The International Monetary Fund (IMF) has advised Nigeria, Ghana and other commodities producing countries in Sub-Saharan Africa to seize Russia’s energy market in Europe as geopolitical tensions persist.
The most significant potential of the market takeover lies with established exporters, countries with available facilities, like Nigeria, Angola, Ghana, among others.
Nigeria’s oil production is about 1.3 million barrels per day; Angola oil production is 1.1 million barrels per day; Ghana oil production is about 420,000 barrels per day, among others.
In a report titled: Geopolitical Divisions Threaten Growth, IMF economists Qianqian Zhang and Ivanova Reyesm said commodity exporters in the region could potentially displace much of Russia’s energy market share in Europe.
The IMF asked the countries to rely on trade promotion agencies to help identify potential opportunities, build the necessary skills and capacity for exports, and eventually re-orient production to take advantage of new trade flows. “Improving the business environment, such as by lowering entry, regulatory, and tax barriers could also help,” the Fund said.
“What the exact outcomes will be from fragmentation and polarization, and whether these trends will continue are uncertain. What is clear, however, is multilateral institutions will need to continue to facilitate dialogue among nations to promote economic integration and cooperation,” it added.
The IMF said economic growth in Sub-Saharan Africa economies could permanently decline including a $10 billion loss of Foreign Direct Investment (FDI) if geopolitical tensions escalate.
It said 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.
The IMF said sub-Saharan Africa stands to lose the most if the world splits into two isolated trading blocs centered around China or the United States and the European Union.
These losses could be compounded if geopolitical tensions cut off capital flows between trade blocs, with the region losing about $10 billion in foreign direct investment and official development assistance, they add.
“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.
“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.
They said the reduction in FDI in the long run could also hinder much-needed technology transfer. It added that for countries looking to restructure their debt, deepening geo-economic fragmentation could also worsen coordination problems among creditors.
IMF said 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.
“The losses could be compounded if capital flows between trade blocs were cut off due to geopolitical tensions. 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),” it said.
The Fund said countries will need to build resilience to manage the inevitable shifts in trade and foreign direct investment.
It said Sub Saharan Africa 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.
It said that in this severe scenario, sub-Saharan African economies could experience a permanent decline of up to 4 per cent of real gross domestic product after 10 years—losses larger than what many countries experienced during the Global Financial Crisis.
The IMF advised that to better manage shocks, countries need to build resilience. This can be done by strengthening the ongoing regional trade integration under the African Continental Free Trade Area, which will require reducing tariff and non-tariff trade barriers, strengthening efficiency in customs, leveraging digitalization, and closing the infrastructure gaps.
Also, deepening domestic financial markets can also broaden sources of financing and lower the volatility associated with relying too much on foreign inflows.
The IMF advised that to take advantage of the potential shifts in trade and FDI flows, countries in the region can try to identify and nurture sectors that may benefit from trade diversion, for example, in energy.
It said commodity exporters in the region could potentially displace much of Russia’s energy market share in Europe.
