Introduction

Africa enters the second half of the decade with macroeconomic resilience, but one that remains fragile and uneven. Growth has resumed after the pandemic and commodity shocks, yet structural weaknesses persist. Elevated global interest rates, China’s slowing demand, and volatile energy markets test the credibility of reforms and expose the limits of policy buffers.

The continent’s aggregate 3.8% growth forecast for 2025 (IMF WEO, April 2025) masks a divergence that is more telling than the headline number. East Africa demonstrates momentum anchored in consumption, agriculture, and digital services. West Africa struggles under fiscal fragility and currency volatility. Southern Africa stagnates, caught in structural traps.

Capital markets—though shallow—are increasingly the barometers of sovereign credibility. Investor sentiment has not withdrawn, but it is selective, cautious, and intolerant of policy drift. The political economy of reform remains decisive: countries that sustain discipline and build transparent institutions attract engagement, while those that delay remain vulnerable to volatility.

I. Regional Outlook: Divergence Beneath the Headline

East Africa: Growth Anchored in Agriculture and Services

Kenya, Tanzania, and Uganda remain the bright spots. Kenya’s GDP is forecast to expand by 5.2% in 2025, benefiting from strong agricultural harvests after years of drought and from fintech services that process more than 60% of GDP in digital payments (Central Bank of Kenya, 2024). Tanzania sustains momentum from infrastructure investment, while Uganda benefits from oil sector prospects. Rwanda and Ethiopia maintain growth above 6%, though debt pressures and political fragility cloud the medium term.

Yet the region’s very success underscores its vulnerabilities. Agriculture remains climate-exposed, and the El Niño cycle threatens future harvests. Governments should take advantage of current growth to scale investment in irrigation, climate insurance schemes, and regional food reserves. Without such adaptation, volatility in rainfall could rapidly reverse gains.

West Africa: Fragile Gains

Nigeria illustrates the limits of partial reform. Growth remains weak at 2.9%, despite subsidy removals and exchange rate liberalization. Oil production is stagnant, fiscal buffers are eroded, and the naira has depreciated nearly 30% this year. Without a sustained effort to broaden non-oil tax bases and strengthen domestic debt markets, short-term stabilization measures will not prevent recurrent crises.

Ghana’s experience offers partial contrast. Since its 2023 default, the IMF-supported program has stabilized the cedi and brought inflation below 12%. But debt service still consumes over half of domestic revenues (MoF Ghana, 2025). The government’s priority must shift from firefighting to structural reform: improving tax collection efficiency and creating fiscal frameworks that extend beyond electoral cycles.

Southern Africa: Structural Stagnation

South Africa grows at just 1.4%, trapped in a low-growth equilibrium. Persistent electricity shortages, weak state-owned enterprises, and political uncertainty ahead of 2026 elections constrain investment. With public debt at 72% of GDP and unemployment above 30%, restoring confidence requires accelerating structural reforms—particularly in energy and SOE governance.

Elsewhere, Botswana and Namibia remain reliant on mining cycles and external demand from China. Zimbabwe continues to battle currency instability and inflation. Regional resilience therefore hinges on South Africa’s reform credibility; without progress, contagion risks to its neighbors will intensify.

Key Figures – August 2025

II. Signals from Capital Markets

Africa’s capital markets remain thin but reveal much about policy credibility.

In South Africa, the FTSE/JSE All Share Index has stabilized, buoyed by resources. The rand remains volatile but has avoided disorderly depreciation, reflecting the SARB’s credible monetary stance. Yet foreign inflows remain cautious, constrained by stalled reforms. South Africa’s lesson is clear: macro policy credibility can stabilize markets temporarily, but without structural reform, capital will remain hesitant.

In Nigeria, the NGX has experienced speculative rallies following FX announcements, but foreign investor participation is thin. Sovereign eurobonds continue to trade at distressed levels. Sustained credibility will require Abuja to sequence reforms—ensuring fiscal consolidation is matched by measures that protect household welfare and prevent political backlash.

In Kenya, equities remain subdued, as heavy government domestic borrowing crowds out private capital. Public debt has surpassed 70% of GDP, with nearly 40% of tax revenues directed to interest payments (Treasury Kenya, 2025). Addressing this imbalance requires fiscal adjustment combined with greater reliance on concessional external finance rather than domestic bank borrowing.

III. Sectoral Dynamics

Agriculture and Climate Exposure

Improved rainfall in East Africa has lifted output and temporarily eased food prices. Yet this recovery masks deep vulnerability: climate shocks can erase years of progress within a single season. Cyclone Freddy in 2023 devastated Mozambique, Malawi, and Madagascar, disrupting food supply chains.

Policy must move beyond ad hoc responses. Investment in resilient infrastructure—irrigation, storage, transport—remains critical. Governments should also expand crop insurance schemes, strengthen early warning systems, and explore regional food security mechanisms through AfCFTA. Without these measures, agriculture will remain hostage to climate volatility.

Energy and Natural Resources

Commodity exporters face contrasting fortunes. Gold and copper have buoyed Ghana and Zambia, improving current accounts. Yet oil exporters like Nigeria and Angola underperform despite high prices, reflecting governance weaknesses and chronic underinvestment.

The lesson is straightforward: revenue volatility cannot be managed without robust fiscal rules and sovereign wealth buffers. Governments should channel windfall earnings into stabilization funds rather than recurrent expenditure. Failure to do so entrenches dependence and weakens resilience when cycles turn.

Digital Finance

Digital finance remains Africa’s most dynamic sector. In Kenya and Ghana, mobile money volumes exceed 60% of GDP annually (World Bank, 2024). Yet cross-border integration lags. AfCFTA’s Pan-African Payment and Settlement System remains underutilized, constrained by regulatory fragmentation.

Governments should prioritize regulatory harmonization and encourage interoperability to unlock digital trade flows. Without such coordination, fintech will remain nationally transformative but regionally fragmented.

IV. Sovereign Debt: Fragility and Delay

Public debt across Africa averages nearly 60% of GDP, up from 34% a decade ago (World Bank, 2025). Debt service absorbs a growing share of revenues, constraining fiscal space for investment.

• Zambia: Four years after default, restructuring remains incomplete under the G20 Common Framework. Protracted delays erode confidence in the mechanism. Faster timelines and greater transparency are required to restore credibility.
• Ghana: The $3 billion IMF program has stabilized markets, but external creditor coordination remains slow. The government must embed fiscal rules that extend beyond IMF oversight to sustain confidence.
• Kenya, Ethiopia, and Egypt: All face significant eurobond maturities in 2026–27. Without proactive engagement with creditors and pre-emptive fiscal adjustment, rollover risks will intensify.

The lesson across cases is clear: debt sustainability is as much about policy credibility as balance sheets. Countries that embed reforms into institutions—independent fiscal councils, medium-term expenditure frameworks—reduce risk premiums.

V. Investment Sentiment: Selective Engagement

Investor appetite remains, but it is cautious and concentrated. Private equity flows reached $4.7 billion in H1 2025 (AVCA, 2025), with renewable energy, logistics, and fintech as the main targets. Sovereign wealth funds are selectively investing in green hydrogen (Namibia) and digital infrastructure (Kenya).

Public equity markets remain illiquid, with weak IPO pipelines. Sovereign bond issuance has resumed but at steep spreads, concentrated in short maturities. This pattern underscores the need for governments to deepen local capital markets, improve corporate governance, and create conditions that extend maturities and reduce borrowing costs.

VI. Regional Institutions: Ambition Versus Capacity

African multilateral institutions play a growing role but face capacity constraints.

The African Development Bank has scaled financing for climate adaptation and renewable energy, but funding gaps remain. Afreximbank supports trade finance under AfCFTA but remains liquidity-constrained. The African Union’s Agenda 2063 articulates ambitious goals of integration, but implementation lags amid domestic fiscal pressures and political fragmentation.

Progress requires institutional innovation: a more effective debt coordination mechanism, stronger regional reserve pooling, and harmonized regulatory frameworks for trade and digital finance. Without these, regional resilience will remain aspiration rather than practice.

The Politics of Credibility

Africa’s resilience in 2025 reflects pragmatic policymaking under stress, but it is fragile and reversible. The region’s medium-term stability will depend on whether governments can:

• rebuild fiscal buffers through tax reform and expenditure efficiency,
• accelerate structural reforms in energy, agriculture, and finance,
• and strengthen institutions that embed credibility beyond electoral cycles.

Markets and investors are watching closely. Resilience is not enough; it must be converted into structural transformation. Countries that achieve this will lower risk premiums and attract durable investment. Those that delay will remain trapped in cycles of volatility and dependence.

In the end, the decisive variable is policy credibility. Africa does not lack resilience—it lacks reform endurance.