Economic Challenges Facing Africa in First Half of 2024: Rising Inflation and Decreasing Investment

In the opening months of 2024, global markets witnessed a unique blend of high interest rates and record highs in public markets, particularly in the United States. The S&P 500 and NASDAQ 100 indices showed significant gains, reflecting a positive outlook for the US economy. However, this positivity did not extend to private markets, as venture capital (VC) investments saw a decline.

Meanwhile, across the African continent, the economic landscape remained cautious. Central banks, including the South African Reserve Bank, held their repo rates steady, with the South African rate holding at 8.25%. African central banks maintained a focus on controlling inflation rather than easing monetary policies, a response to the challenges posed by rising prices.

In Nigeria, inflation surged to 34.19% in June 2024, driven by a sharp rise in food prices. In response, the Central Bank of Nigeria considered further rate hikes to curb inflation. Unfortunately, this surge contributed to a lowered growth forecast for Nigeria, Africa's largest economy, leading to an IMF revision.

South Africa's economy contracted slightly by 0.1% in Q1 2024, primarily due to declines in the manufacturing, construction, and mining sectors. Despite this contraction, the agricultural sector in South Africa showed growth due to increased production.

The growth prospects for African economies during this period were mixed, with the IMF revising its growth projection for Sub-Saharan Africa downward to 3.7% for 2024. However, the IMF remained optimistic about the region's long-term growth prospects, with a forecasted GDP growth of 4.1% in 2025, supported by stabilized inflation and improved public debt ratios.

The decline in African venture capital funding was largely attributed to the absence of large deals beyond Series A stages and a significant drop in accelerated deals. The total funding in African venture capital landscape dropped by 57% year-on-year in H1 2024, with only $393 million raised across 119 deals.

One of the factors affecting the flow of capital into emerging markets like Africa was the high-interest rates in the US. These rates made safer investments like bonds more attractive, leading to reduced risk appetite for VC investments globally.

Despite these challenges, ongoing investment activities in African sectors like infrastructure, digital finance, and agriculture continued. Notable investors included Saudi Arabia and UAE, who increased their activities in mining, food security, energy, and infrastructure sectors across the continent.

Kenya reported a significant trade surplus in Q1 2024, driven by higher demand for tea and re-exports of jet fuel. The Central Bank of Kenya maintained a steady interest rate of 13%, supported by a decline in inflation to a four-year low of 4.6%.

However, the economic landscape in Africa was not without its challenges. Ongoing political instability in various African countries, coupled with upcoming elections, posed challenges to economic stability and investor confidence. Despite these challenges, the IMF remained optimistic about the region's long-term growth prospects.