Sharp, Long-Lasting Slowdown To Hit Developing Countries Hard

Global growth is slowing sharply in the face of elevated inflation, higher interest rates, reduced investment, and disruptions caused by Russia's invasion of Ukraine, according to the World Bank's latest Global Economic Prospects report. 

Given fragile economic conditions, any new adverse development—such as higher-than-expected inflation, abrupt rises in interest rates to contain it, a resurgence of the COVID-19 pandemic, or escalating geopolitical tensions—could push the global economy into recession. This would mark the first time in more than 80 years that two global recessions have occurred within the same decade. 

The global economy is projected to grow by 1.7% in 2023 and 2.7% in 2024. The sharp downturn in growth is expected to be widespread, with forecasts in 2023 revised down for 95% of advanced economies and nearly 70% of emerging market and developing economies. 

Over the next two years, per-capita income growth in emerging market and developing economies is projected to average 2.8%—a full percentage point lower than the 2010-2019 average. In Sub-Saharan Africa—which accounts for about 60% of the world's extreme poor—growth in per capita income over 2023-24 is expected to average just 1.2%, a rate that could cause poverty rates to rise, not fall. 

"The crisis facing development is intensifying as the global growth outlook deteriorates," said World Bank Group President David Malpass. "Emerging and developing countries are facing a multi-year period of slow growth driven by heavy debt burdens and weak investment as global capital is absorbed by advanced economies faced with extremely high government debt levels and rising interest rates. Weakness in growth and business investment will compound the already-devastating reversals in education, health, poverty, and infrastructure and the increasing demands from climate change." 

Growth in advanced economies is projected to slow from 2.5% in 2022 to 0.5% in 2023. Over the past two decades, slowdowns of this scale have foreshadowed a global recession. In the United States, growth is forecast to fall to 0.5% in 2023—1.9 percentage points below previous forecasts and the weakest performance outside of official recessions since 1970. In 2023, euro-area growth is expected at zero percent—a downward revision of 1.9 percentage points. In China, growth is projected at 4.3% in 2023—0.9 percentage point below previous forecasts. 

Excluding China, growth in emerging market and developing economies is expected to decelerate from 3.8% in 2022 to 2.7% in 2023, reflecting significantly weaker external demand compounded by high inflation, currency depreciation, tighter financing conditions, and other domestic headwinds. 

By the end of 2024, GDP levels in emerging and developing economies will be roughly 6% below levels expected before the pandemic. Although global inflation is expected to moderate, it will remain above pre-pandemic levels. 

The report offers the first comprehensive assessment of the medium-term outlook for investment growth in emerging market and developing economies. Over the 2022-2024 period, gross investment in these economies is likely to grow by about 3.5% on average—less than half the rate that prevailed in the previous two decades. The report lays out a menu of options for policy makers to accelerate investment growth. 

"Subdued investment is a serious concern because it is associated with weak productivity and trade and dampens overall economic prospects. Without strong and sustained investment growth, it is simply impossible to make meaningful progress in achieving broader development and climate-related goals," said Ayhan Kose, Director of the World Bank's Prospects Group. 

"National policies to boost investment growth need to be tailored to country circumstances but they always start with establishing sound fiscal and monetary policy frameworks and undertaking comprehensive reforms in the investment climate." 

The report also sheds light on the dilemma of 37 small states—countries with a population of 1.5 million or less. These states suffered a sharper COVID-19 recession and a much weaker rebound than other economies, partly because of prolonged disruptions to tourism.

In 2020, economic output in small states fell by more than 11%— seven times the decline in other emerging and developing economies. The report finds that small states often experience disaster-related losses that average roughly 5% of GDP per year. This creates severe obstacles to economic development. 

Policymakers in small states can improve long-term growth prospects by bolstering resilience to climate change, fostering effective economic diversification, and improving government efficiency. The report calls upon the global community to assist small states by maintaining the flow of official assistance to support climate-change adaptation and help restore debt sustainability.

Europe Can Look To Africa As Preferred Gas Supplier

With recent sanctions on Russia by western nations threatening the critical supply of Russian gas to European markets, an opportunity has emerged for African gas producers to step up, enhancing hydrocarbon production and exports to meet international supply gaps.

Significant progress has already been made to establish Africa as a viable gas export market, and now, with geopolitical tensions rising, Africa should focus on establishing itself as the preferred supplier to international markets.

The withdrawal and disruption of supply channels from Russia, as the second largest gas producer globally and the biggest supplier of natural gas to Europe, will not only send Europe into a deeper energy crisis, but will cause price hikes globally. However, this represents a golden opportunity for Africa. On February 22, 2022, member states of the Gas Exporting Countries Forum (GECF) met in Doha, Qatar to discuss the impact of the mounting tensions between Russia and Ukraine and its impact on the global gas market. 

In the Doha Declaration – issued after the meeting concluded – parties emphasized that despite their commitment to increasing gas production to meet growing energy demand globally, they do not have the capacity to help Europe replace 40% of its energy consumption in the event Russia cuts supply. These commitments will not only be critical for Europe's energy crisis but for Africa's sectoral expansion.

In an exclusive interview with the AEC this month, H.E. Gabriel Mbaga Obiang Lima, Equatorial Guinea's Ministry of Mines and Hydrocarbons, said: "Infrastructure is going to be critical. Investors in Europe may be selling solutions to be able to put as many terminals as possible, which will allow us to export gas to them. That is what we need in order to be competitive in gas."

African producers can take advantage of the outcome to attract investments required to build infrastructure that would enable them to expand exploration, production and exportation to meet the anticipated increase in demand in Europe.

"The ongoing European energy trilemma and challenges provides a golden opportunity for African gas producers to develop a robust, bankable gas strategy to cater for motherland Africa and our European friends energy demand. I believe Africa can leverage current trends to attract much needed investment to develop the infrastructure needed to accelerate production for regional consumption and exportation. The time to act on the Trans Africa Gas plan is NOW." states Abdur-Rasheed Tunde Omidiya, President of the AEC Nigeria and West Africa

Already, African countries have started ramping up production. The African Energy Chamber (AEC) – in its Q1 2022 Outlook - predicts Nigeria to increase gas production from 2016 of about 1,550 billion cubic feet to up to 1,780 billion cubic feet in 2022. These production increases will enable Nigeria to increase domestic capacity, ensuring energy security both domestically and continentally, while creating the opportunity to scale-up exports to European markets.

Other African producers such as Algeria and Niger, who together with Nigeria, recently signed the Declaration of Niamey during the Economic Communities of West African States (ECOWAS) Mining and Petroleum Forum (ECOMOF) – paving the way for the construction of the multi-billion, 4,128km Trans-Saharan Gas Pipeline, which will run through the three countries into Europe – now have an opportunity to attract funding for the project rollout and expand their production and exportation capabilities to Europe. Once completed, the pipeline is expected to transport 30 billion cubic meters of gas per annum which Europe will desperately need to meet demand.

Algeria's proximity to the European market makes the North African country of strategic importance as a potential gas supplier for Europe. Algeria, the world's sixth largest gas exporter and the largest gas producer in Africa, has already expressed its plan to double exploration and production in the next five years. In 2021, Algeria increased its export volumes to Europe to 53Bcm from 40 Bcm in 2020 and is estimated to export 46 Bcm or more in 2022 as demand in Europe is expected to continue rising.

At the same time, Equatorial Guinea, with over 1.5 trillion cubic feet of natural gas reserves, which remains untapped, can also take advantage of the anticipated European gas crisis to attract more investment for its natural gas market growth and development.

African gas producers need to improve policy planning and enactment, and deal with negotiation to make themselves attractive markets to partner with. AEC's annual summit African Energy Week (AEW) set to take place from 18 to 21 October 2022, will unite investors, regulatory authorities, oil and gas companies and oil and gas industry players under one roof in Cape Town, South Africa to discuss best practices and for signing of deals.

AEW 2022 provides the most suitable platform for real discussions on Africa's energy future and its role on the global landscape. AEW 2022 will host panel discussions on topics such as exploration and production in a reduced capital expenditure climate, the role regional and international energy networks play in energy security globally, and the importance of enabling environments

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