The International Monetary Fund (IMF) has warned that Nigeria and other countries in Sub-Saharan Africa could lose $10 billion of Foreign Direct Investment (FDI) should the geopolitical tensions lead to isolated trading blocs.
There have been trading tensions between the United States, European Union and Russia, over the latter’s decision to invade Ukraine.
Also, China and the United States have been at each other’s jugular, hitting themselves with trade tariffs, which has contributed to an increase in the prices of goods globally.
The tensions among these countries could result in the world splitting into two isolated trading blocs centred around China or the United States and the European Union, the IMF said on Monday, in a post via email, titled; “Economic Growth in Sub-Saharan Africa Could Permanently Decline if Geopolitical Tensions Escalate.”
IMF said if such a split occurs, sub-Saharan African economies could permanently decline by about 4 per cent after 10 years, while capital flows between trade blocs could be cut off due to geopolitical tensions, leading to an estimated $10 billion loss in foreign direct investment.
Commenting on the impact of a split, IMF said: “Sub-Saharan Africa could stand to lose the most if the world were split into two isolated trading blocs centered around China or the United States and the European Union. In this severe scenario, sub-Saharan African economies could experience a permanent decline of up to 4 percent of real gross domestic product after 10 years according to our estimates—losses larger than what many countries experienced during the Global Financial Crisis.
“Economic and trade alliances with new economic partners, predominantly China, have benefited the region but have also made countries reliant on imports of food and energy more susceptible to global shocks, including disruptions from the surge in trade restrictions following Russia’s invasion of Ukraine. If geopolitical tensions were to escalate, countries could be hit by higher import prices or even lose access to key export markets—about half of the region’s value of international trade could be impacted.
“The losses could be compounded if capital flows between trade blocs were cut off due to geopolitical tensions. The region could lose an estimated $10 billion of foreign direct investment (FDI) and official development assistance inflows, which is about half a percent of GDP a year (based on an average 2017–19 estimate). The reduction in FDI in the long run could also hinder much-needed technology transfer.”
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