The conflict in the Middle East and surge in oil prices is hitting African economies particularly hard, warns a report from the African Development Bank (AfDB) the African Union Commission (AUC) the United Nations Development Programme (UNDP), and the UN Economic Commission for Africa (UNECA) in which the four organisations also outline practical recommendations for crisis responses and resilience building in African economies.
Since the conflict, 29 currencies in Africa have weakened, raising the cost of servicing external debt and importing food, fuel and fertiliser. Moreover, the current shock has fed through to local economies faster and through more concentrated channels than past global disruptions, leaving policy makers with little time to adjust, say the report authors.
For some African countries, the loss of fertiliser imports may be even more consequential than the oil shock. Disruptions linked to Gulf energy supplies has limited access to ammonia and urea during the critical March–May planting season that will impact agricultural production, compounding risks of crisis and emergency levels of food insecurity, especially for low income households and import dependent economies.
Still, while the conflict is generating broad economic risks for Africa, a few countries may see short-term gains through higher commodity prices, trade diversion and rerouted logistics. For example, Nigeria could benefit from higher oil prices and the export expansion of the Dangote Refinery. Africa’s largest, has ramped up exports of gasoline and urea to African countries grappling with supply disruptions triggered by the Iran war, according to Aliko Dangote. Mozambique could gain from renewed momentum in LNG and increased traffic through the Port of Maputo while ports in South Africa, Namibia and Mauritius are also benefiting from shipping rerouting around the Cape of Good Hope, which is boosting port activity, bunkering and maritime services.
Responses
The institutions call for coordinated action via short-term policy responses. These should include African countries activating contingency import financing arrangements, including pooled fuel procurement and emergency food corridors and diversifying sourcing of fertiliser where logistically feasible. The support of international and regional financial institutions and provision of temporary liquidity lines from central banks and regional financial institutions should also be in the policy mix.
Central banks should implement flexible strategic monetary and exchange rate policies, curb cash hoarding and foreign exchange market speculation during episodes of depreciation and integrate other inflation mitigation measures in coordination with ministries of finance to balance price and exchange rate stability with growth objectives, says the report.
In one recent bank response, the African Export-Import Bank (Afreximbank) has approved a US$10bn Gulf Crisis Response Programme (GCRP) to insulate African and Caribbean economies, financial institutions and corporates from the impacts of the ongoing crisis. Afreximbank says the programme is designed to sustain essential imports including fuel, LNG, food, fertiliser, pharmaceuticals by providing vital short-term Foreign Exchange and liquidity to support vulnerable member states and will also help countries scale productive capacity in strategic commodities through pre-export finance, working capital and inventory financing.
Medium term reforms should include policy measures to strengthen energy security, targeted social protection, and encourage more regional trade under the African Continental Free Trade Area (AfCFTA.) Long term structural reforms should include stronger domestic resource mobilisation and African financial safety nets, including accelerated implementation of the African Financing Stability Mechanism, suggests the report.
“As global crises multiply, Africa’s response must evolve from managing shocks to fostering resilience,” emphasised Sidi Ould Tah, President of the African Development Bank Group. “African institutions and development partners need to act swiftly and in concert, leveraging their comparative advantages to cushion short-term shocks while laying the foundations for long-term resilience.”
In another policy recommendation, the authors suggest the continent’s net oil and gas exporting countries should save excess revenues during times of price boom into sovereign wealth funds or other revenue buffers for productive investments to cushion against the inevitable post-war price correction.
Accelerating AfCFTA implementation would strengthen regional supply chains, lower border costs, and improve the movement of essential goods during crises, while creating long-term opportunities for the development of regional trade corridors. The slow progress of AfCFTA and low levels of intra-African trade continue to thwart the continent’s resilience, hindering the movement of goods, while logistics remain costly and inefficient.
The report also suggests policy initiatives like a common African position on debt shock clauses, shipping insurance, and emergency food corridors, giving the continent greater bargaining power in future crises. This will strengthen Africa’s responses to the next shock and reduce exposure to such crises, it concludes.
