(Ecofin Agency) - As oil, gas, and mining projects mutiply in Africa, notably in Niger, Senegal, and Côte d'Ivoire, states anticipate strong economic growth. However, for the IMF, these projects alone will not be sufficient to drive real development.

In sub-Saharan Africa, countries must diversify their economies to catch up with wealthier nations, according to Luc Eyraud, Director of Regional Studies for sub-Saharan Africa at the IMF. He gave an exclusive interview to Ecofin Agency.

The IMF representative said that despite the increase in projects based on the exploitation of natural resources on the continent, analyses have shown that countries relying solely on source of income create less wealth in the medium term than those with a more diversified economy. "Countries whose growth is mainly based on natural resources have a per capita income growth between 0 and 1% in the medium term, while countries with a diversified economy have a per capita growth between 3 and 4% in the medium term," he said.

This question is all the more important as it arises in a context where the growth of many African countries this year is driven by prospects related to new projects announced in the hydrocarbon sector.

In Senegal and Niger, new projects of oil exploitation raise hopes for rapid financial returns for the economies and thus (rightly or wrongly) for the grassroots populations. In Niger, the new authorities that came to power after a coup have even based significant strategies on this strategy, to the point where Niamey obtained, a few months ago, an advance of $400 million for its oil transiting through Benin. A pipeline which, moreover, is currently blocked by Benin due to political tensions between the two neighbors.

According to the World Economic Diversification Index, sub-Saharan African countries display the worst performances in terms of diversification. But countries like South Africa, Tunisia, Morocco, Mauritius, and Egypt stand out for their good performances, while others such as Namibia, Senegal, Kenya, and Côte d'Ivoire are undertaking significant reforms to truly diversify their economies.

It is worth noting that according to the IMF, poorly diversified economies grow twice as slowly as diversified ones.

Luc Eyraud, Director of Regional Studies for sub-Saharan Africa at the IMF, gave his opinion

Ecofin Agency: In its new report on regional economic prospects in sub-Saharan Africa, the IMF anticipates an increase in growth until 2025. What are these forecasts based on?

Luc Eyraud: Indeed, we anticipate an acceleration of growth between 2023 and 2024 from 3.4% in 2023 to 3.8% in 2024. The causes are multiple, some being common to all countries and some being specific. Among the common causes, we have the relaxation of global interest rates with an improvement in this very difficult situation of financing shortage, the effects of which are gradually dissipating. Countries like Côte d'Ivoire have been able to return to international financial markets by issuing a Eurobond in January of this year. We also have a strengthening of growth in certain "trading partner" zones of sub-Saharan African countries such as the USA or the Eurozone. Regarding factors specific to certain countries, it should be mentioned that two of the fastest-growing countries in all of sub-Saharan Africa are in the WAEMU zone, namely Niger and Senegal. And their growth is due to gas and oil projects.

EA: What are the main risks threatening growth in sub-Saharan Africa?

LE: Two main risks are weighing on sub-Saharan African economies. The first is an external risk, related to climate change, with a region that is increasingly affected by extreme weather events such as floods or droughts. The second is a domestic risk, related to political uncertainties as 2024 is a particular year that will see a total of 18 national elections. This creates some uncertainty about the continuity of economic policies and reform momentum.

EA: Why is Nigeria losing its position as Africa's leading economy to South Africa?

LE: The reason is very simple, and that is that the exchange rate of the Naira (Nigeria's currency, ed.) has depreciated by 65% since the beginning of 2023. To illustrate, when an individual has their income in domestic currency, they lose purchasing power in dollars when there is a depreciation of the exchange rate. The same goes for countries, whose income here is GDP. When there is a depreciation of the exchange rate, GDP in dollars decreases.

EA: In ECOWAS, Burkina Faso is the leading investor in Côte d'Ivoire, Mali the leading customer, and Nigeria the leading supplier. To what extent do the political dynamics of the sub-region influence stable and sustainable growth in Côte d'Ivoire?

LE: The IMF considers regional integration crucial for economic growth. It creates opportunities for investment, expands market size, and is fundamental for both ECOWAS and sub-Saharan Africa as a whole. We have made estimates of the impact of the AfCFTA, and we have been able to identify the potential benefits of this flagship agreement for African integration for the continent's countries. So it is important to pay attention to fragmentation dynamics, to tension dynamics that impose restrictions on trade between countries because this can have economic costs.

EA: Given the current crisis recovery context, what are the Fund's recommendations for sub-Saharan African countries to maintain economic growth?

LE: There is a flagship recommendation, and that is economic diversification. At the IMF, we compare the different growth rates of sub-Saharan African countries, and we have observed that countries that were less diversified, especially those whose economies are highly concentrated on raw materials or food products, grow twice as slowly as countries whose production is more diversified like Côte d'Ivoire. This is a very important source of concern.

Countries whose growth is mainly based on natural resources have a per capita income growth between 0 and 1% in the medium term, while countries with a diversified economy have a per capita growth between 3 and 4% in the medium term. When a country experiences a per capita growth of 3 to 4%, it can catch up and converge towards richer countries, leading to economic development. However, with a per capita income growth of 0 to 1%, convergence or catching up becomes unattainable.