The global economy started cooling off in 2022 and it is expected that we might end up in a recession in 2023. However, there is nothing new about recessions and the cyclical manner in which the world economy operates over the years. What we are currently experiencing has been experienced before and governments, businesses and households have figured out how to go through economic downturns and come out the other end unscathed. Not all survive the harsh economic times though; since naturally the strongest thrive while the weak are weeded out of the system. As the year begins, governments, businesses and households need to assess their positions and determine where they fall – on the thriving side or the trailing masses.
To make a better judgment of where your business might likely fall, an in-depth assessment of the key themes that will drive the economic agenda in 2023 is critical. While focusing our lenses to Africa, our perspective at Fie-Consult is that the economic agenda across the continent in 2023 will be driven by four major themes. The four include climate action, international trade (AfCFTA), public sector development and the digital economy.
Under climate action, resolutions from COP27 (The African COP) will take center stage as governments across Africa seek to actualize their Nationally Determined Contributions (NDCs). The focus will be more on climate mitigation and adaptation measures across different sectors; and the pursuit of climate finance to fund the various climate-related initiatives across the continent. Carbon markets initiatives will spring up across Africa as one of the core channels to access climate finance; led by the Africa Carbon Markets Initiative (ACMI). Climate-resilient agriculture and the transition to clean and renewable energy sources will be a priority for most governments and businesses. Decarbonizing transportation will also gain traction tremendously in 2023 as more businesses join the e-mobility bandwagon in different countries. Overall, we expect climate tech across sectors to drive the sustainability agenda for businesses as climate action gets mainstreamed in Africa.
The Guided Trade Initiative (GTI) under the Africa Free Continental Trade Agreement (AfCFTA) was launched in October 2022 with 8 countries taking part in it. Kenya, Rwanda, Ghana, Mauritius, Tanzania, Tunisia, Cameroon and Egypt are the pioneers in this pilot phase meant to set the tone for meaningful trade among African countries under the AfCFTA. We expect the AfCFTA to pick momentum in 2023 as countries across Africa readjust to the disruption of global value chains as a result of COVID-19 pandemic in 2020 and the war in Ukraine that started in 2022. Challenges abound in determining each country’s comparative advantage as well as in infrastructure development in order to optimize the benefits of the AfCFTA. However, as with any new initiative, the continent will draw lessons from the pilot phase and continuously improve on systems and processes to make AfCFTA work. We expect a lot of awareness creation to be done on AfCFTA in 2023; with a key focus on practical support to businesses to start trading across borders to build the momentum needed to scale the initiative.
Faced with a slowing down global economic environment, African governments will be forced to re-think their approach to funding public development projects in their own countries and across regions. With an expectation of dwindling foreign funding flowing to Africa as the West focuses on building resilience in their own economies, African countries will need to shift gears and look internally to finance their development projects. In Kenya, the government is already widening its tax base and trying to capture as much as it can from both the formal and informal sectors; albeit with aggressive push-back from the public. Besides taxes, governments in Africa will need to incentivize private investors to fund their development projects including sustainable and climate-resilient infrastructure projects. Public Private Partnerships (PPPs) are therefore expected to be adopted more across the continent in a bid to find alternative sources of development projects finance.
The tech ecosystem in Africa has been growing exponentially over the past 5 years; supported by an annual influx of venture capital funds (VC) into the continent in amounts never reached before 2017. Despite the cooling off in the global VC activity in 2022; Africa tech ecosystem remained resilient and attracted USD 6.5 billion in VC funding according to the Partech Africa Tech VC Report 2022. Fintech, cleantech, e-commerce, health tech and mobility were among the top sectors in terms of receiving VC funding in Africa in 2022. As artificial intelligence (AI) takes center stage in the global economy; we expect African governments and businesses to invest and proactively pursue digital transition initiatives in order to leapfrog into the digital economy. This will not only help Africa to be competitive globally; but it will smoothen the implementation of the AfCFTA through increased e-commerce, interoperability of trade & governance systems across countries as well as increased information availability for informdecision-makinging for both governments and businesses.
Even with the looming recession in 2023, Africa still remains upbeat on growth; and we are optimistic that the continent will take advantage of the hard times ahead to restructure and strengthen its sustainable growth plan. At Fie-Consult, we remain committed to our mission of infusing growth across Africa by unlocking the capital needed by businesses and governments; as well as in providing advisory services on strategy, operations and international tax; in order to drive sustainable growth in all the countries we operate in across the continent.
Author: Jeremy Riro