TechEconomy obtained a recent report by McKinsey titled ‘Reimagining economic growth in Africa: Turning Diversity into Opportunity’ which highlights the significant role Nigeria, Egypt, and South Africa play in slowing down Africa’s Gross Domestic Product (GDP) growth.

According to the report, these three countries are responsible for 65 percent of Africa’s GDP slowdown. It further emphasizes that if these countries had maintained their growth rates from 2000 to 2010, Africa’s GDP in 2019 would have reached $3 trillion instead of $2.6 trillion.

The report sheds light on the economic performance of Africa, a continent known for its young and rapidly growing population.

Despite having immense potential, Africa’s GDP per capita has only grown by an average of one percent annually since 1990, significantly lagging behind countries like India and China, which have experienced higher growth rates.

GDP Figures

Additionally, the report highlights a noticeable deceleration in continental GDP growth from 2010 to 2019, following a period of acceleration from 2000 to 2010.

Nigeria, along with 12 other African countries, holds 37 percent of the continent’s population and accounted for 46 percent of its GDP in 2019. The sluggish economic growth in these countries over the past decade has had a considerable impact on the overall economic performance of Africa.

The report states that the growth in these countries did not keep pace with population growth, resulting in increased poverty levels. It further notes that per capita consumption growth was stagnant, growing at an average rate of only 0.8 percent per year.

Among the three countries, Nigeria’s economic decline has had the most significant effect on Africa’s overall GDP slowdown. The country’s service sector alone is responsible for 30 percent of the continent’s economic deceleration.

The average annual growth rate of Nigeria’s service sector dropped from 11 percent in the 2000-2010 decade to just three percent from 2010 to 2019. This decline is primarily attributed to a decrease in trade, particularly consumer spending on goods, which experienced a significant slowdown.

Other service sectors like real estate and information and communications technology (ICT) also witnessed a notable deceleration during the same period.

Addressing the Challenges

The findings of the McKinsey report underscore the importance of addressing the challenges faced by Nigeria, Egypt, and South Africa to achieve sustained and inclusive economic growth in Africa.

It highlights the need for these countries to focus on policies and strategies that promote trade, consumer spending, and diversification of their economies. By revitalizing these key economies, Africa can unlock its full economic potential and create opportunities for its growing population.

Furthermore, the report emphasizes the significance of addressing poverty and income inequality within these countries. It suggests that targeted measures should be implemented to uplift the living standards of the population, particularly in areas affected by economic slowdowns. Such efforts could contribute to increased consumption, stimulating economic growth, and reducing poverty levels.

Conclusion

The McKinsey report draws attention to the critical role played by Nigeria, Egypt, and South Africa in Africa’s GDP slowdown. It underscores the need for concerted efforts to revitalize these economies, promote inclusive growth, and address the challenges hindering their progress. By focusing on these areas, Africa

A new report underlines the importance for financial institutions to unlock the potential benefits of investing in businesses that protect and grow nature.

Applying first-of-its-kind analysis to three private banks and the financial systems of Zambia, Egypt, Ghana, Mauritius, Kenya, and South Africa, the report shows that for the most exposed lending portfolios, for example, in Zambia and Ghana, nature-related risks in agriculture and extractives could almost double expected losses by 2030, wiping $millions off the value of their loan books.

These nature-related risks are comparable with climate-related risks seen in similar sectors.

The report shows that financial institutions could benefit by adjusting investment strategies towards nature-positive outcomes. For example, action to protect and grow nature and changes in consumer demand could likely create high-growth opportunities in agricultural commodities such as alternative proteins.

The report estimates that demand for crops relevant to alternative proteins cultivated in Africa, such as sugar cane and pulses, could be 15 to 36 percent higher by 2030.

The fast pace at which nature is degrading and the severe consequence of environmental tipping points make ambitious global consumer and policy action to address the nature crisis more likely.

In the scenario of ambitious policy action, nature-related impacts are material especially for the agriculture and extractives sectors and thus require immediate attention.

Equity portfolios could see changes in value between -2 percent and -5 percent for agriculture in most countries, and between +1 percent and -4 percent for extractives.

On current trends, Africa is moving closer to environmental tipping points such as the conversion of the Congo basin rainforest to savannah, disruption of the West African monsoon, dieback of coral reef in South Eastern Africa and the desertification of up to 45% of Africa’s land area. Such physical risks are complex and difficult to model but have the potential to make businesses unviable in sectors such as rain-fed agriculture, pharmaceutical research, and tourism.

An example is that water stress in the worst affected areas of Africa could lead to the prices of essential agricultural commodities increasing by between 15% and 30% by 2030.

Given the materiality of nature-related risks that the report demonstrates, African financial institutions are encouraged to engage with global standards for managing and disclosing nature-related financial risks, such as the Taskforce on Nature-related Financial Disclosures (TNFD).

The report represents the first application in a real-world setting of the LEAP Nature Risk Assessment Approach which was released for consultation by TNFD in March this year.

While it demonstrates that even at this stage in its development the framework can be used to generate actionable conclusions, financial institutions in Africa can feed into its development to reflect the particular challenges they face.

African regulators can also play a pivotal role by clearly communicating their plans regarding climate and nature risk management and a timeline for implementing recommendations on nature-related risk released by the Network for Greening the Financial System.

The report suggests that to effectively and holistically address environmental risks and opportunities, regulators and financial institutions could consider nature and climate-related risk together from the start as part of an integrated framework.

Mark Napier, CEO of FSD Africa:

“The impacts of shifting to a nature-positive society are material and already underway. There is significant upside to be captured but financial institutions must institute new approaches to portfolio management that get ahead of changing regulation, of consumer preferences, and of the huge economic damage threatened by tipping points in critical natural systems. Getting this right could tip the scales between growth and decline for portfolios across the continent.”

Robin Smale, Director at Vivid Economics by McKinsey:

“The nature crisis is just as urgent as the climate crisis, and demands swift action. By putting the TNFD beta framework into practice for the first time, our new research with FSD Africa demonstrates the exposure of the African financial sector to material opportunities and risks from nature loss. The critical understanding of the connections between nature, climate change and business can help financial institutions to build in resilience and capture opportunities presented by a net-zero and nature-positive future.”