Africa Faces Tough Times due to Deglobalization of Trade
The global economic crisis triggered by the pandemic and the Russian invasion of Ukraine has further intensified the risk of declining trade integration between countries. This process is referred to as the deglobalization of trade. With Africa importing and exporting a lot of merchandise, this process is putting additional strain on an already-struggling continent.
Why is being connected important?
Being connected to the global economy is essential for spurring growth and development on the African continent. It creates opportunities for firms to specialize in specific tasks, which allow them to integrate into parts of a global value chain, even when they might lack the competitive advantage to produce an entire product domestically.
In addition, participating in a global value chain provides African businesses with better access to technology, capital, and other important inputs required to upgrade products and become more diversified.
Entry into global value chains in crucial for these few reasons:
- To boost the growth of African SMEs
- To support the African Continental Free Trade Area in advancing regional trade integration
- To help diversify production and export structures
- To help promote the pick-up of industrialization
With supply chain disruptions hampering a steady and reliable supply of goods, many countries and manufacturers that previously outsourced or imported, have started moving their sources closer to home. This trend adds more strain to economies in Africa, who are on top of the current economic pain.
A deglobalizing world poses serious risks for the continent. This has been confirmed by findings in a recent report by the World Bank. This report shows that reversing globalisation through reshoring of value chains has the potential to push an additional 52 million people into extreme poverty.
What happens next?
Globalisation and being part of a global value chain are essential for Africa’s growth and development. Reshoring of production implies that trade will be dominated by only a few powerful regional blocks in the future, which would likely include an Asian block dominated by China, a EU block, and an American-led block in North America.
If this happens, any progress made in global poverty reduction of the last few decades will be at high risk of being derailed. This would make the world a poorer place, and the African continent would be the hardest hit by being severed from global value chains.
Here’s hoping it doesn’t come to this!