Sub-Saharan Africa has formed several crucial alliances in respect of trade and economic development in recent years, however, the geopolitical tension between major trading economies such as China, the United States and European Union has continued to escalate, while developing economies such as sub-Saharan Africa suffer a corresponding decline in economic growth.
The potential international division of economic forces into two isolated trading blocs, premised on China or the United States and the European Union, would have dire consequences for sub-Saharan Africa. Certain estimations predict that sub-Saharan African economies could permanently decline by up to 4% of real gross domestic product in a ten year period, which would be a larger loss than what many countries experienced during the global financial crisis between 2007-2008.
Many countries that are dependent on imports of essential goods such as foods and energy have become increasingly sensitive to global supply shocks, despite the trade and economic developments and alliances formed with the powerhouse trading economies such as China. In addition, swelling geopolitical tensions and harsh trade restrictions may well result in the inflation of import prices which, in turn, may even cause key export markets to collapse. In this regard, approximately half of the region’s international trade value is at risk of crashing.
If capital flows among trade blocs were severed due to geopolitical tensions, the expected losses could be even worse. The result? Sub-Saharan Africa stands to suffer a loss of approximately USD 10 million in foreign direct investment and official development aid inflows, which would have a range of additional impacts on the economies.
If the United States and European Union were to implement a strategy known as “strategic decoupling” (from selected countries only), however, sub-Saharan African countries would likely be able to continue trading more freely and the expected consequences for this region would likely be substantially less harsh. This is because the result of strategic decoupling is expected to be the creation of more opportunities for new trade flows emanating from new partnerships and increased intra-regional trade. As a number of African countries will have better access to cheaper imports and additional export markets, strategic decoupling would likely result in more auspicious prospects for the sub-Saharan African region.
To be able to react more aptly to global supply shocks, sub-Saharan African countries must become more resilient. Strengthening regional trade integration under the AfCFTA, reducing tariff and non-tariff trade barriers, leveraging digitalization, closing infrastructure gaps, and deepening domestic financial markets are likely to aid in becoming more resilient. Countries in the region could also identify and nurture sectors that may benefit from trade diversion, such as minerals or energy. In addition, reliance may be placed on trade promotion agencies that could delineate the available opportunities and enhance the skills and capacity required for exports with a view to overhauling manufacturing and making the most of new flows of trade.
Additionally, sub-Saharan African countries should decrease the entry, regulatory and tax barriers which are currently causing overly burdensome barriers to business environments. In this regard, it is vital that global businesses keep the discourse between countries going, to ensure that economic integration and cooperation prevail. As we have previously noted, the exact implications of fragmentation and polarization remain to be seen, however, a series of negative repercussions may ensue as a result of the current global trade trends and working together to prevent such outcomes has become all the more important.