Sovereign Africa Ratings

Introduction

The drastic reduction in USAID funding, with approximately 83% of programmes cancelled representing a staggering $75.9 billion in contract value, is expected to severely impact African nations. Historically, USAID has been a major development partner, with average annual assistance to Africa ranging between $7.7 billion and $8.3 billion over the past decade. These cuts are projected to exacerbate poverty, potentially pushing an additional 5.7 million Africans into extreme poverty. Key sectors such as infrastructure, health, education, and agriculture will face significant challenges.

Economic Impact: General Trends

Development Programmes and Infrastructure

The cancellation of approximately 100% of USAID infrastructure projects, with $608.95 million in contracts terminated out of a $1.4 billion obligation for FY24-25, will severely hinder development. Major projects in road construction, water supply, and energy initiatives face delays or cancellation. For example, large infrastructure support programmes valued at $800 million each have been cancelled. This places an increased financial burden on local governments, potentially leading to increased borrowing or cuts in other essential sectors. A one-year pause in USAID funding could result in an economic shock exceeding 1% of Gross National Income (GNI) in 23 African economies, with 8 facing a 3% or greater impact. Even specific projects like a $1.4 million grant for South Africa’s Just Energy Transition Partnership have been cancelled.

Health and Education Sectors

Healthcare Delivery Challenges

USAID has been vital in combating diseases and improving healthcare access. In FY23, the US allocated approximately $10.6 billion to combat HIV/AIDS and $1.5 billion for other public health threats, largely through USAID in Africa. The funding cuts are already having a severe impact. In Kenya, over 230 health projects have been disrupted, potentially leading to the layoff of around 54,000 healthcare workers. USAID funding for HIV/AIDS programmes in Kenya is expected to decrease from $846 million in 2023 to $66 million in 2025. In Nigeria, USAID contributed approximately $2.8 billion to healthcare between 2022 and 2024. In South Africa, where PEPFAR funds nearly 20% of the country's $2.3 billion annual HIV/AIDS programme, the cuts risk reversing progress. Ethiopia, the largest recipient of USAID in sub-Saharan Africa in 2023 with $1.37 billion, faces significant healthcare disruptions. Ghana, which receives an estimated $50-$70 million annually from USAID for health, also faces medicine and vaccine shortages.

Impact on Educational Initiatives

The basic education sector in Africa faces a staggering 99% cut in USAID funding. This will lead to resource shortages, larger class sizes, and outdated materials. In Kenya, 72 out of 83 USAID-funded education projects have been terminated, leading to a loss of over Ksh15 billion. In Nigeria, significant impacts are expected. Ethiopia is set to lose an estimated $18 million in US funding for education in 2025. Ghana's education sector, receiving an estimated $40 million annually from USAID, faces risks to teacher training and literacy programmes. South Africa will also experience setbacks in education and research, particularly in STEM fields.

Agricultural Development and Food Security

The agricultural sector in Africa faces a potential 81% cut in USAID funding. This will reduce support for farmers, potentially lowering crop yields and increasing food insecurity. The Feed the Future programme contributed to a 16% decrease in poverty in rural Uganda. These gains are now at risk. In Kenya, agricultural and food systems projects have been terminated, leading to a loss of over Ksh15 billion. Nigeria's agricultural supply chains will be affected. Ethiopia's food security programmes are threatened. Ghana's agriculture sector, receiving $46 million from USAID, will see reduced access to essential resources.

Policy Considerations and Future Outlook

Governments are implementing various policy adjustments and exploring alternative funding sources:

• Kenya is reviewing budget allocations to prioritise essential services amid a Ksh 52 billion gap.
• Nigeria is increasing its health sector budget in 2025 to offset aid cuts.
• Ethiopia is dedicating 4.6% of its 2024/2025 budget to healthcare.
• Ghana’s President is working to bridge a $156 million gap due to the USAID freeze.
• South Africa plans to increase health spending by 28.9 billion rand in 2025.

These countries are also:

• Seeking support from other donors and development banks (e.g., AfDB pledge to Senegal).
• Exploring improved tax collection and economic strengths like Kenya’s mobile money services.
• Considering public-private partnerships to fund development.

The long-term outlook depends on strategic investment in technology, education, and reforms that promote accountability and efficiency. While challenging, the funding cuts could drive self-reliance and innovation.

Conclusion

The USAID funding reductions have profound implications for African countries, affecting critical sectors and risking a reversal of developmental progress. Governments must balance short-term crisis management with long-term resilience-building strategies. This turning point may inspire new, locally driven development models and sustainable funding mechanisms across the continent.

Contributors

• Bekithemba Ndimande | Senior Rating Analyst | bekithemba@saratings.com
• Ted Maselesele CA(SA) | Rating Analyst | ted.maselesele@saratings.com

The analysis in this document is for informational purposes only and should not be construed as financial or investment advice. Opinions expressed are those of Sovereign Africa Ratings and may differ from actual outcomes. Reg No. 2019/155710/07. FSCA License No. FSCA-CRA006.