The timing couldn’t be worse for a continent just beginning to recover from two recent global shocks, write the ISS’s Ronak Gopaldas and Menzi Ndhlovu.
Africa is again staring down the barrel of an external shock. The Middle East crisis marks the third major supply disruption in less than a decade, following Covid-19 and the 2022 Russia-Ukraine conflict. In each case, an external trigger exposes structural vulnerabilities, and economies plunge into distress.
The timing couldn’t be worse. Many African economies have spent the past two years rebuilding buffers badly eroded during the 2022 shock. Continent-wide, fiscal consolidation has been uneven but largely positive and central banks have acted to contain inflation. In cases such as South Africa and Egypt, medium-term debt profiles had improved, and reserves were modestly rebuilt.
But the continent remains poorly insulated. Just as the macroeconomic picture was beginning to turn more supportive – with expectations of rate cuts in advanced economies, a weaker dollar, and firmer commodity prices – the latest disruption could interrupt that momentum.
At the centre of the current shock are fuel, fertiliser and food. Higher fuel costs impact transport and production. Fertiliser shortages or price spikes quickly diminish agricultural output, which pushes up food inflation. Food inflation, in turn, strains household welfare and sociopolitical stability.
The transmission mechanisms are well understood. Financial markets respond first through currency pressures as capital retreats and investors seek safety. This raises import costs and adds to inflationary pressures. Commodity prices rise, particularly for energy and agricultural inputs. Supply chains face renewed disruption, and eventually, the effects are felt through slower production, consumption and growth.
Five weeks into the Middle East crisis, these risks are apparent.
Oil has risen by around 50% and fertiliser by roughly 35%-50%. African currencies have depreciated, led by the rand, which has lost as much as 5%-7% to the dollar.
Elevated inflation expectations have slowed central bank cutting cycles. South Africa, Angola, Morocco and Mozambique’s central banks have halted policy rate reductions, citing imported inflation risks. Others are expected to follow suit.
Unlike with previous shocks, the degree to which African countries can absorb these pressures varies widely. Some, like Kenya, have relatively stronger cushioning than in 2022. External reserves have improved to a stable 5.7 months of import cover, policy credibility has strengthened, and government is smoothing its debt maturity profile.
Nigeria is also in a more favourable position. Improved reserve management, a shift towards inflation-targeting elements, and better fiscal-monetary coordination signal stronger policies. The government shed costly subsidies and is managing its debt profile. Collectively, these reforms provide room to navigate volatility.
Elsewhere, the picture is less reassuring. Countries like Senegal, with high energy import dependence, limited reserves and large external financing needs, remain exposed. The same applies to several frontier economies such as Mozambique, where access to international capital is constrained, and domestic fundamentals are compromised.
Vulnerability is usefully assessed through a combination of indicators, the Center for Global Development highlights. These include reliance on energy imports, the scale of fossil fuel subsidies, external debt service obligations, dependence on fertiliser imports, exposure to remittance flows from the Gulf, and the adequacy of reserves relative to import needs.
Countries ranking poorly across several of these metrics will face more acute challenges.
Egypt, for example, imports a large proportion of its energy needs, with oil and gas accounting for 30% of goods imports. It also faces roughly US$29.18 billion in external debt service and is one of the largest recipients of Gulf remittances, at over 4% of gross domestic product.
Trade-offs are already emerging, with no easy resolution for policymakers. Monetary policy cannot fully address the impending supply-driven inflation. Tightening policy to anchor expectations risks undermining already fragile growth. Instituting subsidies to cushion households threatens fiscal sustainability.
However, inaction risks social and political tension. Rising food and fuel costs have historically been catalysts for unrest. In countries where the social contract is already strained, further economic pressure could amplify fault lines. Ethiopia, Egypt and Nigeria have seen fuel runs and rationing – often the precursor to unrest.
African governments are managing the sociopolitical impacts in different ways. Egypt has resorted to power reductions, early business closures and mandatory remote work to ease fuel demand. Zambia has threatened investigations against hoarding and panic buying. And Namibia has reduced levies by up to 50% for three months.
Second-order effects receive less attention but can be equally disruptive. Gas, helium and sulphur shortages affect sectors ranging from mining to manufacturing. In countries like Zambia, where industrial activity is closely tied to global supply chains, these disruptions can have a disproportionate impact.
There are pockets of opportunity, although realising them isn’t guaranteed.
Commodity exporters could benefit, at least in the short term. Both Nigeria and Angola have oil benchmarks below US$70 per barrel. Sustained higher prices above US$100 per barrel could significantly raise earnings.
Nigeria’s energy trade dynamics could improve with the addition of domestic capacity through the Dangote Refinery. Already, the refinery has received a flurry of orders from African and European customers. However, Nigeria still struggles to provide adequate fuel to the refinery due to contractually bound cargoes and underproduction.
Countries that can position themselves as hubs in aviation, logistics and digital infrastructure could also benefit. Ethiopian Airlines, for example, is expanding its network to six international and domestic destinations. Kenya Airways and Royal Air Maroc are also adding to existing routes. Ports around the Cape of Good Hope saw a 112% surge in diversions in early March.
The challenge, as always, lies in execution.
Africa has rarely lacked for opportunity, but struggles to translate favourable conditions into sustained investment and growth.
Capacity limitations, policy uncertainty and governance issues weigh on positive outcomes.
In the near term, the outlook will likely be characterised by pressure rather than opportunity. Growth will come under strain, inflation will remain elevated in some areas, and financing conditions will remain tight.
Longer term, Africa’s resilience must be strengthened. Investment in energy security, whether through domestic production, refining or renewables, is essential. Regional integration, both in trade and infrastructure, can reduce external dependence. Building more stable financing sources, including domestic capital markets, is vital to reducing exposure to volatile external flows.
External shocks will remain a feature of the global economy, and Africa’s exposure is unlikely to diminish given the narrow economic profiles of its countries. The question is less about avoiding these shocks and more about how they can be absorbed.
– Ronak Gopaldas is an Institute for Security Studies (ISS) Consultant and Signal Risk Director. Menzi Ndhlovu is a Senior Country Risk and Political Risk Analyst with Signal Risk.
This article was first published in ISS Today.
