The International Monetary Fund (IMF) has issued a warning about the possibility of long-term economic decline in sub-Saharan Africa if the world were to split into two isolated trading blocs centered around China and the United States and European Union. According to the IMF’s analysis, in this “severe scenario,” economies in sub-Saharan Africa could experience a permanent decline of up to 4% of their real gross domestic product (GDP) over a period of 10 years. These projected losses would exceed the economic impact felt by many countries during the global financial crisis in 2008.
Should geopolitical tensions escalate, countries in sub-Saharan Africa may face higher import prices and lose access to crucial export markets, affecting half of the region’s international trade value. Additionally, the potential disruption of capital flows between the trading blocs due to geopolitical tensions could compound the losses further.
The estimated consequences of this scenario include a potential loss of approximately $10 billion in foreign direct investment (FDI) and official development assistance inflows annually, which is equivalent to around 0.5% of GDP based on the IMF’s average estimate from 2017 to 2019. The reduction in long-term FDI could also impede much-needed technology transfer, the IMF cautions. Furthermore, the deepening fragmentation resulting from the scenario could worsen coordination among creditors for countries seeking to restructure their debt.
The IMF emphasizes that sub-Saharan Africa would be particularly hard-hit in the severe scenario of a fully split world because it would lose access to a significant portion of its current trade partners. If the world were divided into two trading blocs, countries trading more with the United States would be grouped in the US/EU-centered bloc, while those trading more with China would belong to the China bloc. As a consequence, the region would face challenges in terms of losing access to key export markets, experiencing higher import prices, and, relative to a scenario without fragmentation, enduring a permanent decline of 4% in real GDP after a decade.
The authors of the IMF note acknowledge that Africa’s increased integration with the global economy has generally been beneficial. Over the past two decades, sub-Saharan Africa has developed new economic ties with partners, and the value of exports from the region to China has grown significantly, primarily driven by oil exports. Currently, sub-Saharan Africa maintains nearly equal connections with traditional dominant partners (the US and EU) and emerging partners (China, India, among others).
However, the downside of this increased integration is that the region has become more vulnerable to global shocks. With many countries heavily dependent on imports of food, energy, and fertilizer, sub-Saharan Africa has faced severe cost-of-living crises due to spikes in global commodity prices following the Covid-19 pandemic and the war in Ukraine.
The authors of the IMF note point out that sub-Saharan Africa stands to lose the most in a severely fragmented world compared to other regions due to its exposure to potential downsides resulting from geoeconomic fragmentation. Nevertheless, they also highlight the potential benefits if fragmentation is limited. The Fund suggests that certain milder scenarios of shifting geopolitics could create new trade partnerships for the region.
For instance, if ties were only severed between Russia and the US/EU while sub-Saharan African countries continue to trade freely (referred to as “strategic decoupling”), trade flows could redirect partly towards the rest of the world, potentially increasing intra-regional trade within sub-Saharan Africa. In such a scenario, some African countries could benefit from access to new export markets and cheaper imports, resulting in the region as a whole not incurring a GDP loss compared to the baseline. Oil exporters supplying energy to Europe would especially gain under this scenario.
The IMF recommends that countries in sub-Saharan Africa strengthen ongoing regional trade integration through initiatives like the African Continental Free Trade Area to enhance
