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Possible Divorce Between US and China: Sub-Saharan Africa could be the biggest loser (IMF)

Tuesday, 02 May 2023 19:00
Possible Divorce Between US and China: Sub-Saharan Africa could be the biggest loser (IMF)

(Ecofin Agency) - Sub-Saharan Africa could be the most hurt region in the world if the US and China were to stop trading with each other. To curb this impact, SSA countries should trade more with one another and develop sectors that are likely to benefit from changes in trade and foreign direct investment…

In a recent analysis note published on May 1, the International Monetary Fund (IMF) warned that Sub-Saharan Africa could face severe consequences if global trade becomes divided into two isolated blocs, one centered around China and the other around the United States and the European Union.

"If these geopolitical tensions were to escalate, (sub-Saharan African) countries could suffer higher import prices or even lose access to their main export markets: about half of the value of the region's trade with the rest of the world could be affected," the IMF wrote in its note. The institution added that a potential breakup between Washington and Beijing could pull down the SSA’s real GDP by 4% over a decade.

The note, which was written by five IMF economists, further indicates that losses could be exacerbated if capital flows between the trading blocs are interrupted due to geopolitical tensions. Sub-saharan Africa could lose about $10 billion in foreign direct investment (FDI) and official development assistance inflows, or about 0.5% of GDP per year (based on an average estimate for the 2017-19 period). The long-term decline in FDIs could also hamper much-needed technology transfers to the region.

Also, creditors of SSA countries especially countries trying to restructure their debt–will have issues coordinating with one another due to “geo-economic fragmentation”, which is rising.

To handle unexpected events, the IMF suggests that SSA countries should bolster regional trade through the African Continental Free Trade Area (AfCFTA). This could be done by lowering trade barriers, making customs work better, using digital technology, and improving infrastructure. Developing local financial markets, according to the institution, could also help find more income sources and reduce dependency on foreign investment.

The Fund also recommended that countries in the region should identify and develop sectors that could take advantage of the shift in trade and FDI. For example, commodity-exporting countries in the region could steal Russia's shares in Europe’s energy market.

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ECOFIN AGENCY offers a selection of articles translated from AGENCE ECOFIN. Founded in 2011, Agence Ecofin is a leader in Francophone Pan-African economic news, particularly in West and Central Africa. The agency publishes daily news on nine African economic sectors: Public Management, Finance, ICT, Agribusiness, Energy, Mining, Transport & Logistics, Communication, and Training.

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