Experts fear Sub-Saharan Africa drastic economic growth decline
Sub-Saharan Africa could stand to lose the most if the world were split into two isolated trading blocs centred on China or the United States (EU) and the European Union (EU).
This is according to an analytical note in the April 2023 Regional Economic Outlook for Sub-Saharan Africa authored by Marijn A. Bolhuis, Hamza Mighri, Henry Rawlings, Ivanova Reyes, and Qianqian Zhang.
The note, which has been summarised by Reyes and Zhang in an article published on the International Monetary Fund website, states that in this severe scenario, sub-Saharan African economies could experience a permanent decline of up to 4 percent of real gross domestic product after 10 years according to estimates—losses larger than what many countries experienced during the Global Financial Crisis.
“Economic and trade alliances with new economic partners, predominantly China, have benefited the region but have also made countries reliant on imports of food and energy more susceptible to global shocks, including disruptions from the surge in trade restrictions following Russia’s invasion of Ukraine.
“If geopolitical tensions were to escalate, countries could be hit by higher import prices or even lose access to key export markets—about half of the region’s value of international trade could be impacted,” Reyes and Zhang say in their piece.
They add that losses could be compounded if capital flows between trade blocs were cut off due to geopolitical tensions.
According to the authors, the region could lose an estimated $10 billion of foreign direct investment (FDI) and official development assistance inflows, which is about half a percent of GDP a year (based on an average 2017–19 estimate).
They further argue that the reduction in FDI in the long run could also hinder much-needed technology transfer.
“For countries looking to restructure their debt, deepening geo-economic fragmentation could also worsen coordination problems among creditors.
“The region would fare better if only the US/EU cut ties with Russia and sub- Saharan African countries continue to trade freely. In this scenario—termed “strategic decoupling”— trade flows would be diverted towards the rest of the world, creating opportunities for new partnerships, and possibly boosting intra-regional trade,” they further state.
According to the authors, because some African countries benefit from access to new export markets and cheaper imports, the region as a whole would not incur a GDP loss.
They also point out that to better manage shocks, countries need to build resilience, suggesting that this can be done by strengthening the ongoing regional trade integration under the African Continental Free Trade Area, “which will require reducing tariff and non-tariff trade barriers, strengthening efficiency in customs, leveraging digitalisation, and closing the infrastructure gaps.”
“Deepening domestic financial markets can also broaden sources of financing and lower the volatility associated with relying too much on foreign inflows,” Zhang and Reyes state.
Malawi is among countries that have been heavily affected by the geopolitical tensions such as the war in Ukraine with the country witnessing one the biggest spikes in prices of strategic commodities such as fuel, fertiliser and food.
Alick Ponje is a features writer at The Times Group. He graduated from the University of Malawi with a bachelor’s degree in education, majoring in literature in English. Follow him on Twitter @aponje