Macro Outlook Remains Volatile
In 2022, Africa’s Gross Domestic Product (GDP) growth was largely supported by the resumption of economic activity and removal of COVID-19 restrictions. S&P Global predicts that growth in 2023 will be slowed due to a predicted mild recession in some economies, as well as ongoing impacts from the Russia-Ukraine conflict. Debt restructuring and reprofiling is expected in low-income and debt-distressed countries this year, however, Africa registered gains at COP27 by securing commitments to new sources of climate finance. This year, governments are expected to continue advocating for turning these promises into concrete actions.
Upstream Market Constrained by Climate Policies
Over the past year, the Russia-Ukraine conflict has made energy security a top concern across the globe, with African governments scaling up oil and gas exploitation to address supply challenges. With the aim of ramping up exploration, a series of licensing rounds either have or are expected to be launched, with primary focus placed on the offshore sector. Civil society continues to challenge upstream progress, with investment expected to be constrained by climate policies.
Downstream Sector Leads Growth in 2023
While the upstream market is expected to slow, Africa’s downstream sector is set to lead growth in 2023. Increases in refined product demand represented the third highest among regions worldwide in 2022; a trend which is expected to continue in 2023, driven by the relaxation of COVID-19 restrictions and acceleration of economic activity – owing largely to rebounds in the road freight and extractive industries and associated growth in the demand for battery minerals. Additional drivers of economic activity include the transition from natural gas to more competitively priced liquid fuels as well as the increased use of products for power generation. However, S&P Global anticipates a looming diesel shortage of approximately 700,000 barrels per day.
Power and Renewables Show Robust Growth
In 2022, the renewables sector showed robust growth, with 2.4 GW of additions. Despite this progress, with economic activity not yet back to pre-pandemic levels, power demand remains less than 500 kWh per capita, the lowest in the world, and growth is expected to continue to be constrained owing to domestic supply challenges, global bottlenecks and rising technology costs. However, corporate renewables procurement continues to shine while sub-Saharan Africa’s capacity to produce green hydrogen represents a nascent sector that continues to attract global attention.