Sub-Saharan Africa may lose the most if the world split into “two trading blocs” controlled by China, or the United States and the European Union, the International Monetary Fund (IMF) said.
The April 2023 Regional Economic Outlook for the region says economies could experience a permanent decline of up to 4 percent of real gross domestic product after 10 years.
Noting that economic and trade alliances with partners, predominantly China, have benefited the countries, the report said they are now reliant on imports of food and energy.
The imports are, however, more susceptible to global shocks, including disruptions from the surge in trade restrictions following Russia’s invasion of Ukraine.
The IMF warns that if geopolitical tensions escalate, nations could be hit by higher import prices or even lose access to key export markets.
“Sub-Saharan Africa could lose an estimated $10billion of foreign direct investment (FDI) and official development assistance inflows.
“For countries looking to restructure their debt, deepening geoeconomic fragmentation could also worsen coordination problems among creditors,” the report notes.
The IMF predicts Sub-Saharan Africa would fare better if only the US/EU cut ties with Russia, and the African nations continue to trade freely.
The report advised Nigeria and others to strengthen the trade integration under the African Continental Free Trade Area (AfCFTA).
It proposes reducing tariff and non-tariff trade barriers, strengthening efficiency in customs, leveraging digitalization, 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, the report reads.
“To take advantage of the potential shifts in trade and FDI flows, countries can try to identify and nurture sectors that may benefit from trade diversion, for example, in energy.
“Commodity exporters could potentially displace much of Russia’s energy market share in Europe. Countries can also rely on trade promotion agencies to help identify potential opportunities.”
The Outlook for Sub-Saharan added that improving the business environment, such as by lowering entry, regulatory, and tax barriers could also help.
In October 20109, the IMF commended the Nigerian government for its border closure policy which was implemented to tackle illegal trade.