Africa vulnerable to External Trade Shocks

A key lesson that African governments and policy makers should learn from global occurrences within the past two years is Africa’s vulnerability to external economic shocks. The onslaught of the COVID-19 pandemic, which was accompanied by global supply chain disruptions, exposed Africa’s heavy reliance on imports, and in particular, imports from outside the African continent. Consequently, import heavy industries, such as manufacturing and to some extent agriculture, were heavily impacted with many players within these industries still recovering despite the reopening of the global economy.

The Russo-Ukrainian war has further exposed Africa’s vulnerabilities. Knee jerk reactions by the global oil and gas industry translated to significant increases in the global crude oil spot price with the commodity surpassing historically high prices last seen in 2014. While the global crude oil price is in the process of stabilising below the USD 100/barrel mark, given increased oil production in the Gulf and Latin America states, the impact on the African continent has already been felt, to the extent that the continent remains by far a net oil importer. Increased energy costs have had a trickle-down effect in virtually all sectors of the economy ultimately increasing living and business costs.

The negative impacts of the Russo-Ukrainian war on the African continent are not limited to energy considerations. From an agricultural perspective, African states import significant grain quantities from the two warring states together with various agricultural inputs such as fertiliser. The ongoing conflict, however, threatens the continent’s access to these imports, and conversely, access to these markets in relation to our exports, for instance, tea, coffee and avocados.

Since Africa is aware of these vulnerabilities, it is imperative that governments and policy makers urgently steer the continent toward self-sufficiency, particularly in relation to critical industries such as energy and agriculture. Indeed, where energy and food security are adequately addressed, the continent will have built resilience against disruptive global price volatilities. However, to achieve this, it is critical that the continent addresses and catalyses intra-African trade. It is positive to note that boosting intra-African trade remains a key agenda item for the continent, particularly given developments around the African Continental Free Trade Area (AfCFTA).

As Africa works toward the achievement of the full potential of AfCFTA, we should remain hopeful that the continent’s narrative will shift from being a net importer, particularly in relation to energy, manufacturing and agricultural inputs, to a net exporter of value-added products and services. Rather than export raw materials to advanced economies for further processing, intra-African trade would incentivise the production of manufactured and processed goods internally, with our focus shifting to skills transfer opportunities and value addition.

The achievement of a self-sufficient African continent, bolstered by internal trade and export diversification, will ensure that Africa’s vulnerabilities to external economic shocks are significantly mitigated and innovation within the continent encouraged.