Economic alliances have seen countries become reliant on imports, especially in food and energy
By Antony Mutunga
Sino-American relations have been greatly harmed for as long as a trade war has existed between US and China. The recent conflict between Russia and Ukraine has further dented business and political ties. To some observers, these escalating geopolitical tensions will likely continue for the foreseeable future.
If the world were to split into two trading blocs, with China and her allies on the one hand and the US and the European Union on the other, many developing countries that rely on these economies suffer immensely. For instance, Sub-Saharan Africa (SSA) is expected to experience a decline of up to 4% of real gross domestic product after 10 years, according to the International Monetary Fund (IMF).
The region has benefited much from trade alliances with China, among other Asian countries. For instance, China has been a major partner for most countries in the region by investing in infrastructure. However, despite having improved several industries for number of economies, these economic alliances have also seen countries become reliant on imports, especially in food and energy.
As a result, SSA was greatly affected from the pandemic and the Russian invasion of Ukraine, which caused global shocks. Having a high dependence on imports, the rising cost of food and fuel has seen the cost of living shoot up for most in the region. If these geopolitical tensions are to escalate further, economies in the region will see an increase in import prices or, worse off, could lose access to key export markets, affecting the region’s value of international trade.
Furthermore, many regional economies rely heavily on foreign direct investment, so escalation of geopolitical tension can cause a massive drop in investments. If trading blocs were to be formed and the region was in the spot to choose a side, the result would be losses in capital flow despite the decision. According to the IMF, the region would look at an estimated loss of Sh$10 billion of foreign direct investment (FDI) and official development assistance inflows if investments were cut off. In the long run, this would significantly affect the region’s development, hindering the adaptation of advanced technology, which is crucial in this era.
In the best-case scenario, SSA could be better if it could continue trading freely despite forming two isolated trading blocs. In such a scenario, new opportunities will arise as the region can create new partnerships and benefit from new alliances from both blocs. In fact, both blocs may be looking to attract the region and others like it to their good sides.
The region needs to position itself to be ready in case the tensions escalate further. For example, the region can fast-track the African Continental Free Trade Area (AfCFTA) implementation. Through it, African economies can strengthen inter-regional trade and deepen domestic financial markets, broadening the sources of finance. In doing so, SSA can significantly reduce its reliance on overseas countries.
Rather than relying on the likes of Russia for fuel and food imports, the region can look at commodity exporters in the region. With many African countries able to substitute, such as Nigeria in terms of fuel, AfCFTA can support different countries in identifying and nurturing sectors that may benefit from trade diversion. In doing so, these African economies can compete with international countries and offer a new avenue for a number of commodities. Countries can also rely on trade promotion agencies to help identify potential opportunities, build the necessary skills and capacity for exports, and eventually re-orient production to take advantage of new trade flows.
With signs of further escalation in the increasing geopolitical tensions, Sub-Saharan Africa can’t afford not to be ready for what might be the new world order. The time to fully implement AfCFTA is now; not only will it reduce reliance on imports from overseas countries, but it will boost the region’s economic growth and help it become an attractive partner to the rest of the world.(