How Africa is cushioned from shocks of geopolitical crises?

Zawya

3 days ago

Africa's sluggish participation in global trade is turning out to be the thing protecting it from the full force of economic shocks resulting from President Donald Trump's trade war with China, and the wars in the Middle East, which risk contraction of economies, experts warn.
Africa is already bracing for energy shocks, where countries that import the bulk of their oil are faced with high fuel prices, especially after Iran chose to close the Strait of Hormuz, a major route for goods coming to Africa.
Economists say the war between Iran and Israel could mean a boon for oil-producing African countries -- Nigeria, Angola, Algeria and Equatorial Guinea – which are angling to step up as alternative sources.'The lack of involvement in global trade economic dynamics, which has been considered a weakness, is actually becoming a strength, it is protecting us,' said Yemi Kele, Afreximbank's chief economist, at the ongoing Afreximbank annual meeting in Abuja, Nigeria.'We have the Western economies talking and trading among themselves, the Eastern countries talking and trading among themselves, and Africa that talking and trading with both all the blocs. We are not involved in all their drama. Iran and Israel are fighting, Nigerian oil exporters are smiling,' he said.
Yemi said if China refuses to export its rare earth minerals, the countries that need them will start talking to African countries with these minerals.'The global trade wars, the heightened geopolitical tensions all have an impact -- 2025/2026 is going to be a difficult year for the global economy. Africa is trying to figure out what to do to navigate these challenges and take advantage of what is happening globally,' he added.'If our usual external trading partners are pushed to demand less of our products then we will be affected, otherwise Africa will remain resilient. We expect intra-African trade to go up and inflation to go down,' Yemi noted.
'I've been a central bank governor, minister of Finance, but I've never seen anything like this --where aid is declining at a fast rate, debt has crossed $1 trillion and countries on the continent have to pay about $1 billion per year as interest. You can imagine the situation it creates for micro economic management at the country level, yet investments are so low because of the perception of risk from unfavourable credit ratings…That's why we need a reform of the global financial architecture. This is where African multilateral financial institutions become indispensable,' he said.
He emphasised the urgency to operationalise an African credit rating agency reflecting African realities, to avoid the rating bias Africans face from global credit ratings.
Fringe mining countries such as Rwanda are already cashing in on a surge in prices of key minerals like tungsten and coltan on the international market, as global demand for rare earth minerals and related minerals soar, as China continues its curb export of rare earth minerals useful in automotive, robotics, aerospace, semiconductor, and defence industries.
As a result, some European auto part makers have suspended output. Mercedes-Benz for instance, is rationing stocks of rare earth minerals, as it seeks alternative sources.
East Africa may dodge bullet of global tariff tensions: AfDBAfrican countries that have rare earth mineral deposits are Angola, South Africa, Uganda, Malawi, and Tanzania.2025 is expected to mark a turning point in Africa's rare earth mineral trade, with the continent poised to take a more prominent role in the global supply chain. Forecasts indicate that Africa's contribution to global rare earth mineral production could reach 10 percent in the next few years.
A new African trade report released by Afreximbank, says despite the difficult global environment, Africa recorded a 3.2 percent growth rate in 2024, but still below its 5 percent pre-pandemic growth.
This performance was underpinned by stronger public investment, high commodity prices (notably of gold, cocoa, and coffee), and the early success of diversification strategies.
But growth on the continent remained uneven, with resource-dependent countries facing greater challenges.
Encouragingly, fiscal reforms by African governments have led to improvements in macroeconomic stability, with declining median debt ratios and renewed sovereign access to international capital markets in eight countries.
Africa's inflation inched up from 18.2 percent in 2023 to 20.1 percent in 2024.
While Africa's merchandise trade also recovered in 2024, rebounding by 13.9 percent to $1.5 trillion, significantly up from a decline of about 5.4 percent in 2023.
Intra-African trade exhibited a remarkable upturn in 2024 of 12.4 percent to $220.3 billion, rebounding from a decline of 5.9 percent the previous year.
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