When elephants fight, an old African proverb tells us, the grass gets trampled. Now the IMF has put a dollar figure on this ancient wisdom.
According to a new report released during last week’s spring meetings of the IMF and World Bank, sub-Saharan Africa stands to suffer the most from the threatened decoupling between the US and China as well as broader “geoeconomic fragmentation”. A full-on split between major economic powers could cost the region 4% in lost economic growth, the IMF says.
“Over the past two decades, sub-Saharan Africa has forged economic and trade alliances with new economic partners,” the IMF says.
“While the region has benefited from increased global integration during this period, the emergence of geoeconomic fragmentation has exposed potential downsides. Sub-Saharan Africa stands to lose the most in a severely fragmented world compared to other regions.”
High exposure
Africa could become a victim of its own success, says the IMF.
Once highly dependent on trade with former European colonial powers – and to a lesser extent the US – the continent has seen an explosion in trade with ‘newly emerging’ countries like China, India and Russia over the past two decades.
Between the late 20th century and today, sub-Saharan Africa’s ‘trade openness’ – imports plus exports as a share of GDP – has doubled from 20% to 40%, while the value of exports to China has increased tenfold.
“This doubling, together with buoyant commodity prices, among other factors, contributed to the growth take-off during this period, boosting living standards and development,” the IMF report says.
It has also left Africa exposed.
“The downside of increased economic integration is that sub-Saharan Africa has become more susceptible to global shocks,” the report says. “With many countries relying heavily on imports of food, energy, and fertiliser, the region suffered one of the worst cost-of-living crises in decades when global commodity prices spiked in 2022 on the heels of the war in Ukraine and on top of the effects of the Covid-19 pandemic.”
Sub-Saharan Africa stands to lose the most in a severely fragmented world compared to other regions.
If forced to choose between a US/EU bloc and one centred around China, Africa would lose access to key export markets and experience higher import prices, the IMF says, with the median sub-Saharan African country expected to experience a permanent decline of 4% of real GDP after 10 years.
“Estimated losses are smaller than the losses during the Covid-19 pandemic, but larger than those during the global financial crisis,” the report says. “Declines are larger in countries that are more integrated into global trade and in countries that initially traded more with the bloc from which they are severed.”
Disruptions to capital flows and technology transfer could make things even worse, the IMF says. Africa also stands to lose $10bn in foreign direct investment and government aid, according to the IMF, while rising geopolitical tensions could further hamstring debt relief as Chinese and Western creditors find it increasingly difficult to agree among themselves on who should get a haircut.
Not all is bleak, however.
In a scenario where the US and EU cut ties with Russia – known as ‘strategic decoupling’ – Africa can continue to trade with who it wants. The continent could actually experience a slight GDP bump, especially among energy exporters.
Pushing back
The IMF report recommends that Africa prepare for the worst by increasing regional integration, notably through
- the African Continental Free Trade Area (AfCFTA);
- deepening domestic financial markets; and
- improving domestic revenue mobilisation to reduce the share of commodity-linked fiscal revenues.
The IMF report also sees a role for multilateral institutions in pushing back against further fragmentation.
“They can facilitate the dialogue promoting the gains of global integration, stress the costs from protectionist practices, and push for multilateral cooperation in areas of common interests, including food security, climate change, and debt resolution,” the report says.
Top IMF officials, including Managing Director Kristalina Georgieva, repeatedly raised alarm bells during the spring meetings.
“As you have seen in our latest World Economic Outlook, we project global growth to slow down to 2.8% in 2023 and remain weak at around 3% over the next five years. This is the weakest medium‑term forecast in decades,” Georgieva said. “Underlying inflation remains stubbornly high. Geopolitical factors [also] affect […] the economy, and economic fragmentation has implications for trade and capital flows and downside risks have increased.”
The message has left the US on the defensive.
“We occasionally have issues with different economic policies in China and we will always defend US economic interests as well — but we will not in any way be trying to separate these two economies entirely,” Jay Shambaugh, the US Treasury Department’s Undersecretary for International Affairs, said in an interview with Bloomberg at the start of the spring meetings. “This is neither practical nor in our interest.
Global decisions – not just economic, but political as well – that touch on our priorities such as climate, on debt, should have the voice of Africa be loud and heard.
African leaders have made it clear they won’t be dictated to.
Mzé Abdou Mohamed Chanfiou, the finance minister of Comoros, who is leading the African Union for the next year, tells The Africa Report that his country is fighting for an “Africa that is open, an Africa that does not want to be seen as a continent caught in the middle” between the US and China.
“Global decisions – not just economic, but political as well – that touch on our priorities such as climate, on debt, should have the voice of Africa be loud and heard,” Chanfiou said at a 15 April press conference with African ministers of finance at the IMF. “We don’t want a return to the past of a division between an eastern bloc and a western bloc.”
The Africa Report
