Russia–Ukraine war causes economic uncertainty, threatens economic growth in Africa, others
The Russia–Ukraine war after three years has made the world remain gripped by geopolitical uncertainty, and its economic fallout continues to reverberate across the globe as well in nations with limited financial buffers to withstand external shocks, including many in Africa.
Since the conflict’s onset, ODI Global has analysed its impacts on low-income and lower-middle-income economies in sub-Saharan Africa.
The research reveals that the shocks have been multifaceted and, in some cases, long-lasting.
“The economic and financial pathways from the price shocks stemming from volatile fuel, food and fertilizer prices are now compounded by the persistent and broad-based strength of the US dollar, which has appreciated significantly in trade-weighted terms. This dollar dominance could fuel further inflation in some African economies.
“While some economies have managed to mitigate the economic impact of the conflict, low-income countries with weaker buffers and less resilience against shocks continue to feel the long-term reverberations. The channels and magnitude of impacts differ depending on country structures, but our research series highlights several key findings that have policy implications for African countries: “Commodity and primary goods price shocks are multifaceted and can be long-lived. While declining oil prices have boosted growth in some
economies, in some instances in the past, have triggered a sharp decline in GDP per capita for key African resource producers. Similarly, the effects of rising food and fuel prices vary depending on a household’s economic position. Higher primary goods prices can increase costs for importers and disproportionately harm low-income households, often with gender-differentiated impacts in resource-based low-income countries where gender gaps in education, income and wages already exist.
” Adverse initial conditions exacerbate shocks, particularly unsustainable debt burdens: Global debt was already on an increasing trend, especially in 2020, as governments needed financing for their COVID-19 rescue packages. However, continued global uncertainty over the Russia-Ukraine war, tightening financial conditions, and increased borrowing costs have raised debt sustainability risks in some low-income and middle-income countries. The proportion of these countries at high risk of and in debt distress has doubled from 27% in 2015 to 54% as of September 2024 (World Bank, 2024).”
It explained that this narrowed fiscal space comes at the expense of lower financing for public investment and social spending, failing to mitigate and potentially compounding the economic and human capital scarring effects of successive shocks, adding “For instance, between 2020 and 2022, 46 and 15 developing countries spent more public resources on debt interest payments than on health and education, respectively (UNCTAD, 2024).”
The research reveals that policies that build resilience are now critical: “Targeted policy levers are essential, both to mitigate the immediate effects of the shocks and to address the underlying structural vulnerabilities that amplify them. These could include price subsidies, a reframing of bank regulations and prioritizing long-term capital inflows to address external imbalances…Economic, geopolitical and policy shocks are likely to persist, manifesting in new ways through various transmission channels. With the new US administration in place, Africa’s existing financial buffers and institutional mechanisms will hold a number of its economies in good stead. However, inflationary pressures could resurface due to trade and supply chain disruptions, coupled with recent exchange rate depreciation.”
PAMA opined that a ceasefire in the Russia–Ukraine war could bring some economic relief through the resumption of trade, though this could be offset by broader global trade tensions.
The cumulative long-term effects of a potential “peace dividend” from the war could prove economically significant, noting however, that the broader-based risks of deglobalization and trade fragmentation have intensified significantly since the 2022 invasion of Ukraine.
“Therefore, understanding shock transmission mechanisms and prioritizing resilience as a cornerstone of economic policy is paramount for low- and middle-income economies in Africa. The path to recovery requires a multi-pronged approach, including targeted support for vulnerable populations, debt relief and transformative and sustainable investments,” PAMA concluded.
