AfDB - East Africa Economic Outlook 2023

East Africa Economic Outlook 2023

The East Africa region recorded a decline in GDP growth from 4.7% in 2021 to 4.4% in 2022, but this was higher than Africa’s average of 3.8% and only lagged Central Africa’s average of 5.0%.The growth slowdown was due to several factors, including a global growth slowdown, higher commodity and energy prices stocked by Russia’s invasion of Ukraine, adverse weather conditions, tightening global financial conditions, political instability, the negative effects of COVID-19, and mounting public debt. Ethiopia, Kenya, Rwanda, Seychelles, Tanzania, and Uganda were the best performers, while Burundi, Comoros, Djibouti, Eritrea, Somalia, South Sudan, and Sudan posted lower growth rates. Two countries (Sudan and South Sudan) are estimated to have remained in recession in 2022. Seychelles had the highest estimated growth of 9.5%, driven by tourism, fisheries, and financial services.

In 2022, the services sector contributed almost half of the GDP growth in the region while agriculture and industry contributed almost one quarter each. The service sector contributed 2.0 percentage points to GDP growth; however, this was lower than the 2.5 percentage points on average from 2015 to 2021. The region’s natural and cultural attractions draw tourists from around the world, creating a demand for services like accommodation, food, and entertainment. Furthermore, with more people moving to urban areas, there is greater demand for services like transportation, communication, and retail. The emergence of a middle class, which accounts for 22.6% of the region’s population, also contributes to increased demand for services like banking, insurance, and healthcare. The services sector has greater potential for expansion and innovation than agriculture and mining, which are the traditional sources of income in East Africa.

Despite facing multiple challenges, East Africa’s macroeconomic fundamentals remained relatively stable in 2022.Inflation decreased from 40.7% in 2021 to 28.9% in 2022 due to tighter monetary policies in most countries of the region. The region’s fiscal deficit fell from 5.3% in 2021 to 4.3% of GDP in 2022 due to fiscal consolidation and improved revenue performance, except for Kenya, Rwanda, and Uganda, where fiscal deficits were higher than the regional average because of large public infrastructure projects and debt service obligations. Eight out of 13 countries recorded a deterioration in their current account balances due to high import bills, weak recovery of exports, and a surge .

AfDB - North Africa Economic Outlook 2023

North Africa Economic Outlook 2023

North African countries have been experiencing moderate economic growth, which declined from 5.4 percent in 2021 to 4.1 percent in 2022. Macroeconomic prospects remain positive and above Africa’s average. The region is projected to grow by 4.6 percent in 2023 and 4.4 percent in 2024 with disparities across countries. To sustain inclusive growth, the region needs to implement structural reforms that promote private sector development, enhance productivity and employability, and create job opportunities.

North African countries have recorded rising inflation rates, which have been attributed to several factors, particularly global inflationary pressures on food and energy products, following Russia’s invasion of Ukraine. Despite prudent monetary policies in most countries, the regional inflation rate reached 8.2 percent in 2022 and is expected to increase further to 14.2 percent in 2023 with double-digit inflation rates in Egypt and Mauritania. If sound macroeconomic policies are implemented to address inflationary pressures, the inflation rate would decrease to 6.9 percent in 2024.

Despite some progress, the region is facing significant challenges in mobilizing revenue, which is essential for sustainable economic growth and development. Governments need to improve their tax systems, increase tax compliance, and reduce tax evasion to enhance revenue mobilization. Given increased oil revenues, Algeria and Libya’s fiscal balances improved in 2022. Other North African countries but Mauritania recorded fiscal deficits above 5 percent of GDP, triggered by high public expenditures, notably on subsidies and social measures to protect the vulnerable population in the context of high inflation. The regional fiscal deficit (3.5 percent of GDP in 2022) is expected to remain around this level in 2023.

External accounts recorded a surplus in Algeria and Libya, in line with increased value in oil exports, and deteriorated in other North African countries but Egypt, reflecting higher imports bills of energy and food relative to export receipts. At the regional level, the current account deficit shrunk from 3.0 percent of GDP in 2021 to 0.8 percent in 2022. Current account balance projections depend on whether the country is a net oil exporter or not, and surpluses are expected to mostly compensate the deficits, with a regional current account deficit of 0.5 percent of GDP and 0.2 percent of GDP in 2023 and 2024 respectively.