Giovedì, Febbraio 13, 2025
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Major economies to drive Africa economic growth in 2025

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As a new year begins, it is customary to examine growth estimates for the various regions of the world in the months ahead. This time, the United Nations have sought to anticipate the global development scenarios, an exercise carried out in the recently released World Economic Situation and Prospects (WESP) 2025 report.

The WESP 2025 report, which is produced annually by the United Nations Department of Economic and Social Affairs (UN DESA) in partnership with the five regional commissions of the United Nations and other UN specialized agencies, foresees a moderate growth of the global economy of 2.8 per cent in 2025 (unchanged from 2024), and 2.9% for 2026. For what concerns Africa, the report foresees a more pronounced economic expansion than the rest of the world, with growth rates that are expected to reach 3.7% in 2025 and 4.0% in 2026. Major continental economies such as Nigeria, Egypt and South Africa are anticipated to be the primary drivers of this growth.

This conclusion echoes the findings of an article published in November 2023 on The Economist, which raised the need for Africa to trigger a development process in the continent’s bigger economies, in order to drive the growth of the smaller ones. The article’s author underlying theory is that the expansion of the major African economies could exert a sort of gravitational effect on smaller economies through their attraction into the orbit of larger ones.

How realistic is this scenario and, above all, what are the mechanisms through which smaller African economies could "enter in the orbit” of the larger ones?

The theory according to which the expansion of larger economies in Africa will have positive spillover effects on neighboring countries, especially the smallest ones, holds considerable merit, at least for the following two reasons:

1)    Larger economies often serve as major markets for smaller nations: as they grow, they can create greater demand for goods and services from other countries, stimulating intra-regional trade and investment. This can lead to economic growth and development in those smaller economies that are integrated into trade networks with bigger ones.

2)    Larger economies can play a leading role in promoting the development of regional value chains: their growing demand for goods and services in these economies can stimulates production across the region, encouraging smaller economies to specialize in specific stages of production and integrate into the larger economy's supply chains. In addition, larger economies often attract significant foreign direct investment (FDI) which can flow into regional value chains, bringing in capital, technology, and managerial expertise not only in both main and satellite economies.

However, it is also important to note that a key condition for the above two reasons to materialize, is that biggest and smaller economies are linked to each other by suitable infrastructure, such as transportation and logistics networks. These networks will be crucial for facilitating the movement of goods and services within the regional value chains, reducing costs and improving efficiency.

However, it is important to note that the impact of larger economies on smaller African economies can also be negative. For example, competition from larger economies can harm smaller businesses in smaller economies in certain sectors. Additionally, dependence on larger economies can make smaller economies vulnerable to economic shocks in those larger economies.

To conclude, the expansion of major African economies has the potential to be a powerful driver of economic growth and development for the entire continent. However, it is crucial to ensure that the benefits of this growth are shared equitably among all African countries and that appropriate policies are in place to mitigate any negative impacts. Also, infrastructure gaps need to be urgently addressed, in order to facilitate the emergence of regional value chains and trade networks among African nations. This trajectory reflects the ongoing commitments and efforts towards regional integration within the African Continental Free Trade Area (AfCFTA) as set out in the various Protocols that make up its legal framework.

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