Business News

Nigeria’s currency vulnerability set to continue: AfDB warns of ongoing capital outflows

The Africa Development Bank has stated that currency weakness in more globally integrated economies like Nigeria is expected to continue as a result of capital outflows from investors to safe advanced economies.

The bank stated this in its report titled “Africa Economic Outlook 2023” which reviewed how African economies are recovering from the lingering effects of the covid-19 pandemic and war between Russia and Ukraine.

According to the report,

  • “Currency weaknesses in some of Africa’s more globally integrated economies (Kenya, Nigeria, and South Africa) are expected to persist in 2023, largely due to potential capital outflows as investors search for safe assets in advanced economies”.

The report also noted that the currencies of nations primarily exporting commodity goods weakened substantially due to the tightening of monetary policies in the United States which reduced the supply of the USD.

It identified Zimbabwe, Ghana and Sierra Leone as the major casualties of this policy.

Economic growth in West African countries

The bank also highlighted the economic growth of West African economies in 2023 stating most of them will see slower GDP growth in the next two years.

Based on the provided information, the report indicates a deceleration in the average Gross Domestic Product (GDP) of West Africa, which dropped to 3.8% in 2022 from 4.4% in the preceding year, signifying a slowdown in the recovery process following the economic downturn of 2020.

The report stated thus,

  • Despite macroeconomic challenges in some of the region’s large economies, is projected to rise from an estimated 3.8 per cent in 2022 to 3.9 per cent in 2023 and 4.2 per cent in 2024.”
  • “Of the nine countries with projected growth rates of 5 per cent or higher in 2023, eight are small economies, accounting for 15 per cent of the region’s GDP and 22 per cent of the projected growth.”

Reasons for slow economic growth in West Africa

This deceleration in growth is attributed to a series of successive shocks, including the resurgence of COVID-19 cases in China, a significant trading partner for countries in the West African region.

Additionally, the report highlights the inflationary pressures experienced in various West African countries due to Russia’s invasion of Ukraine, which impacted the costs of essential commodities such as food, fuel, and fertilizers.

Furthermore, the report reveals that advanced economies have undertaken measures to tighten their monetary policies.

Consequently, this global shift towards risk aversion has led to increased pressure on exchange rates.

Despite these challenges, the report projects a positive outlook for the region’s GDP growth.

It anticipates a slight uptick, with growth reaching 3.9% in 2023 and 4.2% in 2024.

Back to top button