Economic Outlook for Sub-Saharan Africa

Sub-Saharan Africa is poised for economic growth of 4.2% in 2025, up from an estimated 3.8% in 2024, according to a recent report by Moody’s Ratings. This anticipated growth exceeds the region’s average performance over the past decade, which was constrained by multiple global and regional challenges, including the 2014-2016 commodity price slump, the COVID-19 pandemic, and inflationary pressures stemming from the Russia-Ukraine conflict.

The report, titled Sovereign – Sub-Saharan Africa: 2025 Outlook Stable as Financing Conditions Improve; but Debt Costs Still High, highlights factors driving this recovery and outlines potential risks that could undermine the region’s economic progress.

Key Drivers of Growth

Energy and Infrastructure Investments

Economic growth in Angola and the Republic of Congo is expected to gain momentum, driven by the launch of new oil and gas projects. These initiatives aim to counterbalance declining output from aging fields, ensuring steady production levels. Similarly, infrastructure development across the region, supported by foreign direct investment, is set to boost connectivity and productivity.

Economic Reforms and Diversification

Major economies like South Africa and Nigeria are making strides in implementing reforms to enhance growth and stability:

• South Africa: Improvements in the energy sector, particularly the reduction of power outages, are expected to alleviate one of the country’s most significant economic bottlenecks. This progress could reinvigorate industrial and commercial activities.
• Nigeria: Efforts to reform the foreign exchange market are projected to create a more efficient economic environment, fostering investor confidence and enhancing liquidity.

Resource-Driven Opportunities

Countries with critical raw materials essential for the global energy transition are expected to attract substantial foreign direct investment (FDI). The Democratic Republic of Congo (DRC) and Namibia, both rich in minerals like cobalt and lithium, are positioned to benefit significantly from increased demand for these resources.

Challenges and Risks

Debt and Financing Constraints

Despite easing financial conditions, Sub-Saharan Africa faces ongoing challenges in accessing affordable financing. Moody’s notes that debt servicing remains a major burden, especially for nations with substantial external debt and limited foreign exchange reserves. A sustained appreciation of the US dollar could exacerbate these challenges by increasing the cost of servicing dollar-denominated debt.

Inflation and Monetary Policy

Lower inflation across the region is expected to support more accommodative monetary policies. However, interest rates, while likely to decrease, will remain above pre-pandemic levels. Countries must balance the need for monetary easing with the risk of destabilizing inflationary pressures.

Climate Risks

Climate change continues to threaten economic stability in the region. Zambia has already faced significant setbacks due to persistent drought, which has disrupted hydropower generation and mining output—key sectors of its economy. Prolonged adverse weather conditions could diminish the benefits of higher commodity prices, particularly in agriculture-dependent economies.

Political Instability

Political uncertainty remains a looming threat:

• Côte d’Ivoire: The prospect of President Alassane Ouattara running for a controversial fourth term in the October 2025 elections could lead to political tensions.
• Mozambique: Disputes surrounding the 2024 presidential election results may affect the country’s stability and deter investment.
• Sudan and Ethiopia: Ongoing conflicts and fragile peace agreements in these nations pose risks to regional stability and economic integration.

Sectoral Insights

Agriculture

Agriculture remains a cornerstone of many Sub-Saharan economies. Lower inflation will benefit farmers by reducing input costs, but climate risks threaten yields. Investments in climate-resilient agriculture and irrigation infrastructure are critical to ensuring food security and sustained growth in the sector.

Energy Transition and Mining

The energy transition presents a dual-edged opportunity. While countries like the DRC and Namibia are well-positioned to capitalize on demand for battery minerals, the region must address governance and environmental concerns to attract sustainable investment.

Services and Technology

The expanding services sector, particularly in technology and telecommunications, is another growth driver. Countries like Kenya and Rwanda have established themselves as hubs for fintech innovation, offering a model for regional growth through digital transformation.

Global Dynamics and Regional Cooperation

Trade Relationships

The African Continental Free Trade Area (AfCFTA) is expected to play a pivotal role in driving intra-regional trade and investment. By reducing trade barriers and harmonizing regulations, the AfCFTA could unlock new economic opportunities for member states.

International Partnerships

Sub-Saharan Africa’s growth trajectory will also depend on strategic partnerships with global powers. The involvement of countries like China, the United States, and the European Union in infrastructure and energy projects underscores the region’s importance in global economic and geopolitical calculations.

Outlook for Key Economies

• South Africa: While progress in energy reforms is promising, the country must address structural challenges, including unemployment and inequality, to sustain growth.
• Nigeria: Improving the foreign exchange market is a step forward, but addressing oil theft, corruption, and insecurity remains crucial.
• Angola and Republic of Congo: The success of new oil and gas projects will hinge on effective governance and global energy prices.
• Zambia: Diversifying the economy beyond copper production and investing in renewable energy are essential for long-term resilience.

Conclusion

Moody’s optimistic forecast of 4.2% growth for Sub-Saharan Africa in 2025 reflects the region’s potential to rebound from recent economic challenges. However, achieving this growth will require concerted efforts to address financing constraints, political risks, and climate vulnerabilities.

The region’s ability to leverage its vast natural resources, implement effective reforms, and strengthen regional cooperation will determine its trajectory in the coming years. With strategic planning and international support, Sub-Saharan Africa has the opportunity to cement its position as a dynamic and resilient economic bloc on the global stage.

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photo source: Google

By: Montel Kamau

Serrari Financial Analyst

15^th January, 2024