain a critical challenge to Africa’s economic development, especially for the booming youth population, and a coherent industrial policy is a key way for governments to ensure more labour is helping expand manufacturing activities rather than moving into the low-wage, low-productivity informal sector.
With the global move to supporting renewable energy technologies, Africa should prioritise building manufacturing capacity in its energy industries and driving technical innovation that supports its energy transition.
By implementing more modern industrial policies, African nations should address numerous megatrends with informed policy and bold action, including actions that address population growth and urbanisation, shifting trade and production patterns and enhanced economic integration and collaboration.
Regional integration
It is forecast that up to 80% of African citizens will have access to about 1.2 terawatt hours (TWh) of electricity, using renewable sources including gas, hydro, solar, wind and geothermal. Gas and solar are set to be top of the list, accounting for more than 25% of electricity generation.
Africa would need about $800bn in capital for generating capacity and transmission and distribution, and regional integration could assist countries to create interconnected power systems.
An example of this is the Grand Inga Dam hydroelectric project. It is forecast to save up to $32bn in spending and more than 60 megatonnes of annual carbon emissions. Furthermore, it will foster a continent-wide network, connecting countries through the trading and movement of electricity via a continental grid.
Governments must prioritise energy policies that promote structural change in planning and implementation to accelerate transformation and thereby build resilience to future economic and climate change shocks. Implementing such a policy agenda effectively requires an entrepreneurial, developmental and delivery-orientated mindset with input from and ownership by multiple stakeholders. With most African countries on a positive growth path, now is the perfect time to prioritise building its economic resilience.
• Nott is head of the Africa practice at Norton Rose Fulbright and specialises in energy deals.
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