APA-Harare (Zimbabwe) The International Monetary Fund (IMF) has warned that sub-Saharan Africa stands to lose the most if the world were split into two isolated trading blocs centred around China or the United States and the European Union (EU).
In a note accompanying its April 2023 Regional Economic Outlook for Sub-Saharan Africa, the IMF said the deepening global geo-economic fragmentation could have disastrous effects on sub-Saharan African countries whose economies found themselves caught up between sticking with traditional Western partners and going with rising powerhouse China.
“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 our estimates—losses larger than what many countries experienced during the Global Financial Crisis (of 2008/09),” the Bretton Woods institution said.
It noted that while economic and trade alliances with China and other new economic partners have so far benefited Africa, they have also made countries from the continent reliant on imports of food and energy that are 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.”
The warning comes amid geopolitical tensions between China and Russia, on the one hand, and the US and EU, on the other, over the ongoing Russia-Ukraine war and the China-Taiwan diplomatic tiff.
Most African countries have refused to side with the US and EU in condemning Russia’s invasion of Ukraine, preferring instead to push for dialogue between the two sides.
They have also recently turned towards China for economic cooperation, a development that has appeared to ruffle feathers in the West which has responded by launching diplomatic offensives to counter China’s rising clout on the continent.
The IMF warned that Africa’s losses from the unfolding events “could be compounded if capital flows between trade blocs were cut off due to geopolitical tensions.”
“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),” the note said.
The reduction in FDI in the long run could also hinder much-needed technology transfer, it noted.
The deepening geo-economic fragmentation could worsen coordination problems for countries looking to restructure their debt, according to the Fund.
It urged African countries to build resilience to better manage the expected shocks from the emerging global divisions.
This would include strengthening the ongoing regional trade integration under the African Continental Free Trade Area (AfCFTA), and identifying sectors that may benefit from trade diversion such as energy.
The AfCFTA aims to reduce tariff and non-tariff trade barriers among African countries as well as strengthen efficiency in customs and close the infrastructure gaps.
JN/APA