The World Economic Forum, this year, concluded with a grim note on the global economic outlook. The pandemic, as well as the Russian-Ukraine war, have contributed substantially to the downside. The World Economic Forum’s quarterly Chief Economists’ Outlook, predicted the growing fragmentation of the global economy and the disruption of supply chains. The combined impact of these negative vibes will translate into severe market volatility and uncertainty, leading to subdued economic activity, higher inflation, lower real wages, and greater food insecurity.
What does the new scenario spell for Africa?
Delegates to WEF have flagged three negative factors that would affect the African continent in 2022. Two of them are adequately highlighted-pandemic and Russia-Ukraine war. The third factor, perhaps, less talked about, is climate change. Sub-Saharan Africa has witnessed vagaries of climate change, with resultant incessant rains, floods and droughts. To add to that was the locust attack, which had a heavy toll on a few countries’ food crops.
With a growth rate of 4.5% in 2021, sub-Saharan Africa’s economy was gradually showing signs of recovery from the worst effects of the COVID-19 pandemic when the Ukraine war reversed the trend. Developments such as the rising wheat prices by over 40% this year, and the surging cost of vegetable oils, cereals, and meat, are likely to intensify the food crisis and spiraling cost of living. Countries in North Africa also have been subjected to vagaries of shortages and inflation on the same scale, if not more. Over the next three years, economists estimate that food insecurity will be most severe compounded by the additional pressure of shortages and high energy prices.
The weak economic outlook for Europe and moderate growth outlook for the US, China, South Asia, etc will have repercussions for Africa in terms of trade, investment, aid, and so on. Policymakers may face difficult choices and trade-offs when it comes to debt, inflation, and investment. Economists predict higher fragmentation in the markets for goods, technology, and labor in the next three years for the continent.
There are still some bright spots. As supply chains enter their third year of disruption, there is a possibility of multinational companies localizing and diversifying their supply chains in the next three years. This opens opportunities for Africa.
This highlights the tremendous potential of the African Continental Free Trade Area (AfCFTA) and the benefits of accelerating its implementation to drive the region’s long-term recovery and growth.
Indeed, the pandemic has underscored that the continent needs to achieve free and secure trade to boost incomes, create jobs, catalyse investments, and facilitate the development of regional supply chains. A precise estimate of intra-African trade may not be possible since there are informal trade taking place through the porous borders. However, the general view is that intra-trade is low as compared to the EU, ASEAN etc.
Looking ahead, Africa has to navigate this uncertainty with greater integration and tapping its own strength of a huge continental market. It has a combined GDP of about US$3.4 trillion. At a time when the multilateral trading system is under severe strain, Africa has a solution at its doorstep. It must seize the opportunity to boost its recovery and development by implementing the AfCFTA in letter and spirit. Its export of primary goods outside the continent should be minimised if not stopped. Should Angola and Libya send its fossil fuel for refining beyond the continent, if enough refining capacities come up in Nigeria? That will help not only regional development but also bring down the fuel cost through reduced transaction cost. This is only one example; there are many such cases where value addition can take place within the country. That, perhaps, is the silver line for the continent to keep its development tempo ticking.
