Assessing the resilience of African economies to external shocks

A newly released report by ODI Global has shed light on the resilience and vulnerability of African economies in the face of global shocks, particularly in the aftermath of the Russia-Ukraine conflict. The report highlights the various channels through which African countries have been impacted by the global shocks, ranging from trade disruptions to financial market fluctuations and inflation pressures. Sherillyn Raga, Senior Research Officer at ODI, emphasized the importance of understanding these dynamics and the implications for policy responses in African states. The interview with CNBC Africa delved into the key research areas of the report, the impact on emerging markets, and the strategies for enhancing resilience in the future. One of the key points raised in the interview was the initial impact of the Russia-Ukraine war on countries with high exposure in bilateral trade with the two nations. Countries like Egypt and Sudan, which relied significantly on food imports from Russia and Ukraine, felt the immediate effects of the conflict. However, as the global uncertainty escalated, many African countries experienced higher interest rates and inflation due to commodity price shocks, leading to fiscal imbalances and debt distress. This, in turn, resulted in lower social spending and adverse effects on human capital development. Another crucial aspect discussed was the timing of the global shocks, coming on the heels of the COVID-19 pandemic when emerging and African economies were already in a fragile recovery phase. The multifaceted nature of the shocks, ranging from trade disruptions to exchange rate depreciation, added to the challenges faced by policymakers in these countries. The report underscored the need for sustainable recovery strategies that prioritize social spending, debt management, and public investment to navigate future shocks effectively. Furthermore, the interview touched upon the disproportionate impact of the global shocks on women and certain sectors, such as energy, with a mention of climate change factors. The issue of economic diversification emerged as a key strategy for mitigating the vulnerabilities of African economies. The report highlighted the potential for intra-African trade and industrialization to drive growth and enhance resilience across the continent. In terms of recommendations, the report called for strengthening central banks' role in deploying monetary policy to ease liquidity pressures during crises. Alternative resource financing mechanisms, such as debt-for-development swaps and regional financing arrangements, were proposed to provide fiscal breathing space and address exchange rate volatilities. The importance of transformative investments in areas like industrialization, green growth, and gender-sensitive infrastructure was underscored as a pathway to sustainable and inclusive economic development. Sherillyn Raga emphasized the need for policymakers to learn from past crises and design better policies to navigate future shocks effectively. By leveraging the lessons from recent experiences, African economies can build resilience and adapt to the evolving global landscape.