Geoeconomic Analysis

Geoeconomic Shift: A double-edged Sword for Economic Growth in Africa

The following figures and data are taken from the International Monetary Fund’s 2023 report on “Geoeconomic Fragmentation: Sub-Saharan Africa Caught between the Fault Lines.” In economics, fragmentation means “organization of production into different stages, which are divided among different suppliers often are located in different countries.”

Africa has become an irreversible center for business opportunities in this century and the next, having bilateral and multilateral trade relationships with countries around the world. Yet, geoeconomic tensions and disruptions present both challenges and opportunities for economic growth and business partnerships on the continent. The question now is, can Africa build resilience to weather off the storm and benefit from the global turbulence.

The recent increase in protectionism, including in Africa, is threatening to unravel earlier gains from integration. For several countries currently facing aggravated debt vulnerabilities, the road to debt restructuring has been marked by coordination problems among a diverse group of creditors that could worsen if geoeconomic fragmentation deepens. Sub-Saharan African countries were split on the UN resolution following Russia’s invasion of Ukraine, with half of the countries condemning the invasion while the other half did not or abstained. In select countries facing difficult security situations, including in the Sahel region, there have been reports of private security groups linked to Russia. For a few countries, this could potentially complicate the relationships with traditional political allies, such as France which withdrew its troops from Mali in 2022.

About half of the region’s value of current international trade would be affected in a scenario in which the world is split into two trading blocs: one centered around the US and the EU (US/EU bloc) and the other centered around China (Figure 3). In this scenario, countries that trade more with the US than with China are assigned to the US/EU-centered bloc, and those that trade more with China are assigned to the China bloc. For the purposes of illustration, under this severe “geoeconomic fragmentation” scenario, trade flows would adjust over time. But as the region loses access to key export markets and experiences higher import prices, the median sub-Saharan African country would be expected to experience a permanent decline of 4 percent of real GDP after 10 years relative to a no-fragmentation baseline (Figure 4).

The IMF recommends the following points to build resilience:

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