Tariffs and aid cuts jolt Africa’s growth — but the overall outlook is upbeat

Africa’s economic growth forecast has taken a hit: U.S. tariff hikes, a deepening global trade war, and the fallout from dismantled Western aid programs, including the U.S. Agency for International Development, have forced a downward revision of the continent’s economic outlook, according to the African Economic Outlook 2025 report, released Tuesday. The African Development Bank now expects growth across the continent this year to hit 3.9%, down from 4.1% projected in February. Its 2026 forecast has also dipped — from 4.4% to 4.0%. Still, the overall picture isn’t bleak. Growth in 2025 is set to outpace that of 2024, and 21 African countries are expected to grow by more than 5%, the report notes, pointing to ongoing resilience across much of the continent. “This resilience is forged by hard-won gains from effective domestic reforms, relative diversification, and improved macroeconomic management,” the report said. At the launch event during the AfDB annual meetings in Abidjan, Côte d’Ivoire, this week, professor Kevin Chika Urama, one of the report’s authors, noted that aid still plays a role in economies — if it’s done right. “I don’t believe that aid leads to growth, but I don’t believe that aid is not necessary for growth. It is. But it is how it is delivered and how it is utilized,” he said. Even so, the report warns that the current wave of uncertainty — and shrinking aid flows — underscores the urgency of plugging leakages, tackling corruption, and finding more creative ways to mobilize capital at home. Southern Africa bears the brunt of tariff fallout Despite the U.S. administration’s stated goal of shifting from aid to trade in its engagement with Africa, the new trade landscape is doing more harm than good for the continent’s growth prospects. Forty-seven out of 55 African countries are currently grappling with U.S. tariffs, according to AfDB Senior Vice President Marie-Laure Akin-Olugbade. “In today’s world, the only reliable ally you have is yourself. So Africa must look inward, must unlock and realize domestic resources,” she said at the report launch. The impact is especially acute in southern Africa. “Tariff-induced uncertainty will have the largest adverse growth impact in Botswana and Lesotho in 2025–26,” the report noted. Botswana’s outlook has been downgraded in part due to volatility in diamond prices, its main export. Lesotho is facing a major blow to its apparel industry, which sends 45% of its goods to the U.S. market. In Southern Africa as a whole, growth in 2025 is now projected at just 0.8%, following a steep 0.9 percentage point downgrade from earlier forecasts. Private finance can help — but it’s no silver bullet With public budgets under strain and aid shrinking, African governments are under growing pressure to tap the private sector for development financing. But while the potential is significant, so are the pitfalls. The report lays out ways African countries can bring in more private investment, without giving up control. It recommends using financial tools to help national development banks and microfinance institutions attract long-term funding, and calls on governments to improve regulations and make it easier for venture capital to flow into key sectors. It also encourages countries to explore more innovative financing mechanisms — something AfDB has been a leader in. But the report draws a clear line: The private sector can’t be expected to drive development on its own. “I hear a lot of conversations of private sector coming to the rescue. The private sector does not come to do development. I am sorry. The private sector comes for profit,” Urama said. He emphasized the need for a balanced approach. “We can’t replace public resources with private resources in development. Both are important. But public resources should be used to leverage the private sector more, using de-risking instruments and several innovations that AfDB and several others have been leading.” Still, the report points out that many African governments need to get better at managing private sector involvement — starting with corporate taxation. The report warns that many African governments don’t yet have the capacity needed to design and enforce strong tax agreements, making it easier for multinational companies to shift profits out of the continent and avoid paying their fair share. “Profit-shifting (in the form of tax evasion and avoidance) facilitated by an opaque international tax architecture costs the continent an estimated $275 billion annually. This amount exceeds the combined $174.9 billion the continent received from official development assistance, remittances, and foreign direct investment in 2022,” the report states. Rethinking remittances Remittances have long been one of Africa’s most important and reliable sources of external finance — often outpacing aid and investment. But the report urges governments to make better use of them, including through more innovative approaches to financing. One such idea: securitizing remittances. That means using future remittance flows as collateral to raise money upfront — often through diaspora bonds — which could help unlock some of the $30 billion in untapped capital each year, according to the report. Africa is projected to receive around $100 billion in remittances in 2025, and the formal market could grow to $283 billion by 2035 — nearly triple what it was in 2023. Still, remittance flows dipped in 2023, falling by 6.2% to $91.1 billion after two years of post-COVID-19 recovery. The report suggests this may be due to exchange rate fluctuations and inflation in countries where diaspora workers live, which reduced the value of what they could send home. To increase the development impact of remittances, the report calls for more regional and global cooperation to bring down the cost of sending money. It also floats a more provocative idea: a diaspora income tax. The thinking is that when skilled Africans leave the continent — often after receiving heavily subsidized education and training — countries lose not just talent but investment. A modest levy on diaspora earnings, the report argues, could help recoup that and funnel more resources into national development. If done right, “such a tax would give the diaspora a strong sense of belonging and claim to participate in national affairs such as voting and holding leaders accountable,” the report says, pointing to the U.S. — which taxes its citizens globally — as a potential model.