Africa’s Economy to Grow 4% by 2026 Amid Calls for Capital Reforms—AfDB Report

Africa is set to outpace much of the global economy over the next two years, with its GDP projected to grow from 3.3% in 2024 to 3.9% in 2025, and reaching 4% in 2026, according to the newly released 2025 African Economic Outlook (AEO) by the African Development Bank Group (AfDB). The flagship report, launched at the AfDB’s Annual Meetings in Abidjan, Côte d’Ivoire, presents a cautiously optimistic outlook for the continent despite ongoing global economic headwinds, geopolitical uncertainty, and persistent domestic challenges.

Titled "Making Africa’s Capital Work Better for Africa’s Development," the 2025 AEO stresses the importance of mobilizing and managing domestic capital as the key to unlocking the continent’s full potential.

“Africa must now face the challenge and look inwards to mobilize the resources needed to finance its own development in the years ahead,” said Professor Kevin Chika Urama, AfDB Chief Economist and Vice President.

Strong Growth in Key Economies Despite Global Headwinds

The report highlights that 21 African countries are projected to achieve growth above 5% in 2025, with Ethiopia, Rwanda, Niger, and Senegal possibly exceeding the 7% growth threshold—a level deemed crucial for inclusive growth and poverty reduction.

Africa’s growth is expected to surpass the global average, making it one of the most dynamic economic regions behind only emerging and developing Asia. This resilience, the report notes, is underpinned by ongoing macroeconomic reforms, stronger fiscal management, and efforts to diversify economies and reduce external dependency.

Regional Growth Patterns Show Diverging Trends

The report outlines considerable variation in regional performance:

• East Africa: Expected to lead with 5.9% growth, buoyed by robust growth in Ethiopia, Tanzania, and Rwanda.

• West Africa: Forecast to maintain 4.3% growth, largely driven by new oil and gas projects in Senegal and Niger.

• North Africa: Predicted to grow by 3.6%, despite lingering fiscal and inflationary pressures.

• Central Africa: Growth is set to slow to 3.2% due to falling commodity prices and structural bottlenecks.

• Southern Africa: Continues to lag, with growth at just 2.2%, weighed down by South Africa’s projected 0.8% expansion.

Pressing Challenges: Inflation and Rising Debt Burdens

The economic outlook is not without risks. The continent is grappling with double-digit inflation in 15 countries, rising food and energy prices, and surging interest costs. Alarmingly, interest payments now consume 27.5% of government revenues, up from 19% in 2019—a level that undermines fiscal space for development spending.

Untapped Potential: $1.43 Trillion in Domestic Resources

The 2025 AEO emphasizes that Africa possesses immense untapped capital across five domains—natural, human, financial, business, and fiscal—and could mobilize an additional $1.43 trillion by improving efficiency and reforms:

• Natural Capital: Africa holds 30% of global mineral reserves, including critical green minerals. Capturing 10% of projected revenues from these resources could yield $1.6 trillion by 2030.

• Human Capital: With a median age of 19, workforce participation improvements could add $47 billion to GDP.

• Financial Capital: Pension funds worth $1.1 trillion and formal remittances projected to hit $500 billion by 2035 can be better leveraged.

• Business Capital: Full implementation of the African Continental Free Trade Area (AfCFTA) could raise exports by $560 billion and income by $450 billion by 2035.

• Fiscal Capital: Enhanced tax systems could generate hundreds of billions more through better compliance, digitalization, and broadening of tax bases.

Tackling Financial Leakages and Capital Flight

A major barrier to African development, according to the report, is the massive financial leakage from the continent:

• In 2022, Africa received $190.7 billion in financial inflows, yet lost $587 billion due to:

  • $90 billion in illicit financial flows

  • $275 billion from profit shifting by multinationals

  • $148 billion lost to corruption

This capital flight undermines domestic investment and must be reversed, the report argues, through strengthened governance, transparency, and regulatory enforcement.

“When Africa allocates its own capital effectively, global capital will follow,” Vice President Urama said.

Policy Recommendations for Unlocking Africa’s Capital

The report proposes a comprehensive policy roadmap to turn African capital into development capital:

1. Enhance Domestic Revenue Mobilization

   • Digitize tax systems

   • Broaden tax bases

   • Improve public trust through transparent governance

2. Mandate Natural Capital Accounting

   • Enforce beneficiation and local processing of resources

   • Ensure better royalties and equitable resource distribution

3. Deepen Financial Markets

   • Tap into pension and insurance savings

   • Develop local currency bond markets

   • Harmonize cross-border regulations to attract long-term investment

4. Strengthen Governance and Rule of Law

   • Combat illicit flows, corruption, and capital flight

   • Build high-quality institutions for efficient capital allocation

A Roadmap to Transformation

Ultimately, the 2025 African Economic Outlook offers more than projections—it provides a blueprint for transformational change through better mobilization and smarter use of Africa’s existing wealth. With firm governance and strategic reforms, Africa can finance its own development, reduce external dependency, and unlock a prosperous, resilient future.

“There can be no substitute to sound macroeconomic policy, quality institutions, and rule of law,” Urama concluded.