Africa’s Position in a Deglobalizing World

Challenges and opportunities in the context of decelerating globalization

As the world grapples with the emerging challenges associated with decelerating globalization, Africa finds itself at a pivotal juncture in an increasingly fragmented global landscape. The rise of protectionism, exemplified by the US-China trade war and various industrial policies (such as the USA’s Chips Act² and the European Union’s new battery regulations3), signals a broader trend towards deglobalization. This transition is further characterized by increased global tariffs, non-tariff barriers, and constraints on migration.  Together, this suggests a re-evaluation of globalization’s trajectory since the 2007/8 Global Financial Crisis is needed.

Concurrently, the fabric of global trade has been strained by escalating conflicts and geopolitical tensions—from the Israel-Palestine crisis to the ongoing war between Ukraine and Russia, and instability in the Sahel region—each adding layers of complexity to the already vulnerable global supply chains. The imposition of climate trade policies, such as Carbon Border Adjustment Mechanisms, loom as another potential barrier to free trade, reflecting the growing interplay between environmental considerations and trade policies.

In the shifting geopolitical landscape, the current major trading blocs centred around the USA, China, and Germany are subject to potential realignments. This is a result of factors such as rising tensions in the South China Sea, the implications of a possible Trump presidential victory, and political polarization within Germany and the EU. These dynamics are likely to support a strategic shift towards domestic industrial policy, aimed at harnessing the perceived economic benefits of domestic value chain development, including in the energy transition and advancements in AI technology, over the principles of global free trade.

A 2023 IMF report captures the essence of this transformation, highlighting the risk of policy-driven geoeconomic fragmentation and its potential to disrupt the channels through which the benefits of globalization were once disseminated4. This evolving dynamic introduces several channels through which deglobalization impacts the global economy, notably:

• A decrease in trade volumes – potentially meaning less economic growth and higher inflation.
• Reduced capital movement – resulting in higher borrowing rates and lower technological diffusion.
• Fragmentation of global payment systems – complicating financial transactions.
• Increased barriers to legal migration – limiting the exchange of skills and labour.
• Heightened global price volatility – complicating production planning in global supply chains.

These factors collectively signify a move away from the interconnected economic systems that have defined the global economy for decades.

Africa’s position

Considering the potential for increased deglobalization, Africa faces unique challenges and opportunities. Africa’s trade landscape is characterized by a paradoxical relationship with both the global market and intra-continental exchanges. Despite the continent’s significant share of the world’s population, which stands at 17%, Africa accounts for less than 3% of global trade and GDP5. A decrease from about 5% following the period of independence of many African nations. This disparity underscores the continent’s relatively low level of development and its limited integration into the global trade network, despite its links to global resource value chains. The benefits of these links have been somewhat exhausted and are not providing the redistributive effects required for equitable development. Additionally, the distribution of African trade is notably skewed towards extra-African trade, with intra-regional trade languishing at around 15% of total African trade. This figure is starkly contrasted by Asia and Europe, where intra-regional trade constitutes 60% and 70% of total trade, respectively.

A 2024 report6, published by the United Nations Economic Commission for Africa (UNECA), provides a blunt analysis of the trade landscape in Africa. The report pinpoints substantial infrastructural and regulatory challenges as key limitations to the continent’s trade capabilities. It also highlights the sluggish ratification process of the African Continental Free Trade Area (AfCFTA), and the failure to meet macroeconomic convergence criteria as a result of significant regulatory obstacles.

Considering infrastructure challenges, the UNECA report identifies a critical infrastructure financing gap within the continent, estimated to be between $130 and $170 billion. A concerning 77% of the global population without electricity access is found in Africa, pointing to a severe energy shortfall. Inadequate rail transport and inconsistent progress in Information and Communication Technology access, present a further set of complex challenges. The skills required to overcome some these infrastructure challenges are in scarce supply, and the World Economic Forum’s Human Capital Index finds that Sub-Saharan Africa currently only captures 55% of its human capital potential, compared to a global average of 65%7. These problems emphasize the need for comprehensive reforms and investments to propel Africa towards improved trade integration and economic development.

The role of the AfCFTA

The AfCFTA presents a key opportunity to overcome these barriers by advocating for a consolidated market for goods and services, reducing tariffs, and tackling non-tariff barriers to trade. Although substantial work remains to harmonize regulations, enhance infrastructure, and transition towards manufacturing and processing industries, the potential of the AfCFTA is vast. A 2022 World Bank Report8 highlights that the full realization of the AfCFTA could lift 50 million people out of extreme poverty by 2035 and increase real income by 9%9. Additionally, the report predicts that deep integration under the AfCFTA could boost Africa’s exports to the rest of the world by 32% and intra-African exports by 109%, primarily in manufactured goods – showcasing AfCFTA’s transformative potential for Africa amidst global deglobalization trends.

African governments may harbour concerns regarding the potential decrease in tariff revenue due to the implementation of the AfCFTA, a current significant source of income. However, a study conducted by DNA Economics and PRISM at the University of Cape Town suggests that for most African nations, the anticipated revenue losses should not deter the initiation of trade under AfCFTA10. The agreement is poised to markedly boost intra-regional trade, particularly benefiting countries where high tariffs currently limit trade diversification and where Africa accounts for a minor share of total imports. The dismantling of tariff barriers under the AfCFTA is expected to encourage a broader and more diversified intra-African trade landscape. Additionally, the consideration of an Adjustment Fund by AfCFTA could mitigate the challenges associated with tariff reductions and potential revenue losses, thereby supporting Member States in enhancing their supply capacities. Over time, the increase in trade volume, facilitated by a gradual reduction in tariffs and supported by the Adjustment Fund, is likely to compensate for the initial revenue shortfalls. Nonetheless, nations might need to explore alternative revenue streams, such as heightened indirect and income taxes or more efficient tax collection methods. This phased approach under AfCFTA provides a strategic pathway for governments to recalibrate their tax policies and expand their fiscal bases, aligning with the broader objective of economic integration and development across the continent.

However, this will require a multidimensional approach, as summarised in Figure 1. To harness the full potential of the AfCFTA, it’s imperative to finalize negotiations with an expansive focus that covers trade in services, investment, and digital commerce and trade facilitation (which includes investment in infrastructure and border reforms), while also promoting private sector involvement and grassroots support. Utilizing the AfCFTA as a tool to transform traditional trade and investment patterns is vital for integrating African economies into global value chains. This requires backing the negotiations with practical steps for effective treaty administration and implementation, ensuring readiness across diverse sectors for the opportunities presented by a unified African market.

Figure 1: Maximizing the potential benefits of the AfCFTA: A multidimensional perspective (Source: Adapted from World Bank 2022)