Sub-Saharan Africa including Ghana could stand to lose the most if the world were split into two isolated trading blocs centered around China or the United States and the European Union, the International Monetary Fund.
In this severe scenario, sub-Saharan African economies could experience a permanent decline of up to 4% of real gross domestic product (GDP) after 10 years, according to estimates by the IMF—losses larger than what many countries experienced during the Global Financial Crisis.
The Fund said the economic and trade alliances with new economic partners, predominantly China, have benefited the region, but have also made countries reliant on imports of food and energy more susceptible to global shocks, including disruptions from the surge in trade restrictions following Russia’s invasion of Ukraine.
“If geopolitical tensions were to escalate, countries could be hit by higher import prices or even lose access to key export markets—about half of the region’s value of international trade could be impacted”, it said.
The losses, it said, could be compounded if capital flows between trade blocs were cut off due to geopolitical tensions.
Furthermore, the Fund, the region could lose an estimated $10 billion of foreign direct investment (FDI) and official development assistance inflows, which is about half a percent of GDP a year (based on an average 2017–19 estimate). The reduction in FDI, in the long run, could also hinder much-needed technology transfer.
For countries looking to restructure their debt, deepening geo-economics fragmentation could also worsen coordination problems among creditors, it concluded.
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