U N I T E D N AT I O N S C O N F E R E N C E O N T R A D E A N D D E V E L O P M E N T

2024
Economic
development
in Africa report
Unlocking Africa's trade potential
Boosting regional markets and
reducing risks
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Geneva, 2025
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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Acknowledgements

Economic Development in Africa 2024: Unlocking Africa’s Trade Potential – Boosting Regional
Markets and Reducing Risks of the United Nations Conference on Trade and Development
(UNCTAD) was prepared by Habiba Ben Barka (team leader), Christine Awiti, Grace Gondwe
and Anja Slany, under the overall supervision of Paul Akiwumi, Director of the Division for Africa,
Least Developed Countries and Special Programmes, and Junior Davis, Head of the Policy
Analysis and Research Branch. Research support was provided by Sven Jaggi and Lin Shi.
Administrative support was provided by Evelyn Benítez and Elena Stroganova.
UNCTAD gratefully acknowledges the substantive contributions of Abbi M. Kedir, University of
Sheffield, United Kingdom of Great Britain and Northern Ireland, and Wim Naudé, Rheinisch-
Westfälische Technische Hochschule, Aachen University, Germany.
A hybrid meeting was held on 11 June 2024 to conduct a peer review of the report. It brought
together specialists in the fields of trade and investments, political economy, regional integration,
enterprise development, financial markets and risk management. The following experts took
part in the meeting: Jean-Paul Adam, Office of the Special Adviser on Africa to the Secretary-
General of the United Nations; Mona Farid Badran, Cairo University, Egypt; Daniel Cash, United
Nations University Centre for Policy Research; Karim El Aynaoui, Hinh Dinh, Karim El Aynaoui,
Saloi El Yamani, Fatima Ezzahra Mengoub and Isabelle Tsakok, Policy Centre for the New South,
Morocco; Naseem Javed, Expothon Worldwide; Sergii Meleshchuk, International Monetary
Fund; Jeremiah Nyambinya, European University Institute, Italy; Nkechi S. Owoo, University
of Ghana, Ghana; Sanjay Patnaik, Brookings Institution, United States of America; Vincent
Rouget, Control Risks; Mustapha Sadni Jallab, World Trade Organization; Sampawende Jules
A. Tapsoba, African Export–Import Bank; Fiona Tregenna, University of Johannesburg, South
Africa; and Komi Tsowou, United Nations Development Programme.
The following UNCTAD colleagues provided helpful inputs and comments during various review
processes: Lisa Borgatti, Theresa Carpenter, Mussie Delelegn, Hamed El Kady, Elizabeth
Gachuiri, Keith Lockwood, Ludovica Poponcini, Mesut Saygili, Stefanie West and Anida Yupari.
The report was edited by Lucy Deleze. Cover design and desktop publishing were undertaken
by the UNCTAD Communication and External Relations Section.

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 Economic Development in Africa Report 2024
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Table of contents

Acknowledgements........................................................................................... iii
Foreword........................................................................................................... ix
Abbreviations..................................................................................................... xi
Note.................................................................................................................. xii

Chapter I
The dynamics of shock exposure and vulnerability across
countries in Africa..................................................................................1
Introduction............................................................................................................... 3
Navigating through uncertainties and risk perceptions in Africa.............................. 4
Exposure to shocks in Africa.................................................................................. 13
Vulnerability to shocks............................................................................................ 24
Priority areas for building bulwarks against risk..................................................... 36
Conclusion.............................................................................................................. 38

Chapter II
Monitoring economic vulnerabilities when trading
and investing across Africa................................................................. 41
Introduction............................................................................................................. 43
Trade patterns during a system-wide crisis............................................................ 45
Macroeconomic drivers of economic vulnerability................................................. 51
Economic vulnerability in times of global shocks................................................... 63
Conclusion.............................................................................................................. 70

Chapter III
Maximizing trade resilience and regional market
benefits in Africa.................................................................................. 71
Introduction............................................................................................................. 73
Regional value added trade networks: A means to reduce
potential risks from global shocks.......................................................................... 74
Resilience in connectivity: The potential of regional integration............................. 87
Conclusion............................................................................................................ 103

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Chapter IV
Building resilience in African businesses and cross-border
transactions........................................................................................ 105
Introduction........................................................................................................... 107
Firm-related risks and opportunities .................................................................... 107
Value and resilience through the energy, infrastructure and trade nexus............. 120
Insights from South Africa: Dynamics of risks and capabilities
for exporting firms................................................................................................. 124
Maximizing the benefits of cross-border transactions in Africa
through financial hedging and enterprise risk management................................. 129
Conclusion ........................................................................................................... 135

Chapter V
Conclusions and recommended policy actions.............................. 137
Introduction........................................................................................................... 139
Considerations for policy guidance ..................................................................... 141
Enhancing macroeconomic stability to lower economic
vulnerability to shocks.......................................................................................... 141
Optimizing regional market opportunities to reduce trade-related risks.............. 144
Strengthening institutional and organizational settings to mitigate
risks to cross-border transactions........................................................................ 148

References..................................................................................................... 155
Databases......................................................................................................166

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Boxes

Box I. 1 Methodology........................................................................................... 11
Box II. 1 UNCTAD sovereign debt life cycle: Insights from Ghana......................... 57
Box II. 2 Exchange rates: The case of South Africa............................................... 64
Box II. 3 Ethiopia: An opportunity in crisis............................................................. 68
Box III. 1 Value added trade network measures .................................................... 78
Box III. 2 Methodology: Infrastructure–industrial output......................................... 88
Box IV. 1 Opportunities in intra-African investment and related instruments.........114
Box IV. 2 Creating opportunities through foreign exchange hedging practices.....119
Box IV. 3 Random-effects probit estimates of the export status of firms
in South Africa........................................................................................126
Box IV. 4 Derivatives..............................................................................................131
Box IV. 5 Insights from Viet Nam: Reaping the benefits of private capital flows ...133

Figures

Figure I. 1 The world uncertainty index: Africa and global averages, 1990–2024....... 5
Figure I. 2 Interconnecting exposure and vulnerability to polycrisis shocks............... 9
Figure I. 3 Exposure to political shocks, by country................................................. 15
Figure I. 4 Exposure to economic shocks, by country.............................................. 17
Figure I. 5 Exposure to demographic shocks, by country........................................ 19
Figure I. 6 Exposure to energy shocks, by country.................................................. 21
Figure I. 7 Exposure to technology shocks, by country............................................ 23
Figure I. 8 Exposure to climate shocks, by country.................................................. 25
Figure I. 9 Economic vulnerability to polycrisis shocks, by country......................... 28
Figure I. 10 Governance vulnerability to polycrisis shocks, by country...................... 30
Figure I. 11 Connectivity vulnerability to polycrisis shocks, by country..................... 32
Figure I. 12 Social vulnerability to polycrisis shocks, by country............................... 34
Figure I. 13 Energy vulnerability to polycrisis shocks, by country.............................. 35
Figure I. 14 Climate change vulnerability to polycrisis shocks, by country................ 37
Figure II. 1 Historical view of shocks to the economy of Africa:
Average gross domestic product growth................................................. 44
Figure II. 2 Top African merchandise exports, 2019–2021 ........................................ 46
Figure II. 3 Leading African merchandise imports, 2019–2021 ................................. 48
Figure II. 4 More export products associated with diversification............................. 49

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Figure II. 5 Countries that converged toward the world pattern,

Exports: 1995 – 2023............................................................................... 50
Figure II. 6 Disruption of investments caused by shocks to the economy
in Africa: Average gross fixed capital formation growth rate................... 51
Figure II. 7 State-owned investors, by leading African countries.............................. 52
Figure II. 8 Weighted average growth in gross domestic product,
by commodity export group................................................................... 53
Figure II. 9 Average fiscal balance deviations, 2010–2019 ....................................... 55
Figure II. 10 Overview of fiscal balance deviation performance,
by country, 2010–2019............................................................................ 56
Figure II. 11 Inflation-moderated growth in gross domestic product
for mineral-, metal- and fuel-dependent exporters.................................. 61
Figure II. 12 Impact of global shocks on prices and economies of agriculture-
dependent exporting countries in Africa, 2000–2024 ............................. 62
Figure II. 13 Price effects on non-commodity- dependent export economies............ 63
Figure II. 14 Parallel movement between fuel prices and growth in gross
domestic product for fuel-dependent exporters, 2000–2024 ................. 66
Figure II. 15 Trade-in-services exporters adversely affected during
the pandemic: Average 2019–2021......................................................... 67
Figure II. 16 Ethiopia: Effects of weather-related shocks on
an agricultural commodity exporter......................................................... 69
Figure III. 1 Principal global partners in the value added trade network, 2022........... 76
Figure III. 2 Intra-African value added network metrics.............................................. 79
Figure III. 3 Intra-African value added trade network:
Manufacturing sector, selected years...................................................... 83
Figure III. 4 Common Market for Eastern and Southern Africa value added
trade network: Manufacturing sector, 2022............................................. 86
Figure III. 5 The evolution of connectivity in Africa, 2005–2022................................. 87
Figure III. 6 Transport and information and communications technology
infrastructure composite indices, 2022................................................... 92
Figure III. 7 Common Market for Eastern and Southern Africa:
Impulse response function...................................................................... 95
Figure III. 8 Average non-tariff trade costs among and between
regional trading blocs in Africa................................................................ 97
Figure III. 9 Average trade facilitation performance, 2017 and 2022.......................... 99
Figure III. 10 Logistics performance, by country, 2012–2022......................................102
Figure IV. 1 Resilience to shocks in selected countries ............................................108
Figure IV. 2 Bilateral investment treaties and treaties with investment
provisions signed by countries in Africa.................................................113
Figure IV. 3 Business environment obstacles faced by African firms, 2023...............117
Figure IV. 4 Access to electricity, by country, 2022...................................................122
Figure IV. 5 Main obstacles faced by South African firms, selected years................125

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Tables

Table I. 1 Components of the exposure to shocks framework, .............................. 13

Table I. 2 Components of the vulnerability to shocks measure .............................. 26
Table I. 3 Major areas of vulnerability to polycrisis shocks, by country ................. 39
Table III. 1 Outdegree and indegree centralities in the manufacturing,
service and primary sectors, 2012 and 2022 .......................................... 80
Table V. 1 Strategic steps and key actions for institutionalizing
enterprise risk-management practices in Africa.....................................153

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Foreword
©2024_UNCTAD

The world is in polycrisis, and Africa is on the front line of exposure. The same global shock has
very different impacts depending on the location. Resilience is the difference between the shock
and the impact; how to build resilience in Africa is the focus of this report. Recent crises have
hit the continent disproportionately. Building resilience will allow the continent to reap the many
opportunities offered by its future.
Though exposure varies by country, African economies are persistently exposed to a range of
external shocks due to commodity-dependency, high levels of debt and limited technological
infrastructure and connectivity. About half of all African countries relied on oil, gas or minerals for
over 60 per cent of their export earnings in 2023. Global trade route disruptions have exposed them
to significantly higher shipping and trade costs. In 2024, African shipping rates were 115 per cent
above pre-COVID-19 (coronavirus disease) pandemic levels and double the 2023 average costs.
At the same time, official development assistance to Africa declined by 4.1 per cent in 2022, while
Africa’s average borrowing cost increased to 11.6 per cent, 8.5 percentage points higher than the
risk-free rate of the benchmark of the United States.
This year’s Economic Development in Africa Report 2024: Unlocking Africa’s Trade Potential –
Boosting Regional Markets and Reducing Risks presents some important tools in this context.
This includes a comprehensive framework to help African countries analyse the nature of their
own exposure to shocks, with a particular focus on trade and investment. We also provide an
evidence-based analysis that highlights how regional trade can increase the continent’s resilience.
There are five takeaways from this report.
First, the argument that economic diversification serves as a strong buffer against economic
shocks remains relevant. This is particularly true for African economies that depend on a limited
number of trade partners. Africa has five main trading partners accounting for over 50 per cent
of all its imports and exports.
Second, despite six decades of growth in gross exports, Africa’s integration into high value added
segments of global supply chains remains low. Only 16 of 54 African countries source more
than 0.5 per cent of their intermediate inputs from within the continent. Better infrastructure and
leveraging the African Continental Free Trade Area can improve regional market participation
and drive positive outcomes.

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Third, improving the operational environment is vital for African businesses, particularly
microenterprises and small and medium-sized enterprises. Less than 50 per cent of the
population has reliable electricity access, which raises costs and limits value chain integration.
Reliance on fossil fuels, over 50 per cent of the energy supply, heightens risks amid global
energy transitions. Recent growth in renewable energy investment in Africa (estimated at $15
billion in 2023) remain direly low compared to global renewable energy investment, at about 2.3
per cent of the total.
Fourth, polycrisis creates economic uncertainty and discourages trade and investment, thus
hampering long-term development prospects. In 2023, flows of foreign direct investment to
Africa declined by 3 per cent, to a total stock of $53 billion. Deeper regional integration can help
reverse the trend. Last year, between 13 and 20 per cent of international projects financed in
Africa were funded by African investors themselves.
Finally, the report provides some key policy recommendations to African Governments. This
includes enhancing the legal and regulatory environment, leveraging robust risk management
tools, regional cooperation and strategic investments in infrastructure and technology to ensure
smooth trade and improved connectivity.
I hope that this edition of the Economic Development in Africa Report will serve as a valuable
tool for policymakers and inspire urgent action in these urgent times.

Rebeca Grynspan
Secretary-General of UNCTAD

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 Economic Development in Africa Report 2024
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Abbreviations

COVID-19 coronavirus disease

GDP gross domestic product

ICT information and communications technology

OECD Organisation for Economic Co-operation and Development

SME small and medium-sized enterprise

UNCTAD United Nations Conference on Trade and Development

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Note

Dollars are United States dollars.

Use of a dash between years (for example, 2000–2005) signifies the full period involved,
including the initial and final years.
All links were accessed on 19 September 2024.

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Economic development
in Africa report 2024

Chapter I

The dynamics of
shock exposure
and vulnerability
across countries
in Africa

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

© 2024 UNCTAD. Image created by humans with the assistance of artificial intelligence

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 Economic Development in Africa Report 2024
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Introduction

The issue of “global polycrisis,” or “the critical investments toward sustainable

causal entanglement of crises in multiple development amid tightening credit
global systems in ways that significantly conditions and rising external financing costs
degrade humanity’s prospects” (Lawrence (United Nations, 2023a). The tightening
et al., 2024), has recently resurfaced and of borrowing conditions and strained
intensified the heated debate over the government liquidity, coupled with the
potential to leverage economic and trade complexity of inflationary dynamics, including
opportunities for transformation in Africa. hikes in energy and food commodity prices
A polycrisis is a
According to Columbia University historian and associated demand and supply-side
Adam Tooze, in a polycrisis “the shocks are crises, occur at a time when economies
situation in which
disparate, but they interact so that the whole and regions are far more interconnected multiple crises,
is even more overwhelming than the sum and synchronized than ever before. This interact, creating
of the parts” (Lähde, 2023). A polycrisis is brings the additional risk of spillover or the a complex
a situation in which multiple crises, such as acceleration of crisis events, especially in the and often
climate change, biodiversity loss, economic current interlinked architecture of economic,
unpredictable
instability and social inequality, interact, financial and societal systems at the global
creating a complex and often unpredictable level, which can facilitate or amplify the
scenario of
scenario of interrelated crises, predicaments phenomenon of stresses (shocks or impacts interrelated
and vicious cycles. These crises are of crisis events) with systems affecting crises
interconnected so that the combined impact each other or creating stresses in different
is greater than the sum of their individual systems. For instance, global energy price
effects. Further, the concept highlights the shocks stress global transportation and food
systemic nature of global challenges and systems, creating inflationary pressures and
the difficulty in addressing them in isolation. high interest rates. The resulting stresses in
the real economy and global banking system
Today’s global polycrisis, which is generated
could increase capital costs, impacting
by shocks and crises occurring at different
productivity and returns. While policymakers
levels (local, national, regional and
and regulators attempt to contain or
international) and disrupts various domains
reverse pressures from volatility in food and
and systems (health, financial, economic,
energy prices, lower wages and income,
political and environmental), is not new.
and declining savings and investment, the
Some of the past global crises include the
slowdown of economic activities due to
oil shocks of the late 1970s, which created
this entanglement of stresses would have
global energy shortages and contributed
exposed already vulnerable businesses
to stagflation in many economies. Another
and people. This can create social
example of a past global crisis is the 2008–
tensions and produce systemic risk.
2009 global financial and economic crisis,
which intersected with oil supply constraints The centrality of the interconnectivity
and food price volatility and further stressed of today’s global systems in fuelling,
financial, production, supply and operating accelerating or amplifying crisis events
systems (Lawrence et al., 2024). is also evident through the complexity
of geopolitical stresses and their
However, the current global polycrisis is
accompanying distress and spillover into
unprecedented in some ways. For instance,
other systems. The war in Ukraine shows
the health, social and economic effects
how geopolitical stresses can generate
of the coronavirus disease (COVID-19)
stresses in different systems, for example,
pandemic linger still and challenge the ability
global energy, food and finance systems.
of many developing countries to make

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

The United Nations Global Crisis Response The report focuses on the optimization
Group on Food, Energy and Finance of regional market benefits to strengthen
reported, during the early months of the market resilience to specific shocks and
war in Ukraine, the devastating impact of vulnerabilities and explores the diverse
conflict on already tight global food, energy trade risks in Africa stemming from a host of
and financial markets (UNCTAD, 2022a). economic, political, environmental, energy,
When two countries, namely the Russian technological and logistical challenges. The
Federation and Ukraine, that provide about report underscores the importance of robust
30 per cent of the world’s wheat and barley, risk management, regional cooperation
25 per cent of its maize and over 50 per and strategic investments in infrastructure
cent of its sunflower oil are in conflict, and and technology. It also highlights best
Optimization one of them is the world’s top natural gas practices across the continent, showing how
of regional exporter and second-largest oil exporter, countries and businesses have effectively
market the impacts on specific commodity prices addressed these challenges to unlock
strengthens become significant, with food prices new opportunities. By providing a detailed
market resilience increasing by about 34 per cent, crude oil analysis of the trade environment, potential
prices surging by about 60 per cent and risks and de-risking strategies, this report
to specific
gas and fertilizer prices more than doubling aims to equip stakeholders with the insights
shocks and (United Nations, 2022a). As these food and needed for informed decision-making.
vulnerabilities energy pressures interacted with ongoing Ultimately, it seeks to foster sustainable
stresses in global supply chains and financial economic growth and shared prosperity in
markets, many economies were affected by Africa by leveraging the continent’s unique
inflationary pressures, heightened market strengths to maximize regional market
volatility and tightening monetary conditions. benefits. The African Continental Free Trade
Area, launched in 2021, marks a crucial step
This year’s Economic Development in
towards economic integration in Africa. With
Africa Report: Unlocking Africa's Trade
its youthful population, abundant resources
Potential: Boosting Regional Markets
and growing political stability, Africa offers
and Reducing Risks examines optimal
vast trade opportunities. However, realizing
strategies for countries in Africa and
these opportunities requires navigating a
the private sector to mitigate trade
complex landscape of risks and challenges.
risks associated with the uncertainties
created by this global polycrisis.

Navigating through uncertainties

and risk perceptions in Africa

When navigating these global crises and making and transactions, for example
uncertainties, Governments, companies and people’s decisions to purchase real estate;
individuals are required to internalize them companies’ strategic choices about building
by deploying tools to track and assess their new factories, investing in capital equipment
potential impact, adjust to the new ways and hiring workers; or Governments’ policy
in which they disrupt systems, adopt more choices concerning public expenditure and
flexibility and mitigate their adverse effects by revenues (for instance, tax policies). These
having contingency plans in place and being uncertainties are perceived to be higher
able to act faster and reduce the risk of in frequency and intensity in emerging
mistakes (Bloom et al., 2022). Bloom (2023) markets and low-income countries than
maintains that uncertainties affect decision- in advanced countries (Ahir et al., 2022).

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Using the world uncertainty index1 as shocks (Ahir et al., 2022). Figure I.1 shows During recent
a proxy to capture the levels of global the world uncertainty index from 1990 to episodes of
uncertainty related to economic and 2023. During recent episodes of global
political events indicates that the levels of crises, such as the 2014–2016 oil price
global crises
uncertainty have increased significantly since shock and the 2019–2020 COVID-19 Africa was
2012 and spiked sharply as a response pandemic, Africa was subject to higher subject to
to or during global episodes of shocks levels of uncertain economic and political higher levels
or crises (figure I.1). The higher levels of situations, although the trend followed of uncertain
uncertainty for the average of countries in the global average in terms of spike and economic
Africa, compared to the global average, dip. The synchronization of the indices
and political
can be explained by the compounded for Africa and the world average during
effects of domestic political shocks such as those periods can be partly explained
situations
coups d’état and conflicts, or aggravated by the fact that countries in Africa were
by their vulnerability to natural disasters more connected to the rest of the world.
and their low capacity to manage external

Figure I. 1
The world uncertainty index: Africa and global averages, 1990–2024
(Index)
Trade tensions,
United States of America recession including China
and attacks in the United States on Financial and the United
Gulf War 11 September 2001 credit crunch States, and Geopolitical
“Brexit” tensions and
United collapse of
80 000 Sovereign States Silicon Valley
debt crisis presidential Bank, Signature
Iraq war and in Europe elections COVID-19 Bank and Credit
70 000 outbreak of severe pandemic Suisse
acute respiratory United States
syndrome fiscal cliff and
sovereign
60 000 debt crisis in
Europe
Federal Reserve System War in
tightening and political risk Ukraine
50 000 in Greece and Ukraine

“Brexit”
40 000

30 000

Africa
20 000

World
10 000

0
1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: UNCTAD, based on data from the world uncertainty index, 2024.
Note: Time series of world uncertainty index averages for Africa and the rest of the world from the first quarter of
1990 to the first quarter of 2024. Actual data from the first quarter of 1990 to the first quarter of 2024, comparing
the average index value for Africa with the global average.

1
The world uncertainty index was launched by the International Monetary Fund in 2020 to measure and
compare quarterly the level of uncertainty across 143 countries. The index is constructed by text-mining
the country reports from the Economist Intelligence Unit and counting the frequency of the word “uncertain”
(or its variant) in its quarterly country reports. The index is computed by normalizing the total count of the
word “uncertain” (or its variant) according to the total number of words in each report and then rescaled by
multiplying by 1,000. A higher number means higher uncertainty. For example, an index of 200 corresponds
to the word “uncertainty”, accounting for 0.02 per cent of all words. For more information on the world
uncertainty index, see https://worlduncertaintyindex.com/.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

It may not be unreasonable to conclude that investment, economic and social impacts
countries in Africa are the most exposed to (UNCTAD, 2023a). The 2022 report of the
adverse shocks, including those stemming Ibrahim Index of African Governance (2023)
from the global polycrisis. For Africa, the found that Africa was less safe, secure and
current polycrisis comes at a time when democratic in 2021 than in 2012, reflecting
the process of economic transformation slower progress in governance indicators,
has yet to be complete in most countries. such as security, the rule of law, rights
The lingering post-COVID-19 global and inclusion. Between 2000 and 2022,
economic downturn and financial volatility Africa recorded 123 events of forceful
continue to strain government resources. seizure of executive authority or substantial
Although Africa is traditionally perceived change in the executive leadership and
as a risky destination for trade and foreign policies of the prior regime.2 These natural
The lingering
direct investment, eroding incentives for resource dependence and governance
post-COVID-19 businesses to invest in strategic economic features can create a slow-growth, low-
global economic sectors, especially as domestic capabilities trade, poor-governance equilibrium,
downturn and to cope with shocks in the face of adversity contributing to a country’s vulnerabilities
financial volatility remain weak, the African journey has to shocks and limiting its capacities to
continue not always been hazardous. On the mitigate the risks of trade disruption, market
contrary, despite gloomy projections, many dependence and limited productivity.
to strain
economies in Africa remained resilient or
government unaffected by some of the effects of the
In many instances, these vulnerable
resources polycrisis, for example, the credit crunch
environments or the anticipation of trade and
business disruptions can result in firms’ and
of the 2008–2009 financial crisis and
investors’ higher risk perceptions, leading
human losses caused by the pandemic.
to reduced trade flows and overall business
See the next sections for the exposure and
engagement in affected or so-called risk
vulnerability of countries in Africa to shocks
countries. Morrow et al. (1998) note that the
emanating from the global polycrisis.
anticipation of political risks prevents trade
There is a growing understanding in Africa from growing more than the realization of
that the confluence of political, social, conflict leads to disruption. The threats of
economic and environmental vulnerabilities trade disruption or higher trade barriers that
can overwhelm the ability of companies, would result from vulnerable environments
including domestic and foreign trading or macroeconomic and political uncertainties
enterprises, investment firms and other are strong incentives for firms to have
financial agents, to conduct profitable trade adequate resilience programmes in place
and investment activities on the continent. and develop the necessary skills and
It is not uncommon to see countries in capability to assess and mitigate risks posed
Africa falling into one of the four traps by the governance systems and institutions
identified by Collier (2007): the conflict of countries in which they operate. These
trap, the natural resources trap, the trap risks include confiscating assets by host
of being landlocked with bad neighbours Governments or trading within a legal
and the trap of poor governance. There system with limited arbitration. Asongu et
are still many countries in Africa (28) that al. (2021) point out that uncertainty about
are dependent on the export of oil, gas the policies of a specific country or market
and mineral products, representing more can result in disincentives for investors to
than 60 per cent of their total merchandise engage in investments that would facilitate
exports, which exposes them to sector- economic activity and international trade.
specific shocks with significant revenue, Other consequences of such uncertainty

2
These include 13 “successful coups d’état”, 40 “failed coups d’état”, 50 “plotted coups and alleged coup
plots” and 11 “cases of resignation of the executive leadership due to poor performance and/or loss of
authority” (Centre for Systemic Peace, 2022).

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

have been documented to include risks and capture opportunities but less
capital loss, less domestic investment, prepared to withstand the next crisis event.
capital flight and brain drain, which are all The main external and internal threats
critical determinants of productivity and that companies worldwide can face when
international trade (Asongu et al., 2021). moving into new markets and entering
The high-risk perceptions of Africa can new trade and business relationships are
also lead to high borrowing costs, thus many. These include macroeconomic
limiting the ability of countries in Africa to instability, political and security risks, supply
secure financing for growth and economic chain disruption, cost of doing business,
transformation. On average, African technology, innovation, cyberthreats and
sovereigns and corporates borrow at four loss of intellectual property. Therefore, it
to eight times higher rates than those in is important to build companies’ ability
Risk-mitigation
advanced economies (UNCTAD, 2024a). to anticipate change and quickly adapt
their trade and business practices when
measures
Macroeconomic stability and political provide firms
faced with external or internal threats.
accountability uncertainties can also
with full or partial
contribute to high-risk perceptions by both When assessing the possibility of internal
domestic and foreign investors and traders. and external threats and the potential
coverage in
This is particularly so in natural-resource- impact on their businesses, the decisions the event of a
rich countries with weak governance of economic agents to establish or continue loss due to an
lacking adequate checks and balances, a trading enterprise in such environments endogenous
which limits the capacity of Governments depend on various factors. Some might risk event or
in such countries to manage the economic, have to pay a high insurance premium or
an exogenous
political and social impacts of their wealth, purchase trade credit insurance to enter
often called the natural resource curse or into a new market or remain engaged in
shock
paradox of plenty (Goldwyn and Clabough, a high-risk market. These risk-mitigation
2020). Risk perceptions are relatively measures provide firms with full or partial
high in many resource-rich economies in coverage in the event of a loss due to an
Africa, despite efforts by Governments to endogenous risk event or an exogenous
enact and implement legislation for greater shock. Economic agents could also explore
transparency in granting exploration rights strategies to build or leverage diversified
and financial flows monitoring, companies’ production and trade networks to mitigate
commitment to higher standards for threats associated with trade shocks, value
investment and conduct (managing risks and supply chain disruptions, trade policy
and opportunities related to environmental, changes, political uncertainty and financial
social and governance criteria) and initiatives vulnerability. For instance, diversifying their
by financing institutions and development sources of inputs and components to
partners to leverage their assistance reduce dependency on a single market,
for policy reform and capacity-building establishing partnerships with local
efforts (Goldwyn and Clabough, 2020). companies in the target country or offering
See chapter II for the macroeconomic diverse goods and services are various
implications of global shocks in commodity- mechanisms businesses can adopt to deal
dependent countries in Africa. with trade disruptions and uncertainties
more effectively. As stated by Nana et
While global companies are increasingly
al. (2024), “horizontal trade integration
engaging in resilience initiatives to mitigate
contributes to attenuating the negative
external and internal threats to their
effect of uncertainty on trade”. Notably,
businesses, within certain economies,
higher and more diversified levels of trade
including in Africa, firms’ resilience
intensity to be expected under the African
programmes are limited by low capability
Continental Free Trade Area can help reduce
and short-term horizon planning, that
uncertainty when trading across Africa.
is, well-positioned to mitigate ongoing

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

See chapter III for the opportunities to environments, unstable political conditions,
leverage value added trade networks volatile market prices or disrupted supply
under regional trading blocs. chains. The consequential economic
downturns due to reduced trade and
While there are significant benefits
financial flows in such challenging
associated with supplying and buying
environments and the adverse impact
goods and services across various borders,
on growth prospects and the well-being
such cross-border trade activities and
of local communities can easily alter any
transactions can be offset by the risk of
progress made in economic development.
adverse price movements in the market;
In a sense, the process of economic
currency volatility; unpredictable policy
Countries development can be understood as
change, for example, trade policies at the
that are in domestic or regional level; or regulatory
one along which risks to trading and
earlier stages uncertainties, such as interoperability
investment decline. Just as economic
of structural development is associated with structural
between different regulations, systems and
transformation in what a country produces,
transformation processes across borders. To anticipate,
so is economic development associated
are more assess the potential impact of and manage
with a transformation in a country’s trade
such risk events, and ensure that they
vulnerable to patterns: what a country exports and to
do capture the expected returns and
being harmed potential gains when engaging in cross-
whom it exports matters (Bastos and Silva,
by shocks border activities and transactions, traders
2010; Brambilla et al., 2012; Hausmann
emanating from et al., 2007; Hidalgo et al., 2007).
and investors can resort to various de-
the external risking instruments such as derivatives The lack of structural transformation
environment (futures, forward, options, swaps and results in an environment that is perceived
credit derivatives markets), which can to be risky from a trade and investment
be used to eliminate or reduce the risk perspective because the advantages of
of potential losses arising from price specialization, higher productivity, more
volatility, currency fluctuation or other complex production and integration into
market vulnerabilities. In Africa, the Pan- and connectivity with the rest of the world
African Payment and Settlement System, are lacking. Moreover, as economies
a centralized payment and settlement structurally transform, they have the means
system for intra-African trade in goods and to invest in connective infrastructure and
services, was established by the African in commanding and generating greater
Export–Import Bank in collaboration supplies of energy, which are essential
with the African Continental Free Trade for modern economic activity, including
Area Secretariat to facilitate trade in local food production. Where these structural
currencies across various countries in transformation bonuses are lacking,
Africa. See chapter IV on risk management doing business is subject to increased
measures that firms can deploy to reduce risks, as these bonuses determine a
potential risks related to currency exchange country’s absolute and relative economic
and other financial transactions when competitiveness on the global stage. They
operating and trading across Africa. also allow a country to be more resilient
in the face of external shocks. Countries
Risk analysis in a polycrisis that are in earlier stages of structural
context: Interconnecting transformation are more vulnerable to being
exposure and vulnerability to harmed by shocks emanating from the
shocks external environment. The more vulnerable
they are, if an adverse shock occurs, it can
In many parts of the world, economic
set back their structural transformation
transformation and sustainable development
further, possibly creating development traps.
are threatened in the face of polycrisis
and the resulting uncertain business

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Informed by the scholarly literature are vulnerable to suffering damages if

on the nature of and constraints to affected. From discussions on the recent
structural transformation in Africa and polycrisis and building upon more general
its relation to the perceived riskier literature on country-level vulnerability in
environment for doing business, much of developing countries (for example, Biswas
the institution and governance-building and Nautiyal, 2023; Naudé et al., 2009;
policy thrusts of recent decades have Naudé et al., 2011), the risk analysis in this
been aimed at furthering structural chapter will emphasize six types of shock
transformation. These policy thrusts (political, economic, demographic, energy,
have therefore focused on the internal technology and climate change shocks) that
factors determining the vulnerabilities, can threaten trade and capital flows in Africa
and hence risks, of countries in Africa to and six domains across which countries in
external shocks. They have, as such, dealt Africa are vulnerable to those shocks. The
with reducing market and governance interdependent domains of vulnerability are
failures, as mentioned previously. economic, governance, connectivity, social,
energy and climate (see figure I.2 and the
Exposure to shocks does not necessarily
methodological framework in box I.1).
mean that Africa is at risk. The extent of
risk depends on how vulnerable countries The proposed conceptual framework in
in Africa are to being harmed by these figure I.2 shows that a polycrisis is marked
shocks if they occur. Thus, the degree by the exposure of countries in Africa to
of risk is determined by exposure and six categories of covariate hazards or
vulnerability, that is, an indication of the risks, which are hazards or risks that affect
extent of these countries’ exposure to all countries and broad external trends.
these risks and the degree to which they These include political shocks, such as

Figure I. 2
Interconnecting exposure and vulnerability to polycrisis shocks

Exposure to: Vulnerability across:

• Political shocks • Economic domain
• Economic shocks • Governance domain
• Demographic shocks • Connectivity domain
• Energy shocks • Social domain
• Techonology shocks • Energy domain
• Climate change shocks • Climate domain

Source: UNCTAD.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

the rise of populism; economic shocks, has robust institutions), the connectivity
for example, resulting from trade tensions, domain (the extent to which a country is
pandemics and systemic financial crises; connected to and interconnected with
demographic shocks, for instance, due the rest of the world), the social domain
to migration and ageing; energy shocks, (for instance how strong trust and social
caused by the energy transition and capital in a country is), the energy domain
decline in the use of fossil fuels; technology (how dependent a country is with respect
shock, such as the continued digitalization to various forms of energy) and the
of the world economy and advances in climate domain (what efforts a country
artificial intelligence; and climate shocks is taking to adapt to global warming).
resulting from climate change. However,
The next two sections of this chapter will
these shocks do not stem from exposure
explain the exposure of Africa to shocks
to country-specific (idiosyncratic) risks,
emanating from the polycrisis and its
but rather global risks that affect these
vulnerability to being harmed by the external
six categories in an interrelated manner.
shocks identified. Thus, some countries can
Figure I.2 also indicates that countries in be highly exposed to a risk, but because
Africa will be differently affected by these of low vulnerability and high resilience
broad categories of hazards depending to that particular risk, will not be at high
on how vulnerable they are. Here, the risk overall, and vice versa. The benefit of
heterogeneities of countries come into looking at risk from the angles of exposure
play. Thus, depending on how a country and vulnerability is that, while there is little
fares across the six domains, it will be individual countries can do in the short to
more or less at risk. These are domains medium terms to reduce their exposure to
where countries can act to reduce their a risk, they can take action to lessen their
vulnerability. The domains are the economic vulnerability. Hence, the report focuses on
domain (for instance, the extent to which a how countries in Africa can counter the
country is in debt), the governance domain risks emanating from the global polycrisis.
(for instance, the extent to which a country

The risk analysis

will emphasize
six types of shock
(political, economic,
demographic, energy,
technology and climate
change shocks)
© Adobe Stock

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Box I. 1
Methodology

To better understand the risk levels that countries in Africa face in the context of
the polycrisis, a new approach is proposed for analysing and capturing the extent
to which all 54 countries in Africa are exposed to these risks, and the degree to
which they are vulnerable to experiencing damages if affected (see the conceptual
framework in figure I.2).

Empirical approach

This chapter aims to provide a framework based on an empirical approacha that

can inform the assessment of risk and the extent of adverse events on trade and
economic development in all 54 countries in Africa within the context of the global
polycrisis. This depends, in turn, on the structural aspects of their economies; their
integration into the world economy; and the political, economic, energy, technology,
human rights and environmental and climate risks they may face. Moreover, exposure
alone does not mean risk; risk also depends on a country’s vulnerability and resilience.
Resilience, which can be nurtured, depends on the level of economic development,
social cohesion and governance, connectivity, freedom and vulnerability to climate
change. The proposed framework makes emphatically clear that ranking countries
is not helpful, as rankings only reflect relative positions. In a polycrisis, which entails
hazards for all countries, the aim is not to be less affected than other countries
but to reduce potential adverse impacts in an absolute sense. This allows for the
consideration of each country’s level of exposure and vulnerability, and how each
country can best diminish the risk of polycrisis. This then also informs policy.

The exposure to shocks and potentially adverse events in the current polycrisis context
is calculated using six sets of indicators that reflect exposure to political, economic,
demographic, energy, technology, and climate change shocks. The vulnerability to
shocks is calculated using six sets of indicators that reflect vulnerability across six
domains, namely economic development, governance, connectivity, social, energy
and climate. The exposure to shocks and vulnerability to shocks are constructed as
composite components composed of various subcomponents reflecting exposure
and vulnerability, which are composed of data series, some of which are obtained
from existing indices.

Each subcomponent of the exposure and the vulnerability measures is normalized to

lie between 0 and 100, with a higher score indicating higher exposure or vulnerability so
as to obtain scale equivalence between the different indicators used (some bounded
and some unbounded). The following normalization procedure (minimum-maximum
transformation) is used:

This normalization also deals with negative values in the data, which are inverted
where applicable to ensure that a higher value always indicates a higher exposure
or higher vulnerability.

The approach to constructing these components of exposure and vulnerability is

based on international best practice, as per the Handbook on Constructing Composite
Indicators of the Organization for Economic Co-operation and Development (OECD).
The eight desirable attributes of a composite measure are accuracy, simplicity,
methodological soundness, suitability for international and temporal comparisons,
transparency, accessibility, timeliness and frequency, and flexibility.
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 Economic Development in Africa Report 2024
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The framework uses available data; it is simple in that a proliferation of dimensions

is avoided, and it is suitable for international comparisons across Africa in that all
54 countries are covered in all dimensions. The indices are also transparent and the
full method of construction and the full data are available; moreover, all data are in
the public domain, and the measures of exposure and vulnerability can easily be
replicated. The data are thus accessible. Most series are also regularly updated
and available for temporal analysis. The measures are also flexible in that, partly as
a result of their simplicity, it is fairly easy to add new components if desired, as long
as all 54 countries are covered.

The final data used to capture the exposure and vulnerability of all 54 countries in
Africa to shocks in the context of the current global polycrisis are summarized in
tables I.1 and I.2. Most of the data is derived from UNCTAD (UNCTADstat database),
the World Bank and the African Development Bank. Wherever possible, relevant data
from UNCTADstat were prioritized for use. Where UNCTADstat does not provide full
coverage of all 54 countries in Africa, the second source used is the World Bank
and where neither UNCTADstat nor the World Bank cover the categories that the
exposure and vulnerability components are intended to measure, data from the
African Development Bank data are used. Other sources of data used include the
following: Inform climate change risk index (climate change); International Organization
for Migration (migration); Ibrahim Index of African Governance in conjunction with
the World Bank's World Governance Indicators (governance); and Our World in Data
(human rights). Where possible, relevant data for 2022 are used. Where 2022 data
are not available for all 54 countries, the most recent or closest year is used.

Source: UNCTAD, based on OECD, European Union and European Union Joint Research Centre,
2008 and various databases mentioned above.
a
While the empirical approach provides robust data analysis, based on various sources of
regularly updated and available data and indicators, suitable for international comparison across
all 54 African countries (that is, allowing cross-country comparisons), and providing the advantage
of capturing exposure and vulnerability to risks emanating from the polycrisis from various low-
correlated measures, some caveats should be considered when interpreting the results. For
instance, the reliability and validity of the empirical framework have not been extensively tested,
which could affect the findings and measure of exposure or vulnerability across some African
countries. Moreover, the effect of outlier values for some small island developing States regarding
their vulnerability to climate risk emanating from the polycrisis may influence the applicability of the
results. However most of these African States have made significant progress in strengthening their
resilience through improved macroeconomic policies and governance, and have thus improved
their abilities to mitigate climatic hazards and related risks.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Exposure to shocks in Africa

The risks that the polycrisis holds for shocks refer to potential shocks outside the
Africa depend on its exposure to shocks control of a Government, while measures
and its vulnerability to being negatively of vulnerability to shocks considers the
affected by those shocks. Some countries instruments under government control. This
in Africa may be highly exposed but due subsection discusses the six entangled
to sufficient bulwarks, these shocks may types of shock that can threaten trade and
not generate much harm. Others may development in Africa: political, economic,
not be greatly exposed but may be highly demographic, energy, technology and
vulnerable to harm, whereby even relatively climate change. Table I.1 summarizes the
small degrees of exposure may pose risks. components and the data used to construct
For instance, measures of exposure to the exposure to shocks framework.

Table I. 1
Components of the exposure to shocks framework

Components Data used Sources

World Governance Indicators
Political stability and absence of
Exposure to political database (World Bank)
violence indicator
shocks Our World in Data (Global Change
Human rights index
Data Lab)

Trade as a share of gross domestic World Development Indicators

product (GDP) database (World Bank)
Exposure to economic
shocks External debt stocks UNCTADstat product concentration
indices of exports; five-year average
Export product concentration index 2017–2022
Growth in demographic post-dividend
countries World Development Indicators
Exposure to demographic database (World Bank)
Urbanization rate, average 2018–
shocks Migration data portal, International
2022
Organization for Migration
International migrant stock, 2020
Energy imports World Development Indicators
Exposure to energy shocks
Fuel export dependence database (World Bank)
Frontier technology readiness index
Exposure to technology UNCTADstat
shocks Government artificial intelligence Oxford Insights3
readiness index
Agriculture’s share of GDP, average
World Development Indicators
Exposure to climate change 2018–2022
database (World Bank)
shocks Hazards exposure score
Inform climate change risk index
Environmental health pillar score

Source: UNCTAD.
Note: Data year 2022 or otherwise indicated. Wherever possible, relevant data from the UNCTADstat database
are used. Where UNCTADstat does not provide for full coverage of all 54 African countries, other data sources
are used.

3
See https://oxfordinsights.com/ai-readiness/ai-readiness-index

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Political shocks Countries least exposed to political shocks

emanating from the polycrisis are those
The polycrisis is characterized by increased
marked by high levels of political stability
political turbulence worldwide and with
and protection of human rights. The top five
interacting and spillover effects between
among those countries are Botswana, Cabo
countries. It has also affected Africa,
Verde, Seychelles, Namibia and Mauritius.
which has been argued to be particularly
exposed to political shocks. These include
Economic shocks
political uncertainty and protests, erosion
of political freedom and accountability, The external economic shocks to which
threats to progress in protecting human countries in Africa are exposed are well
rights and, in extreme cases, coups d’état known and have generated significant
and violent conflict (Naudé et al., 2011). literature, much of which, in the 1980s and
The exposure In recent years, the prevalence of coups 1990s, dealt with the structural adjustment
of Africa to has remerged in Africa. In 2021, United programmes that many countries had to
Nations Secretary-General Antonio Guterres adopt, most often to obtain financial support
political shocks
referred to “an explosion in seizures of from the Bretton Woods institutions. More
is heightened recently, with the commodity price boom,
power by force” taking place in Africa
by the polycrisis (United Nations, 2021), Since 1950, 220 the global financial crisis and the COVID-19
that has of 492 attempted or successful coups pandemic, the emphasis has shifted towards
exacerbated d’état have taken place in Africa, and 45 the requirements for sound macroeconomic
geopolitical of the 54 countries in the region have management in the face of commodity and
oil price volatility, demand reductions in
tensions experienced such an event (Duzor and
Williamson, 2023). The resurgence of coups the major markets for African exports and
raises a risk for peace and democratic appropriate trade and industry policies for
progress, with potential spill-over effects the structural transformation of economies
on economic growth and inclusivity (United in Africa, given changes in globalization.
Nations Development Programme, 2023). In the global polycrisis, all of these shock
The exposure of Africa to political shocks mechanisms are at work. For instance,
is heightened by the polycrisis that has one of the major impacts is the continued
exacerbated geopolitical tensions. Moreover, disruption of global supply chains, which
there is concern that even the progress that already showed structural changes after
has been made in establishing democratic the global financial crisis of 2008–2009.
governance in Africa may be threatened. Major global supply chain disruptions in
The polycrisis has clearly been exacerbating recent years include the pandemic, the
geopolitical relations. According to recent war in Ukraine and attacks on vessels
Major global literature, the impacts of geopolitical events in the Red Sea shipping lanes. The
supply chain have become more long-lasting and a impacts of global supply chain disruptions
structural market risk (BlackRock, 2023). on countries in Africa are magnified
disruptions by the systemic effects they cause,
Countries in Africa already marked by high
include the exemplifying the interconnectedness that
levels of political instability or a recent history
pandemic, the of such, and countries where human rights characterizes risks in the polycrisis.
war in Ukraine are less entrenched, will be most exposed One such systemic effect of global supply
and attacks to these political shocks associated with the chain reactions to which countries in Africa
on vessels in polycrisis. Figure I.3 shows the exposure are exposed is higher inflation – pushing up
the Red Sea of countries in Africa to political shocks the general cost of living and contributing
derived from the polycrisis. Countries
shipping lanes to the cost-of-living crisis already being
found to be most exposed to political experienced in many countries in Africa.
shocks are also those with the highest
levels of political instability and violence.

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 Economic Development in Africa Report 2024
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Figure I. 3
Exposure to political shocks, by country
Algeria 54.5
Angola 39.7
Benin 20
Botswana 0
Burkina Faso 32.1
Burundi 75.2
Cabo Verde 2.6
Cameroon 50.8
Central African Republic 68.1
Chad 72.6
Comoros 42.3
Congo 55.3
Côte d'Ivoire 36.4
Democratic Republic of the Congo 64.4
Djibouti 51
Egypt 75.9
Equatorial Guinea 53.5
Eritrea 72.7
Eswatini 58.9
Ethiopia 63.6
Gabon 18.9
Gambia 12
Ghana 10.2
Guinea 59.9
Guinea-Bissau 33
Kenya 36.5
Lesotho 20.5
Liberia 17.2
Libya 79.7
Madagascar 30.4
Malawi 15.6
Mali 43
Mauritania 42.9
Mauritius 9.8
Morocco 37.3
Mozambique 44.6
Namibia 8.9
Niger 29.8
Nigeria 53.3
Rwanda 49.1
Sao Tome and Principe 9.6
Senegal 12.5
Seychelles 4.8
Sierra Leone 20.8
Somalia 85.9
South Africa 21.4
South Sudan 92.6
Sudan 79.6
United Republic of Tanzania 25.4
Togo 33.2
Tunisia 33.1
Uganda 57.2
Zambia 17.8
Zimbabwe 57.3
Source: UNCTAD calculations, based on data from the World Governance Indicators database (World Bank)
and Our World in Data (Global Change Data Lab).
Note: Measure of exposure to political shocks based on political instability, absence of violence and human
rights index.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Higher inflation, as the world experienced in (Department of Economic and Social Affairs,
2022, inevitably raises the spectre of higher 2022; Eurostat, 2023). with 20.8 per cent
interest rates, which can shock countries of its population aged 65 years or over
with a heavy debt burden, raising the cost of (European Commission, 2023). A declining
servicing the debt. Large amounts of foreign growth in population and a diminishing share
borrowing can place an unsustainable of working-age people in total population
burden on countries if their economic growth can put pressure on labour markets, create
does not allow sufficient government income imbalances in welfare and pensions and
to service the debt and/or if their exports raise the per capita burden of public finances
and currency movements shift adversely, and investments required for demographic
again making debt servicing difficult. transition (European Commission, 2023).
Such fiscal pressures could hamper the
Hence, because of global supply chain
ability of advanced economies to provide
disruptions and higher inflation and
financing assistance to developing
borrowing costs worldwide, many countries
countries. Official development assistance
in Africa have been facing actual and
is regarded as one of the most stable and
possible debt defaults, recording large
predictable sources of external financing
ratios of external debt to GDP. In 2023,
for developing countries, especially in times
46 per cent of the countries in Africa had
of crisis. Recent international crises have
debt-to-GDP ratios of above 60 per cent
brought a downturn in economic growth,
(UNCTAD, 2024a). The countries most
rising inflation and other macroeconomic
exposed to economic shocks through
challenges, exerting pressure on aid
their global trade and debt levels are
budgets and creating shifts in the global
Mozambique, Zambia, Angola, South
landscape of development aid. For instance,
Sudan and the Congo (figure I.4). It
official development assistance to Africa
becomes clear that countries with larger
declined by 4.1 per cent in 2022, despite
trade shares of GDP, greater export
a global increase of 22 per cent, reaching
concentration and deeper government debt
a record high of $287 billion at constant
will be particularly exposed to the economic
2021 prices. According to United Nations
shocks characterizing the polycrisis.
data, this was the result of a shift towards
The influx of Demographic shocks the allocation of more aid budgets to meet
the socioeconomic needs of refugees
young people A third category of external shocks and asylum seekers in donor countries
into African associated with the global polycrisis is (UNCTAD, 2024b). In Africa, however, the
labour markets related to the impact of the demographic demographic change is characterized by a
will have to be change in Africa and in the region’s main growing share of the world population and
accompanied by economic and trading partners. The a larger share of working-age individuals.
improvements demographic change in some of these The young working-age population of Africa
partner countries is characterized by a (people aged 15–24 years) is projected to
in productivity,
marked slowdown in population growth, increase to 73 per cent (or 151 million) of
investments especially among young people. For the world’s population aged 15–24 years
in skills and instance, while population growth in the by 2050 (United Nations, 2023b). The
technological European Union (27 member States) influx of young people into African labour
advances increased by 92.3 million people between markets will have to be accompanied by
1960 and 2022 (from 354.5 million to substantial improvements in productivity
446.8 million), its share of the world’s growth and increased investments in skills
population has been on the decline (from development and technological advances.
12 per cent in 1960 to 6 per cent in 2022)
and is projected to drop to 4 per cent

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 Economic Development in Africa Report 2024
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Figure I. 4
Exposure to economic shocks, by country
Algeria 9.3
Angola 33.6
Benin 14.8
Botswana 16.7
Burkina Faso 24.1
Burundi 11.6
Cabo Verde 31.1
Cameroon 13.7
Central African Republic 14.4
Chad 22.5
Comoros 14.2
Congo 33.3
Côte d'Ivoire 17.9
Democratic Republic of the Congo 14.5
Djibouti 13.4
Egypt 7.4
Equatorial Guinea 18.6
Eritrea 14.7
Eswatini 17.4
Ethiopia 9.6
Gabon 23.8
Gambia 13.5
Ghana 25
Guinea 20
Guinea-Bissau 25.9
Kenya 10.4
Lesotho 28.9
Liberia 18.6
Libya 32.6
Madagascar 15.2
Malawi 6.7
Mali 22.7
Mauritania 22.3
Mauritius 19.7
Morocco 12.9
Mozambique 43.9
Namibia 21.3
Niger 15.2
Nigeria 10.3
Rwanda 18.1
Sao Tome and Principe 18.3
Senegal 20
Seychelles 29.3
Sierra Leone 16.6
Somalia 23.1
South Africa 9.9
South Sudan 33.6
Sudan 8.4
United Republic of Tanzania 12.8
Togo 15.8
Tunisia 12.3
Uganda 14.6
Zambia 33.6
Zimbabwe 22.6

Source: UNCTAD calculations, based on data from the World Development Indicators database (World Bank)
and UNCTADstat.
Note: Measure of exposure to economic shocks based on trade share, export concentration and external debt.

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 Economic Development in Africa Report 2024
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Migrant and refugee flows represent another Energy shocks

demographic shock to which countries
A fourth category of shocks emanating from
in Africa are exposed. Climate change,
the global polycrisis can broadly be labelled
conflicts and economic stagnation are three
as energy shocks. Globally, energy markets
of the major drivers of voluntary and forced
are in flux. This is most notable in disruptions
migration across the continent (Naudé,
in energy markets and prices that were
2010). These forces will continue to push
sparked by the COVID-19 pandemic, then
further out-migration, in an interconnected
amplified by geopolitical tensions, such as
and mutually reinforcing manner. Intra-
the war in Ukraine and tension in parts of the
African migration data, concerning countries
Middle East (International Energy Agency,
of origin and destination situated in Africa,
2023a). Although oil prices have increased
rose from about 18 million Africans in 2015
sharply above $40 per barrel since 2005,
to 21 million in 2020, slightly higher than
the market has been subject to extreme
the number of migrants from Africa (19.5
volatility, with the crude oil price peaking at
million in 2020), that is, Africans living in non-
an average of about $110 per barrel in 2011
African countries (International Organization
and 2012 and then dipping to a low $42 per
for Migration, 2024). This dynamic is
barrel in 2020.4 Following extraordinary
similarly reflected in refugee flows, with
price spikes in 2022, oil prices moderated
most African refugees being hosted in
in 2023 and returned above $90 per barrel
other African countries (International
in September 2023 (International Energy
Organization for Migration, 2024). While
Agency, 2023a). Volatility and turbulence
free movement protocols adopted at the
in energy markets, especially fossil fuels,
subregional level, for instance in regional
increase risks to energy security and
economic communities, have been
affordability. In 2023, the International Energy
instrumental in enabling such migration
Agency (2023b) estimated investment
flows, climate-change–induced disasters,
in the energy sector to be $2.8 trillion.
such as droughts, hurricanes and floods,
Countries in Africa are also exposed
remain a significant driver of migration and
to changes in the costs and availability
displacement in Africa. Thus, as climate
of energy for the following reasons:
change intensifies, migration will increase,
Africa is which will contribute to further economic • The continent has access to and
exposed to stagnation, which in turn will make the uses only a marginal share of the
global energy supply at present.
changes in mitigation of and adaptation to climate
change more difficult. Countries that are • Much more energy use is
the costs and
already home to a large stock of immigrants needed to support economic
availability of will be particularly exposed, as the latter growth and development.
energy: will put further pressure on resources and • Energy poverty is high in Africa, with
$190 billion may have an impact on economic growth. a significant share of the population
required Based on these features, figure I.5 without access to electricity.
annually shows the demographic shock exposure • As the world transitions away from
to address across countries in Africa. The ones fossil fuels in line with the agreement
energy needs most exposed to demographic shocks established at the twenty-eighth
and risks are Seychelles, Djibouti, Botswana, Côte Conference of the Parties to the United
d’Ivoire and Libya. The countries with the Nations Framework Convention on
lowest levels of exposure are Madagascar, Climate Change, held in Dubai in
the Niger, Mauritius and Morocco. 2023, countries in Africa still have
limited ability and access to reliable
renewable energy sources, such as
untapped solar, wind and hydropower.

4
See UNCTADstat data at https://unctadstat.unctad.org/datacentre/dataviewer/US.CommodityPrice_A.

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 Economic Development in Africa Report 2024
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Figure I. 5
Exposure to demographic shocks, by country
Algeria 19.7
Angola 34.1
Benin 32.7
Botswana 49.9
Burkina Faso 3.6
Burundi 38.2
Cabo Verde 34.2
Cameroon 28.2
Central African Republic 23.7
Chad 30.7
Comoros 20.8
Congo 25.6
Côte d'Ivoire 49.8
Democratic Republic of the Congo 21
Djibouti 53.9
Egypt 14.8
Equatorial Guinea 21.3
Eritrea 22.8
Eswatini 25.5
Ethiopia 35.4
Gabon 46.1
Gambia 46.3
Ghana 25.1
Guinea 21.8
Guinea-Bissau 20.3
Kenya 36.1
Lesotho 22.1
Liberia 24.2
Libya 48.3
Madagascar 7.5
Malawi 18.8
Mali 34.1
Mauritania 32.8
Mauritius 10
Morocco 12.8
Mozambique 22.4
Namibia 44.7
Niger 8.2
Nigeria 18.2
Rwanda 33.5
Sao Tome and Principe 18.9
Senegal 15.6
Seychelles 55.2
Sierra Leone 13.2
Somalia 14
South Africa 39.8
South Sudan 25.6
Sudan 31.8
United Republic of Tanzania 22.2
Togo 32.9
Tunisia 14.9
Uganda 27.4
Zambia 17.1
Zimbabwe 25
Source: UNCTAD calculations, based on data from the World Development Indicators database (World Bank)
and Global Migration Data Portal (International Organization for Migration).
Note: Measure of demographic shock exposure based on demographic growth, urbanization and stock of
international migrants.

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 Economic Development in Africa Report 2024
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Thus, given these exposures, the Technology shocks

combination of higher energy prices and
A fifth category of shocks associated
reductions in the availability of fossil fuels
with the global polycrisis is technology
in African countries dependent on oil
shocks. The major technology shocks
exports, poses a threat to further economic
to which countries in Africa are exposed
development. In addition, for the few fuel
are those related to the digitalization of
exporters on the continent, the danger is
the world economy, including the rise of
that increases in oil rents may distort local
artificial intelligence and data-intensive
markets and exert further pressure on
technologies, often described as the fourth
governance systems. With regard to energy
Industrial Revolution. These technology
shocks, the magnification of such shocks
shocks pose various threats, including
can be generated by economic shocks. For
environmental impacts (high water and
instance, economic shocks can have an
energy use related to the operationalization
impact on the ability of Africa to invest and
(that is, data processing and storage
build the additional energy infrastructure
and other processes) of digital and data-
needed. According to the International
intensive technologies, such as artificial
Energy Agency (2023c), at least $190 billion
intelligence, the Internet of things, fifth-
will be required annually between 2026 and
generation mobile networks and blockchains
2030 to address energy needs and risks,
(UNCTAD, 2024c). These emerging
implying energy investment equal to 6.1 per
digital technologies have the potential to
cent of GDP by 2030. Determining from
increase the automation of low-skilled jobs,
which sources these will be derived and how
especially in advanced economies and
this will be financed remains a challenge,
emerging countries. This can particularly
Artificial- especially considering rising debt levels in
affect women, who are often marginalized
Africa. Countries most dependent on either
intelligence– into labour-intensive, low-paying jobs
importing and/or exporting energy may be
driven the most exposed to shocks in international
offering little opportunity for growth and
automation energy markets. Figure I.6 shows overall
advancement (UNCTAD, 2024c).
could lead to exposure to energy shocks across Africa. It is expected that artificial-intelligence–
job losses The countries most exposed to energy driven automation could lead to growing
shocks are Nigeria, Libya, Cameroon, job losses and that countries in Africa
Mozambique and Gabon. The countries may be especially vulnerable. As such,
with the lowest level of exposure to energy countries with inadequate digital and
shocks emanating from the polycrisis are technological regulations, including
Sao Tome and Principe, Burundi, Comoros, government capabilities to regulate and
Central African Republic and Lesotho. stimulate local capacity-building, and
those that have a digital gap in terms of
The global move away from fossil fuels
access to frontier digital technologies, will
towards renewable energy will increase the
generally be more exposed to technological
demand for minerals used in manufacturing
shocks. The UNCTAD frontier technology
renewable energy infrastructure, opening up
readiness index and the Oxford Insights
strategic opportunities for Africa. Countries
government artificial intelligence readiness
in Africa have substantial reserves of these
index both show a notable gap in
critical minerals, accounting for 35 per
technological readiness between countries
cent of the world’s manganese reserves,
in Africa and advanced economies,
50 per cent of global cobalt and reserves
suggesting a significant exposure to
and nearly 75 per cent of phosphate rock
further transformations of economies and
reserves (International Renewable Energy
business models by these technologies.
Agency, 2024). These critical minerals
and metals are also subject to increased
demand in the global shift to low-carbon
and digital technologies (UNCTAD, 2024c).

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Figure I. 6
Exposure to energy shocks, by country
Algeria 8.4
Angola 55.7
Benin 1
Botswana 6.3
Burkina Faso 0.8
Burundi 0.1
Cabo Verde 1
Cameroon 68.3
Central African Republic 0.2
Chad 1
Comoros 0.1
Congo 56.1
Côte d'Ivoire 37.4
Democratic Republic of the Congo 0.7
Djibouti 1
Egypt 51.2
Equatorial Guinea 1
Eritrea 9.6
Eswatini 1
Ethiopia 9.5
Gabon 62.1
Gambia 3.5
Ghana 54.3
Guinea 1
Guinea-Bissau 1
Kenya 18.5
Lesotho 0.2
Liberia 1
Libya 85.6
Madagascar 1.4
Malawi 0.3
Mali 1
Mauritania 0.7
Mauritius 7
Morocco 10.2
Mozambique 62.8
Namibia 11.8
Niger 52.5
Nigeria 87.6
Rwanda 0.7
Sao Tome and Principe 0.1
Senegal 41.6
Seychelles 1.7
Sierra Leone 0.4
Somalia 1
South Africa 31.2
South Sudan 1
Sudan 9.5
United Republic of Tanzania 11.2
Togo 26.1
Tunisia 25
Uganda 2.1
Zambia 12.6
Zimbabwe 12.2

Source: UNCTAD calculations, based on data from the World Development Indicators database (World Bank).
Note: Measure of exposure to energy shocks based on imports and exports of energy.

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 Economic Development in Africa Report 2024
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The literature suggests that technology The natural environment in many countries
shocks and associated digital gaps can in Africa is already facing many stressors,
present economic risks for late industrializing including pollution, over-exploitation
countries by increasing the risk and cost and rapid rates of urbanization (see
of doing business, especially in volatile section "Demographic shocks").
and unregulated environments or by
Countries in Africa have contributed little
posing a threat to the labour force, given
to the existing stock of greenhouse gases
the automation of jobs (Naudé, 2023).
in the atmosphere. Africa accounts for
While increased digitalization has resulted
about 2 to 3 per cent of the world’s carbon
in shifts in the nature and functionality of
dioxide emissions (World Meteorological
labour markets on both the demand and
Organization, 2023). However, it is also
supply sides, it is important to note that
acknowledged that these countries
the latest frontier technologies generate
may be disproportionately affected by
goods and services that can provide
climate change and its responses. In
opportunities for creating new jobs,
2022, climate-related hazards affected
professions and economic opportunities
more than 110 million people in Africa,
(Bhorat et al., 2023; UNCTAD, 2023b).
causing significant economic damage,
Countries in Africa most exposed to estimated at over $8.5 billion (World
technological shocks are South Sudan, Meteorological Organization, 2023). While
Eritrea, the Central African Republic, most countries in Africa have committed to
Somalia and Liberia (figure I.7). The least climate adaptation strategies and climate
exposed countries are Egypt, South governance frameworks, for example,
Africa, Mauritius, Tunisia and Morocco. nationally determined contributions, many
countries face implementation and financing
Climate change shocks challenges arising from these strategies and
frameworks. For instance, implementing
Climate change and inadequate responses
climate governance frameworks in the
In 2022, to climate change affect the risk profile of
53 African countries that submitted
climate-related countries in Africa. This raises the risks of
their nationally determined contributions
investment and trade projects delivering
hazards will require investments of up to $2.8
less-than-expected returns. Sectors
affected particularly at risk of climate-related
trillion between 2020 and 2030 (World
more than events in Africa include agriculture and
Meteorological Organization, 2023). The lack
110 million food production, tourism, water-intensive
of strong adaptation to climate change could
cost countries in Africa economic loss and
people in manufacturing and transport. The threats
residual damages ranging between $290
Africa, causing of extreme weather and climate events
billion (in a 2°C warming scenario) and $440
significant in reducing agricultural productivity,
billion (in a 4°C warming scenario) (African
affecting biodiversity and ecosystems and
economic Development Bank, 2022). The responses
diminishing natural resource bases could
damage, fuel conflicts for scarce productive land,
that the world agreed to at the twenty-eighth
estimated at water and pastures (World Meteorological
Conference of the Parties to transition away
over $8.5 billion from fossil fuels will impose a potential
Organization, 2023). The likely migration
cost – real and opportunity – on countries
of populations, as habitats become
in Africa (see section "Energy shocks").
uninhabitable, will also upend estimates of
market demand and can disrupt economic Another factor that could expose Africa
growth. The natural environment of Africa to climate-change–related shocks
and its exposure to natural hazards make and responses is the green industrial
it vulnerable to climate change shocks. policies adopted by an increasing
After Australia, Africa is the world’s second- number of countries to mitigate
driest continent (Simpson et al., 2023). climate change and reinvigorate their
economies (Alami et al., 2023).

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Figure I. 7
Exposure to technology shocks, by country
Algeria 40.3
Angola 58.6
Benin 47.1
Botswana 36.8
Burkina Faso 69.9
Burundi 87.8
Cabo Verde 49
Cameroon 66
Central African Republic 97.8
Chad 92.2
Comoros 85.4
Congo 64.4
Côte d'Ivoire 62.2
Democratic Republic of the Congo 87
Djibouti 66.5
Egypt 3.3
Equatorial Guinea 84.7
Eritrea 98
Eswatini 61.1
Ethiopia 69.9
Gabon 53.5
Gambia 73.8
Ghana 44.2
Guinea 78.3
Guinea-Bissau 91.2
Kenya 42.8
Lesotho 62.1
Liberia 94.1
Libya 63.1
Madagascar 68.6
Malawi 73.4
Mali 70
Mauritania 70.5
Mauritius 4.1
Morocco 21.5
Mozambique 72.5
Namibia 41.1
Niger 90.2
Nigeria 43.4
Rwanda 38
Sao Tome and Principe 70.8
Senegal 38.6
Seychelles 65.4
Sierra Leone 66.5
Somalia 94.5
South Africa 4
South Sudan 100
Sudan 82.6
United Republic of Tanzania 53.8
Togo 66.8
Tunisia 4.4
Uganda 61.2
Zambia 62.9
Zimbabwe 65.4
Source: UNCTAD calculations, based on data from the frontier technology readiness index (UNCTAD) and
government artificial intelligence readiness index (Oxford Insight).
Note: Measure of exposure to technology shocks based on government artificial intelligence readiness index
and distance to the technology frontier

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 Economic Development in Africa Report 2024
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These include the Green Deal Industrial Plan Figure I.8 depicts the exposure to climate
(European Union); the Modern American risk across Africa. It suggests that the
Industrial Strategy as laid out in the Inflation Niger, Burundi, Mali, the Central African
Reduction Act of 2022, the Infrastructure Republic and Ethiopia are the countries
Investment and Jobs Act of 2021 (also in Africa most exposed to climate change
known as the Bipartisan Infrastructure shocks. The low exposure of small island
Law) and the Creating Helpful Incentives to developing States to climate change
Produce Semiconductors and Science Act shocks within the context of the polycrisis
Exposure to of 2022 (United States); the Green Growth can be partly explained by good local
shocks does Strategy (Japan) and the Korean New Deal coping, adaption and risk management
not necessarily (Republic of Korea). These green industrial abilities; sound institutional foundations;
mean that strategies offer opportunities for countries in developed hard and soft infrastructure; and
Africa is at risk. Africa but also pose risks (Akinkugbe, 2023), remoteness or insulation from the global
one of which is that they could have an shocks of the polycrisis. (UNCTAD, 2024f).
The extent of
effect on trade and investment opportunities
risk depends on in African mining and energy sectors.
how vulnerable However, it is important that the trade and
Vulnerability to shocks
countries are investment policies of countries ensure a Exposure to shocks does not necessarily
harmed by the fair sharing of the benefits of the energy mean that Africa is at risk. The extent of risk
occurrence of transition to avoid the rich endowment of depends on how vulnerable countries are
critical minerals in Africa resulting in the
these shocks harmed by the occurrence of these shocks.
economic and governance issues that The best way to define and understand
have adversely affected development in vulnerability is not to determine whether a
resource-rich economies in the past. country can avoid being affected or exposed
There is also debate on whether to an event but to determine whether it can
African exporters may lose access to cope. As such, the flip side of vulnerability is
large, important markets such as the resilience, namely, a country’s coping ability,
European Union, particularly under that is, its ability to recover from an adverse
the European Union carbon border shock or event. While adverse events
adjustment mechanism5 and the Critical and even exposure are largely exogenous
Raw Materials Act (2023).6 Industries that to individual countries, their vulnerability
have been identified to be at high risk for (lack of resilience) can be “self-inflicted”
the application of tariffs in terms of the (Guillaumont, 2008). Thus, the degree of risk
mechanism include cement, iron and steel, is determined by exposure and vulnerability.
aluminium and fertilizers (Monaisa, 2022). Table I.2 summarizes the components
In Africa, countries that are more dependent and the data used to construct the
on fossil fuel energy and agriculture vulnerability of countries in Africa to
for livelihoods and exports, and those shocks emanating from the polycrisis
that already have poorer environmental (see box I.1 on the methodology).
health and are more subject to natural
hazards, will be more exposed to
adverse events from climate change.

5
In Monaisa (2022), the mechanism is defined as a European Union “climate measure aimed at preventing the
risk of carbon leakage” and involves a carbon tax on the embedded greenhouse gases of carbon-intensive
products imported into the European Union.
6
The Act, updated on 11 April 2024, aims to ensure the secure access of the European Union to critical
minerals needed for its green transition.It creates a buyers’ club for these minerals and a dominant position
in the supply chain, which poses a risk for countries in Africa. This could place them at a disadvantage when
negotiating prices and related conditions.

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 Economic Development in Africa Report 2024
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Figure I. 8
Exposure to climate shocks, by country
Algeria 32.1
Angola 31.6
Benin 41.4
Botswana 10.3
Burkina Faso 54.7
Burundi 72.2
Cabo Verde 11.3
Cameroon 55.3
Central African Republic 71.1
Chad 68.4
Comoros 35.9
Congo 29.1
Côte d'Ivoire 40.4
Democratic Republic of the Congo 59.1
Djibouti 12.2
Egypt 41.2
Equatorial Guinea 12.5
Eritrea 42.1
Eswatini 25.3
Ethiopia 70.6
Gabon 21.2
Gambia 36.3
Ghana 43.5
Guinea 44.3
Guinea-Bissau 45.5
Kenya 40.8
Lesotho 14.4
Liberia 53.4
Libya 28.6
Madagascar 49.4
Malawi 43.1
Mali 71.9
Mauritania 9.6
Mauritius 17.3
Morocco 32
Mozambique 65.2
Namibia 23.3
Niger 77
Nigeria 62.2
Rwanda 45.6
Sao Tome and Principe 8.9
Senegal 40.5
Seychelles 6.3
Sierra Leone 61.4
Somalia 64.6
South Africa 14.5
South Sudan 46.4
Sudan 58
United Republic of Tanzania 46.6
Togo 36.5
Tunisia 23.9
Uganda 54.4
Zambia 21.1
Zimbabwe 28.6
Source: UNCTAD calculations, based on data from the Inform climate change risk index (European Union),
World Development Indicators database (World Bank) and the environmental performance index (Yale
University).
Note: Measure of exposure to climate shocks based on agriculture, environmental health and natural hazards.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

An economically Economic vulnerability to external shocks. However, GDP per

more developed capita is not sufficient on its own; also
A country is vulnerable in the economic
important is how inclusively this GDP
country is domain if the extent to which its
has been generated and the vulnerability
considered economy can act as a bulwark or pillar of
of jobs created through GDP growth.
less resilience in the face of external shocks is
Thus, an economically more developed
compromised. There is significant literature
vulnerable country is considered less vulnerable.
on vulnerability that has identified GDP
per capita as an important bulwark (see
chapter II). Countries with higher GDP per
capita are seen as being less vulnerable

Table I. 2
Components of the vulnerability to shocks measure

Components Data used Sources

Foreign direct investment, average
percentage of net inflows, 2013–
2022 World Development Indicators
Economic vulnerability
GDP per capita, 2022 database, World Bank
Vulnerable employment, average,
2018–2022
Average governance score, 2013– Worldwide Governance Indicators
Governance vulnerability 2022 database (World Bank)7
Governance weakness Ibrahim Index of African Governance8
World Development Indicators
Liner shipping connectivity index, database, World Bank
2021 World Development Indicators
Logistics performance index, 2022 or database, World Bank
closest year African infrastructure development
Connectivity vulnerability
Transport composite index, 2022 index, 2022, African Development
Information and communications Bank
technology (ICT) composite index, African infrastructure development
2022 index, 2022, African Development
Bank
Share of population with access to World Development Indicators
Energy vulnerability
electricity, average, 2018–2022 database, World Bank
Social progress index, Social Progress
Social vulnerability Social progress index scores, 2023
Imperative
Global Data Lab vulnerability index9 Global Data Lab vulnerability index
Climate change
vulnerability Global Adaptation Initiative University of Notre Dame, United
vulnerability index10 States

Source: UNCTAD.
Note: Data year 2022 or indicated otherwise. Wherever possible, relevant data from the UNCTADstat database
are used. Where UNCTADstat does not provide for full coverage of all 54 African countries, other data sources
are used.

7
See www.govindicators.org/#home.
8
See https://mo.ibrahim.foundation/iiag.
9
See https://globaldatalab.org/gvi/about/.
10
See https://gain.nd.edu/our-work/country-index/.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Many African economies remain largely such as Africa that matters, but the risk- There are
dependent on natural resources, tend adjusted return that investors face. Thus, emerging
to be rural-based and are characterized many countries in Africa are considered by
by low productivity, which can have an investors to be a risky investment (Gbohoui
opportunities
impact on sustained industrialization and et al., 2023). The fundamental, deep-seated to achieve
structural change on the continent (see, risk facing investors and traders in Africa is effective
for example, Christiaensen and Chuhan- that it may fail to structurally transform and structural
Pole, 2015; De Vries et al., 2015; Lele et thus remain vulnerable to external shocks. change and
al., 2015; McMillan and Headey, 2014; and build resilient
Based on the above, countries in Africa
Rodrik, 2014). However, there are emerging
with a low level of economic development economies on
opportunities to achieve effective structural
change and build resilient economies on the
as measured by GDP per capita, with more the continent
vulnerable employment and inequalities,
continent, including the catalyst role and
and with less access to foreign direct
potential of digitalization and technology in
investment inflows, will be more vulnerable
fostering higher productivity and increasing
in the economic dimension towards external
the complexity of African exports.
shocks. The most economically vulnerable
Harnessing the demographic dividend countries in Africa are South Sudan, the
of Africa – an abundance of labour – will Central African Republic, Burundi, Burkina
require unprecedented investment in African Faso, the Niger and Chad (figure I.9).
economies, namely, investments in human
capital, physical capital and infrastructure, Governance vulnerability
business capital (including intangible capital),
According to Williamson (1998),
social capital and social technologies. The
governance “is the means by which order
combination of investment and innovation
is accomplished in a relation in which
required suggests that nothing short of
potential conflict threatens to undo or upset
an entrepreneurial revolution is necessary
opportunities to realize mutual gains”. Lack
to reduce the economic dimensions of
of good governance is often perceived as
vulnerability in Africa. This would entail both
one of the most serious sources of self-
an entrepreneurial state and a dynamic
inflicted vulnerability to external shocks in
private sector. In a textbook model of
Africa. Two notable country governance
the world, such investment flows would Lack of good
indicators that provide coverage for all
happen as a matter of course, including
African countries are the World Bank governance is
investment flows from advanced to less
developed economies as investors face
Worldwide Governance Indicators and the often perceived
Ibrahim Index of African Governance. The as one of the
diminishing returns to capital investments
Worldwide Governance Indicators database
in economically advanced regions. It is the
contains six indicators for over 200 countries
most serious
idea that investments would flow downhill.
and territories since 1996. These six sources of
However, in the real world, this does not
indicators cover voice and accountability, vulnerability to
happen. Although foreign direct investment
political stability and the absence of violence external shocks
to Africa has been flowing downhill in recent
years, declining by 3 per cent in 2023 to
and terrorism, government effectiveness, in Africa
regulatory quality, rule of law and control
$53 billion (UNCTAD, 2024d), private capital
of corruption. The Ibrahim Index of African
investment on the continent has been
Governance measures governance along
flowing uphill, reaching a high of $7.6 billion
four dimensions, namely security and the
in 2022, before dropping to $5.9 billion
rule of law; participation, rights and inclusion;
in 2023, influenced by broader global
foundations for economic opportunity;
economic uncertainty that has compelled
and human development. Neither of
many investors to exercise caution in their
these two measures of governance
investment strategies (African Private Capital
document significant improvements in
Association, 2024). Therefore, it is not just
the average scores of countries in Africa.
the opportunities for investment in a region

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Figure I. 9
Economic vulnerability to polycrisis shocks, by country
Algeria 47.5
Angola 78.9
Benin 88.1
Botswana 43.4
Burkina Faso 89.2
Burundi 91.4
Cabo Verde 47
Cameroon 80.9
Central African Republic 94.8
Chad 88.6
Comoros 76.6
Congo 69.4
Côte d'Ivoire 79.3
Democratic Republic of the Congo 84.5
Djibouti 62.2
Egypt 35.9
Equatorial Guinea 68.9
Eritrea 86.3
Eswatini 54.1
Ethiopia 85.5
Gabon 44.1
Gambia 76.6
Ghana 74.5
Guinea 87.8
Guinea-Bissau 86.7
Kenya 75.9
Lesotho 72.1
Liberia 70.9
Libya 39.6
Madagascar 86.4
Malawi 77.4
Mali 85.2
Mauritania 63
Mauritius 23.5
Morocco 63.4
Mozambique 20.3
Namibia 51.1
Niger 88.6
Nigeria 83.9
Rwanda 78.9
Sao Tome and Principe 63.8
Senegal 74.8
Seychelles 8.8
Sierra Leone 82.6
Somalia 86
South Africa 16.5
South Sudan 95.8
Sudan 68.6
United Republic of Tanzania 85.9
Togo 85.9
Tunisia 34.9
Uganda 82.1
Zambia 81.5
Zimbabwe 80.9

Source: UNCTAD calculations, based on data from the World Development Indicators database (World Bank).
Note: Measure of economic vulnerability based on GDP per capita, vulnerable employment and net inflows of
foreign direct investment.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Those countries where governance is trade integration, through trade liberalization

lacking in the aforementioned terms in goods and services and improved
would be more vulnerable to suffer regional infrastructure and logistics, provides
adversely in the face of external shocks. opportunities for lowering intra-African trade
costs. For instance, the implementation
Countries with the strongest governance,
of the Agreement Establishing the African
that is, countries scoring lowest on
Continental Free Trade Area is expected to
measures of governance vulnerability,
increase intra-African freight by 28 per cent
are Mauritius, Cabo Verde, Botswana,
(primarily through rail, road and air transport)
Seychelles, South Africa, and Tunisia
and demand for maritime freight by 62 per
(figure I.10). These are countries in Africa
cent (UNCTAD, 2023c). Such improvements
that have made significant progress in
in intracontinental logistics networks will
strengthening their resilience to external
contribute to building the resilience of
shocks through improved macroeconomic
Africa to risks related to connectivity.
policies, governance and stability.
Logistical services, or trade logistics, refer to
Connectivity vulnerability the services and infrastructure necessary to
support and facilitate the movement of trade
There are four dimensions in which the
from point A to point B. The key logistical
interconnectivity of countries in Africa and
services and infrastructure consist of
their connectivity to the rest of the world
customs and border clearance facilities and
cause them to be vulnerable to shocks that
services, the quality and appropriateness
can restrict the flow of goods and services,
of trade and transport infrastructure, such
ideas and labour. These dimensions are
as roads, ports and storage facilities; the
trade and transport costs, logistical services,
accessibility and costs of international
shipping and ICT and digital connectivity.
shipping; the quality of services provided
Trade costs refer to “all costs incurred in
by fourth-party logistical service firms; the
getting a good to a final user other than
infrastructure and ICT skills to track and
the marginal cost of producing the good
trace shipments (digitalization of trade) and
itself: transportation costs (both freight
costs and time costs), policy barriers
the reliability of transport services (World High trade
Bank, 2023a). Although shipping is included
(tariffs and non-tariff barriers), information costs create
in logistical services, it is necessary to
costs, contract enforcement costs,
discuss it as a separate item or dimension
risks. Trade
costs associated with the use of different costs are a
of vulnerability in Africa. The bulk of its trade
currencies, legal and regulatory costs and
with the rest of the world depends largely major source
local distribution costs (wholesale and retail)”
(Anderson and van Wincoop, 2004; see
on foreign-owned shipping companies. of risk and
chapter III for intra-African trade costs).
UNCTAD maritime transport indicators show uncertainty, and
that in 2021, ports in developing economies of vulnerability
High trade costs create risks. The longer of Asia handled 59 per cent of world port
the distance, the more time is needed container traffic, compared with 4 per cent
to shocks
for exports, which in turn requires more of those in Africa (UNCTAD, 2024e).
inventory to be held, thus resulting in
The 2050 Africa’s Integrated Maritime
increased depreciation costs and possible
Strategy of the African Union recognizes
adverse impacts on the perceived quality of
these vulnerabilities in shipping and liner
the product (Hummels and Schaur, 2013).
connectivity, and in 2012, set forth an
Inadequate infrastructure and logistics
agenda to extend the capabilities of Africa
accentuate this downside of distance. Time-
in shipping, recognizing the need for better
sensitive exports, such as fresh produce,
ports and shipping to allow countries in
are therefore less likely to be traded across
the region to reap the potential benefits of
great distances. Trade costs are a major
the African Continental Free Trade Area.
source of risk and uncertainty, and of
vulnerability to shocks. However, regional

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 Economic Development in Africa Report 2024
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Figure I. 10
Governance vulnerability to polycrisis shocks, by country
Algeria 46.6
Angola 65.7
Benin 37.8
Botswana 12.4
Burkina Faso 39.5
Burundi 68.6
Cabo Verde 9.8
Cameroon 61
Central African Republic 80
Chad 75.6
Comoros 60.1
Congo 54.6
Côte d'Ivoire 54.5
Democratic Republic of the Congo 75.9
Djibouti 68.4
Egypt 51.3
Equatorial Guinea 84.2
Eritrea 90.3
Eswatini 53.2
Ethiopia 56.2
Gabon 53.8
Gambia 48.6
Ghana 24.7
Guinea 62.6
Guinea-Bissau 68.1
Kenya 38.9
Lesotho 38.7
Liberia 53.7
Libya 76.9
Madagascar 57.2
Malawi 42.9
Mali 54.3
Mauritania 60.4
Mauritius 2
Morocco 34.9
Mozambique 51
Namibia 20.1
Niger 50.6
Nigeria 54.7
Rwanda 30.6
Sao Tome and Principe 36.4
Senegal 28.2
Seychelles 13.5
Sierra Leone 51
Somalia 99.1
South Africa 19.8
South Sudan 97.6
Sudan 80.7
United Republic of Tanzania 43.9
Togo 52.1
Tunisia 19.8
Uganda 48.8
Zambia 43.9
Zimbabwe 62.7

Source: UNCTAD calculations, based on data from the Worldwide Governance Indicators database (World
Bank) and the Ibrahim Index of African Governance database (Mo Ibrahim Foundation).
Note: Measure of governance vulnerability based on average governance score, 2013-2022, selected from the
Worldwide Governance Indicators and Governance weakness score, 2022, selected from the Ibrahim Index of
African Governance.

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 Economic Development in Africa Report 2024
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In this regard, according to Konstantinus climate change, natural disasters and other
and Woxenius (2022), maritime transport has societal risks (United Nations Development
significant potential in Africa, given its large Programme, 2024). Perhaps the most
geographic area, projected freight volumes comprehensive in this regard is the social
and customs and trade policies currently progress index.11 It measures the broader
being pursued. However, such a system conditions of people’s lives according
will require additional impetus in terms of to three pillars, namely, basic needs,
strategy, policy and infrastructure. UNCTAD foundations of well-being and opportunities.
(2023c) reports that Africa will require close Each of these pillars consists of several
to 2 million additional trucks, over 100,000 indicators, spanning safety, access to water,
rail wagons, 250 aircraft and more than 100 nutrition, health care and housing, to the
vessels by 2030, if the African Continental extent to which a society is inclusive and
Free Trade Area is to be fully implemented. provides freedoms, rights and advanced
education. Countries that score high on this
Intraregional trade is, from this point
index can reasonably be expected to have
of view, a bulwark against the risks
more robust social capital. Social capital is
of adverse global shipping changes
especially important for strong community
in coming years (see chapter III). It
governance, which complements the roles
will, however, need to be supported
of markets and Governments, and can
by the development of intraregional
help decrease the number of market and
shipping infrastructure and services.
governance failures. Allouche et al. (2023)
Significantly, the countries that are most discuss resilience during the polycrisis and
vulnerable to shocks from the polycrisis are stress that in times of crisis, communities
those that face high trade and transport need to develop their own responses
costs, inadequate logistical services and according to their own needs and priorities.
poorly accessible and unreliable shipping,
It can thus be expected that countries
and that lag behind in terms of ICT and
in Africa with stronger social capital and
digital connectivity. Based on these
hence better community governance, as
determinants, the most vulnerable countries
reflected in their social progress index
in Africa in terms of connectivity are Eritrea,
scores, will be less vulnerable to unfortunate
Somalia, the Niger, Burundi, Madagascar
external events during the polycrisis. While
and Sierra Leone (figure I.11). The least
vulnerable countries are Seychelles, Egypt,
reducing social vulnerability can act as Countries in
South Africa, Mauritius and Morocco.
a bulwark against the global polycrisis, Africa with
the polycrisis itself may negatively impact stronger
social capital and social progress. For
Social vulnerability social capital
instance, the COVID-19 pandemic and its
With regard to social vulnerability, the unprecedented impact on global health
will be less
“broader conditions in which people are and economic and financial systems vulnerable
born, live, work and age can worsen an has not spared African countries from to unfortunate
unfortunate event […] into a veritable economic contraction, with major setbacks external events
disaster” (Mah et al., 2023). Therefore, with regard to poverty and inequality. The during the
a broad set of measures needs to be socioeconomic cost of the pandemic has
considered. Social vulnerability is also
polycrisis
been estimated at about 2.5 per cent of
defined as the differential capacity of GDP, or about $65.7 billion per month
individuals or communities to cope with (Economic Commission for Africa, 2021).
social and environmental shocks, including

11
See /www.socialprogress.org.

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 Economic Development in Africa Report 2024
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Figure I. 11
Connectivity vulnerability to polycrisis shocks, by country
Algeria 62.5
Angola 84.3
Benin 70.5
Botswana 48.8
Burkina Faso 74.6
Burundi 89.8
Cabo Verde 59.9
Cameroon 84.2
Central African Republic 86.7
Chad 87.2
Comoros 79
Congo 78.1
Côte d'Ivoire 62.3
Democratic Republic of the Congo 86.8
Djibouti 67.7
Egypt 14.6
Equatorial Guinea 80.2
Eritrea 94.7
Eswatini 58.7
Ethiopia 80.6
Gabon 74.8
Gambia 79.4
Ghana 65.4
Guinea 80.7
Guinea-Bissau 80.1
Kenya 52.6
Lesotho 76.1
Liberia 85.9
Libya 62.9
Madagascar 89.2
Malawi 82.1
Mali 77.9
Mauritania 84.5
Mauritius 34.9
Morocco 42.9
Mozambique 80.3
Namibia 62.5
Niger 92
Nigeria 74.1
Rwanda 74.9
Sao Tome and Principe 75.2
Senegal 80.2
Seychelles 13.1
Sierra Leone 89.2
Somalia 93.7
South Africa 19.3
South Sudan 88.3
Sudan 84.8
United Republic of Tanzania 70.4
Togo 74.5
Tunisia 62.8
Uganda 79.2
Zambia 78.6
Zimbabwe 72.9

Source: UNCTAD calculations, based on data from UNCTADstat, the logistical performance index (World Bank)
and the infrastructure development index (African Development Bank).
Note: Measure of connectivity vulnerability based on liner shipping connectivity, logistics performance and
transport and ICT infrastructure.

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 Economic Development in Africa Report 2024
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Figure I.12 depicts the vulnerability of For access to renewable energy to

countries in Africa across the social be made more generally available, a
domain, based on the 2023 social progress challenge lies in building the appropriate
index score, normalised and inverted. energy infrastructure, including integrating
Countries with the highest levels of social renewable energy into the existing electricity
vulnerability are South Sudan, the Central grid, and upgrading this grid. Countries
African Republic, Chad, Somalia and with existing infrastructure, which can be
Eritrea. The countries with the lowest proxied by the access of the population
social vulnerability are Mauritius, Cabo to electricity, will be less vulnerable, in
Verde, South Africa, Tunisia and Algeria. particular, because creating infrastructure
requires energy in the first place. The risk to
Energy vulnerability investment and trade in Africa in the current
polycrisis is that if energy use is not handled
Countries in Africa are exposed to energy
properly, it will have significant negative
shocks, given that the continent has
implications on agricultural productivity,
access to and uses only a marginal share
the competitiveness of agricultural exports
of global energy supply at present (see
and the viability of industrialization based
section "Energy shocks"). Moreover, much
on food production and agribusiness.
more energy use is needed to support
Ultimately this may jeopardize food
economic growth and development, and
security, which may in turn lead to political
energy poverty is high in Africa, with a
instability and conflict, further deteriorating
significant share of the population not having
the investment and trade climate.
access to electricity. As the world begins to
transition away from fossil fuels, as agreed The countries in Africa most vulnerable to
by the twenty-eighth Conference of the the adverse effects of shocks based on
Parties to the United Nations Framework their low levels of access to electricity and
Convention on Climate Change, countries low quality of electricity infrastructure are
in Africa still have limited ability and access South Sudan, Burundi, Chad, Malawi and The countries
to reliable renewable energy sources such the Central African Republic (figure I.13). in Africa that
as solar, wind and hydropower. As energy will be most
prices increase, and the transition away
vulnerable
from fossil fuels gains traction, and as the
effects and impacts of climate change
to shocks to
intensify, the countries in Africa that will be global energy
most vulnerable to shocks to global energy markets are
markets are those with a lack of access to those with a
renewable energy sources. Securing access lack of access
to critical minerals and metals that are to renewable
essential for the energy transition and the
energy
global shift to low-carbon and sustainable
technological, industrial and economic
sources
progress has intensified competition among
various countries, with the potential risks of
creating additional environmental pressures
and geopolitical and socioeconomic
tensions associated with the production and
trade of those minerals (UNCTAD, 2024c).

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 Economic Development in Africa Report 2024
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Figure I. 12
Social vulnerability to polycrisis shocks, by country
Algeria 23.2
Angola 64
Benin 53.5
Botswana 28.5
Burkina Faso 62.3
Burundi 72
Cabo Verde 16.5
Cameroon 59.6
Central African Republic 97.1
Chad 91.4
Comoros 54.1
Congo 76.5
Côte d'Ivoire 53.1
Democratic Republic of the Congo 62.9
Djibouti 56.9
Egypt 34.1
Equatorial Guinea 62.4
Eritrea 78.3
Eswatini 55.5
Ethiopia 65.1
Gabon 38.5
Gambia 51.5
Ghana 30.7
Guinea 70.6
Guinea-Bissau 64.6
Kenya 44.5
Lesotho 53.7
Liberia 64.2
Libya 38.9
Madagascar 63.3
Malawi 52
Mali 64.8
Mauritania 62.3
Mauritius 6.5
Morocco 28.2
Mozambique 61.1
Namibia 35.3
Niger 71.2
Nigeria 57.8
Rwanda 54.1
Sao Tome and Principe 32
Senegal 42.6
Seychelles 5
Sierra Leone 62.3
Somalia 84.1
South Africa 18.2
South Sudan 100
Sudan 64.2
United Republic of Tanzania 47.8
Togo 56.1
Tunisia 20.6
Uganda 60.7
Zambia 50.7
Zimbabwe 55
Source: UNCTAD calculations, based on data from social progress index (Social Progress Imperative),
normalized and inverted.
Note: Measure of social vulnerability based on the social progress index score inverted. The social progress
index score for Seychelles is not available.

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 Economic Development in Africa Report 2024
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Figure I. 13
Energy vulnerability to polycrisis shocks, by country
Algeria 15.7
Angola 7
Benin 22.4
Botswana 38.9
Burkina Faso 13
Burundi 4.6
Cabo Verde 9.3
Cameroon 6.3
Central African Republic 0.1
Chad 3.4
Comoros 3.3
Congo 6.6
Côte d'Ivoire 11
Democratic Republic of the Congo 0.2
Djibouti 15.8
Egypt 95.6
Equatorial Guinea 10.1
Eritrea 9.5
Eswatini 21.8
Ethiopia 0.6
Gabon 11.3
Gambia 5.6
Ghana 11.2
Guinea 4
Guinea-Bissau 17
Kenya 12.9
Lesotho 0.2
Liberia 6.9
Libya 14.2
Madagascar 8.7
Malawi 13.1
Mali 16.7
Mauritania 15.4
Mauritius 43.2
Morocco 24
Mozambique 4.9
Namibia 1.6
Niger 3.1
Nigeria 15.8
Rwanda 10.7
Sao Tome and Principe 5.4
Senegal 10.9
Seychelles 29.6
Sierra Leone 3.9
Somalia 5
South Africa 36.6
South Sudan 10
Sudan 6.6
United Republic of Tanzania 10.6
Togo 1.4
Tunisia 24.9
Uganda 1.3
Zambia 5.3
Zimbabwe 11.5

Source: UNCTAD calculations, based on data from the World Development Indicators database (World Bank).
Note: Measure of energy vulnerability based on access to electricity (share of population), 2018-2022 average,
normalised inverted.

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 Economic Development in Africa Report 2024
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Climate change vulnerability Data Lab vulnerability index, a “composite

index designed to monitor and project
Countries in Africa that are more dependent
socioeconomic vulnerability to climate
on fossil fuel energy and on agriculture for
change,” and the Notre Dame Global
livelihoods and exports, that already have
Adaptation Initiative, country index of
poorer environmental health and that are
Countries in more subject to natural hazards will be more
resilience or readiness to climate change
(see table I.2). These two indices provide
Africa that are exposed to adverse events from climate
an overview of the responses of countries
more dependent change. How much they will be at risk also
to their climate change exposures. The
on fossil fuel depends on their vulnerability or resilience.
Notre Dame Global Adaptation Initiative
energy and The degree of vulnerability or resilience is
index, for example, is calculated using
largely a function of policy choices. In the
agriculture for 36 indicators covering sensitivity and
climate change domain, these would be
livelihoods and the policies Governments have enacted to
adaptation to changes in food, water, health,
exports will be ecosystem services, human habitat and
mitigate climate change impacts and adapt.
infrastructure, considering climate change.
more exposed
In terms of adaptation to climate change,
to adverse the nature of the impacts of climate change
The countries in Africa most vulnerable to
events from climate change impacts emanating from
is myriad, varied and heterogenous across
the global polycrisis shock are Chad, South
climate change countries. It is therefore necessary to take
Sudan, Sierra Leone, the Central African
this into account when evaluating countries’
Republic, and Guinea (figure I.14). The
responses. One source of heterogeneity
low vulnerability of small island developing
is that some geographic areas are more
States across the climate change domain
subject to drought or constraining soil
within the context of the polycrisis can be
conditions. An example can be found
explained by good local coping, adaption
among the smallholder farmers in the Sahel
and risk management abilities; sound
region and Southern and Eastern African
institutional foundations; developed hard
regions, who are heavily dependent on
and soft infrastructure; and remoteness
rain-fed agriculture for food production,
or insulation from the global shocks
income generation and livelihoods, and are
of the polycrisis. (see recent literature
vulnerable to climate variability and frequent
on remoteness (UNCTAD, 2024f)).
natural disasters (Simpson et al., 2023).
Differences in financial systems can also
help – or hinder – adaptation to climate
Priority areas for building
change. For instance, using panel data bulwarks against risk
covering 15,265 firms in 71 countries
Table I.3 pinpoints the top two domains
between 1999 and 2017, Kling et al.
across which selected African countries
(2021) found that in countries that are more
are found to be most vulnerable to shocks
vulnerable to climate change, firms face
In countries emanating from the polycrisis. These are
rising costs of debt as a result of restricted
that are more access to finance. Partly, this is because
some of the key areas that could benefit
vulnerable to climate change can negatively affect a
from strengthened policy responses, to build
resilience to overall risk in the economy.
climate change, firm’s earnings and because “investors are
firms face rising increasingly considering environmental, This does not imply that a country should
costs of debt social and governance performance of only address one source of vulnerability;
businesses before they make investment it merely indicates that these are the
as a result
decisions” (Kling et al., 2021). components that show the highest value,
of restricted that is, the domains in which the countries
access to The most comprehensive measures of
are most vulnerable. Table I.3 shows that
finance or countries’ climate change vulnerability
the major domains where countries in
that attempt to bring its multidimensional
low ESG Africa are vulnerable are either economic
nature into perspective are the Global
investment vulnerability or connectivity vulnerability.

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 Economic Development in Africa Report 2024
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Figure I. 14
Climate change vulnerability to polycrisis shocks, by country
Algeria 4.1
Angola 54
Benin 58.3
Botswana 15.1
Burkina Faso 61.7
Burundi 69.8
Cabo Verde 19.7
Cameroon 30.2
Central African Republic 78
Chad 92.2
Comoros 47.5
Congo 50.3
Côte d'Ivoire 41.1
Democratic Republic of the Congo 71.3
Djibouti 38.7
Egypt 19.1
Equatorial Guinea 25.4
Eritrea 69
Eswatini 50.9
Ethiopia 41.4
Gabon 30.6
Gambia 32.6
Ghana 37.9
Guinea 73.9
Guinea-Bissau 54.1
Kenya 39.4
Lesotho 62.6
Liberia 31.5
Libya 40
Madagascar 60.6
Malawi 71.4
Mali 59
Mauritania 27.7
Mauritius 1
Morocco 26.2
Mozambique 46.2
Namibia 50.6
Niger 56.6
Nigeria 54.2
Rwanda 51.8
Sao Tome and Principe 44.2
Senegal 33.4
Seychelles 54.3
Sierra Leone 80.4
Somalia 21
South Africa 15.2
South Sudan 84.6
Sudan 44.7
United Repubic of Tanzania 50.2
Togo 48.3
Tunisia 3.2
Uganda 68.1
Zambia 43.1
Zimbabwe 49.1
Source: UNCTAD calculations, based on data from the global vulnerability index (Global Data Lab) and the
Global Adaptation Initiative index (Notre Dame University).
Note: Measure of climate change vulnerability based on Global Data Lab global vulnerability index and Notre
Dame Global Adaptation Initiative index.

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 Economic Development in Africa Report 2024
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It also indicates that some countries tend to come to affect the risk landscape of Africa.
be most vulnerable in the energy domain. The external crises in energy, debt and
commodity prices of previous decades
Considering the domains across which
are now compounded by crises or
African countries are most vulnerable to
shocks that were unknown then, namely,
shocks (as identified in table I.3) and the
technology shocks, demographic shocks,
need to build bulwarks and resilience, the
geopolitical shocks and climate shocks.
subsequent chapters of the report will
delve into some of the underlying factors of This chapter identifies six categories of
vulnerability across some of the economic, entangled external shocks to which the
connectivity and energy domains and the polycrisis exposes countries in Africa.
policy implications for reducing trade- These are political, economic, demographic,
related risks from the polycrisis in Africa. energy, technology and climate change
shocks. The extent to which these pose
risks to trade and investment is argued
Conclusion to depend on a country’s vulnerability
In 2024, the world is in a polycrisis: a crisis to being harmed by such shocks if they
that confronts humanity with mega-threats, occur. Less vulnerable, and hence more
which may be persistent. At the core of resilient, countries will be less harmed, and
the polycrisis is the interconnectedness of therefore, trade and investment will be less
economic, social, political and environmental at risk. Six domains across which countries
systems. For countries in Africa, the in Africa are particularly vulnerable were
polycrisis comes at a point when the project therefore identified. They are the economic,
of economic development is incomplete. governance, connectivity, social, energy
Trade and investment in these countries are, and climate change. These measures
therefore, particularly at risk in the polycrisis. provide gauges of the areas where trade
and investment (and, per implication,
While the internal factors determining the economic development) are ultimately
risk to trading and investment in Africa most at risk, and across which domains,
have been constantly known, the nature based on country-level heterogeneity.
of external shocks, and hence the nature
of exposure to adverse effects, has As it was found that the major domains
shifted significantly in the aftermath of the where countries in Africa are most
Second World War, when many countries vulnerable in the current context of the
in Africa achieved independence from polycrisis shocks are either economic
colonial rule. In the 60 or so years after vulnerability or connectivity vulnerability,
independence, the external crises affecting the remainder of this report will explore
risks to investment and trade in Africa were how they can best build bulwarks in these
limited to energy, debt and commodity domains against risks to trade and capital
price crises. In 2024, the polycrisis had flows to and across the continent.

When countries
in Africa are less
vulnerable, and hence
more resilient, they
will be less harmed
by shocks from
the polycrisis, and
therefore, trade and
© Adobe Stock

investment in Africa
will be less at risk
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 Economic Development in Africa Report 2024
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Table I. 3
Major areas of vulnerability to polycrisis shocks, by country

Top two Top two

vulnerability domains vulnerability domains
Algeria Connectivity + Economic Libya Governance + Connectivity
Angola Connectivity + Economic Madagascar Connectivity + Economic
Benin Economic + Connectivity Malawi Energy + Connectivity
Burkina Faso Economic + Energy Mali Economic + Connectivity
Burundi Energy + Economic Mauritania Connectivity + Economic
Cabo Verde Connectivity + Economic Mauritius Connectivity + Economic
Cameroon Connectivity + Economic Morocco Economic + Connectivity
Central African Social + Economic Mozambique Connectivity + Energy
Republic
Chad Energy + Social Namibia Connectivity + Economic
Comoros Connectivity + Economic Niger Connectivity + Economic
Congo Connectivity + Social Nigeria Economic + Connectivity
Côte d’Ivoire Economic + Connectivity Rwanda Economic + Connectivity
Democratic Republic Connectivity + Energy Sao Tome and Connectivity + Economic
of the Congo Principe
Djibouti Governance + Connectivity Senegal Connectivity + Economic
Egypt Governance + Economic Seychelles Climate + Governance
Equatorial Guinea Governance + Connectivity Sierra Leone Connectivity + Economic
Eritrea Connectivity + Governance Somalia Governance + Connectivity
Eswatini Connectivity + Social South Africa Governance + Connectivity
Ethiopia Economic + Connectivity South Sudan Social + Energy
Gabon Connectivity + Governance Sudan Connectivity + Governance
United Republic of
Gambia Connectivity + Economic Economic + Connectivity
Tanzania
Ghana Economic + Connectivity Togo Economic + Connectivity
Guinea Economic + Connectivity Tunisia Connectivity + Economic
Guinea-Bissau Economic + Connectivity Uganda Economic + Connectivity
Kenya Economic + Connectivity Zambia Economic + Connectivity
Lesotho Connectivity + Economic Zimbabwe Economic + Connectivity
Liberia Connectivity + Energy

Source: UNCTAD calculations.

Note: As the 2023 Social Progress Index score used to measure the vulnerability of African countries to
polycrisis shocks in the social domain is not available for Seychelles, vulnerability to polycrisis shocks is
measured and analysed in this chapter with respect to the economic, governance, connectivity, energy and
climate change domains (see table I.2).

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

40
 Economic development
in Africa report 2024

Chapter II

Monitoring
economic
vulnerabilities
when trading
and investing
across Africa
© Adobe Stock
 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Introduction

Chapter I provided an analysis of the and other crises that have an impact
impact of the global polycrisis on countries on output. This chapter assesses the
in Africa in terms of their exposure to six performance of economies in Africa
categories of external shocks (political, during periods of shocks from two main
economic, demographic, energy, technology perspectives: first, exposure to shocks
and climate) and their vulnerability across and the effect due to macroeconomic and
six domains (economic, governance, structural vulnerabilities; and second, the
connectivity, social vulnerability, energy effects of exposure to shocks and of a
and climate-change related). It was found specific crisis according to vulnerability by
that economic vulnerability was among country grouping. A stable macroeconomy
the top two domains across which most provides an anchor for the economy. In
countries in Africa are most vulnerable addition, macroeconomic policies are
to current polycrisis shocks. In essence, useful in ensuring economic adjustments
the global polycrisis can add to their that absorb shocks efficiently. Conversely,
economic burdens, further exposing a diversified structure ensures that the
their overall systems to instability, and economy can absorb shocks through
many find themselves ill equipped to the long term, thereby safeguarding
respond effectively to the adverse effects the economy against vulnerability.
of overlapping crises, both external and
internal. Such economic vulnerability Walking on eggshells:
tends to be greater for countries that are Risks to the outlook
dependent on the export of key natural
Between 2000 and 2023, economies in
resources or that have restrained financial
Africa emerged as attractive destinations
resources to buffer shocks (Crisis Group,
for trading and investments. A key variable,
2023). Their economic vulnerability to
often regarded as an indicator of interest
shocks, and thus their limited ability to
for investment, is GDP growth.1 In Africa,
manage crisis conditions, can result in
economic growth averaged 4.1 per cent
severe economic deterioration, with lower
between 2000 and 2023. According to the
output growth, slumps in external demand
2024 world development indicators of the
and export revenues when key export
World Bank, the average annual percentage
sectors or products are affected, reduced
change was 1.7 percentage points higher
fiscal space and onerous debt burdens.
than the global average of 3.1 per cent
In such a situation, promoting a stable
between 2000 and 2010. Similarly, between
economic environment and resilient trade
2011 and 2020, weighted average GDP
sectors will be important steps towards
growth in Africa was 3.1 per cent, compared
building a bulwark to the polycrisis.
with the global average of 2.4 per cent.
The lack of diversification of many Due to the COVID-19 pandemic shock
economies in Africa is a major concern effect, on average, the economy in Africa
for trade (UNCTAD, 2022b), since they contracted by 3.4 per cent in 2020.
are poorly buffered in times of economic

1
In this chapter, a distinction is made between growth and decline in output. An increase in the level of output
at the end of a period over and above the initial level of output at the start of the period is defined as growth
in output. By contrast, where output at the end of a period is lower that the initial level of output at the start
of the period, the decline is referred to as a contraction in output. In this case, the standard period used to
measure output levels is usually a fiscal or calendar year.

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 Economic Development in Africa Report 2024
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However, data from the world development Figure II.1 provides an overview of the
indicators showed that growth picked up to weighted average economic growth in
an average of 5.0 per cent between 2021 Africa in the two decades to 2022. Its
and 2023, higher than the global average economy grew on average by 4.9 per
Economic of 4.7 per cent over the same period. cent, underpinned by commodity price
increases in 2001 and 2004. Nevertheless,
growth picked Nonetheless, despite growth above
the period after 2008 and up to 2009
up to an average the global average, countries in Africa
saw a dip in economic growth due to
of 5% between experienced transient growth with unequal
the global financial crisis, which lowered
results within and between countries. For
2021 and 2023, commodity-dependent exporters, where
global demand for African goods. The
higher than the commodity dependency indicates that
Arab Spring had unfavourable effects
global average on economic growth. Libya and Tunisia,
commodities constitute more than 60 per
which were among the top 10 economies
of 4.7% cent of the value of their exports, on
in Africa in terms of GDP per capita at the
average, periods of high prices led to an
time of the Arab Spring, saw their output
increase in output (UNCTAD, 2023d). By
decline, while GDP growth fell in Egypt,
contrast, regional-specific effects, such as
with spillover effects for other economies in
the Arab Spring, which began in 2010, led
Africa that export goods to North Africa.
to a decline in output. Further, the COVID-19
pandemic, which began in late 2020, had Economic growth moderated to a low
adverse effects for most countries in Africa, of 2.8 per cent in 2015 due to the
with the impact of the pandemic affecting delayed effects of declining fuel prices,
economic output into the medium term. which began in 2014 (figure II.1).

Figure II. 1
Historical view of shocks to the economy of Africa: Average gross
domestic product growth
(Annual Percent change)

Commodity Global financial Arab Spring Commodity price COVID-19

price boom crisis decline pandemic

8
7
6
5
4
3
2
1
0
-1
-2
-3
-4
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022

Source: UNCTAD, based on World Development Indicators database (World Bank), 2024.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Fuel exporters such as Angola, Gabon various polycrisis generated adverse effects
and Nigeria were adversely affected, on African countries, with the impact and
with the shock affecting fiscal revenue magnitude of the shocks largely dependent
and leading to inflationary pressures in on an individual country’s vulnerability (see
Nigeria. By contrast, fuel importers such chapter I). The following sections analyse
as Malawi, Rwanda, Uganda and the the variables that provide a broad overview
United Republic of Tanzania saw improved of vulnerability among African countries and Economic and
trade balances as lower fuel import the possible implications of vulnerability
for risk to trading and investments.
trade resilience
prices reduced current account balances
(International Monetary Fund, 2015a). of countries are
best assessed
Finally, the COVID-19 pandemic had Trade patterns during a during times
adverse far-reaching impacts on all system-wide crisis of major
economies in Africa. The measures
taken by most countries to contain The economic and trade resilience of crisis events
the pandemic had twofold effects: countries are best assessed during times
of major crisis events that can cause
• Increased spending on medical
severe stresses to economic systems with
supplies, as well as the implementation
interlinked effects on other systems. A
of fiscal stimulus measures for most
recent system-wide crisis that has brought
economies, meant that fiscal pressures
unprecedented impacts on various systems
mounted, while internal demand and,
is the COVID-19 pandemic, a health-related
therefore, output decreased significantly.
crisis that created a global demand and
• As other economies adopted similar supply crisis and disrupted many industries
measures, demand for African goods and economies. This section will, therefore,
dropped, further compounding the assess the pattern and composition of
already dire effects of the pandemic. trade of countries in Africa during the
Trade-in-services export-oriented period including the crisis, 2019–2021,
economies, such as those with to provide a better understanding of the
dominant tourism sectors, for structural vulnerabilities of African countries
instance, Cabo Verde and Mauritius, and to guide the policy actions needed
were most affected, since the to strengthen bulwarks to shocks.
accommodation and food service
With about 16 per cent of the world
activities hardest hit by the pandemic.
population living in Africa, its trade volumes
In addition to the aforementioned shocks, are disproportionately small, representing
other external shocks, such as climate less than 2.9 per cent of world trade in 2022
change, had growth-limiting impacts on (African Export-Import Bank, 2023). The
agricultural product export economies. low trade volume reflects the challenging
For instance, droughts in 2010–2011 in economic placement of Africa in the world
East and Southern Africa (International economy, where it is relatively weak and
Organization for Migration, 2023) led to hence dependent on stronger economic
lower-than-expected agricultural output. regions, while also being especially
For countries dependent on the export of vulnerable to external shocks. According
agricultural products, this has detrimental to 2024 data from the United Nations
effects on trade balances, which can lead Comtrade database, Africa has five main
to pass-through inflationary effects, rising trading partners, accounting for over 50
unemployment and vulnerability risks. per cent of all of its imports and exports,
While growth rates were broadly above the namely China, the European Union, India,
global average between 2000 and 2023 South Africa and the United States.
(with the exception of 2003, 2007 and
2021), the shocks experienced during the

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Since Africa relies significantly on the Further fragmentation could have serious,
socioeconomic, trade policy and political wide-reaching effects on Africa. The
situation of its trading partners (UNCTAD, International Monetary Fund (2023a)
2018a), it is especially vulnerable to the hypothesized that if trade tensions persisted,
policies and factors that affect demand under an extreme scenario of a division into
for and supply of goods and services. two trading blocs with China and the United
While Africa has not been targeted States and the European Union, Africa would
In 2022, intra-
by these policies, it has suffered the be hit hardest, with an expected 4 per cent
Africa trade consequences thereof, for example, falling decline in GDP after 10 years. Similarly, in
values stood at commodity prices and lower demand this scenario, foreign direct investments and
16%, whereas for imports in China (Devermont and other development flows toward Africa could
in Europe, 68% Chiang, 2019; World Bank, 2019). drop by $10 billion. Further fragmentation
of trade was Moreover, the overreliance of Africa on a few
and heightened trade protectionism
intraregional, and measures by its main trading partners could
key trading partners becomes more evident
have damaging effects on the continent.
in Asia, 59% when comparing the share of intra-African
trade with those of other regions. In 2022, Nevertheless, Africa remains vulnerable,
intra-Africa trade values stood at 16 per due to its dependence on China and the
cent, whereas in Europe, 68 per cent of United States and the respective trade
trade was intraregional, and in Asia, 59 per policies and political climates of these two
cent (UNCTAD 2023e). Moreover, apart trading partners. Strengthening intra-African
from some commodities, such as cobalt, trade could help dampen some of the
manganese and graphite, the dependency is effects, while mitigating some of the other
mostly one-sided: Africa is more dependent risks posed by current trade structures.
on its trading partners for imports, with a
In addition, the distance from countries
less-than-proportionate number of exports.
in Africa, with the exception of South
This imbalance weakens its position in the
Africa, to their top trading partners,
global trade environment, where Africa is
is relatively large, which exacerbates
overdependent and underrepresented.
the vulnerability of trade in Africa.

Figure II. 2
Top African merchandise exports, 2019–2021
(Billions of dollars)
80 84

60

40

20 26

14 11 11 6
12 10 9 9

Petroleum Gold Platinum Copper Petroleum Petroleum Diamonds, Motor Iron ores Insulated
oils, crude oils, other gases not cars and wire, cable
than crude mounted concentrates and other
electric
conductors
Source: UNCTAD, based on data from the United Nations Comtrade database.

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 Economic Development in Africa Report 2024
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The implications of such distances are petroleum exports, based on data from
greater dependencies on external factors, the United Nations Comtrade database.
such as fuel prices for transportation or the Cameroon, Congo, Egypt and Gabon
functioning of trade routes, which can be were also among the leading exporters of
hindered easily, as seen during the disruption crude petroleum oil over the same period,
in the Suez Canal in 2021 (UNCTAD, 2024g). albeit with much lower volumes, compared
with Angola and Nigeria. The latter, as the
A look at export products shows that
largest economy on the continent and the
crude oil is the most prominent (figure II.2),
principal oil exporter, plays a large role
accounting for more than 20 per cent
in the economic landscape of Africa.
of all exports. Gold is the second-most
important export, representing 6 per With regard to gold, the second-most
cent of exports. Other leading exports exported product in terms of value, the
are platinum, copper and non-crude oil. situation is not as extreme in terms of single
According to data from the United Nations dependencies. However, the leading 10 gold
Comtrade database, most of the top exporters export more than 80 per cent
products are basic commodities; the top of the trade volume, South Africa being Owing to its
10 products make up almost half of all the largest exporter, followed by Burkina dependence
exports. Thus, African trade, in particular Faso, the United Republic of Tanzania, on basic
exports, is characterized by a lack of Egypt, Côte d’Ivoire, Uganda, Zimbabwe,
commodities,
diversification, with dependency on the Senegal, Rwanda and Namibia. Given that
export of basic commodities, resulting in gold prices rose sharply between 2019 the African
low productivity growth (UNCTAD, 2022b). and 2021, exporting countries, especially economy
Moreover, with little or no value added
South Africa, were able to benefit greatly is highly
for commodity exports from countries
(Minerals Council South Africa, 2021). dependent
in Africa, policies that strengthen value Owing to its dependence on basic on the prices
addition within the continent, for instance, commodities, the African economy is of these
refineries or other processing plants such highly dependent on the prices of these commodities
as a precursor facility in the Democratic commodities. While this can be positive,
Republic of the Congo (see UNCTAD, as in the case of gold in recent years,
2023f) could boost local economies, while it can also have serious consequences
prompting investment in local infrastructure. when prices suddenly change, for
Notably, the untapped potential for oil example, during the Arab Spring, when
refineries is apparent when trade patterns oil prices fluctuated widely. As most trade
are considered; crude oil is the main export in Africa is in basic commodities, it is
product, while non-crude oil is the most especially susceptible to price fluctuations
imported good. Commendable policies have and adverse shocks in prices.
been implemented to encourage private
An analysis of imports shows that the major
sector participation, for example, the newly
imports of Africa are mostly comprised of
built Dangote Petroleum Refinery in Nigeria
petroleum products and motor vehicles
that started production in late 2023.
(figure II.3). The top two imported products
In addition, a more in-depth analysis of are non-crude oil and motor cars, with
the top two export products by country Nigeria, South Africa, Egypt, Morocco and
emphasizes the lack of diversity. On average, Kenya being the leading importers. Given
Angola and Nigeria were the main exporters that they are among the largest economies
of petroleum in 2019 and 2021,2 with both in Africa, they are also the main importers.
countries accounting for 73 per cent of

2
The choice of analysis for the period 2019–2021 is twofold: first, the period captures the COVID-19 pandemic;
second, there is scant country data after 2022, since most African countries generally report trade data with
a delay of two years.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Together, the five countries account for However, with the establishment of the
55 per cent of oil imports and 70 per African Continental Free Trade Area,
cent of vehicle imports (data from the the potential for further expansion of
United Nations Comtrade database). The the pharmaceutical sector is growing,
dominance of the principal five economies in as well as the potential to counteract
imports is understandable, since they benefit dependencies (UNCTAD, 2023f).
from economies of scale. Notwithstanding,
A particularly challenging aspect of the
there is great potential for these leading
import structure in Africa is that it relies on
economies to unlock value added
imports of grains, such as wheat and rice,
opportunities in intra-African trade markets.
as evidenced by their presence among
A particularly Other major imports are medicines, grains the top 10 imports. Grain imports are
challenging and rice and telephone sets, based on further affected by climate change, which
data from the United Nations Comtrade has an adverse impact on crops and
aspect of the
database. The top 10 products account harvests in general, leading to a twofold
import structure for 28 per cent of imports, and show a problem, namely, Africa is disproportionately
in Africa is that more diversified import structure. While affected by climate change, especially
it relies on this is positive in the sense that there droughts, which has a negative impact
imports of are less crucial dependencies on single on local crops; and, at the same time, as
grains, such as goods, it can be a disadvantage when other regions of the world are adversely
external shocks, such as the pandemic affected by climate change, the supply
wheat and rice
in 2020, affect the countries producing is further decreasing, and Africa, with its
these import goods, leaving the continent growing population and dependency on
vulnerable without sufficient access to outside supply, is left in a frail position.
essential goods, for example, fuel or
As depicted in figure II.3, the structure of
medicine (Rackimuthu et al., 2021).
the African economy remained relatively
unaltered between 2019 and 2021.

Figure II. 3
Leading African merchandise imports, 2019–2021
(Billions of dollars)
49
40

20

16
13 11 11
9
6 6 5 5

Petroleum Motor Petroleum Medicaments Wheat Telephone Petroleum Rice Vehicles; Motor
oils, other cars, oils, crude and sets gases goods vehicles
than crude passenger meslin parts

Source: UNCTAD, based on data from the United Nations Comtrade database.

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 Economic Development in Africa Report 2024
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The structure of the African Nonetheless, this picture of the more

economy remained relatively diversified economies in Africa has varied
unaltered considerably over time. Between 1995
and 2023, Cameroon, Côte d’Ivoire,
Intuitively, diversification is contrary to Mauritius and Uganda were among the
David Ricardo’s theory of comparative top 10 countries that converged towards
advantage, which broadly states that global trade patterns in terms of exports,
a country should specialize in the an indication that the share of exported
production and export of goods for goods rose relative to the world average of
which it has a comparative advantage. the same goods (figure II.5). An increase
However, diversification for African countries in the number of goods initially expands a
remains a more suitable solution, since it country’s diversification relative to the world
acts as an economic buffer and is defined at a fast pace. However, beyond a certain
by the production and export of more number of goods, a country’s diversification,
goods, rather than specialization in a few. compared with that of the rest of the
world, grows at a slower pace. In addition,
Thus, the number of goods a country
although South Africa remains the most
exports is useful in determining a country’s
diversified economy in terms of number of
level of diversification (figure II.4). While
goods exported – 254 in 2023, according
economies in Africa remain to a large
to data from the UNCTADstat database
extent undiversified, the average masks
– export diversification has moderated in
between-country differences. For instance,
recent years, as indicated by the changing
Egypt, Kenya, South Africa and Tunisia
pattern in the diversification index.
exported the most goods in 2022 and
achieved the highest scores in the
UNCTAD diversification index in that year.

Figure II. 4
More export products associated with diversification

1.00
Diversification index

0.80

0.60

Number of products
0.40
0 50 100 150 200 250 300

Source: UNCTAD, based on data from the UNCTADstat database.

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 Economic Development in Africa Report 2024
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Figure II. 5
Countries that converged toward the world pattern, Exports: 1995 – 2023
(Change in the UNCTAD Diversification Index)
Tunisia Mauritius Uganda Egypt Morocco Côte d'Ivoire Senegal Cameroon Zambia Nigeria

-0.04 -0.04
-0.05 -0.05
-0.06
-0.07 -0.07

-0.10

-0.14 -0.14
-0.15
-0.16
-0.17

Source: UNCTAD, based on data from the UNCTADstat database.

Headwinds were broadly funds, with a portfolio of $250 billion (Global

disruptive for investments Sovereign Wealth Fund, 2024; UNCTAD,
2024d). Sovereign wealth funds, which
Generally, the investment growth trajectory are important for State-owned investors
in Africa is adversely affected by shocks. in Africa, stood at $146 billion in 2023.
An assessment of gross fixed capital Nonetheless, the total of State-owned
formation3 on the continent shows that investments in Africa, valued at $793 billion
growth patterns were influenced by in 2023, remains low, accounting for 1.5 per
various shocks between 2011 and 2023 cent of global State-owned investments.
(figure II.6). For instance, in tandem with the
commodity price shocks of 2014, growth in Within Africa, there are variations in the
gross fixed capital formation declined from values of State-owned investors. For
11.4 per cent in 2014 to 4.8 per cent in instance, South Africa, with the largest
2015. Similarly, the effects of the pandemic State-owned investor portfolio of $218 billion
saw gross fixed capital formation contract in 2023, had a larger share of public pension
by 4.1 per cent in 2020. Nonetheless, funds ($157 billion) than central bank
the growth rate picked up in 2021 and investors ($61 billion). Other countries that
remained on an upward trajectory to 2023. had sizeable State-owned investor funds
included Algeria, Egypt, Libya, Morocco
An overview of the landscape of State- and Nigeria (figure II.7). Investments,
owned investors in Africa, such as central whether private, public, domestic or
banks, sovereign wealth funds and public from external sources, strengthen a
pension funds in 2023 shows central banks country’s resistance to vulnerability (see
to be the largest investors, with a portfolio chapter I, section "Economic shocks").
of $394 billion, followed by public pension

3
According to the definition of the World Bank meta data for the world development, gross fixed capital
formation is as follows: “Gross fixed capital formation (formerly gross domestic fixed investment) includes
land improvements (fences, ditches, drains and so on); plant, machinery and equipment purchases; and the
construction of roads, railways and the like, including schools, offices, hospitals, private residential dwellings
and commercial and industrial buildings. According to the System of National Accounts, 2008, net acquisitions
of valuables are also considered capital formation.”

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 Economic Development in Africa Report 2024
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Figure II. 6
Disruption of investments caused by shocks to the economy in Africa:
Average gross fixed capital formation growth rate
(Annual percentage change)

10

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Source: UNCTAD calculations, based on the World Development Indicators database (World Bank).

Macroeconomic drivers of The present analysis reviews

macroeconomic risks based on three
economic vulnerability key variables that capture output, fiscal
Macroeconomic variables have utility for a policy and monetary policy, as follows:
country’s trading. On one hand, they provide • Growth in GDP (annual percentage
an assessment of trade performance in change). This is a measure of the
the short to medium terms; on the other growth rate of output from one period
hand, a well-managed macroeconomy to the next at constant prices (real
strengthens trade performance. For GDP). Growth in GDP is a beneficial
instance, the exchange rate, which is a first-order indicator in assessing
measure of a country’s currency in terms the level of economic activity in an
of another, is imperative in assessing the economy. In assessing this parameter,
demand for exports from a country, versus the analysis of trading and investment
the country’s demand for imports. Thus, variables could be an initial step in
the adoption of exchange rate policies determining whether a country is
and their effective implementation ensure exposed or vulnerable to risks.
that an economy has adequate buffers
to prevent external inflation pass-through • Fiscal balance deviation. This is
effects during periods of external shocks. In a measure of the deviations from
general, well-implemented macroeconomic projected net government lending
policies can provide buffers that ensure an and borrowing between 2010 and
economy is able to absorb shocks in the 2022.4 Fiscal balance is an important
short to medium terms without causing variable for trading and investments
irreparable damage to the economy. for two reasons. First, research shows

4
The World Bank metadata glossary defines net lending and borrowing as follows: “net lending (+)/net borrowing
(–) equals government revenue minus expense, minus net investment in nonfinancial assets. It is also equal
to the net result of transactions in financial assets and liabilities. Net lending and borrowing is a summary
measure indicating the extent to which a Government is either putting financial resources at the disposal
of other sectors in the economy or abroad, or utilizing the financial resources generated by other sectors
in the economy or from abroad” (https://databank.worldbank.org/metadataglossary/World-Development-
Indicators/series?search=net%20borrowing%20and%20lending).

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

that government investments in • Average year-on-year inflation. This

infrastructure play an important role in is an indication of the effectiveness
attracting foreign direct investment. For of the monetary policy regime. In
instance, the United Nations Industrial terms of trading, imported inflation,
Development Organization (2011) or inflation caused by the rise in
notes that while investment should the price of imported goods and
typically go to where the highest returns services, makes imports expensive,
Investors are achieved, investors will invest in thereby moderating trade growth.
will invest in economies with the least business
This chapter considers the structure of an
economies compliance and infrastructure (public
economy according to export dependency
goods) hurdles. Thus, strengthening
with the least in the analysis of the macroeconomic risks
infrastructure investment spending
business such as port logistics may attract
to countries in Africa. These countries
compliance and are grouped according to the following
foreign direct investment and therefore,
criteria, as outlined in UNCTAD (2023d):
infrastructure the reallocation of supply chains into
(public goods) African economies (Nketiah-Amponsah • Dependence on minerals, ores, metals,
hurdles and Sarpong, 2019; UNCTAD, 2023f). fuels, lubricants and related materials
Second, for most countries in Africa, exports. This grouping consists of
government spending has an impact the following 28 countries: Algeria,
on the external account through Angola, Botswana, Burkina Faso,
imports of machinery and capital Burundi, Cameroon, Chad, Congo,
equipment; in addition, the stock of Democratic Republic of the Congo,
debt, which is the accumulation of the Equatorial Guinea, Gabon, Ghana,
flow of debt in the long term, affects the Guinea, Liberia, Libya, Mali, Mauritania,
exchange rate, and thus trading and Mozambique, Namibia, Niger, Nigeria,
investing, during periods of shock. Rwanda, Sierra Leone, South Africa,
South Sudan, United Republic of
Tanzania, Zambia, Zimbabwe.

Figure II. 7
State-owned investors, by leading African countries
(Billions of dollars)

Central banks Sovereign wealth funds Private pension funds

200

100

South Africa Libya Morocco Algeria Nigeria Egypt Ethiopia Angola Botswana Namibia

Source: UNCTAD, based on Global Sovereign Wealth Fund, 2024.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

• Dependence on agricultural product countries averaged 4.3 per cent, which

exports. This grouping consists of indicates that the demand for, and price
the following 16 countries: Benin, of, commodity exports were favourable,
Cabo Verde, Central African Republic, despite periods of shocks such as in
Côte d’Ivoire, Eritrea, Ethiopia, 2014 during the commodity price decline,
Gambia, Guinea-Bissau, Kenya, and the pandemic in 2020 (figure II.8).
Madagascar, Malawi, Senegal,
Notwithstanding, according to the 2023
Seychelles, Somalia, Sudan; Uganda.
commodity price index in the UNCTADstat
• Dependence on items other than database, there were intermittent periods
commodities. This grouping consists when GDP growth tapered off, for instance,
of the following 10 countries: between 2008 and 2010, owing to lower-
Comoros, Djibouti, Egypt, Eswatini, than-expected demand stemming from
Lesotho, Mauritius, Morocco, Sao the global financial crisis, despite an initial
Tome and Principe, Togo, Tunisia. rise in fuel prices, followed by another dip
in GDP growth in 2014, owing to a decline
Commodity prices and demand in fuel prices. Since the output of minerals,
are key underlying risk factors metals and fuels in export-dependent
for African economies economies is largely determined by three
factors – commodity reserves, the price of
For the most part, GDP growth for all
the commodity in question and demand for
three country groupings was positive,
the commodity – then, unless commodity
save in 2020, when, on average, all three
prices and demand increase significantly,
experienced a contraction in output
an economy dependent on minerals, metals
due to the pandemic. On average,
and fuels will be more likely to experience
between 2000 and 2023, GDP growth
inflationary pressures (figure II.8).
in mineral-, metal- and fuel-dependent

Figure II. 8
Weighted average growth in gross domestic product, by commodity
export group
(Annual percentage change)
Dependent on mineral, metal and fuel exports Dependent on agricultural exports Non-commodity dependent

-2

2000 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2016 2017 2018 2019 2020 2021 2022 2023 2024

Source: UNCTAD, based on data from the World Economic Outlook database (International Monetary Fund).
Note: Values for 2021, 2022 and 2023 are estimates; values for 2024 are forecasts.

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 Economic Development in Africa Report 2024
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Agricultural export-dependent economies to global supply or demand dynamics

experienced GDP growth rates averaging can have an impact on export
3.8 per cent between 2000 and 2023. revenues and economic output.
The output of economies depending
• Labour productivity. Countries that
on agriculture is determined by labour
depend on agriculture, with a high
productivity, agriculture commodity
portion of labour in the agriculture
prices, demand for agricultural products
sector (UNCTAD, 2023f), and
from trading partners and agriculture
those that depend on production
production technology. For instance,
Economic technology, are likely to experience
reliance on weather patterns for
diversification. agriculture production, rather than on
more volatility in GDP growth on
More diversified average, compared with more
other technologies, such as irrigation,
diversified economies, where labour
economies means that economies are susceptible
is more spread out among sectors.
tend to have to climate change-related upsets.
• External demand for domestic output.
less volatility in Finally, GDP growth for non-commodity–
During periods of economic crisis, such
GDP growth dependent export economies averaged
as the global financial crisis and the
3.4 per cent between 2000 and 2023.
pandemic, when external demand for
Despite lower-than-average economic
domestic products declines, demand
growth compared with the previous
is likely to be much lower than an
two country groupings, GDP growth
economy’s actual production capacity.
for non-commodity–dependent export
economies was less volatile. Low volatility • Economic diversification. More
is underpinned by the assumption of diversified economies tend to have
relatively more diversified economies, with less volatility in GDP growth, since
economies less affected by global and production in more sectors means
covariate shocks, since not all sectors are that there are buffers in place in the
affected by shocks at the same time. event of shocks to a given sector.

In addition, the assumption of relative

Imprudent fiscal adjustments
diversification for non-commodity-
are a key risk for
dependent export economies means
that output production will depend on
macroeconomic sustainability
differing technologies in different sectors In utilizing fiscal policy, Governments normally
(UNCTAD, 2023f). The possibility of aim to achieve the following three main
production in different sectors means objectives: the redistribution of wealth, the
that labour productivity is higher than in regulation of activities that may be broadly
commodity export-dependent economies. harmful to society and the provision of
public goods (International Monetary Fund,
Based on the GDP growth analysis for
2011). Nonetheless, it is often the case that
the three defined country groupings
in fulfilling these objectives, Governments
between 2000 and 2023, it can be
make less than optimal adjustments, with
concluded that the following key risks
detrimental effects on the economy.
have adverse effects on output:
A key indicator of fiscal adjustments that trend
• Commodity prices. As these prices
toward risk is debt. Debt could either be a flow
tend to drive output, especially
or stock variable, that is, the government fiscal
for commodity-dependent export
deficit,5 or the stock of a government’s debt.6
economies in Africa, any volatility due

5
Fiscal deficit is used to mean net general government lending and borrowing, usually with a defined period of
a fiscal or calendar year.
6
The stock of government debt is defined as all government or public debt measured as a share of a country’s
GDP.

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Figure II. 9
Average fiscal balance deviations, 2010–2019
(Percentage of gross domestic product)
1.6

1
0.7 0.7

0.1

-0.3 -0.2 -0.3

-1 -0.5
-0.8

-2

-2.1
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Source: UNCTAD, based on various years of the World Economic Outlook database (International Monetary
Fund).

Additionally, the terms and cost of debt, and and after 2015, respectively, with the 2023
whether debt is procured domestically or database, which reports actual government
externally, could have implications for risk. net lending and borrowing numbers.
For instance, externally procured debt has
The average general government fiscal
additional variable costs that are dependent
balance deviation between planned or
on a country’s exchange rate. Similarly,
forecast and actual borrowing was a
deviations from planned macroeconomic
deficit of 0.1 per cent of GDP from 2010
variables have an impact on borrowing costs
to 2019. In 2020, the fiscal deviation was
in the form of interest rates on future debt.
a deficit of 3.4 per cent of GDP. Between
Based on data from the International 2010 and 2019, the year with the highest
Monetary Fund World Economic Outlook deficit deviation was 2014, at 2.0 per cent
database,7 this section focuses on the of GDP (figure II.9).8 In 2014, the large
deviations between the planned or deviation in fiscal deficit, compared with
estimated and actual flow variable of debt, planned fiscal deficit, was underpinned
that is, the deviations between planned by a drop in commodity prices, as the
or estimated and actual government all-group commodity price index fell by
net lending and borrowing. A deficit or 6.1 per cent in 2014, compared with the
negative deviation means that a country 2013 annual average (UNCTAD, 2015).
spent more than planned in each period. The decline in commodity prices was
The analysis compares the forecast of broad-based, with the price of agricultural
fiscal balances in the 2011 and 2015 raw materials falling by 9.9 per cent, food
World Economic Outlook databases, by 5.9 per cent, vegetable oil seeds and
where the estimates of government net oils by 5.8 per cent and minerals, ores and
lending and borrowing start after 2010 metals by 8.5 per cent (UNCTAD, 2015).

7
See www.imf.org/en/Publications/SPROLLs/world-economic-outlook-databases#sort= per cent40imfdate
per cent20descending.
8
The analysis does not include Libya and South Sudan, which had exceptionally large planned and actual
balances during the period under review.

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 Economic Development in Africa Report 2024
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Figure II. 10
Overview of fiscal balance deviation performance, by country, 2010–2019
(Percentage of gross domestic product)
Congo Ghana Angola Algeria

-2.5
-2.9
-3.4

-5

-10 -10.5

Source: UNCTAD calculations, based on various World Economic Outlook databases (International Monetary
Fund).

Not only do deviations from planned fiscal An in-depth look at the case of Ghana
policy targets often pose risks for economies reveals that increasing fiscal deviations
in the short to medium terms, they also from the planned fiscal targets were the
tend to set in motion an adverse deviation largest between 2012 and 2014, and
from the longer-term sustainability path. between 2018 and 2020. The increase in
For instance, the four countries that had the initial period between 2012 and 2014
the highest deviations from planned fiscal occurred despite an expected increase
policy targets on average between 2010 in revenue from the start of oil exports in
and 2019 were the Congo, with a fiscal 2011. Nonetheless, in Ghana, expenditure
deficit deviation of 10.5 per cent of GDP; trended upward due to the increasing public
Ghana, with a fiscal deficit deviation of services wage bill (International Monetary
3.4 per cent of GDP; Angola with a fiscal Fund, 2015b). To smoothen expenditure,
deficit deviation of 2.9 per cent of GDP; Ghana issued 15 Eurobonds, amounting to
and Algeria, with a fiscal deficit deviation $14 billion, from 2013 to 2021 (Government
of 2.5 per cent of GDP (figure II.10). of Ghana, 2023), with the consequent
accommodative fiscal policy leading to
All four countries had deviations from
a rise in debt, to 92.3 per cent of GDP
planned deficits well above the Africa-wide
in 2022, compared with 33.8 per cent of
average of 0.1 per cent of GDP. Two of
GDP in 2012.9 Consequently, Ghana is
the four countries, the Congo and Ghana,
currently undergoing debt restructuring
are among the 68 countries listed in the
and is working on an agreement with the
low-income countries debt sustainability
Common Framework for Debt Treatments
analysis of the International Monetary Fund
beyond the Debt Service Suspension
and the World Bank. As of November
Initiative. Additionally, the country belongs to
2023, both countries are in debt distress.
an extended credit-facility programme of the
International Monetary Fund worth $3 billion,
that was agreed in 2023 (see box II.1).

9
See www.imf.org/en/Publications/SPROLLs/world-economic-outlook-databases#sort= per cent40imfdate
per cent20descending.

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Box II. 1
UNCTAD sovereign debt life cycle: Insights from Ghana

The UNCTAD life cycle of sovereign debt is a conceptual framework for analysing
debt in five stages, namely, the way in which debt is incurred, debt instruments and
issuance, structure of debt management, debt sustainability and options for debt
workout (see table).

The framework is useful in examining sovereign debt. A key objective of sovereign

debt analysis using this approach is to diagnose challenges at each stage of the
cycle and identify policy options to address the challenges. The stages within the
framework are interdependent, and policy options should be holistic to ensure
effective solutions for debt management and debt sustainability. This approach is
applied to the analysis of the case of Ghana.

As at July 2024, Ghana was classified as a lower middle-income country. This

classification is based on the World Bank income classification, with lower middle-
income countries falling within the per capita income threshold of $1,136 to $4,465.
The classifications use the metric gross national income per capita and are calculated
using the Atlas method, at current valuesª. As at 2023, gross national income per
capita in current values was $2,340. As a lower middle-income country, Ghana is
precluded from the International Monetary Fund list of countries that are eligible for
concessional lending through the Poverty Reduction and Growth Trust. However, it
can benefit from official development assistance, as well as concessional lending
from other multilateral institutions, such as the African Development Bank and the
World Bank.

As a member of the International Monetary Fund but without Trust status, Ghana had
the option of going to the market to finance its fiscal deficit, which it did, between
2013 and 2018. Between 2013 and 2018, the Eurobond market was favourable for
countries in Africa such as Ghana since, after the financial crisis, investors sought
higher yields. However, the tenor on market-issued debt during this period was short,
while the terms were not beneficial; that is, the structure of market debt usually does
not include grace periods before the start of payment, and the cost of debt is likely
to be determined by risk factors as stated in a country’s credit rating.

For instance, in March 2015, Moody’s Investors Service downgraded the country’s
credit rating from B2 to B3. The downgrade was a consequence of deteriorating
macroeconomic conditions, despite an agreement with the International Monetary Fund
for access to a three-year $940 million credit facility aimed at restoring macroeconomic
stability. Included among the deteriorating variables mentioned as key factors that led
to the downgrade were rising inflation, fiscal deficit and debt-to-GDP levels. In addition,
the Ghanian currency had depreciated by 30 per cent as at March 2015.

Annual average year-on-year inflation stood at 15.5 per cent in 2014, while fiscal
deficit stood at 10.9 per cent in 2014, with debt to GDP increasing from 60.3 per
cent in 2013 to 72.2 per cent in 2014. As a result, the share of concessional debt
as a total of external debt declined from 15.9 per cent in 2013 to 15.1 per cent
in 2018 (see figure I). In addition, the average grace period on new external debt
commitments decreased from 6.4 years in 2013 to 2.5 years in 2018, while average
interest on new external debt commitments increased from 1.9 per cent in 2013
to 3.1 per cent in 2018 (see figure II). There was an increase in the average grace
© creativeprono - Adobe Stock

period on new external debt commitments in 2018, in part due to an almost 100 per
cent rise in the value of multilateral programme loans, from $249.5 million in 2017
to $479.1 million in 2018.

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 Economic Development in Africa Report 2024
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Framework for analysing the life cycle of the sovereign debt of

Ghana

Life cycle stage Description

Concessional finance and affordable long-term capital
Access to finance and Between 2012 and 2018, fiscal deviations, compared with fiscal targets,
markets averaged 3.8 per cent of GDP. As a result, the country turned to financial
markets for access to finance.
Increased access to markets for developing countries
The period after the financial crisis saw access to Eurobond markets
Debt issuance increase for countries in Africa, as investors sought high yields. As
a result, between 2013 and 2018, Ghana issued five Eurobonds of
$1 billion each.
Debt management strategies
Countries have been increasingly empowered to manage debt, including
through the UNCTAD Debt Management and Financial Analysis System.
Debt management In this regard, Ghana has publicly issued periodic debt management
strategy reports through the Ministry of Finance website since 2013.
In addition, quarterly issues of the Public Debt Statistical Bulletin have
been posted on the website since 2017, and annual borrowing and
recovery plans since 2019.
The effects of the recent polycrises resulted in challenging
Debt servicing, macroeconomic conditions, with implications for external debt
repayment and repayments.
resilience Owing to unforeseen multiple economic shocks leading to an onerous
debt service burden, Ghana restructured its debt.
Ghana debt workout
Debt resolution or
workout As of March 2024, Ghana had successfully restructured its domestic
debt and was working toward restructuring its foreign debt.

Source: UNCTAD, 2024h.

Figure I
Concessional debt trends, 2011–2022
(Percentage of total debt)
20

15

10

0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Source: UNCTAD calculations, based on data from the International Debt Statistics database
(World Bank).

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Figure II
Effects of concessional debt on terms of debt

(a) average grace period on new external debt commitments

20 19.5 19.6

10 9.1
6.4 6.9 7.1
5.1 5 4.2
3.3 2.5 3.5

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

(b) average interest on new external debt commitments

0
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022

Sources: Government of Ghana, 2019; Reuters, 2015; UNCTAD, 2024h.

ª See https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

Source: UNCTAD, based on data from the International Debt Statistics database (World Bank).

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Rising prices have a 2007, when annual year-on-year inflation

moderating effect on all declined from 38.2 to 3.9 per cent, the
economies in Africa real GDP growth rate averaged 5.9 per
cent over the same period. An increase in
An analysis comparing real GDP10 and production capacity raises demand for the
inflation provides insights into how a relative exporting country’s currency and reduces
lack of diversification might affect economies the prices of imports. Nonetheless, with
that are not at full production capacity, a decline in demand for minerals, metals
such as the 54 economies in Africa. and fuels due to the global financial crisis,
Therefore, in analysing the third component the real GDP growth for mineral-, metal-
of macroeconomic risks – inflation – real and fuel-dependent exporters declined
GDP growth is used, taking two key aspects on average from 4.9 per cent in 2008 to
into account, namely, the underlying 2.9 per cent in 2009, with an ensuing rise
structure of the economy through the nature in inflationary pressures to 16.8 per cent
of exports and inflation (price effect). in 2008, thereafter moderating to 8.3 per
cent (figure II.11). Of the 28 countries listed
Mining- and energy-
as depending on the export of minerals,
dependent economies
metals and fuels, eight12 belong to the
The output of mineral-, metal- and fuel- Central African Economic and Monetary
dependent exporting economies is likely to Community or to the West African Economic
depend on commodity prices and demand and Monetary Union, which means they
from other countries (UNCTAD, 2022b). have fixed exchange rates that are pegged
Thus, a rise in the prices of mineral, metal to the currency of France, that is, the Euro.
and fuel commodities often results in an
Economies that operate fixed exchange
increase in real GDP growth as demand
rate regimes tend to have high exchange
for and earnings from commodity exports
rate pass-through leading to high inflation
expand. Accordingly, when seen from the
(Ha et al., 2019), due to shocks that bring
angle of inflation and employment, a rise
commodity prices down, since, as export
in commodity prices is likely to lead to
values decline, imports become more
lower inflation, as demand for and increase
expensive. Expensive imports are in some
in the price of commodities strengthens
cases compounded by restrictions placed
the exchange rate in mineral-, metal-
on imports to maintain the exchange rate
and fuel-dependent exporting countries,
(depending on currency reserves), thereby
thereby reducing the cost of imported
leading to inflation from increased domestic
goods and services. This analysis is
demand for limited import products.
based on the assumption that mineral-,
metal- and fuel-dependent exporters Agriculture-dependent countries
have less diversified economies and are According to the World Development
dependent on imports for consumption.11 Indicators database of the World Bank,
For instance, a review of the average of the 16 economies that are classified
annual inflation (percentage change) as agricultural commodity-dependent
for mineral-, metal- and fuel-dependent exporters, only four13 had agriculture value
exporters shows that real GDP growth added as less than 20 per cent of GDP
rates mirror inflation. Between 2000 and on average between 2000 and 2023.

10
In this analysis, real GDP – GDP growth at constant prices – is used. Real GDP is corrected for inflation.
11
This assumption is important, since it means that when there is a commodity price boom, inflationary
pressures are eased due to the effect on currency, that is, the relative demand for the exporting country’s
currency compared with that of the mineral-, metal- and fuel-importing country.
12
Burkina Faso, Cameroon, Chad, Congo, Equatorial Guinea, Gabon, Mali, Niger.
13
Cabo Verde, Eritrea, Senegal, Seychelles.

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Figure II. 11
Inflation-moderated growth in gross domestic product for mineral-,
metal- and fuel-dependent exporters
(Percentage)
GDP growth (left axis) Average inflation (right axis)

8 40

4
20
0

-4 0

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: UNCTAD, based on data from the World Economic Outlook database, October 2024 (International
Monetary Fund); UNCTAD, 2023d.

The agricultural export-dependent lead to inflationary pressures, especially

economies with the highest agriculture where SMEs do not have linkages to
value added as a share of GDP between larger firms and lack access to financing
2000 and 2023 were Ethiopia (39.2 per which would enable them overcome
cent), Guinea-Bissau (36.3 per cent), potential hurdles (World Bank, 2018).
the Central African Republic (33.5 per
Thus, the annual average year-on-year
cent), the Sudan (27.8 per cent) and
inflation change for economies that
Madagascar (27.4 per cent).
depend on agricultural commodity exports
Factors that might adversely affect mimics real GDP growth rates, and in
output in agricultural export-dependent some instances, has a delayed inflation
economies are external shocks, such reaction, that is, years of high inflation are
as weather-related upsets, and internal preceded by a previous period reduction
shocks that affect labour supply and crop in real GDP growth rates. For instance, a
production technologies. A reduction decline in GDP growth to 3.3 per cent in
in output growth, that is, moderating 2008, compared with 6.3 per cent in 2007
GDP growth, will often lead to increased due to weather-related shocks in some
inflation due to two effects: first, domestic regions such as Eastern and Southern
demand for agricultural products outstrips Africa (Haile et al., 2019), led to an increase
supply, resulting in higher prices; and in average annual year-on-year inflation
second, as agricultural commodity to 13.9 per cent in 2008, compared with
exports decline, imports become more 6.6 per cent in 2007 (figure II.12). Similarly,
expensive, that is, inflation occurs through the drought periods in various regions
the exchange rate pass-through effect. of Africa 14(International Organization for
Migration, 2023) saw GDP growth fall to
Small and medium-sized enterprises with
5.0 per cent in 2019, compared with 5.2 per
operations in the agricultural sector, for
cent in 2018, with a consequent rise in
example, agroprocessing firms, will be
inflation to 15.1 per cent in 2020, although
adversely affected by shocks in the sector.
a part of the increase in inflation can be
This is particularly true of shocks that
explained by the effects of the pandemic.

14
East Africa, Central Africa, West Africa, Horn of Africa.

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 Economic Development in Africa Report 2024
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Figure II. 12
Impact of global shocks on prices and economies of agriculture-
dependent exporting countries in Africa, 2000–2024
(Growth in gross domestic product and percentage change in inflation)

GDP growth (left axis) Average inflation (right axis)

6
30
4
20
2

0 10

-2
0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: UNCTAD, based on data from the World Economic Outlook database, October 2024 (International
Monetary Fund); UNCTAD, 2023d.

Haile et al. (2019) note that droughts have case after 2008 (figure II.13). This is not
become a frequent phenomenon in Africa, surprising, since non-commodity-dependent
occurring every three years, compared economies tend to be the more diversified
with every six prior to 2015. In East Africa, economies in Africa. The diversification
droughts have had deleterious impacts of economic sectors, therefore, provides
on agricultural commodity-dependent buffers in situations where economic shocks
economies such as Ethiopia, Kenya and affect one sector, since other sectors provide
Somalia. In addition to climate-related a source of income from exports, in addition
shocks, other economic shocks, such as the to having less impact on domestic output.
COVID-19 pandemic, had negative effects
While South Africa is classified as a
on output growth and inflation. Owing
metal-, mineral- and fuel-dependent
to the pandemic, which affected labour
export economy, in 2022, the country
Droughts supply and productivity, output declined
was the fourth most diversified economy,
have become significantly for economies with agriculture
with an UNCTAD export diversification
a frequent as a large share of GDP value added.
index measure of 0.6 (Tunisia had the
Their output contracted by 1.7 per cent in
phenomenon in highest score for export diversification in
2020, compared with a GDP growth rate
Africa, occurring of 5.0 per cent in 2019 as annual average
Africa). Consequently, South Africa has
every three one of the more stable exchange rates
year-on-year inflation increased to 15.1 per
in Africa, which has a moderating effect
years, compared cent for agricultural commodity-dependent
on imported inflation (see box II.3).
with every six exporters over the same period (figure II.12).
prior to 2015 Nonetheless, in situations of broad-based
Non-commodity-dependent countries
economic shocks such as the pandemic,
Unlike mineral-, metal- and fuel- a contraction in output in non-commodity-
dependent export economies and dependent economies will often result in
agricultural commodity-dependent export high inflation and increased unemployment.
economies, non-commodity-dependent For instance, in Egypt, inflation trended
export economies do not have a distinct upward between 2007 and 2019, averaging
relationship between real GDP growth 12.8 per cent over the entire period. High
and inflation. This was especially the and rising inflation began during the global

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Figure II. 13
Price effects on non-commodity-dependent export economies
(Growth in gross domestic product and percentage change in inflation)

GDP growth (left axis) Average inflation (right axis)

4 10

8
2
6
0
4
-2
2

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Sources: UNCTAD, based on data from the World Economic Outlook database, October 2024 (International
Monetary Fund); UNCTAD, 2023d.

financial crisis and persisted beyond the overheating or underperforming economy

beginning of the Arab Spring in December are directly addressed in Goal 8 of the
2010. The political crisis had adverse effects Sustainable Development Goals (decent
on the economy of Egypt, the real GDP work and economic growth), since a high-
growth of which averaged 3.8 per cent inflation environment and an economy
between 2012 and 2018. Nonetheless, performing below capacity generally
macroeconomic and structural policy lead to job loss. When employment
reforms carried out alongside political and economic growth are adversely
reforms saw the economy withstand the affected, the achievement of Goals 1
pandemic. The country experienced a (no poverty), 2 (zero hunger), 3 (good
relatively low annual average year-on- health and well-being) and 10 (reduced
year inflation rate of 5.7 per cent and a inequalities) is severely compromised.
corresponding GDP growth rate of 3.6 per
cent in 2020, compared with the group
average contraction in GDP by 2.7 per cent.
Economic vulnerability in
times of global shocks
For mineral-, metal- and fuel-dependent
exporters, a rise in prices often implies an External shocks have a dampening effect
increase in real GDP growth. While this effect on economies in Africa, with shocks
is contrary to the expectation that a price engendered in two ways: shocks that are
hike has adverse effects on non-diversified manifested by the economy’s structure
economies, increase in commodity or the macroeconomy, and shocks that
prices is a signal that either the value or are manifested by second-order effects
demand for commodities has increased, through partner economies, for instance,
thereby leading to an increase in output. through a reduction in demand for goods
from economies in Africa. External shocks
Agricultural commodity-dependent
are often the most difficult to predict,
exporters are affected by agricultural
with responses to such shocks being
production processes that rely on rainfall,
reactionary rather than mitigating.
thereby engendering their vulnerability
to climate change. The effects of an

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Box II. 2
Exchange rates: The case of South Africa

Between January 2010 and May 2024, the reserve position of South Africa increased
in absolute terms by 289 per cent, from R298,016 million to R1,160,761 million. The
reserve position is largely underpinned by foreign exchange reserves, with a small
percentage attributable to gold reserves.
The exchange rate of the rand to the dollar depreciated by 147 per cent between
January 2010 and May 2024. The largest depreciation occurred in 2016 and 2020. In
2016, the depreciation was strengthened by lower-than-expected production in the
mining and manufacturing sectors, owing to falling commodity prices and external
demand, which led to lower-than-expected exports in minerals and metals, such as
coal, gold, platinum and iron ore. By contrast, the depreciation of the rand against
the dollar in 2020 was an impact of the pandemic, which affected production and
therefore, exports from South Africa.

South Africa: Trends in (a) reserve position (SA Rand, Millions)

and (b) exchange rate (SA Rand/USD)
(a)
Foreign exchange reserves Gross reserves

1.2m

1m

800k

600k

400k

200k

0
2010 2012 2014 2016 2018 2020 2022 2024

(b)

15

10

0
2010 2012 2014 2016 2018 2020 2022 2024

Source: UNCTAD, based on data from the South African Reserve Bank, 2020.
© Shutterstock

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The following three key factors define the context of the exchange rate of the South
African rand:

• The monetary policy framework is based on inflation targeting, with a range of 3 to

6 per cent for the year-on-year increase in consumer price index headline inflation.
• South Africa operates a floating exchange rate framework.
• South Africa is part of the Common Monetary Area, a common currency area that
also includes Eswatini, Lesotho and Namibia.
Although South Africa is a member of the Common Monetary Area, the rand is
acceptable as legal tender in Eswatini, Lesotho and Namibia, while the reverse is
not true.

Source: UNCTAD, based on South African Reserve Bank, 2020.

This section reviews the manifestation of prices as import prices either remained
external shocks in economies in Africa, the same or increased. By contrast, a rise
and how they affect these economies. in the fuel price index from 145.6 in 2009
The three shocks discussed are as follows: to 167.6 in 2010 saw a corresponding
increase in GDP by 2.5 percentage points
• Commodity price shocks, with
from 3.0 per cent in 2009 to 5.5 per cent in
a focus on fuel prices.
2010, an indication of growth in production
• The COVID-19 pandemic, with a focus capacity driven by the rise in price. The
on trade-in-services exporters. dip in fuel prices between 2014, with the
• Shocks relating to the environment, fuel price index declining from 198.8 in
climate change and the weather, 2013 to 122.1 in 2014 and 71.1 in 2015,
with an emphasis on agricultural saw a corresponding decrease in GDP
commodity-dependent exporters. growth for fuel-exporting countries in
Africa from 3.7 per cent in 2013 to 2.3 per
Commodity price shocks in the cent in 2014 and 1.0 per cent in 2015. As
case of fuel prices in the 2000–2002 period, pass-through
inflation from imports led to an increase
Similarly to the analysis of inflation and in inflation in fuel-exporting countries.
GDP growth discussed previously, fuel-
dependent exporters have relatively According to data from the United
undiversified economies, which means Nations Comtrade database, fuel-
they are dependent on imports for exporting economies in Africa tend
consumption. Moreover, dependency on to export crude oil, while reimporting
imports for consumption has implications refined fuel for domestic needs. Fuel
for inflation (UNCTAD, 2024h). prices, therefore, have two important
implications for fuel-exporting economies.
For instance, as depicted in figure 28, the
dip in fuel prices between 2000 and 2001 First, notwithstanding the economic
saw a corresponding decline in GDP growth structure, they tend to be undiversified;
for fuel-exporting countries in Africa, from moreover, the structure within the fuel
14.0 per cent in 2000 to 7.4 per cent in sector is undiversified. The sector thus
2002. Consequently, inflationary pressure depends more on crude oil production
through imported inflation intensified in without moving further up the value chain
those countries, due to declining export to refine fuel for exports (UNCTAD, 2023f).

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Figure II. 14
Parallel movement between fuel prices and growth in gross domestic
product for fuel-dependent exporters, 2000–2024
Index base: 2015 (left axis) Average GDP growth percent change:
Fuel export dependent economies (right axis)
250 20

200 15

10
150
5
100
0
50 -5

0 -10
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024

Source: UNCTAD, based on data from the UNCTADstat database and the World Economic Outlook database
(International Monetary Fund).
Note: Index base: 2015 (taken at the end of each calendar year).

Crude oil fuel production depends to a large Second, fuel exporters face significant risks
extent on capital equipment, in addition to macroeconomic stability. An example of
to either highly specialized or low-skilled the challenges of fuel export dependence in
labour. This means that the fuel sector does relation to the price of fuel may be seen in
not necessarily absorb much middle-skilled the Congo. While national debt sustainability
labour in the economy, since resources and inflationary pressures are an apparent
tend to be reallocated from the more manifestation of the risks to macroeconomic
Perhaps productive tradables sector to the non- stability, other effects, such as social sector
the most tradables sector serving the fuel industry spending on education, health care and
significant risk (International Monetary Fund, 2012). For social protection, are not always obvious
instance, although the fuel refinery capacity at the outset. Nonetheless, effects on
to economies
for economies in Africa is about 1.3 million social sector spending have far-reaching
in Africa to barrels per day, only 30 per cent of this consequences with intertemporal effects.
materialize capacity was operational in 2022 (Reuters, For instance, low levels of spending on
between 2000 2022). In 2023, the Dangote Petroleum education, health care and social protection
and 2023 was Refinery in Nigeria came into operation, in the present has implications for labour and
the COVID-19 with a capacity of 650,000 barrels per socioeconomic vulnerabilities in the future.
pandemic day. Since then, as the country with the
largest capacity for fuel production, Nigeria COVID-19 pandemic:
has produced over 1.3 million barrels of Trade-in-services exporters
oil per day. If the current refining capacity find opportunity in crisis
in Africa were fully operational, including
Perhaps the most significant risk to
that of the Dangote Petroleum Refinery, it
economies in Africa to materialize
would only be able to handle one and a
between 2000 and 2023 was the
half of the equivalent of the country’s fuel
COVID-19 pandemic. This health
production capacity. Consequently, the
pandemic had far-reaching economic
overall undiversified nature of the economies
implications for economies worldwide.
of fuel exporters not only poses structural
Nonetheless, impacts on individual
risks to the economy when fuel prices
countries varied, as some countries
fluctuate, through risks to output, but to
were affected far worse than others.
vulnerable low-skilled workers, as well.

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Due to the nature of the pandemic, the between 2019 and 2021, six experienced
effects had significant repercussions negative impacts, namely, Algeria, Kenya,
in the contact sectors, which had Morocco, Nigeria, South Africa and Tunisia.
serious consequences for the service Furthermore, Morocco, South Africa and
sectors. For example, to mitigate the Tunisia experienced a contraction in output
spread of the virus, the restaurant and of more than 6 per cent. While the effect
accommodation sector had to put in of the pandemic on trade in services
place restrictions on the number of people contributed substantially to the contraction
having access to their establishments. in output, especially in countries with large
tourism sectors such as Tunisia, in some
As of March 2024, trade-in-services
countries, the decline in output could
statistics from 2005 to 2022 are available for
be attributed to other factors during the
33 countries in Africa. The top five exporters
pandemic. For instance, in South Africa,
of trade in services in absolute terms
output growth in 2019 had already sustained
between 2019 and 2021, on average, were
a downward trend before the pandemic.
as follows: Egypt ($20.6 billion), Morocco
($16.2 billion), South Africa ($11.2 billion), However, there were some exemplary
Ghana ($8.9 billion) and Ethiopia cases, such as Egypt and Ethiopia (see
($4.9 billion). Other countries with trade-in- box II.3). Egypt, the top trade-in-services
services exports of more than $1 billion were exporting country between 2019 and 2021,
Kenya, Nigeria, Tunisia, the United Republic recorded actual GDP growth of 3.4 per
of Tanzania and Algeria (figure II.15). cent in 2020. In the same year, Ethiopia
and the United Republic of Tanzania
The pandemic caused a decline in the
also registered GDP growth, of 6.1 per
GDP growth of several countries in Africa.
cent and 4.8 per cent, respectively.
For example, of the 10 countries with the
highest average trade-in-services exports

Figure II. 15
Trade-in-services exporters adversely affected during the pandemic:
Average 2019–2021
(Millions of dollars)

20 000

10 000

Egypt Morocco South Ghana Ethiopia Kenya Nigeria Tunisia United Algeria
Africa Republic of
Tanzania

Source: UNCTAD, based on data from the UNCTADstat database.

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 Economic Development in Africa Report 2024
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In Egypt, ongoing macroeconomic and Egypt provides a meaningful example of

structural reforms ensured that the economy how good policies can strengthen resilience
was well placed to mitigate the shocks of to risk exposure. Ethiopia provides an
the pandemic. Among the policy actions alternative narrative of how opportunities
taken was the announcement of a fiscal can arise from crisis situations, for most
stimulus exceeding $6 billion, to alleviate economies. Be that as it may, the pandemic
the effects of the pandemic through has eroded positive gains that most
targeted support, such as an increase in countries in Africa took two decades to
pensions and social protection spending build. Thus, unforeseen risks emanating
for vulnerable populations that lost from, for instance, the social sector, such
incomes during the pandemic (International as the pandemic, could have resounding
Monetary Fund, n.d-b.). Additionally, impacts on economies. Four years after
monetary policy strengthened fiscal policy the pandemic, its far-reaching effects, for
action by reducing the central bank rate example, of lost schooling time on future
and applying open-market operations human capital, have yet to be estimated.
through guarantees for the tourism,
agriculture and manufacturing sectors. Environmental impacts
Yet Egypt and Ethiopia are exceptions Article 1 of the United Nations Framework
with regard to the impact of the pandemic. Convention on Climate Change defines

Box II. 3
Ethiopia: An opportunity in crisis

The economy of Ethiopia is classified as being dependent on agricultural commodities

for merchandise exports. It is one of the few economies that displayed agility and
flexibility during the pandemic, resulting in gains to output through trade-in-services
exports. Between 2019 and 2021, the transport sector accounted for 70 per cent
of total trade in services in the country. Yet the total value of transport in trade in
services declined from $3.5 billion in 2019 to $2.7 billion in 2020 due to the pandemic.
However, revenues from transport rose in 2021 to $4 billion, based on data from the
UNCTADstat database.

The main contributor to transport trade in services in Ethiopia is Ethiopian Airlines. In

2020, the airline operated 116 international routes and 23 domestic routes. However,
at the onset of the pandemic, the carrier announced the cancellation of flights on 80
routes. By July 2020, the carrier had resumed operation on 40 routes. Although the
airline lost revenue from passengers, it responded to the crisis by converting some
passenger carrier aircrafts to cargo carriers.

The COVID-19 response webpage of Ethiopian Airlines notes that the airline had
extended its global cargo reach to 74 destinations, and by March 2020, had carried
45,848 tons of cargo, which included pharmaceuticals, medical supplies and health-
care products, to different destinations. As a result, the revenue from trade in services
provided a buffer for the loss in revenue from merchandise trade during the pandemic,
thereby smoothing the shocks from the pandemic on the country’s economy.

In addition, Ethiopia was one of the few countries that did not institute border closings
as a measure to mitigate the pandemic.

Source: UNCTAD, based on International Monetary Fund, n.d-b.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

climate change as follows: “a change and flood seasons have increased in

of climate which is attributed directly frequency and intensity. Between 2020
or indirectly to human activity that and 2022, the region spanning East Africa
alters the composition of the global and the Horn of Africa is reported to have
atmosphere and which is in addition experienced five failed rainfall seasons,
to natural climate variability observed with serious consequences for livelihoods
over comparable time periods.” (International Organization for Migration,
2023), surpassing the previous drought
Two key features within the conceptual
seasons of 2010–2011 and 2016–2017.
definition of climate change are human
The International Organization for Migration
action and the alteration of the global
(2023) estimated that in October 2023, at
atmosphere. The frequency and intensity
least 23 million people were affected by
Generally,
of climate change over time is likely
food insecurity in the region. Of the nine the drought
an indicator of the alteration of the
global atmosphere, which in addition to
countries in the region, six (Eritrea, Ethiopia, and flood
climate variability, has been observed
Kenya, Somalia, the Sudan and Uganda) seasons have
are agricultural commodity-dependent
over similar time periods in the past. increased in
exporters. Two of the six, Ethiopia and
In East Africa, Wainwright et al. (2019) Somalia, reported that agriculture value frequency and
observe that the long rainfall season of added contributed to more than 45 per intensity
March–April–May has been shortening cent of their GDP on average between
since 1985, thereby confounding the 1973 and 2022. Thus, periods of weather-
use of climate projections in what has related shocks have adverse effects for
become known as the East African economic growth, as depicted in figure II.16.
climate paradox. Generally, the drought

Figure II. 16
Ethiopia: Effects of weather-related shocks on an agricultural commodity
exporter
(Percent change)
Agriculture, forestry and fishing, value added Average growth rate
2005: drought in
Horn of Africa and 2010–2011:
West Africa drought in Horn
2006: floods in of Africa, South 2017: drought 2022:
2001: drought Horn of Africa and Africa and West in Horn of Africa drought in
in Horn of Africa West Africa Africa and South Africa Horn of Africa

20

15

10

-5

-10

-15
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022
Source: UNCTAD, based on data from the World Economic Outlook database (International Monetary Fund)
and the Famine Early Warning Systems Network.

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 Economic Development in Africa Report 2024
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Climate change effects are particularly targets, or through unbalanced or

challenging for agricultural commodity- undiversified economic structures.
dependent export economies, as
Since macroeconomic policy anchors an
varying weather conditions, especially
economy, deviations from macroeconomic
during planting seasons, directly affect
targets, such as fiscal or monetary
agricultural output. Yet climate change
policy targets, may lead to unsustainable
has dual effects that magnify the effect on
intertemporal macroeconomic variables,
agricultural commodity-dependent export
which would result in adverse exposure to
economies through the labour effect. For
risk for countries in Africa. For instance,
instance, the West and Central Africa
deviations from fiscal balance targets
regions have in recent years suffered
could lead to unsustainable debt, which
the effects of environmental and climate
heightens the risks to exposure and directly
change events, with varying results,
affects investments into economies in
including effects on food security and mass
Africa, either through higher premiums
migration (International Organization for
or by making economies undesirable
Migration, 2023). Consequently, not only
for investments. Similarly, deviation from
do flooding and drought have an impact
planned monetary policy targets could
on agricultural production, but they lead
have adverse impacts on prices.
to migration, making labour as a factor
of production in agriculture scarce. Moreover, the analysis finds that economies
in Africa are relatively undiversified, with
overreliance on the production and
Conclusion export of primary commodities. Lack of
Between 2002 and 2023, economies diversification leaves economies in Africa
in Africa experienced upsets that had vulnerable to both internal and external
adverse effects on economic growth and shocks, with direct implications for trading
sustainable development, despite the and investing in Africa. For instance, price
perception that Africa was an attractive shocks to economies that are dependent
region for trade and investments, given its on exports of minerals, metals and
above-average economic performance. fuels, often lead to cyclical effects that
Risks to trading and investments can can foster economic vulnerabilities.
be manifested either through internal or Lastly, external shocks emanating from
external risks, as discussed in this chapter. the global polycrisis compound the effects
In particular, the chapter explores of macroeconomic and structural risks,
the internal risks to trading and often leading to increased vulnerabilities,
investments that occur either through thus dimming the prospects for investing
deviations from macroeconomic policy and trading on the continent.

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 Economic development
in Africa report 2024

Chapter III

Maximizing trade
resilience and
regional market
benefits in Africa
© Shutterstock
 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Introduction

Economically vulnerable countries often unfolding. By eliminating barriers to trade

fall into an instability trap when hit by and investment, the African Continental
endogenous shocks, which further weaken Free Trade Area is expected to enhance
their productive and trading capabilities the cross-national transfer of technology
and limit their prospects for equitable and and skills and broaden knowledge diffusion
sustainable development. However, the across Africa. In turn, this will make
scope for economies of scale and trade cross-border production easier as firms
expansion provided by the agglomeration are better able to diversify into specific
of domestic markets under a regional value chain components based on their
trading bloc could incentivize economically capabilities and the availability of enabling
vulnerable countries to build stronger economic infrastructure. More diversified
linkages with neighbouring countries and lay economies are also less vulnerable to
solid foundations for vibrant cross-border external shocks (UNCTAD, 2021a).
trade and growth spillover opportunities.
While the benefits of effective participation
UNCTAD research shows that trade within
in regional and global value chains have
trade agreements has been more resilient
been widely discussed (Ignatenko et al.,
to global supply chain shocks such as the
2019; Taglioni and Winkler, 2016), little has
COVID-19 pandemic (Nicita and Saygili,
been done to highlight the potential risks
2021), calling for stronger South–South
that firms and investors should prepare for
ties (Grynspan, 2022; UNCTAD, 2022c).
when seeking entry into value chains, as well
In a global market where economies are
as requirements for their survival therein.
closely connected, risks and opportunities
from one country can easily flow over Within the context of regional integration
the borders of its neighbours (Borin and in Africa, this chapter will analyse the
Mancini, 2019). Collier (2007) estimated opportunities for successful participation
that for each additional 1 per cent in in regional value and supply chains and
growth from a neighbouring country, a discuss the potential risks. The first part
landlocked country could gain between of the chapter provides an overview of the
0.2 per cent and 0.7 per cent in growth. structural changes in intra-African trade
Such growth spillovers are, however, in value added since 2012. It focuses on
the relative roles and importance of African
conditional on the infrastructure and policies The provision
in place within a regional trading bloc. countries in the trade in value added
network to provide valuable insights on the
of regionally
As noted by UNCTAD (2022c), the
potential risks and opportunities that can oriented physical
provision of regionally oriented physical infrastructure
be leveraged to enhance trade resilience.
infrastructure is an indispensable element
The second part of the chapter assesses is an
of building stronger resilience. Having
adequate infrastructure in place to facilitate
the role of infrastructure and trade-related indispensable
policies in reducing potential risks from element
the cross-border movement of goods and
global value chains and reviews the progress
services is a significant challenge for many of building
made in improving regional infrastructure.
countries and regional markets in Africa. stronger
As stated in chapter I, connectivity ranks resilience
among the top two domains across which
African countries are most vulnerable in the
context of the polycrisis. However, domestic
and regional efforts to bridge the gaps in
infrastructure and trade capabilities are

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Regional value added trade Global production and supply networks

can potentially increase the vulnerability of
networks: A means to domestic economies to external shocks
reduce potential risks from (Amador et al., 2018; McKinsey, 2020;
global shocks OECD, 2020; Seric and Tong, 2019).
Through intrinsic production and supply
Africa in value added trade linkages, which are the backbone of
networks global value chains, a country’s imports of
intermediate goods and services and hence,
According to data from the UNCTADstat output, are sensitive to the shocks of its
database, the remarkable growth of the partner countries, including indirect trading
gross exports of most African countries is partners. Without undermining the relevance
not a reflection of enhanced competitiveness of all the actors in the value chain, Amador
or an ability to integrate into global markets. et al. (2018), Carvalho (2014) and Serrano
In today’s global production network, et al. (2007) suggest that the extent of the
The overall there is an increasing utilization of foreign overall vulnerability to specific shocks of
vulnerability to intermediate inputs in the production value chain anchor countries determines the
specific shocks process, accounting for about two thirds fragility or strength of the chain or network.
of value chain of world trade (UNCTAD, 2022b) and an Similarly, Korniyenko et al. (2017) show that
anchor countries equally growing share of domestic producers the extent of the vulnerability to external
who are moving away from the confinements
determines of their domestic markets and are selling a
shocks also depends on the goods traded.
the fragility Therefore, for goods that require specialized
substantial proportion of their intermediate processing channels, which might be difficult
or strength inputs in international markets. In this regard, to substitute, failure by any single supplier
of the chain effective participation in global value chains in the network could affect the entire value
or network provides better opportunities for domestic and supply chain, with major implications
economies to raise their overall productivity for overall costs when choosing alternative
and competitiveness in export markets suppliers or halting production (Koenig
through better access to competitive and Antràs, 2023). Each link in the trade
inputs and skills and technology transfer. network relies on the next for the production
Overall, the nature and level of engagement and supply of intermediate inputs and
determine the extent to which countries can final products, suggesting that both direct
leverage the benefits of global value chains. and indirect linkages act as transmission
While forward integration allows developing channels of the shocks from the source
countries to take part in these global country to the rest of the network. These
networks, the extent of their participation in impacts are also explained by recent global
backward integration is key to unleashing and regional shocks, such as the COVID-19
their potential in transforming and adding pandemic and the war in Ukraine. This
more value to the goods and services shows that social and economic shocks
they produce and supply. As suppliers of and their negative impacts on one part of
raw materials or semi-processed goods, the value chain are likely to spill over to the
most countries in Africa have low levels of rest of the trade and production network
backward integration. This implies minimal and dictate overall aggregate incomes,
internalization of advanced technology and owing to global supply linkages (UNCTAD,
other competitive inputs in their production 2020; UNCTAD, 2023a). UNCTAD (2023a)
process, as these are generally not easily points to higher vulnerability to shocks in
accessed within their domestic economies the supply chain with a high concentration
(Das and Hussain, 2017; UNCTAD, of markets and sources of inputs.
2021b). In addition, this limits the returns
to industrialization and the development
of the continent (UNCTAD, 2022b).

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

While some shocks can universally affect negative impact of the geographical
supply chains, the sources of exposure and distance between markets and undermines
vulnerabilities in the supply chains generally company productivity, as this limits the
vary with the degree of fragmentation, internalization of high-technology-intensity
the length of the supply chain and the intermediate inputs. Other common risks
geographical spread of production networks include political stability and governance.
(UNCTAD, 2020). Thus, depending on its Valuable opportunities include knowledge
geographic footprint, a supply chain may be and skills diffusion, and better access to
vulnerable to climate change-related shocks, a larger variety of inputs at lower cost.
though not necessarily to shocks emanating
The network analysis of bilateral value added
from geopolitical tensions. Moreover,
linkages between countries provides a
potential risks threatening the sustainability
good framework for assessing the potential
of part or all of the network can be
risks and vulnerabilities associated with the
contained or mitigated when many countries
different segments of the African market
participate more effectively in the production
(Crowe and Rawdanowizc, 2023; Jackson,
and supply of goods and services, both at
2014). However, global trade network
the core and periphery of the network. When
dynamics are now changing, and countries
there are only a few countries at the core of
that were once at the periphery of the trade
the network, it becomes highly vulnerable to
network, for example, China, are increasingly
shocks emanating from those countries at
moving towards the centre, creating more
the core. This was the case of the 2008–
value added trade ties between a diversified
2009 global financial crisis that originated The main risks
pool of low-risk countries at the core
in the United States mortgage market, but
periphery (Ge and Wang, 2024). This shift
associated with
quickly spread throughout the entire financial
in the position of China in the global supply most networks
system, affecting financial markets of other of trade in
network is facilitating the emergence of
developed countries (UNCTAD, 2009). The
Bangladesh, Cambodia, India, Pakistan value added
ensuing economic recession resulting from
the credit crunch and the fall in private
and Viet Nam as important nodes, partly are related to
because of their trade links with China inadequate
demand affected world economies due to
(UNCTAD, 2023g). Hence, the evolution
the central position of the United States and infrastructure
of the network over time is also essential
other developed countries in the global trade
in highlighting the changes in the extent
network (UNCTAD, 2021a). Although the
of integration, particularly in the context
United States is a relatively low-risk country
of regional economic integration and the
in the entire chain, and therefore should not
development of regional value chains.
present a potential risk to the trade network,
any instability or uncertainty stemming This chapter uses the UNCTAD–Eora
from its domestic market or affecting its Global Value Chain database from 2012
trade can easily be transmitted or spill over and 20221 to analyse the characteristics
to the whole of the global trade network and composition of the value added trade
structure because of its hub position in network in Africa. Although the Eora
the network (Ge and Wang, 2024). database is the most comprehensive data
set on value added trade for all 54 African
Understanding the potential risks and
countries, its multi-region input-output
opportunities associated with value chains
tables are to some degree modelled when
is important in guiding investments to
national input-output or supply-use tables
build more resilient ones. The main risks
are not available, which is the case for most
associated with most networks of trade
African countries (Casella et al., 2019).
in value added are related to inadequate
(See box III.1 for the description of the key
infrastructure, which heightens the
measures of the trade network analysis.)

1
The choice of the period is aimed at highlighting the most recent trends, informing the current status of trade
in the value added landscape in Africa.

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 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

China, France, Figure III.1 shows that China, France, Germany), technical services for agriculture
Germany, India, Germany, India, the United Kingdom and (China), electricity-generating equipment
the United States are major global suppliers (Germany), transport-related services
the United of value added intermediate inputs to (France), communications equipment (the
Kingdom and African countries. China heads the list, United Kingdom and the United States)
the United supplying value added goods and services and financial services (the United States).
States are major to at least 36 countries in Africa. Its top
According to the aforementioned Eora
global suppliers 10 importers, in order of importance, are
database, the domestic content of exported
of value added Djibouti, Lesotho, Mauritius, Seychelles,
value added in Africa ranges from about
Cabo Verde, Tunisia, Burundi, Sao Tome
intermediate 89 to 99.9 per cent in the primary and
and Principe, Morocco and South Africa.
inputs to Leading import sectors by country are
manufacturing sectors and from about
African 95 to 99.8 per cent in the service sector.
agricultural and industrial machinery
Hence, some countries are marginally
countries (China, Germany, the United Kingdom
integrated into global value chains through
and the United States ), leather, furniture
backward linkages, meaning that they
and wood products (China and France),
import little foreign value added.
motor vehicles and parts (France and

Figure III. 1
Principal global partners in the value added trade network, 2022
KEN
ZMB
ERI SWZ
CMR COD
EGY MWI
CIV TGO NAM
BEN SYC BWA
MLI
ZAF AGO
GIN
BFA MUS
DEU
FRA CHN
BDI LSO
DJI
MDG CAF IND
CPV MOZ
USA
SEN
COG SLE
MAR GBR
TUN
TCD STP
GHA
RWA
GAB GMB
MRT SSD
LBR LBY
SDN

Source: UNCTAD calculations, based on the UNCTAD–Eora Global Value Chain database.
Note: The arrows representing the edges point toward the importer of the value added whose imported share of
foreign value added is at least 0.5 per cent of its exported value added. The size of each node is proportional to
its total degree. The size of the bigger nodes reflects a country’s relative importance as a supplier of foreign value
added. Users are depicted by the smallest nodes regardless of their relative weight as a user.
Abbreviations: AGO, Angola; BDI, Burundi; BEN, Benin; BFA, Burkina Faso; BWA, Botswana; CAF, Central
African Republic; CHN, China; CIV, Côte d’Ivoire; CMR, Cameroon; COD, Democratic Republic of the Congo;
COG, Congo; CPV, Cabo Verde; DEU, Germany; DJI, Djibouti; EGY, Egypt; ERI, Eritrea; ETH, Ethiopia; FRA,
France; GAB, Gabon; GBR, United Kingdom; GHA, Ghana; GIN, Guinea; GMB, Gambia; IND, India; KEN, Kenya;
LBR, Liberia; LBY, Libya; LSO, Lesotho; MAR, Morocco; MDG, Madagascar; MLI, Mali; MOZ, Mozambique;
MRT, Mauritania; MUS, Mauritius; MWI, Malawi; NAM, Namibia; RWA, Rwanda; SDN, Sudan; SEN, Senegal;
SLE, Sierra Leone; STP, Sao Tome and Principe; SYC, Seychelles; TCD, Chad; TGO, Togo; TUN, Tunisia; USA,
United States; ZAF, South Africa; ZMB, Zambia; ZWE, Zimbabwe.

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 Economic Development in Africa Report 2024
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Therefore, in striking a balance between the capacities, as reflected by poor economic

focus of the chapter (shedding light on the infrastructure, are among the most
current value chain landscape in Africa) and commonly cited reasons for the low
ensuring a meaningful evaluation and eased degree of integration of African countries
visualization of the networks, only countries into global value chains. Nonetheless,
that have a considerable share of foreign countries in Africa have great potential for
value added in their exports are considered upgrading and diversifying their exports and
in the trade network analysis. At the global improving the likelihood of better integration
level, a threshold of at least 0.5 per cent into the global market by leveraging the
foreign value added content in a country’s opportunities of deeper regional integration
exported value added is chosen (figure III.1). (UNCTAD, 2021a; UNCTAD, 2023e).
Only 16 of the 54 countries in Africa receive While most of the exports from Africa
0.5 to 6 per cent of their total intermediate to the rest of the world are either raw or
inputs from other African countries, mainly semi-processed, processed and semi-
South Africa, followed by Kenya (figure III.1).2 processed goods account for 61 per
Furthermore, the figure suggests that the cent of intra-African exports and are
network is highly concentrated in a few more diversified (UNCTAD, 2021c).
countries. These countries represent critical
More viable and well-integrated regional
chokepoints of the value chains in Africa, as
value chains are generally expected with
they have the greatest potential to disrupt
deeper integration, as they enhance the Only 16 of the
production and output in most economies
by amplifying the impact of different shocks.
odds of more profitable engagement in the 54 countries in
global production and supply networks for Africa receive
Diversifying sources of intermediate goods the countries concerned (Obasaju et al.,
0.5% to 6%
and the overall footprint of a value chain 2021). The regional economic integration
strengthens the resilience of countries to of Africa has gradually deepened over the
of their total
external shocks. Although managing a years. Eight regional economic communities intermediate
large partner network at a country level have received official recognition from inputs from
might require a substantial commitment the African Union3 and, recently, the other African
of resources (Cigna et al., 2022), a wider African Continental Free Trade Area. countries,
network provides firms with options for
However, the development of value chains mainly
substituting trading partners (suppliers and
buyers) (Solingen et al., 2021), increasing
in Africa was modest from 2012 to 2022. South Africa,
access to a range of inputs that gives them
Figure III.2 shows minimal additions to followed
the overall trade linkages in the network.
more options for adjusting to the shocks and by Kenya
For intra-African trade, a threshold of
cushioning their businesses from the impact
0.05 per cent foreign value added in
of the shocks through trade (OECD, 2020).
exports is chosen to allow for more trade
connections. The overall density of the
A network analysis of intra-
networks between 2012 and 2022 remained
African trade relatively unchanged across three sectors
Low levels of technology internalization, (manufacturing, service and primary sectors).
reduced investment in research and
development, high trade costs, limited
sources of capital and weak productive

2
Angola, Botswana, Burundi, Democratic Republic of the Congo, Djibouti, Eswatini, Lesotho, Malawi, Mauritius,
Mozambique, Namibia, Sao Tome and Principe, Seychelles, Togo, Uganda, Zambia.
3
The Arab Maghreb Union, the Community of Sahelo-Saharan States, the Economic Community of Central
African States and the Intergovernmental Authority on Development do not have free trade agreements. The
Common Market for Eastern and Southern Africa, the East African Community, the Economic Community of
West African States and the Southern African Development Community have a free trade agreement and/or
a customs union.

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 Economic Development in Africa Report 2024
Unlocking
De-risking Africa's
trade opportunities
trade potential:
and Boosting
maximizing
regional
regional
markets
marketand
benefits
reducing
in Africa
risks

Box III. 1
Value added trade network measures

A description of the parameters used to measure a value added trade network is

provided below.

Nodes: Countries in the network.

Edges: Lines highlighting the linkages between countries.

Density: Share of existing connections relative to potential total connections.

Assortativity: Measures the extent to which countries (nodes) with similar

characteristics connect. Its values range between -1 and 1, where values closer to
1 reflect an assortative network, that is, a higher probability that countries trade more
based on their similarities (for example, size of the economy).

Centralization: Measures the relative importance of countries and the extent

of concentration of trade in the network. Indegree centralization measures the
importance of a country as a user (importer), outdegree centralization measures
the importance of a country as a supplier (exporter) of value added and between
centralization illustrates the extent to which a country is important in connecting other
countries. For instance, higher values of outdegree centralities reflect a country’s
central role as a supplier of value added intermediate inputs in the trade network.
In this chapter, the commonly used eigenvector centrality is applied, where the
overall relative importance of a country in the network recursively accounts for the
importance of the nodes to which it is connected.

Reciprocity: Measures the extent to which trade ties between countries are
reciprocated, while accounting for the density of the network. For instance, negative
values of the reciprocity coefficient indicate that the probability of countries acting
both as suppliers and buyers of value added goods and services is low.

Transitivity or clustering: Measures the extent to which a group of nodes is densely

connected within the network. For a network with a wide regional footprint such as
the one discussed in this chapter, higher values of the transitivity coefficient could
reflect deeper trade ties within the regional economic communities.

Source: UNCTAD, based on Amador and Cabral, 2016; Amador et al., 2018; Miura, 2012; Taglioni
and Winkler, 2016.
© Adobe Stock

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 Economic Development in Africa Report 2024
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This is an indication that countries in the of the networks with only key trade flows
region have not been able to effectively captured, manufacturing foreign value
expand their value added product lines or added trade network is presented at a
partners, despite a rise in the net volume 0.1 per cent threshold in 2012 and 2022
of existing goods. Most importantly, (figure III.3 (a and b)). While the lower
this highlights an increased proportion thresholds (0.05 per cent as used in the
of disengagement in value chains by intra-African total trade network) increase
some countries in the region relative the overall number of trading edges in the
to those who joined due to greater networks, this does not affect the core
dependence on domestic and/or extra- components of the analysis as regards
continental markets for their intermediate the relative importance of countries in the
inputs. This is clearly illustrated by the networks and the associated potential
average reduction in the trading edges risk. In other words, the network metrics
identified by the indegree and outdegree tell the same story, regardless of whether
centralization coefficients in figure III.2 the analysis is performed at 0.05 per
(see table III.1 for country-level values of cent or 0.1 per cent. The intra-African
indegree and outdegree centralities). value added networks analysis of the
service and primary sectors in 2012 and
A sectoral view of intra-African trade
2022 is maintained at the threshold of
in value added: Manufacturing sector
0.05 per cent, as these sectors are not
To perform the trade network analysis of as dense as the manufacturing sector.
the manufacturing sector discussed in this
section and enable a good visualization

Figure III. 2
Intra-African value added network metrics
Manufacturing 2012 Manufacturing 2022 Services 2012 Services 2022 Primary 2012 Primary 2022
1.0

0.8

0.6

0.4

0.2

Inward
assortativity

Density Reciprocity Transitivity Between Indegree Outdegree

centralization centralization centralization
-0.2

-0.4

-0.6
Source: UNCTAD calculations, based on the UNCTAD–Eora Global Value Chain database.
Note: The metrics are drawn from the assessment carried out under the 0.05 per cent of foreign value added
content in exports.

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Table III. 1
Outdegree and indegree centralities in the manufacturing, service and
primary sectors, 2012 and 2022

Manufacturing sector Service sector Primary sector

2012 2022 2012 2022 2012 2022
Country Outdegree Indegree Outdegree Indegree Outdegree Indegree Outdegree Indegree Outdegree Indegree Outdegree Indegree
Algeria 3 22 2 2 1 25 3 3 1 17 2 2
Angola 1 21 1 13 1 18 0 8 0 13 0 11
Benin 12 2 16 9 8 2 8 9 8 1 9 9
Burkina Faso 8 5 13 13 7 4 12 13 4 4 2 13
Botswana 7 1 6 18 5 1 6 17 8 2 11 13
Burundi 26 2 14 2 14 1 9 1 5 1 15 2
Cameroon 10 6 11 5 8 6 10 6 6 3 6 6
Cabo Verde 8 2 13 10 14 1 16 12 18 1 19 10
Central African
15 2 9 1 6 2 8 2 6 1 12 1
Republic
Chad 17 3 9 9 15 2 8 6 3 2 3 6
Congo 1 21 0 18 1 20 0 17 1 17 0 17
Côte d’Ivoire 13 8 11 5 10 7 11 4 3 7 3 5
Democratic Republic of
4 7 5 23 3 5 3 20 3 5 3 16
the Congo
Djibouti 20 1 18 37 14 1 17 38 14 1 19 25
Egypt 4 6 3 4 3 5 3 6 3 5 3 9
Eritrea 19 1 20 1 14 1 21 1 17 1 21 1
Eswatini 10 4 9 3 16 0 10 3 7 3 7 3
Ethiopia 1 28 2 0 13 3 2 0 2 17 1 0
Gabon 5 6 4 6 2 29 2 4 2 3 2 5
Gambia 27 1 29 2 2 4 24 1 15 1 21 1
Ghana 4 9 5 17 17 1 5 18 3 6 2 18
Guinea 8 5 9 19 4 6 6 20 4 4 5 13
Kenya 8 23 9 6 4 5 7 5 6 15 6 7
Lesotho 4 18 10 16 8 24 13 15 12 11 19 12
Liberia 2 15 2 5 11 14 2 5 2 12 4 4
Libya 2 11 3 2 2 15 3 1 2 9 3 2
Madagascar 2 3 3 2 2 6 3 2 3 3 4 3
Malawi 9 7 6 2 3 2 6 0 6 6 6 2
Mali 14 4 10 7 7 5 7 5 6 0 5 3
Mauritania 6 23 18 11 9 3 12 10 3 15 7 11
Mauritius 6 17 4 23 6 19 4 22 3 15 4 21
Morocco 1 23 1 20 4 20 1 19 1 20 1 26
Mozambique 7 2 9 22 2 21 8 17 3 1 4 17
Namibia 2 7 4 8 8 1 5 6 5 3 5 8
Niger 5 10 6 3 5 4 11 0 8 4 12 0
Nigeria 2 22 1 11 6 6 5 7 1 8 1 4
South Africa 12 48 10 44 4 17 10 46 12 45 12 36
Rwanda 17 4 15 4 9 50 14 5 7 1 12 2
Senegal 14 5 21 7 13 3 15 6 6 6 9 7
Seychelles 6 6 11 25 12 3 11 21 3 3 5 15

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Manufacturing sector Service sector Primary sector

2012 2022 2012 2022 2012 2022
Country Outdegree Indegree Outdegree Indegree Outdegree Indegree Outdegree Indegree Outdegree Indegree Outdegree Indegree
Sierra Leone 10 7 12 4 5 2 10 2 10 1 17 1
Somalia 14 0 6 0 9 1 7 0 5 0 4 0
South Sudan 15 0 14 0 14 0 14 0 15 0 14 0
Sao Tome and Principe 22 5 2 0 15 0 1 0 14 2 3 0
Sudan 16 0 6 0 15 1 9 0 16 0 20 0
Togo 12 10 15 7 9 7 9 6 7 5 8 6
Tunisia 4 16 4 14 4 10 5 15 4 14 4 23
Uganda 8 1 8 2 8 1 7 1 5 2 5 3
United Republic of
8 8 9 1 8 6 9 0 6 5 6 0
Tanzania
Zambia 7 17 8 9 7 15 5 8 6 12 5 8
Zimbabwe 37 20 36 0 37 19 36 0 37 14 36 0

Source: UNCTAD, based on data from the UNCTAD–Eora Global Value Chain database.
Note: The intra-African trade network threshold used is 0.05 per cent. Outdegree centrality reflects the number
of trade ties from a node (country) to its trading partners, while indegree centrality is the number of trade ties
directed to the node from its trading partners.

At the 0.1 per cent threshold of the The table provides the results for all sectors
foreign value added content of exported at the 0.05 per cent threshold, showing
manufacturing value added, meaning that that, in 2012, Ethiopia and Zimbabwe
when exports of manufacturing goods used to provide a market to over 28 and
include more than 0.1 per cent of value 20 countries, respectively, at that reduced
added from the source country, generally, threshold. Consequently, prolonged political
a marginal reduction in import sources or economic instability in countries such as
and export destinations is observed in Ethiopia and Zimbabwe can make regional
about 18 countries between 2012 and trade and private sector activity riskier and
2022 (figure III.3 (a and b)), along with less attractive (Khafaga and Albagoury,
improvements of comparable magnitudes 2022; Masiyandima and Edwards, 2018;
in most countries. However, drastic Siyum, 2021; World Bank, 2021). Thus,
changes in countries such as Ethiopia issues such as currency volatility, political
and Zimbabwe are concerning, as these instability and inconsistent economic policies
countries used to be among those at the can be deterrents to intra-African trade.
network core as value added users in 2012
Extreme changes at the 0.1 per cent
but lost their centrality in the network in
threshold between 2012 and 2022 are
2022. Zimbabwe was among the most
also observed in countries such as Kenya,
diversified users of foreign value added
Mauritania and South Africa, whose
in 2012, providing a market to over 10
outgoing edges were reduced by more than
countries, and Ethiopia, to 19 countries.
50 per cent during that period (figure III.3
However, Ethiopia and Zimbabwe are
(a and b)). Furthermore, only Botswana and
currently not utilizing intermediate goods and
Djibouti increased their import network by
services from other African countries unless
adding 7 and 28 countries, respectively.
the volume of such imports is less than
0.05 per cent of their exports (table III.1).

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The same trend can be seen when the in value added networks regarding the
threshold of analysis is reduced to 0.05 effective development of value chains in
per cent,4 with the addition of countries the African Continental Free Trade Area.
such as Sao Tome and Principe, which There was a marginal deterioration in overall
used to export to at least 22 countries concentration between 2012 and 2022
but currently has only two outgoing (figure III.3 (a and b)). Suppliers at the core of
edges without any imported inputs in the network with at least 20 outgoing edges
its exports at this threshold (table III.1). decreased from four in 2012 (Burundi, the
Similarly, a few countries, including Gambia, Sao Tome and Principe, Zimbabwe)
Burkina Faso, Cabo Verde and Guinea, to two in 2022 (the Gambia, Zimbabwe)
expanded their array of import sources. without any change in the total number of
users (table III.1). The net deterioration in
Overall, the assessment shows that,
the overall concentration stems mainly from
on average, there have been marginal
the sharp reduction in the incoming and/or
improvements in export destinations. Yet
outgoing edges of the countries that used
changes in input sources, particularly for
to be at the core in 2012 but are currently
the countries at the core of the network,
either at the periphery or remained at the
have a negative impact on overall trade
core but with a significant reduction in their
intensity. The relevance of some countries in
trade flows at the 0.05 per cent threshold.
connecting at least two other countries also
However, at the network core, Djibouti,
waned between 2012 and 2022. This trend,
Seychelles and South Africa feature both
as shown by the centralization variables in
as key suppliers and users of value added
figure III.2, is somewhat retrogressive to the
goods and services, while in the intermediate
development of value chains in the African
stages, the only suppliers and users are
Continental Free Trade Area. This illustrates
Burkina Faso, Cabo Verde and Lesotho.5
the growing fragility of most of the existing
The overall fragility of the network to supply-
value chains to socioeconomic shocks
and-demand-side shocks greatly depends
through the supply and market demand
The exploitation of channels. However, there is a modest level
on the risks to which these countries are
complementarities exposed and the ease of their substitutability
of exploitation of complementarities between
in the event of failure as key suppliers
between countries at different levels of development
and/or users of foreign value added.
countries is in the value chains, as highlighted by the
worth leveraging negative assortativity coefficient in figure III.2. Notwithstanding the impact of intermediate
It is a positive attribute worth leveraging for goods and services, the centrality of the
for developing
countries in Africa to strengthen existing suppliers in these networks has two key
new value value chains and explore other viable implications. Firstly, the quality and type
chains under areas for developing new value chains of inputs imported from these countries
the African in the African Continental Free Trade have a significant bearing on the overall
Continental Area. Notably, these complementarities quality of goods and services produced
Free Trade Area indicate a growing potential for profitable and, hence, the viability of the value chains
integration into regional value chains for in the region. Generally, in value added
developing countries to enhance their trade networks, big economies are at the
competitiveness and growth, encouraging core of value chains as principal suppliers
opportunities for growth in African trade. and/or users of intermediate inputs due to
their advanced productive capacities and
The relatively high concentration level in
financial capabilities to establish and sustain
the networks is another area of concern in
multiple connections with suppliers (Amador
the current structure of intra-African trade
and Cabral, 2016; Flori et al., 2023).

4
The rest of the section focuses on the 0.05 per cent threshold, as it gives a fair representation of the current
foreign value added flows at the continental level.
5
Details on indegree and outdegree centrality are provided in table III.1.

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Figure III. 3
Intra-African value added trade network: Manufacturing sector, selected
years

GHA
ERI
(a) 2012
SEN TGO
CMR AGO
BEN
NGA CPV
NER SWZ
MRT TCD
COG MLI
BFA
STP DJI
CIV GMB
GAB ETH
BDI LBR
ZAF
LBY GIN
SSD MDG
MUS
ZWE KEN
TUN SYC
MAR SDN SOM SLE
CAF
MOZ RWA
EGY UGA
TZA COD (b) 2022 ETH
BWA TZA
MWI AGO
ZMB LSO NAM
EGY ZMB
DZA
MOZ
LBY SWZ
COD BWA
MWI
TUN ERI
MUS
ZWE ZAF MDG
SYC KEN SLE
DZA MAR GMB RWA
Source: UNCTAD calculations, based on the GHA
LSO UGA
UNCTAD–Eora Global Value Chain database. DJI
CMR MLI SOM
Note: The arrows representing the edges point BDI
toward the importer of the value added whose GIN SDN
imported share of foreign value added is at least 0.1 CPV
CIV SEN
per cent of its exported manufacturing value added. STP
TGO SSD
The size of the nodes is mapped to the eigenvector MRT LBR
GAB
centrality, which reflects a country’s relative CAF
BEN
importance as both a supplier and user of foreign BFA TCD
value added accounting for the relative importance of NGA
its key partners in the network. The bigger the node, COG
the more important a country as a supplier and/
or user of foreign value added in Africa. The curved
edges highlight reciprocal trade ties. NER
Abbreviations: AGO, Angola; BDI, Burundi; BEN,
Benin; BFA, Burkina Faso; BWA, Botswana;
CAF, Central African Republic; CIV, Côte d’Ivoire;
CMR, Cameroon; COD, Democratic Republic of
the Congo; COG, Congo; CPV, Cabo Verde; DJI,
Djibouti; DZA, Algeria; EGY, Egypt; ETH, Ethiopia;
GAB, Gabon; GHA, Ghana; GIN, Guinea; GMB,
Gambia; KEN, Kenya; LBR, Liberia; LBY, Libya;
LSO, Lesotho; MAR, Morocco; MDG, Madagascar;
MLI, Mali; MOZ, Mozambique; MRT, Mauritania;
MUS, Mauritius; MWI, Malawi; NAM, Namibia; NER,
Niger; NGA, Nigeria; RWA, Rwanda; SDN, Sudan;
SEN, Senegal; SLE, Sierra Leone; SOM, Somalia;
STP, Sao Tome and Principe; SWZ, Eswatini; SYC,
Seychelles; TCD, Chad; TGO, Togo; TUN, Tunisia;
TZA, United Republic of Tanzania; UGA, Uganda;
ZAF, South Africa; ZMB, Zambia; ZWE, Zimbabwe.

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To this end, of the 20 countries6 at the core (table III.1) and depend heavily on domestic
of this network with at least 10 outgoing markets, notwithstanding their potential
edges, 14 are least developed countries. linkages with the rest of the world for
While this reflects their proportion in African intermediate inputs. The risk of failure for
countries, most importantly, this highlights these countries in the network is higher, as
possible chokepoints in the network. Owing failure in their suppliers has an increasing
to their weak productive capacities, most potential to undermine their net output with
of these countries might find it difficult possible negative ripple effects to the rest
to increase and/or sustain intermediate of the network. Therefore, the gravity of the
inputs outflows and effectively meet market impact of these shocks on their production
demand (UNCTAD, 2022d). Furthermore, and supply processes, and its potential
improving the complexity and diversity of spillovers to the rest of the network will, to
their intermediate goods in supporting the a large extent, depend on the flexibility of
development of the value chains in the the affected value chain as to how easy it is
region might also be an obstacle. Most to substitute suppliers and their associated
of these economies are rural based and costs and also the extent of sunk costs in
highly dependent on natural resource- the event of shutting down operations due
Almost half of
based commodities,7 as characterized by to shocks originating from key suppliers.
the countries in their overall low diversification index (see
the network rely Of the six countries8 at the network core
chapters I and II). Moreover, the low level of
as suppliers and/or users of manufacturing
on intermediate technology internalization and inadequate
value added in figure III.3 (b), only Seychelles
inputs from productivity-enhancing services in these
and South Africa, compared with other
four or fewer economies (UNCTAD, 2022b), coupled with
African countries, have a relatively low level of
generally weak labour productivity (McMillan
countries at the exposure to most of the key risks that greatly
and Headey, 2014), greatly undermine
network core or their odds of effectively supporting the
weaken trade and investment flows in Africa.
intermediate levels Specifically, Seychelles and South Africa are
development of viable value chains in the
among the countries that scored lowest on
African Continental Free Trade Area.
measures of economic, governance and
In addition, the increased concentration connectivity vulnerability (see figures I.9, I.10
of import sources leaves most countries, and I.11). Djibouti and Mauritania have a
and hence, overall trade in the value added low level of exposure to energy-related risks
network, in general, highly exposed to but a high level of exposure to connectivity-
the vulnerabilities emanating from a few related risks. The Gambia and Zambia are
countries that are at the core of the network. also highly exposed and most vulnerable to
There are few countries with diversified economic- and connectivity-related issues
sources of inputs and, hence, potentially (see chapter I). Furthermore, as indicated
better resilience to external and domestic by the inclusive growth analysis in UNCTAD
shocks. However, almost half of the (2021c), low levels of inclusive per capita
countries in the network rely on intermediate GDP growth leave three9 of the core suppliers
inputs from four or fewer countries at of value added in the network more at risk
the network core or intermediate levels to internal and external economic shocks.

6
Benin, Burkina Faso, Burundi, Cabo Verde, Cameroon, Côte d’Ivoire, Djibouti, Eritrea, Gambia, Lesotho, Mali,
Mauritania, Rwanda, Senegal, Seychelles, Sierra Leone, South Africa, South Sudan, Togo, Zimbabwe. Except
for Cabo Verde, Cameroon, Côte d’Ivoire, Seychelles, South Africa and Zimbabwe, the rest are classified as
least developed countries.
7
Except for Djibouti, Lesotho and Togo, all the countries with at least 10 outgoing edges are dependent on
commodities.
8
Djibouti, Gambia, Mauritania, Seychelles, South Africa, Zambia.
9
While only Gambia and Mauritania have experienced poverty- and inequality-reducing growth, Djibouti and
South Africa have experienced poverty-reducing growth but inequality-increasing growth, and Seychelles and
Zambia, poverty- and inequality-increasing growth.

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Key suppliers in the intermediate level of These countries include South Africa,
the network with an increased level of which added 29 new partners (nodes) to
vulnerability to economic risks include its service value added trade network,
Cameroon, Côte d’Ivoire, Kenya, Uganda sourcing value added service inputs from
and the United Republic of Tanzania. 46 African countries in 2022, compared
Governance- and/or energy- and social- with 17 countries in 2012. Expansions are
related issues affect countries such as also observed in the indegree centralities
Angola, Chad and Mozambique. Moreover, of Botswana, Djibouti, the Gambia, Ghana
most of these countries are equally and Seychelles. In countries such as
struggling across different domains of trade Algeria, Gabon and Rwanda, there is a
facilitation and trade logistics indicators, considerable decline in the number of their
highlighting the risk of increased transaction import sources. For instance, the value of
costs when trading with them (see section indegree centrality in Rwanda fell to 5 in
"Resilience in connectivity: The potential 2022 from 50 in 2012. This means that
of regional integration"). The extent of Rwanda imported services representing
vulnerability to the identified risks of those more than 0.05 per cent of value added
that are at the core and intermediate levels from only five African countries in 2022.
of the network, both as suppliers and/ Interestingly, these are among the few
or users of value added, combined with countries in Africa whose ICT networks
the centrality of the intermediate good or leapfrogged over the period, suggesting
service being traded, shows the extent of that they have an increased potential to be
the potential impact on the affected value among the key suppliers of high-intensity
chains in the network in figure III.3 (b). For business services, for instance, if their ICT
example, the potential failure of Djibouti port growth is to be effectively leveraged. A more resilient
due to governance-related risks, which can
Dynamics of subregional trade network is
decrease the efficiency of port logistics,
would have a significant impact on the flow
networks: Insights from the Common observed at the
Market for Eastern and Southern Africa level of a regional
of intermediate inputs for most countries,
including those that indirectly rely on the High transitivity coefficients, measuring economic
port, with a significant impact on most of the extent to which a group of nodes are community due
densely connected within the network,
the value chains in Africa. Nevertheless, to lower tariff
the threat of failure of the port of Djibouti suggest a strong concentration of the traded
value added among regional economic
and non-tariff
due to those risks is low. However, the port
has a higher potential of undermining the communities (see figure III.2), possibly in line trade costs
productivity and growth of the value chains with the progress made under the regional
through higher trade costs, as indicated economic communities in reducing non-
by its weak performance across several tariff trade costs through improvements in
domains of the trade facilitation and logistics trade logistics and facilitation (see section
indicators (see section "Addressing the "Addressing the gaps in trade logistics and
gaps in trade logistics and facilitation"). facilitation"). Except for the primary sector,
where the transitivity coefficient decreased
There are subtle differences between
between 2012 and 2022, suggesting that
the primary and service sectors based
the flow of intermediate inputs in the primary
on the general trends observed in the
sector is not restricted by trade barriers
manufacturing sector. While there were no
across the regional economic communities,
significant changes in the overall intensity
the marginal increase in the transitivity
of trade and density of the service value
coefficient for both the manufacturing
added network between 2012 and 2022
and service sectors underscores the
(see table III.1), some countries expanded
importance of deeper trade integration.
their network over the 10-year period.

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To capture larger numbers of connections, Their central positions are closely followed
the analysis at the regional economic by Burundi, the Democratic Republic of
community level is carried out at a threshold the Congo, Eritrea, Eswatini and Mauritius,
of 0.01 per cent. Comparable sizes of with centrality scores of 0.23. All of these
the nodes indicate comparable levels of countries have 8–17 incoming or outgoing
integration (backward and/or forward) across edges (figure III.4). Of the remaining 10
countries, owing to reduced tariff and non- countries, 8 have centrality scores of about
tariff trade costs relative to the continental 0.2, and 2 (Libya and Ethiopia) have scores
level. With regard to the Common Market for of about 0.1 but still with at least 8 incoming
Eastern and Southern Africa, five countries or outgoing edges. The concentration
(Djibouti, Egypt, Kenya, Seychelles and of trade ties in the regional economic
Tunisia) have the highest centrality scores, communities is observed through the
about 0.25 (figure III.4). With the exception curved edges in figure III.3 (a and b), where
of Egypt and Tunisia, which are major users visualization at the global level is improved
of foreign value added, the other three with a threshold of 0.1 per cent. However,
countries hold central positions as key minimal benefits are derived from value chain
users and suppliers of intermediate inputs. participation for countries such as Ethiopia,

Figure III. 4
Common Market for Eastern and Southern Africa value added trade
network: Manufacturing sector, 2022
SOM
ETH SDN

EGY LBY
KEN

ZMB SYC
COD TUN
BDI

MUS DJI
ERI

SWZ

MWI ZWE
MDG
UGA
RWA

Source: UNCTAD calculations, based on the UNCTAD–Eora Global Value Chain database.
Note: The arrows representing the edges point toward the importer of the value added whose imported share
of foreign value added is at least 0.01 per cent of its exported value added in the manufacturing sector. The size
of the nodes is mapped to the eigenvector centrality, which reflects a country’s relative importance as both a
supplier and user of foreign value added, accounting for the relative importance of its key partners in the network.
The larger the node, the more important a country as a supplier and/or user of foreign value added in Africa. The
curved edges highlight reciprocal trade ties.
Abbreviations: BDI, Burundi; COD, Democratic Republic of the Congo; DJI, Djibouti; EGY, Egypt; ERI, Eritrea;
ETH, Ethiopia; KEN, Kenya; LBY, Libya; MDG, Madagascar; MUS, Mauritius; MWI, Malawi; RWA, Rwanda; SDN,
Sudan; SOM, Somalia; SWZ, Eswatini; SYC, Seychelles; TUN, Tunisia; UGA, Uganda; ZMB, Zambia; ZWE,
Zimbabwe.

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Somalia and Zimbabwe (see table III.1), as Resilience in connectivity:

these benefits generally grow with backward
integration. In other words, most of the value
The potential of regional
addition – and hence, profits – accrue in the integration
downstream segments of the value chain. This section discusses the increased
In sum, the analysis shows the need for potential of African countries for enhancing
deeper regional integration to achieve their regional trade and development
more resilient value chains. Africa has through intraregional value chains.
great potential for developing viable value However, high trade costs imply limited
chains, as highlighted by the increased access to competitive intermediate
level of trade complementarities within inputs, which has a spiking effect on the
and across economies that are at different overall cost of production and, hence, a
levels of income and development. dampening effect on industrial productivity
However, the assessment emphasizes and competitiveness. This section aims
that such complementarities can be to quantify the effects of economic
effectively leveraged when both tariff and connectivity-related risks on the
and non-tariff costs are addressed. A development of intra-African value chains
more resilient network is observed at the through their net impact on industrial value
level of a regional economic community added, followed by an assessment of how
rather than at the continental level, due greater trade connectivity (trade logistics
to higher tariff and non-tariff trade costs. and facilitation) and investments can be
Nevertheless, the traded foreign value leveraged to alleviate these key risks.
added volumes by most countries, even
at the regional-economic-community level,
are too low to have a significant impact
on the quality and diversity of exports.

Figure III. 5
The evolution of connectivity in Africa, 2005–2022
Africa infrastructure
development index
25

20
ICT
15

Electricity
10
Transport

0
2006 2008 2010 2012 2014 2016 2018 2020 2022

Source: UNCTAD calculations, based on the Africa Infrastructure Development Index.

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Box III. 2
Methodology: Infrastructure–industrial output

To assess the effects of infrastructure on industrial output in the Common Market for
Eastern and Southern Africa, the conventional Cobb–Douglas aggregate production
function is adopted:

............................................................................................. (1)
Where Y is industrial value added, K is capital, l is labour and A is the productivity of
labour. In this model, capital is proxied by the stock of infrastructure measured by the
Africa Infrastructure Development Index of the African Development Bank. The index
has four components: transport, ICT, energy and water and sanitation. However, the
industrial value added by the World Bank includes energy (electricity, gas, steam and
air conditioning), as well as water and sanitation. As such, these two components of
the index are not included as regressors in the model.

In log-linear form, (1) becomes:

.......................................... (2)
Where i refers to the country, including 16 countries of the Common Market for
Eastern and Southern Africa (Burundi, Comoros, the Democratic Republic of the
Congo, Djibouti, Egypt, Eswatini, Kenya, Libya, Madagascar, Malawi, Mauritius,
Rwanda, the Sudan, Uganda, Zambia, Zimbabwe) and t refers to the period 2005–
2022.

All the variables are in natural logs, tpt is the transport composite index, ict is the ICT
composite index, l is the labour participation rate and X is a vector of three factors
that affect industrial output. These are inflation, which affects the overall cost of
production through the general increase in the cost of intermediate inputs; domestic
credit to the private sector as a percentage of GDP; and foreign direct investment.
Domestic credit is used as a proxy for the private sector’s access to credit. Ɛ is the
white noise error term.

Assuming that infrastructure development affects industrial output with a lag, the
long-run growth relationship is expressed as follows:

................................................. (3)
Assuming that all variables in equation (3) are I (1) and cointegrated such that the
error term is an I (0) for all i, then the following autoregressive distributed lag model
(1,1,1,1,1,1) holds for equation (3):

.................... (4)

The error collection model can be specified as follows:

.................... (5)
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Where:

This panel vector autoregressive model is estimated using a pooled mean group
estimator. It is augmented with the impulse response function to visualize the nature
of the interaction between industrial output and the infrastructure variables of interest
and to ascertain the nature of the interaction between the different components of
infrastructure.

Thus, it is assumed that on one hand, good infrastructure is expected to promote

industrial growth, albeit with a lag. On the other hand, the growth of industries
could also stimulate the development and maintenance of economic infrastructure.
Although a potential endogeneity bias cannot be verified completely, endogeneity
from reverse causality is addressed in the first lag of all the independent variables.
The estimated panel vector autoregressive model is specified as follows:

........................................................................... (6)

Where Y is a five-vector variable: industrial growth, transport infrastructure, ICT, credit

to the private sector and labour participation rate. This is estimated using a panel
vector autoregressive model estimator. The stability of the model is confirmed before
proceeding with the estimation of the orthogonalized impulse response function,
which estimates and maps the response path of, for example, variable X to a standard
deviation change in, for example, variable j, while holding the responses of all other
variables constant. In other words, the orthogonalized impulse response function
is preferred to isolate the unique response path of industrial growth to a standard
deviation change in, for example, transport infrastructure, such that the response of
X to a standard deviation in j at time i is specified as follows:
.............................................................................................. (7)

The Im–Pesaran–Shin and augmented Dickey Fuller unit root tests are used to
ascertain the independence of the panels and the Akaike information criterion for
optimal lag selection.

Source: UNCTAD.

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 Economic Development in Africa Report 2024
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Mitigating regional a key driver of trade costs (UNCTAD and

connectivity-related risks Islamic Development Bank, 2022). These
are generally characterized by higher and
Good infrastructure, generally perceived as sometimes comparable impacts, with
the stock and quality of transport, energy, tariffs in facilitating trade and enhancing
ICT and water and sanitation, lays a robust the productivity and competitiveness of
foundation for enhanced efficiency in firms (Anderson and van Wincoop, 2004;
production and distribution (Gondwe and Baier and Bergstrand, 2001; Fontagné
Mbonigaba, 2023) and boosts the ability et al., 2023). UNCTAD research also
of countries to leverage their comparative shows that the potential benefits of tariff
advantage and, in general, exploit regional reductions in the context of the African
economies of scale (Azolibe and Okonkwo, Continental Free Trade Area are by far
2020; Fontagné et al., 2023; Hummels,
Both ICT and 2007). Therefore, it remains central to
outweighed by the elimination of non-
transport tariff barriers (Vanzetti et al., 2018).
the geographical patterns in investment
infrastructure and production and, hence, in the Developing countries must do twice
remain advancement of regional value chains in as much transport work (calculated as
multiplying the weight of the goods by
underdeveloped the African Continental Free Trade Area.
the distance they need to be shipped) as
in Africa, However, all components of the Africa developed countries (UNCTAD, 2024i).
notwithstanding Infrastructure Development Index of Moreover, in landlocked countries, transport
significant the African Development Bank are costs are estimated to be generally higher
improvements in low in most African countries, forming by up to 50 per cent, compared with in
deterrents to industrial productivity and
ICT infrastructure countries on the coast, losing up to 40
growth (figure III.5). Notwithstanding the per cent of the export value in transport
since 2010 turnaround and steady improvements costs (Economic Commission for Africa,
in the ICT network and utilization since 2004; Economic Commission for Africa
2010, aggregate scores of less than 20 et al., 2010; Naudé and Matthee, 2007;
indicate persistent gaps in most countries. Piermartini, 2021; World Trade Organization,
Minimal improvements can be observed 2021). This is mainly because of their
for net energy generation per capita; on remoteness from the main global markets,
average, the road transport network has the impact of which on trade costs, in
been deteriorating in some countries. most cases, is further compounded by
This section empirically evaluates the underdeveloped transport infrastructure
extent to which these infrastructure gaps and inefficient transport and logistics
affect industrial value added using data systems. Notably, these differences in the
on countries from the Common Market net transport costs between countries
for Eastern and Southern Africa and and regions significantly contribute to the
draws relevant inferences for Africa as a viability of the comparative advantage that
whole, with a focus on transport and ICT underlies the productivity of industries
infrastructure (figure III.6). The methodology and, hence, the mapping of investments
used for the analysis is provided in box III.2. and production hubs and the overall
value chains within and across regions.
Transport
Africa has 16 landlocked countries10 – more
Although well-functioning transport networks
than any other region – and is among
and corridors are essential for countries’
the continents with the least developed
trade, economic growth and employment
transport infrastructure. Notwithstanding
creation, transport infrastructure is
various efforts at the national and regional
extensively highlighted in the literature as
levels to improve transport and logistics

10
Botswana, Burkina Faso, Burundi, Central African Republic, Chad, Eswatini, Ethiopia, Lesotho, Malawi, Mali,
Niger, Rwanda, South Sudan, Uganda, Zambia, Zimbabwe.

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 Economic Development in Africa Report 2024
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infrastructure, missing links persist within Estimates for the Common Market for
and across different modes of transport. For Eastern and Southern Africa show that
example, focusing on road transport, which well-established transport infrastructure
accounts for the bulk of African trade and stimulates industrial growth positively at
distribution costs, only Botswana, Cabo the regional level (box III.2 and figure III.7).
Verde, Egypt, Libya, Mauritius, Seychelles While this could be an impact of the good
and South Africa have well-integrated road network in a few countries, along with other
networks (figure III.6). According to the factors, the small value of the transport
World Trade Organization (2021), transport coefficient further emphasizes a low positive
costs in Africa are three times higher than impact, if any, on industrial growth in several
in the United States. In addition, UNCTAD countries in the long term. This is further
(2021c) shows that intra-African transport highlighted in figure III.7, which indicates an
costs, measured as the share of trade value initial negative response of industrial output Africa has
per 10,000 km, are much higher than extra- to improvements in transport infrastructure, 16 landlocked
African transport costs, undermining the albeit with marginal improvements over
the projected 10-year horizon. Thus, while
countries –
development of intra-African value chains.
improvements in road transport networks more than any
Transport costs constitute the lion’s share of
are effective in stimulating growth from other region –
trade and marginal costs of production and
are thus key in influencing the direction of
the second or third year, their positive and is among
industrial productivity and competitiveness.
influence is marginal before becoming the continents
constant in the medium term. While this with the least
Countries in Africa with good quality roads
might suggest that the value addition of an
– Egypt, Mauritius and South Africa, for developed
additional stock of quality road networks
example – are also more advanced in other
to industrial output diminishes over time,
transport
transport and logistics infrastructure, such infrastructure
in most countries, deterioration of the road
as railways, ports and airports, as well as in
network, for instance, through lack of proper
the development of economic infrastructure,
maintenance or overload of heavy trucks,
such as energy and ICT (figure III.6). This
could be the most plausible reason for this
suggests an increased skewness of potential
trend (UNCTAD and Islamic Development
investments and a high concentration
Bank, 2022). Fontagné et al. (2023) suggest
of value chain components in these few
that complementing the implementation of
countries because of better connectivity
the African Continental Free Trade Area with
and lower trade and production costs.
substantial investments in transport and
A well-developed transport infrastructure, logistics to reduce associated monetary
as in Egypt (figure III.6), has a positive and time costs could expand exports
influence on industrial productivity, which from Africa by 11.5 per cent, compared
may be a contributing factor to the effective with the 3.4 per cent gains in the African
development of intra-African value chains Continental Free Trade Area but without
in the African Continental Free Trade Area, cutting transportation costs. Moreover,
particularly regarding the essential role of Tandrayen-Ragoobur et al. (2022) found
the geographical footprint of the value chain that paving all roads in the West African
in minimizing the impact of country-specific Economic and Monetary Union would
risks. Most importantly, this underscores the increase its trade flows by 3.5 per cent.
extent to which connectivity-related benefits Thus, the reduction of net transportation
can improve the ability of African countries and logistics costs across countries is
to effectively participate in regional value bound to boost the productivity of industries
chains. A lack of infrastructure, in particular and the overall trade competitiveness
reliable transport connectivity, compounds of most countries in the region.
the difficulties of establishing well-integrated
production and supply networks across
the continent (UNCTAD, 2023a).

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Figure III. 6
Transport and information and communications technology
infrastructure composite indices, 2022
Transport ICT 20
Algeria 34
4
Angola 13
5
Benin 15
25
Botswana 31
11
Burkina Faso 14
9
Burundi 7
26
Cabo Verde 28
3
Cameroon 17
3
Central African Republic 4
1
Chad 7
15
Comoros 9
2
Congo 11
6
Côte d'Ivoire 23
1
Democratic Republic of the Congo 7
9
Djibouti 19
55
Egypt 34
16
Equatorial Guinea 10
3
Eritrea 3
13
Eswatini 17
2
Ethiopia 9
4
Gabon 27
8
Gambia 22
11
Ghana 26
5
Guinea 15
5
Guinea-Bissau 14
10
Kenya 43
7
Lesotho 17
3
Liberia 10

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40
Libya 20

3
Madagascar 6

4
Malawi 8

2
Mali 18

5
Mauritania 15

37
Mauritius 51

10
Morocco 45

2
Mozambique 9

17
Namibia 21

2
Niger 5

6
Nigeria 19

12
Rwanda 13

13
Sao Tome and Principe 15

4
Senegal 20

52
Seychelles 56

4
Sierra Leone 12

2
Somalia
6
22
South Africa 35

0
South Sudan 4

1
Sudan 13

3
United Republic of Tanzania 14

6
Togo 13

11
Tunisia 38

6
Uganda 11

7
Zambia 14

12
Zimbabwe 16

Source: UNCTAD, based on data from the Africa Infrastructure Development Index.

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Information and communications the composition of the region’s exports

technology where, for example, ICT goods and services
accounted for only 5.2 per cent of its
Digital technologies will be key to
total services exports in 2019 (UNCTAD,
strengthening supply chain resilience
2022b). Thus, on aggregate, most African
(UNCTAD, 2024i). The interaction
countries that have a relatively higher level
between transport and ICT infrastructure
of internalization of technology and other
development is important. Figure III.7
pertinent ICT-related goods and services do
shows potentially divergent (non-
so at relatively higher costs than comparable
complementary) development efforts in
countries in other regions, owing to limited
the two infrastructure components. On
accessibility from within the continent.
aggregate, each infrastructure component
has a somewhat insignificant response to In some countries in the Common Market
improvements in the other component, for Eastern and Southern Africa, the net
potentially highlighting non-complementary impact of ICT on industrial value added and
prioritization in the development planning growth is negligible and sometimes negative
of infrastructure in the region. Notably, (figure III.7). For instance, while short-term
this undermines the importance of a estimates show that ICT positively influences
good road network, including in remote industrial growth in countries such as the
areas, to enhance access to intermediate Comoros, Kenya and Rwanda, significant
goods and services that are necessary for negative outcomes are observed for others,
higher industrial productivity. For example, such as Zambia. Of interest in these results
in Africa, a resource-rich continent, the are the positive outcomes in countries
internalization of technology in essential such as the Comoros, which is among the
Notwithstanding sectors such as agriculture to raise 12 countries having the least developed
the steady industrial output requires good access and accessible ICT goods and services
growth of ICT roads for both the movement of machinery from domestic markets, suggesting the
infrastructure, and human skills. Thus, in addition to the importance of regional and international
only 9 African direct reduction of marginal production markets in closing domestic ICT gaps.
costs, the enhancement of transport and Overall, the growing ICT sector has yet to
countries
logistics infrastructure is also relevant in unleash the expected positive transformation
have reliable stimulating development in other pivotal in the industrial sector, notwithstanding the
and efficient areas with a direct and/or indirect bearing marginal favourable impact on industrial
ICT networks, on overall industrial output and growth. growth between 2005 and 2022. This is
indicating Notwithstanding the steady growth of ICT
reflected in figure III.7, where the response
significant infrastructure and utilization of its services
in industrial output to changes in the ICT
gaps for most sector remains negligible. However, the
from 2010, the aggregate score of the
current pace of development in the ICT
countries index remains below 20 (figure III.5). This
sector across Africa has contributed to
indicates significant gaps in ICT goods and
reducing the digital divide between Africa
services from within the continent for most
and the rest of the world and in effectively
countries. Only nine countries in Africa11
supporting smart manufacturing and
have compact ICT networks with countries
spurring industrial growth, particularly
that are developing ICT potential, including
when it translates into the increased
Cabo Verde, Côte d’Ivoire, the Gambia
internalization of innovative technologies
and Namibia. This is equally reflected in
in industrial production and processes.

11
Algeria, Botswana, Egypt, Kenya, Mauritius, Morocco, Seychelles, South Africa, Tunisia.

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Figure III. 7
Common Market for Eastern and Southern Africa: Impulse response
function
95% CI Orthogonalized IRF

labour : labour labour : credit labour : ict labour : transport labour : growth
.02 .1 .6 .2 .2
.01 .05 .4 .1 .1
0 .2 0 0
0 -.1
-.01 0 -.1
-.02 -.05 -.2 -.2 -.2
credit : labour credit : credit credit : ict credit : transport credit : growth
.02 .15 .4 .2 .2
.01 .1 .2 .1
.05 0 0
0 0
0 -.1
-.01 -.05 -.2 -.2 -.2
ict : labour ict : credit ict : ict ict : transport ict : growth
.002 .04 .8 .04 .01
0 .02 .6 .02 0
.4 -.01
-.002 0 .2 0 -.02
-.004 -.02 0 -.02 -.03
transport : labour transport : credit transport : ict transport : transport transport : growth
.1 .2 1 1 .5
.05 0 .5 .5
0 0 0
0 -.2 -.5 -.5 -.5
-.05 -.4 -1 -1
growth : labour growth : credit growth : ict growth : transport growth : growth
.005 .1 .2 .05 .4
0 .05 0 0 .2
-.005 0 -.2 -.05 0
-.01 -.05 -.4 -.1 -.2
0 5 10 0 5 10 0 5 10 0 5 10 0 5 10

step
impulse : response

Source: UNCTAD.
Note: Credit is the domestic credit available to the private sector as a percentage of GDP. Growth is the industrial
value added growth rate. Labour is the total labour participation rate. Transport and ICT are the composite
transport infrastructure and ICT indices of the African Development Bank. All variables are in natural logs. The
variables are stated as impulses and responses. The first variable in each frame is the impulse; the second is the
response. For example, in labour : credit, the frame shows that credit is the response or reaction to the impulse
of labour or labour market shocks.

Addressing the gaps in trade indicates that, on average, goods traded

logistics and facilitation between African countries accrue a 292
per cent ad valorem equivalent in non-tariff
While countries in Africa have experienced trade costs, which include all additional
reduced tariffs owing to bilateral and costs other than tariff costs involved in
multilateral trade agreements, non-tariff trading goods. Figure III.8 depicts several
barriers remain high in the region. Non-tariff patterns in non-tariff trade costs within
barriers generally refer to policy measures regional economic communities. The
other than ordinary customs tariffs, which intraregional and interregional economic
can potentially have an economic impact on community non-tariff trade costs range
international trade in goods, changing prices from about 135 per cent to over 400 per
traded, quantities or both (UNCTAD, 2019b). cent, with large variations among regional
Non-tariff trade costs economic communities. For instance, the
average in intra-East African Community
The latest trade cost database of the
non-tariff trade costs from 2016 to 2021 is
Economic and Social Commission for
135 per cent, indicating that on average, the
Asia and the Pacific and the World Bank
non-tariff costs of trading all goods within

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the Community amount to about 135 per While non-tariff measures are trade rules
cent of the value of goods. Similarly, the and regulations introduced to attain
average of non-tariff trade costs for the legitimate policy objectives such as
East African Community and the Common protecting the environment and ensuring
Market for Eastern and Southern Africa consumer safety, health and well-being,
during the same sample period is 254 per they can affect prices and quantities traded
cent, suggesting that traded goods between through a range of technical and non-
these regional economic communities are technical requirements such as sanitary and
subject to additional ad valorem equivalent phytosanitary measures (UNCTAD, 2024k).
trade costs of 119 percentage points,
With the gradual, significant reduction
compared with traded goods within the
of tariff costs following the successful
East African Community. Intraregional
implementation of various free trade
economic community non-tariff trade
agreements and in 2018, the adoption of
costs are sizeably lower than those in an
the Agreement Establishing the African
interregional economic community, which
Continental Free Trade Area, non-tariff
can be attributed to more harmonious
measures – not tariffs – are likely to
Intraregional sanitary and phytosanitary measures,
represent a major risk to trading in Africa,
shorter transportation times, fewer border
and interregional with each non-tariff measure estimated to
formalities, more consistent licencing and
economic documentation requirements and fewer
raise trade costs by at least 1.5 per cent
on average (UNCTAD, 2018b). UNCTAD
community non- technical barriers to trade within the regional
(2018b) further suggests that African
tariff trade economic communities. In addition, the
countries could gain $20 billion in GDP
costs range data show that non-tariff trade costs are
growth by tackling non-tariff measures
from about widespread in Africa. Non-tariff trade costs
at the continental level. Overall, non-tariff
decreased in some regions, for example,
135% to over measures are estimated to restrict intra-
within the Common Market for Eastern and
400%, with Southern Africa, and between the Common
African trade three times more than regular
large variations customs tariffs (Sanjuán López et al., 2021;
Market and the East African Community and
UNCTAD, 2018b). In particular, inadequate
among regional the Economic Community of West African
transport and logistics infrastructure,
economic States. However, these costs rose within
inefficient border and port management,
communities various interregional economic communities,
costly and lengthy customs procedures
for instance, between the Common
and stringent regulatory frameworks are
Market for Eastern and Southern Africa
among the main risks that undermine gains
and the Southern African Development
from trade across countries and regions.
Community, as well as between the East
Among other things, they result in border
African Community and the Economic
delays and the increased unpredictability
Community of West African States. This
of delivery times of intermediate and final
calls for stronger initiatives at the continental
goods, with an overall surging effect on
level to reduce non-tariff trade barriers
transaction costs. This section assesses
systematically. The online mechanism for
how and the extent to which the trade
reporting, monitoring and eliminating non-
logistics and trade facilitation instruments
tariff barriers under the African Continental
undertaken by African countries have been
Free Trade Area is a key operational
effective in curbing non-tariff trade costs.
instrument to report and resolve perceived
non-tariff barriers to trade. According to
UNCTAD (2021c), most reported non-tariff
barriers relate to rules of origin, lengthy and
costly customs procedures, costly road
charges and technical barriers to trade and
sanitary and phytosanitary measures.

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Figure III. 8
Average non-tariff trade costs among and between regional trading
blocs in Africa
(Percentage ad valorem equivalent)
2010–2015 2016–2021

2.88
Intra-COMESA
2.83
Common Market 2.64
for Eastern and COMESA-EAC
2.54
Southern Africa
4.04
COMESA-ECOWAS
3.86

2.87
COMESA-SADC
3.03

1.36
Intra-EAC
1.35
2.64
EAC-COMESA
East African 2.54
Community
4.02
EAC-ECOWAS
4.13
2.71
EAC-SADC
2.77

1.91
Intra-ECOWAS
2.01

4.04
Economic ECOWAS-COMESA
3.86
Community of
West African 4.02
ECOWAS-EAC
States 4.13

3.55
ECOWAS-SADC
3.69

2.2
Intra-SADC
2.52

Southern African 2.87

SADC-COMESA
Development 3.03
Community
2.71
SADC-EAC
2.77

3.55
SADC-ECOWAS
3.69

Source: UNCTAD calculations, based on data from the trade cost database (Economic and Social Commission
for Asia and the Pacific–World Bank).
Note: The non-tariff trade costs capture all additional costs other than tariff costs involved in trading goods
bilaterally rather than domestically. These include, but are not limited to, transportation costs, direct and indirect
costs associated with currencies and languages and various import and export procedures.

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Progress in trade facilitation African Republic, Namibia, the Gambia,

the Democratic Republic of the Congo and
Trade facilitation remains central in the
Liberia (in order of performance). However,
simplification and harmonization of
the figure further shows that notwithstanding
import and export procedures to reduce
these improvements, there remains a
or eliminate the negative effect of non-
mounting need for further progress in
tariff measures on total trade costs. It
most countries in ensuring efficiency and
broadly encompasses border policies and
less costly processes in the movement of
procedures, ranging from documentation
intermediate inputs, final goods and people
and inspection requirements to border
within and across African regions. Except
agency cooperation. Trade facilitation
for Morocco, South Africa and Tunisia,
provisions in the regional economic
the average score for most countries
communities and the African Continental
in 2022 was considerably below the
Free Trade Area are generally consistent
average global best-practice score. Other
with the provisions in other international
countries that made commendable strides
agreements (for example, the Agreement
in this area are Botswana, Cameroon,
on Trade Facilitation of the World Trade
Egypt, Kenya, Senegal and Tunisia.
Organization) and customs conventions (for
instance, the Revised Kyoto Convention At the regional-economic-community
The of the World Customs Organization). At level, trade facilitation programmes include
implementation the national level, most countries have initiatives such as one-stop border posts,
of a single adopted a multidimensional approach which focus on streamlining and facilitating
window in to improve their competitiveness and trade and the movement of goods and
Rwanda, with enhance market access, covering people between neighbouring countries
assistance regulatory frameworks relating to (UNCTAD, 2021c). Countries in Africa have
trade and investment and economic also collaborated to report and monitor non-
by UNCTAD,
infrastructure. Notably, the measures tariff barriers jointly. In 2008, the Common
achieved a undertaken by countries are aligned Market for Eastern and Southern Africa, the
reduction with their commitments at the regional- East African Community and the Southern
of export economic-community level, suggesting African Development Community set up
clearance consistency with relevant provisions in a freely accessible online platform12 that
times from other international agreements. UNCTAD enables economic operators to identify,
assists African countries in identifying remove and monitor the non-tariff barriers
67 hours to 34
their trade facilitation needs and supports that occur while conducting businesses
the implementation of specific facilitation within these three regional economic
measures. For instance, the implementation communities (World Bank and Horn of
of a single window in Rwanda, with Africa Initiative Secretariat, 2023). Within
assistance by UNCTAD, achieved a this tripartite non-tariff barrier monitoring
reduction of export clearance times from system, each regional economic community
67 hours to 34 (UNCTAD, 2023h). has established specific regulations that
provide the legal foundation for adopting
Assessing the trade facilitation performance
this platform, as follows: Regulations
of countries in Africa using the agreed
for the Elimination of Non-tariff Barriers,
indicators under the aforementioned
2014 (Common Market for Eastern and
Agreement on Trade Facilitation, figure III.9
Southern Africa), the Elimination of Non-
illustrates significant improvements across
tariff Barriers Act, 2017 (East African
Africa from 2017 to 2022. The top 10
Community) and the Protocol on Trade
performers during this period are Benin,
(Southern African Development Community).
the Niger, Mali, Mozambique, the Central

12
See www.tradebarriers.org/.

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Figure III. 9
Average trade facilitation performance, 2017 and 2022

2017 2022 0.8

Algeria
0.9

Angola 0.7
0.9

Benin 0.6
1.0

Botswana 1.1
1.2

Burkina Faso 0.5

0.6

Burundi 0.5
0.5

Cameroon 0.9
1.0

Central African Republic 0.3

0.6

Chad 0.3
0.4

Comoros 0.3
0.4

Congo 0.8
0.9

Côte d'Ivoire 0.7

0.8

Democratic Republic of the Congo 0.4

0.6

Djibouti 0.4
0.4

Egypt 1.1
1.2

Eswatini 0.7
0.8

Ethiopia 0.7
0.8

Gabon 0.5
0.6

Gambia 0.5
0.8

Ghana 0.9
0.9

Kenya 1.2
1.3

Lesotho 0.7
0.8

Liberia 0.5
0.7

Madagascar 0.9
1.0

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Malawi 0.6
0.9

Mali 0.6
0.9

Mauritius 1.6
1.7

Morocco 1.4
1.6

Mozambique 0.5
0.9

Namibia 0.7
1.0

Niger 0.3
0.7

Nigeria 0.8
0.9

Rwanda 0.8
1.0

Senegal 1.1
1.2

Sierra Leone 0.5

0.5

South Africa 1.4

1.6

Sudan 0.4
0.5

Togo 0.7
0.8

Tunisia 1.1
1.3

Uganda 0.8
1.0

United Republic of Tanzania 0.9

1.0

Zambia 0.8
0.8

Zimbabwe 0.8
0.9

Source: UNCTAD calculations, based on data from the Trade Facilitation Indicators database (OECD).

The Southern African Development compound non-tariff trade costs in Africa.

Community Business Council (2023)
Other key trade facilitation instruments
mentions six deficiencies regarding non-
in Africa include the Regional Customs
tariff barrier resolutions in the region,
Transit Guarantee scheme, a customs
including an opaque resolution process,
bond guarantee transit programme
ineffective national monitoring committees
that facilitates the smooth movement
and underprepared national focal points.
of goods in the Common Market for
Moreover, poor trade logistics and glaring
Eastern and Southern Africa.
trade facilitation gaps in most countries

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Among other things, the scheme In the overall logistics performance index,
ensures recovery of taxes by respective only Egypt and South Africa exceeded
Governments from their guarantors in the the global average score (figure III.10).
event of the illegal disposition of goods for With regard to specific indicators, the
domestic use in the transit country. The performance of Botswana, South Africa
Common Market for Eastern and Southern and Uganda surpasses the global average
Africa also has a virtual trade facilitation score on customs clearance and processes;
system, which monitors consignments along only Egypt and South Africa score higher
its corridors, providing real-time full visibility on trade and transport-related infrastructure
Gaps across
of goods with a Common Market for Eastern and the quality of logistics. In line with the key logistical
and Southern Africa seal. The online system centrality scores under trade in value added components
further integrates other key trade facilitation networks, the logistics performance of the across Africa
instruments in the region, including a countries holding these networks (Djibouti, compromise
“yellow card” insurance scheme for motor the Gambia, Mauritania, Seychelles, South
the potential for
vehicles, a transit data transfer module and Africa, Zambia) is notable. Increased
a customs declaration document (Common transaction costs are a potential deterrent
supply chain
Market for Eastern and Southern Africa, to the effective development of the supply diversification
2024). Other regional online monitoring and and value chains in the African Continental and pose a
resolution systems include the Economic Free Trade Area. For instance, Zimbabwe major risk
Community of West African States trade stands out in 2022 as one of the principal to building
obstacles alert mechanism and the West suppliers of intermediate inputs in all three resilience
African Economic and Monetary Union sectors (manufacturing, the primary sector
Observatory of Abnormal Practices. At the and services). With an overall score of 2.3
continental level, the Guided Trade Initiative against the global average of 2.9, Zimbabwe
of the African Continental Free Trade Area, performs better than many other African
regulatory audits and online non-tariff countries (figure III.10), but the deficiencies
barriers reporting, monitoring and eliminating in its logistics-related infrastructure and
mechanisms help to further reduce non- services still pose risks to supply chains
tariff barriers in intraregional economic in Africa. Moreover, the Gambia, which is
communities and most importantly, in also at the core of the manufacturing and
interregional economic communities, to primary sector networks as a supplier,
facilitate the development and strengthening ranks lowest in the logistics performance
of trade and investment ties across regions. index. In particular, it has the lowest score
in customs clearance processes and is
Persistent gaps in trade logistics
third from the bottom after Sierra Leone
Trade logistics, understood as the and Somalia in competence and quality of
management process that includes the logistics services. This suggests significant
entire flow of goods and information delays and increased uncertainty in the
between suppliers, producers and delivery of intermediate inputs originating
consumers, remains an indispensable from the Gambia and/or passing through
component of supply chains. This process it. With a large proportion of countries
has a significant implication on the mobility participating in the value chains in Africa
and timely delivery of intermediate and through forward integration (as suppliers of
final products. Gaps across key logistical raw and/or semi-processed intermediate
components across Africa compromise the goods), the weak performance of most
potential for supply chain diversification and of these countries in the index is a
pose a major risk to building resilience. potential deterrent to the development
of supply and viable value chains in the
African Continental Free Trade Area.

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Figure III. 10
Logistics performance, by country, 2012–2022
Overall Customs clearance process Trade and transport-related infrastructure
Competence and quality of logistics services
Algeria 2.6 2.4 2.3 2.4
Angola 2.2 2.0 2.1 2.2
Benin 2.7 2.5 2.5 2.6
Botswana 2.9 2.8 2.8 2.3
Burkina Faso 2.5 2.3 2.4 2.5
Burundi 2.2 2.0 2.0 2.2
Cameroon 2.3 2.2 2.2 2.4
Central African Republic 2.3 2.4 2.3 2.4
Chad 2.3 2.1 2.2 2.3
Comoros 2.4 2.5 2.2 2.3
Congo 2.3 2.0 2.0 2.4
Côte d'Ivoire 2.8 2.5 2.5 2.8
Democratic Republic of the Congo 2.3 2.2 2.0 2.2
Djibouti 2.3 2.2 2.2 2.2
Egypt 3.0 2.7 3.0 3.0
Key challenges Equatorial Guinea 2.2 2.0 1.8 2.1
Eritrea
in logistics Ethiopia
2.1 2.0 1.9 2.2
2.4 2.3 2.2 2.4
performance Gabon 2.3 2.0 2.1 2.2
across countries Gambia 1.9 1.6 1.6 2.3
Ghana
are observed in Guinea
2.6 2.4 2.4 2.5
2.4 2.4 2.1 2.4
border-agency Guinea-Bissau 2.5 2.4 2.2 2.5
management Kenya 2.8 2.5 2.6 2.8
Lesotho
and, mostly, Liberia
2.2 2.1 2.1 2.2
2.4 2.1 2.3 2.4
process Libya 2.2 2.0 2.0 2.2
automation Madagascar 2.4 2.3 2.1 2.3
Malawi 2.7 2.6 2.7 2.8
Mali 2.5 2.3 2.2 2.4
Mauritania 2.2 2.1 2.1 2.2
Mauritius 2.6 2.5 2.7 2.6
Morocco 2.7 2.4 2.7 2.7
Mozambique 2.5 2.4 2.2 2.3
Namibia 2.7 2.6 2.7 2.7
Niger 2.4 2.4 2.2 2.3
Nigeria 2.6 2.2 2.4 2.5
Rwanda 2.8 2.6 2.5 2.7
Sao Tome and Principe 2.5 2.4 2.3 2.5
Senegal 2.4 2.4 2.3 2.4
Sierra Leone 2.1 1.8 2.1 1.9
Somalia 1.9 1.7 1.7 1.9
South Africa 3.6 3.3 3.5 3.6
Sudan 2.3 2.1 2.1 2.4
Togo 2.5 2.3 2.3 2.3
Tunisia 2.7 2.4 2.4 2.6
Uganda 2.8 2.8 2.5 2.7
United Republic of Tanzania 2.7 2.4 2.5 2.6
Zambia 2.5 2.3 2.3 2.5
Zimbabwe 2.3 2.1 2.2 2.3
World 2.9 2.7 2.8 2.9

Source: UNCTAD calculations, based on data from the World Development Indicators database (World Bank).
Note: Index scores range from 1 (low) to 5 (high).

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Conclusion dependence on a limited range of primary

export commodities and poor economic
Within the context of regional integration and infrastructure limit their capabilities in
the African Continental Free Trade Area, this exploiting comparative advantages for
chapter assesses opportunities for effective profitable participation in regional and
participation in regional value chains and global value chains. Moreover, non-tariff
highlights potential risks. Through network trade costs remain a daunting hurdle in the
analysis, the chapter provides an overview of movement of people and goods within and
the structural changes in intra-African trade across regional economic communities.
in value added from 2012 to 2022, outlining On average, non-tariff trade costs account
the roles and importance of the respective for nearly three times the value of traded
countries in the trade in value added goods in Africa, potentially weakening
networks. In addition, the chapter also the capabilities of most countries to take
empirically evaluates the extent to which the part effectively in regional value chains.
potential risks for the regional value chains
Transport, ICT and energy are also
are undermining the development of viable
necessary for growth and development
value chains in Africa through impacts on
in the region. However, these sectors
industrial productivity and growth. Lastly, the
remain underdeveloped in most countries,
chapter discusses avenues for minimizing
restraining industrial output and growth. This
potential trade and investment risks.
is likely to hinder the development of viable
The assessments underscore the value chains. Although Africa is using less
heightened potential that countries in Africa than 10 per cent of its power-generation
have for enhancing their regional trade and capacity, it has the potential to fully meet
development through intraregional value its energy needs with renewable and non-
chains. However, the high concentration renewable energy sources (see chapter IV).
of intermediate input markets, strong

Well-established
transport, ICT
and energy
infrastructure is
crucial to de-risk
trade opportunities
© Shutterstock

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 Economic development
in Africa report 2024

Chapter IV

Building
resilience
in African
businesses and
cross-border
transactions
© Adobe Stock
 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Introduction

In many countries in Africa, situations These are clearly factors that derive from
of vulnerability to polycrisis shocks that or can further contribute to the economic,
prevail in the economic and connectivity connectivity and energy vulnerabilities faced
domains, such as high non-tariff trade by many countries in Africa (see chapter I),
costs, weak infrastructure connectivity, low affecting their ability to mitigate the trade
levels of participation in trade networks, and investment risks presented by the
high concentration of exports and a low global polycrisis. As outlined in previous
degree, or lack of, economic complexity, sections of the report, key structural factors
can contribute to a shrinking appetite for of economic and connectivity vulnerabilities,
business operations and capital flows to such as a lack of adequate infrastructure
countries in Africa and further undermine the and technological solutions, limited trade
already challenging business and investment logistics and high trade costs, can erode
environments on the continent (see stability and growth prospects in African
chapters II and III). Such structural downside economies. This chapter will assess key
factors may affect the ability and willingness financial and operational enablers and Situations of
of businesses and investors, both foreign instruments that can help businesses in vulnerability
and domestic, to venture into Africa or move Africa, especially SMEs, better manage
to polycrisis
their goods, services and capital across various and often contiguous crises.
frontiers. This also concerns investors
shocks can
contribute to
seeking business partnerships beyond Firm-related risks and
windfall profit expectations (Hartwich and a shrinking
Hammer, 2021). Ultimately, barriers to the
opportunities appetite for
flow of goods and capital across borders, The general narrative overemphasizes the business
whether tariff-based or structural, culminate risks of trading and investing in Africa, as
operations and
in regional market vulnerability, which may the region continues to score poorly in
place African companies at a disadvantage critical areas, including access to finance,
capital flows
and breed inconsistency in their ability to infrastructure, bureaucratic red tape and to countries
reap the economic benefits and growth governance. For instance, in 2023, the in Africa
potential of regional trade blocs such as Economist Intelligence Unit Operational Risk
the African Continental Free Trade Area. Services painted a picture of entrenched
political instability and democratic recession
However, the private sector’s potential to
across most of Africa. The region scored
leverage regional market advantages is
74/100 for political stability and governance
offset by deficits in the financial system;
effectiveness, which represents the largest
scarcity in the factors of production,
operational risk in Africa (Economist
such as capital and entrepreneurship;
Intelligence Unit, 2023).1 The five countries in
regulatory compliance challenges and
Africa with the lowest rating for operational
insufficient infrastructure integration in
risks in mid-2023 due to their “comparatively
most African countries (see Economic
business-friendly tax and trade policies and
Commission for Africa, 2020; UNCTAD,
relative political stability and government
2023a; Hartwich and Hammer, 2021).
effectiveness” were Mauritius, Cabo Verde,
Botswana, South Africa and Morocco
(Economist Intelligence Unit, 2023).

1
The Economist Intelligence Unit operational risk model assesses 180 countries according to overall operating
risk. The model evaluates business conditions in the markets covered against the changing political and
economic landscape to rank countries by operating risk. It produces scores quarterly across 10 key operational
risk categories and 70 subcategories. Risk levels are based on a score out of 100, with 100 being the highest risk.

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Figure IV. 1
Resilience to shocks in selected countries

(a) Botswana (b) Cabo Verde

Botswana Cabo Verde Economic

Economic
Africa average vulnerability Africa average vulnerability
80 80
60 60
Climate Governance Climate Governance
vulnerability 40 vulnerability vulnerability 40 vulnerability
20 20
0 0

Energy Connectivity Energy Connectivity

vulnerability vulnerability vulnerability vulnerability

Social vulnerability Social vulnerability

(c) Mauritius (d) Morocco

Mauritius Economic
Morocco Economic
Africa average vulnerability Africa average vulnerability
80 80
60 60
Climate Governance Climate Governance
vulnerability 40 vulnerability vulnerability 40 vulnerability
20 20
0 0

Energy Connectivity Energy Connectivity

vulnerability vulnerability vulnerability vulnerability

Social vulnerability Social vulnerability

(e) South Africa

South Africa Economic

Africa average vulnerability
80
60
Climate Governance
vulnerability 40 vulnerability
20
0

Energy Connectivity
vulnerability vulnerability

Social vulnerability

Source: UNCTAD.
Note: Values represent a score out of 100.

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 Economic Development in Africa Report 2024
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These are also countries that demonstrated including limited financial and managerial
resilience across many of the six domains of resources, low international exposure,
vulnerability identified in chapter I. Figure IV.1 serious informational constraints and heavy
shows that the level of vulnerability of these regulatory burdens (UNCTAD, 2024d). To
five countries across at least five of the six embrace the vast opportunities offered by
identified domains is low, compared with African markets, such as good returns,
the general average in Africa. Their overall greening investment, economies of scale
and comparatively low levels of vulnerability under the African Continental Free Trade
to shocks can help explain their ability to Area, burgeoning services and middle-
mitigate entangled shocks and recover class-based consumption (Hruby and
from the adverse effects of the polycrisis, Arditti, 2022), it is important for companies
which are attributes that businesses to understand the rules and requirements
and investors look for in a market when concerning compliance, regulatory issues,
making an entry or investment decision. tax challenges and financing conditions
related to business practices, cross-border
Exceptions can be observed for Botswana
trade and capital movements in Africa. It is Most private
and Cabo Verde, in the area of connectivity
vulnerability and for Morocco, in that of
also essential that firms identify these key companies in
economic vulnerability. In a country such
issues and acquire adequate knowledge Africa are left
of the landscape of African markets. This
as Botswana, vulnerability in supplying unprepared
can help them pre-empt potential risks
reliable electricity can further reduce
and successfully manage risk exposures.
in the event
a firm’s productivity when exposed to of internal or
a market or supply chain disruption This section will examine some of
external shocks,
emanating from external shocks and the risks that can threaten business
related economic downturns. In the 2023 and trade activities across Africa and
with limited
World Bank Enterprise Survey, 64 per exacerbate disruptions to production, capacity and
cent of the firms surveyed in Botswana uncertainties and service liabilities, namely resources for
had experienced failures in the provision regulatory risks and currency risks. emergency
of electricity, which resulted in higher responses
operational costs, disrupted some of Legal and regulatory risks to a crisis
their production and decreased their
Firms face multiple, complex and
profitability (World Bank, 2023b).
changing regulatory risks that affect their
Despite the existence of sound frameworks performance and compliance behaviour
and capabilities in some of the most (Vincent and Ntim, 2021). Compared with
resilient African economies and an improved large multinational enterprises, SMEs face
business environment in a growing number distinctive bottlenecks, including limited
of countries, most private companies in access to finance, skills and technology
those countries are left unprepared in constraints, low institutional quality
the event of internal or external shocks, and international exposure, regulatory
with limited capacity and resources for complexities and international competition
emergency responses to a crisis. In (UNCTAD, 2024d). There is a strong
other countries in Africa, firms operate in correspondence between institutional
complex and uncertain macroeconomic quality and the regulatory environment. The
and geopolitical environments, which can regulatory risks faced by firms are often in
pose high risks to their finance, products, the form of unclear and inconsistent legal
operations, compliance and conduct. These and institutional frameworks. For instance,
challenges are not specific to African firms. not having access to clear information
In many parts of the world, the effects about the specific legal and regulatory
of global crises, such as the COVID-19 provisions of a given Government can
pandemic and geopolitical tensions, have undermine the ability of a firm, especially
brought additional challenges to SMEs, a foreign one, to comply effectively with

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domestic policies and laws pertaining to face interactions between tax collectors and
its operations or investment in a specific taxpayers and informal payments (Dom et
sector, such as mining. The legal and al., 2022). This indicates that African SMEs
regulatory clarity surrounding resource- need more time spent on tax compliance,
based investments is critical in linking which increases their transaction costs
the extraction and sale of resources for and may hinder their ability to thrive in the
broad-based economic development. market. Moreover, the number of documents
Existing quality and price provisions and processes that firms must comply with
contained in most of the policies and to make tax payments – both inland and at
legislation of countries in Africa may provide border crossings – and register or renew a
an excuse for non-compliance (White, business licence can be costly and hence
2017). In addition, quality requirements serve as a disincentive for traders and
and the inspection of standards are investors alike. Tax administration efficiencies
enforced differently between registered are generally weak in Africa and can lead to
and unregistered firms, with the latter tax avoidance, evasion behaviour (Abdu et
establishments skirting the enforcement al., 2020; Otusanya et al., 2022), informality
efforts of government authorities. (that is, with a strong incentive to not register
firms) and a lack of transparency. Investors
Another obstacle that firms face with
may perceive these challenges as risks to
regard to laws and regulations concerns
their investments. However, many countries
the unpredictable and stop-start nature
have introduced two tools developed
of regulations, rules and procedures. If a
by UNCTAD, the Automated System for
given legal and regulatory framework is
Customs Data and the Debt Management
unpredictable, unclear and inconsistent, it
and Financial Analysis System, which are
opens a door for interpretation and is often
aimed at increasing efficiency, transparency
considered a disincentive to entrepreneurs’
and accountability in revenue administrations
investment intentions. The disincentive
and helping address the complexity and
to investment or production by firms is
high cost of complying with tax regulations.
not restricted to domestic investment but
to foreign direct investment as well. The In addition to complex tax rules and
certainty of legal and regulatory frameworks structures, which can present a considerable
is necessary for investment decisions burden for businesses (World Bank and
made by firms. In practice, a Government Pricewaterhouse Coopers, 2019), many
can establish a coordinating framework or countries have inadequate domestic legal
One way of council that involves responsible bodies frameworks and enforcement mechanisms
across the whole public administration to for protecting intellectual property rights.
de-risking implement clear, well-coordinated legal and Although regional institutions have been
operational regulation frameworks. This helps firms plan established to manage intellectual property
and growth for the future and clarify decisions made with in 37 countries, namely the African Regional
opportunities regard to investment and company growth. Intellectual Property Organization and the
is to raise the Owing to the changing regulatory landscape,
African Intellectual Property Organization,
level of trust their limited capacity and resources
complying with rules and regulations brings
raises the likelihood of the proliferation of
with regard to high transaction costs for SMEs, hampering
applications for intellectual property rights
the protection their growth and internationalization
(UNCTAD, 2023i). The lack of protection
of property process (UNCTAD, 2024d). In particular, tax
exposes foreign investors to the risk of
compliance can be especially burdensome
rights piracy, counterfeiting and unauthorized use
for SMEs, due to complex and evolving tax
of their intellectual assets. One way of de-
laws, resulting in high transaction costs.
risking operational and growth opportunities,
In many African countries, tax collection
especially for firms in the process of
and revenue systems are characterized by
internationalization – firms with exporting and
significant complexity, extensive face-to-
investment ambitions abroad – is to raise the

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level of trust with regard to the protection of Addressing issues associated with tax,
property rights. Limited awareness among intellectual property rights, the judicial
businesses and government agencies system and dispute-settlement mechanisms
about the importance of intellectual property with investors requires concerted efforts
rights and insufficient institutional capacity by Governments in Africa to reform tax
to enforce these rights undermines investor systems, strengthen intellectual property
confidence. At the global level, compliance rights protection, improve judicial efficiency
with the Agreement on Trade-related and independence and enhance access to
Aspects of Intellectual Property Rights of the effective dispute-settlement mechanisms.
World Trade Organization, acknowledged Such reforms can create sound institutional
as the most comprehensive standard for frameworks and conditions for good
intellectual property rights in the multilateral economic governance, especially in the
trading system, can also be constrained areas of regulations, business licencing
by reduced resource capacities in some and taxation, which are fundamental pillars
countries in Africa. The enhanced alignment of a favourable business and investment
of domestic and regional intellectual property climate and, hence, a lever to promote
right frameworks with multilateral rules business resilience and sustainable
can contribute to increased investment economic development on the continent.
and innovation in Africa. For instance,
Many countries in Africa have simplified
the dispute-settlement mechanism under
procedures on the entry and sustainability
the Agreement Establishing the African
Continental Free Trade Area, which is
of foreign investment with incentives, such Simplified
as repatriation, investment allowances procedures
modelled on that of the Agreement on
and a wide range of tax incentives and in
Trade-related Aspects of Intellectual
some cases, protection from competition.
and incentives
Property Rights, will help diminish intellectual
These simplified procedures and incentives were adopted
property right risks related to cross-border
were adopted to facilitate investment to facilitate
trade and investment (UNCTAD, 2021c).
and contribute to the diversification of investment
However, registering and enforcing investment instruments on the continent, and contribute
intellectual property rights can be lengthy with the signing of various bilateral and to the
and bureaucratic, which can discourage multilateral investment treaties and the
diversification
innovation and investment. Delays in domestication of foreign investment laws
dispute resolution can increase costs (see box IV.1 on intra-African investment
of investment
for investors and undermine contractual and related instruments). However, tax instruments on
certainty. While international arbitration and exemptions and incentives, when not the continent
alternative dispute-resolution mechanisms properly administered, can undermine
offer alternatives to domestic courts, their revenue potential through artificial profit
availability and effectiveness vary across shifting and tax avoidance (African Tax
Africa. The enforceability of arbitration Administration Forum, 2024; International
awards and mediated settlements depends Monetary Fund, 2022). Notably, enhanced
on the legal framework and adherence to frameworks protecting investments or
international conventions on arbitration. contributing to the proliferation of investment
Moreover, inconsistencies in enforcement promotion agencies, special economic
procedures across jurisdictions can zones and other targeted mechanisms
weaken the credibility of dispute-settlement aimed at prompting foreign investment
mechanisms. The limited access to inflows into the region could be introduced
affordable and impartial dispute-settlement or strengthened in countries in Africa to
mechanisms, particularly for SMEs, poses protect against harmful tax regimes or the
challenges for investors seeking a timely risk of tax avoidance, base erosion and
resolution of commercial disputes. profit shifting, profit misalignment and the
race to the bottom in corporate income
taxation (Etter-Phoya et al., 2022).

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Africa is a signatory to several bilateral and South Africa, with 38. Given the large
and international trade and investment number of outdated international investment
agreements that minimize the risks agreements established by these countries,
of trading and investing in the region reform of the international investment regime
(figure IV.2). However, old-generation is urgent to ensure that investment is further
treaties and most international investment protected, while safeguarding the regulatory
agreements concluded by countries in space of countries in Africa to act in the
Africa carry their own risks. They fail to public interest. The Protocol on Investment
balance investment protection with the to the Agreement Establishing the African
State’s right and obligation to regulate Continental Free Trade Area, adopted by
in the public interest. Countries can be African Heads of State in February 2023,
liable for damages amounting to billions is a modern international investment
of dollars, awarded by ad hoc tribunals. agreement that is more comprehensive than
previously established investment policies
Bilateral investment treaties are among the
in most countries in Africa, building on
key instruments used globally to minimize
decades of investment policy reform on the
investment risks associated with factors
continent, integrating innovative principles
such as trade and investment disputes,
from other relevant international investment
employment and wages, ownership and
instruments, agreements and frameworks,
control of businesses, expropriations and
such as the UNCTAD Investment Policy
transfers. Egypt leads the region in this
Framework for Sustainable Development,
respect, having signed 100 such treaties,
and providing provisions that protect or
72 of which are in force with countries
enhance legitimate public morals, public
in Africa and elsewhere (figure IV.2).
health, climate action and investor–
Morocco follows with 76; Tunisia, with
State security (Danish et al., 2023).
55; Algeria, with 45; Mauritius, with 45;

Africa offers growing

investment opportunities
in precious minerals,
renewable resources,
alternative energy,
infrastructure, financial
and business services
© Shutterstock

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Figure IV. 2
Bilateral investment treaties and treaties with investment provisions
signed by countries in Africa
Total bilateral investment treaties Bilateral investment treaties in force
Total treaties with investment provisions Treaties with investment provisions in force
Algeria 45 29 8 5
Angola 21 7 19 6
Benin 18 8 14 10
Botswana 10 12 8
Burkina Faso 17 14 14 10
Burundi 11 6 12 9
Cabo Verde 15 9 11 7
Cameroon 18 11 11 9
Central African Republic 5 8 6
Chad 15 8 6
Comoros 7 13 9
Congo 17 8 8 6
Côte d'Ivoire 18 10 16 10
Democratic Republic of the Congo 14 11
Djibouti 9 12 9
Egypt 100 72 17 13
Equatorial Guinea 12 8 6
Eritrea 9 6
Eswatini 15 10
Ethiopia 33 22 9 6
Gabon 16 9 10 8
Gambia 16 6 12 8
Ghana 27 9 13 8
Guinea 24 10 12 8
Guinea-Bissau 11 8
Kenya 20 12 12 8
Lesotho 12 8
Liberia 12 8
Libya 37 26 12 8
Madagascar 9 8 7
Malawi 7 7 11 8
Mali 22 8 11 8
Mauritania 22 10 9 6
Mauritius 45 28 16 12
Morocco 76 51 12 9
Mozambique 28 19 11 7
Namibia 14 8 11 8
Niger 14 10
Nigeria 30 14 13 9
Rwanda 15 6 14 11
Sao Tome and Principe
Senegal 29 21 14 10
Seychelles 13 9
Sierra Leone 12 8
Somalia 10 8
South Africa 38 14 10
South Sudan
Sudan 33 14 12 9
Togo 13 9
Tunisia 55 39 13 10
Uganda 15 6 11 8
United Republic of Tanzania 19 11 9 7
Zambia 16 10 10 7
Zimbabwe 35 12 12 8

Source: UNCTAD, based on data from UNCTAD, 2024l.

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Box IV. 1
Opportunities in intra-African investment and related instruments

Africa offers significant investment opportunities across sectors. Its rich natural
resource base provides a wide spectrum of investment opportunities in precious
minerals, renewable resources, alternative energy and food and beverages. Other
prominent sectors with growing investment options include infrastructure, financial and
business services, health care and education. These opportunities are underpinned
by a growing youthful population and emerging middle class. Moreover, the region
also accords its traders and investors access to the largest free trading market in
the world measured by the number of countries participating.

While the domestic environment plays a role in domestic and foreign investments,
global shocks also account for many investment decisions across regions. The
UNCTAD World Investment Report 2023 reported a declining trend of 2 per cent in
2023 for global foreign direct investment flows, partly due to weakening and uncertain
global economic trends, including trade and geopolitical tensions, and supply chain
disruptions. Flows of foreign direct investment to Africa were also on a downward
trend in 2023, falling by 3 per cent to a total stock of $53 billion. In developing Asia
and in Latin America and the Caribbean, foreign direct investment inflows decreased
by 8 per cent and 1 per cent, respectively. The figure shows the extent to which
such inflows to Africa (as a share of gross fixed capital formation) resonate with
general global trends, underscoring that it is not only the investment environment in
Africa that plays an important role in influencing international investors’ decisions.
Specifically, shocks that affect the liquidity of its top foreign investors will generally
be reflected in its foreign direct investment inflows. For instance, except for in the
Americas in 2001, foreign direct investment inflows to all regions grew following the
global price boom of certain commodities in the early 2000s (figure). Similarly, except
for in the Americas, there was a decline in foreign investments in Africa, Asia and the
European Union following the global financial crisis in 2008 and a general decline in
2020 due to the pandemic. This downward trend may be primarily a function of a
series of global shocks, including spikes in food and energy prices and rising debt.
With Europe accounting for the bulk of foreign direct investment in Africa, followed
by China and the United States, all shocks affecting their liquidity will compress their
investment portfolios in Africa and affect its development prospects.

Regional foreign direct investment inflows as a percentage of

gross fixed capital formation, 1990–2022
(Percentage)
30

20 Asia

10
Europe
Africa
Americas
0
1990 1995 2000 2005 2010 2015 2020

Source: UNCTAD calculations, based on data from the UNCTADstat database.

Note: Data are only available up to 2022.
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Therefore, the increased volatility and, most importantly, the current dip in global
foreign direct investment flows, is a wake-up call for firms in Africa to champion growth
and development aspirations by broadening their geographical footprint. Expanding
intra-African investments with a wider geographical spread across the continent
remains a key channel for consolidating the gains from deeper regional integration
and a major driver of value and resilience under the African Continental Free Trade
Area. It is expected that the implementation of the Protocol on Investment to the
Agreement Establishing the African Continental Free Trade Area will facilitate further
intra-African investment. Of the $64 billion of international projects financed in Africa
in 2023, 20 per cent of the projects in the services sector and selected manufacturing
industries, and 13 per cent of the projects in resource-based processing industries,
were funded by investors from Africa. This indicates the market attractiveness of
countries in Africa and intra-African investment opportunities for African investors,
which can be further increased with the aforementioned Protocol and other regional
investment agreements.

Progress is being made at the subregional level to diversify investment instruments

and partners, better align investment laws with inclusive economic development
needs and offer more incentives and opportunities to minimize the potential impact
of economic, social and political risks on investment. For example, there is a new
generation of investment treaties and related instruments adopted by regional
economic communities as part of their commitment to promoting greater economic
integration on the continent. Most of these regional economic communities have
adopted legal frameworks to encourage the development of intra-African investment,
including the Common Market for Eastern and Southern Africa Common Investment
Area, the Economic Community of West African States Common Investment Code
and Policy and the Southern African Development Community Investment Protocol.
For instance, the Economic Community of West African States Common Investment
Code and Policy identifies key policy dimensions that can help mitigate financial risks
in cross-border trade and business activities in the subregion, including investment
dispute resolution, financial infrastructure development, investment-related tax policy,
responsible business conduct and environmental protection (Economic Community
of West African States, 2018; UNCTAD, 2024m).

In 2017, the African Union Commission adopted the Pan-African Investment Code,
which served as a drafting model for the Protocol on Investment to the Agreement
Establishing the African Continental Free Trade Area. Many of these new investment-
related instruments include provisions for the domestication of investment treaties
and their contribution to sustainable development. For instance, African bilateral
investment treaties and intra-African investment treaties are increasingly required to
provide a more balanced distribution of rights and obligations between States and
investors. In addition, some investment laws have provisions encouraging foreign
investment to be conducted through joint ventures with a domestically established
company or for investment disputes involving African States to be administered by
African dispute resolution centres.

Source: UNCTAD, based on Pricewaterhouse Coopers, 2023; UNCTAD, 2023a; UNCTAD, 2024c;
United Nations Development Programme, 2022; United Nations Development Programme, 2023;
World Bank, 2020a.

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Currency risks that could affect demand for their goods,

financial performance and competitiveness
As price takers, firms in Africa are vulnerable
(Salomao and Varela, 2022).
to swings in the exchange rate. The impact
of currency volatility on trade flows is well Given the vulnerability of African firms
established (Bahmani-Oskooee and Gelan, to international markets, exporters face
2018). The recent macroeconomic instability various types of exposure, as follows:
in many countries in Africa shows the • Transaction exposure, which
degree to which international reserves have is directly associated with the
been depleted in those countries. Since value of their cross-border or
there is no direct indicator of exchange international trade transactions.
rate volatility, a proxy variable (another
measurable and accessible variable) is • Translation exposure, also known as
used to capture exchange rate volatility, translation risk or accounting exposure,
namely macroeconomic instability. which is an exchange rate risk faced
by multinational corporations when
The macroeconomic fundamentals that play they consolidate financial statements
a role in explaining some of the impacts of from subsidiaries or foreign operations
exchange rate volatility, including uncertainty
Challenges denominated in foreign currencies
in the economic environment, which can into their reporting currency (usually
relating to affect decisions relating to trade and the home currency). It is a risk that a
foreign exchange capital flows by businesses and financial company’s equities, assets, liabilities
liquidity and institutions, is examined in chapter II (Audi, or income will change in value as a
restrictions are 2024; Caporin et al., 2024; International result of exchange rate changes. This
major obstacles Monetary Fund, 2003). The transmission of occurs when a firm denominates a
such exchange rate volatility or economic
limiting new portion of its equities, assets, liabilities,
uncertainty through cross-border financial
investors from channels, such as capital flows, credit and
or income in a foreign currency.
investing and asset prices, can have an impact on the • Economic exposure, which is faced
fully optimizing level of risk aversion (Glebocki and Saha, by foreign investing firms hosted
opportunities 2024), including firms in both advanced in a country with severe currency
volatility. An African firm with foreign
in African economies, and emerging and developing
countries. For instance, in South Africa, subsidiaries and investments is exposed
markets to fluctuations in exchange rates that
about 35 per cent of firms (out of a total
sample of 2,002 surveyed in 2007 and can have an impact on the valuation
2020) stated that macroeconomic instability of assets and liabilities denominated in
was a major concern. Many macroeconomic foreign currencies. A survey conducted
challenges faced by developing economies by the African Private Equity and
include a high premium attached to foreign Venture Capital Association (2022) found
currency-denominated assets and/or that 56 per cent of limited partners2
loans (for example, high interest rates in a perceive currency risk to be a key
tight monetary policy environment). Most challenge when investing in the private
African currencies are weakening in the equity market in Africa, while 44 per
current global macroeconomic climate. cent of general partners3 consider
This exposes firms to exchange rate risks macroeconomic risk, particularly
currency volatility and political instability,

2
A limited partner, also known as a silent partner, invests money in exchange for shares in a partnership but
has restricted voting power on company business and is not responsible for the day-to-day management of
the fund and related businesses. The limited partner has at least one general partner and one other limited
partner.
3
A general partner is part-owner of a business that is structured as a partnership and assumes a day-to-day
role in managing it. Unlike limited partners, general partners can have unlimited liability for the debts of the
business.

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to be a major challenge when managing Equally, an economy with a depreciating SMEs could
the operations of a private equity fund currency increases the cost of servicing enter into a
on the continent. Challenges relating debt, which is often held in major currencies
to foreign exchange liquidity and such as the dollar and exposes firms to
forward contract
restrictions are major obstacles limiting funding and financing risks. For instance, a with a bank
new investors from investing and fully study by the International Monetary Fund or financial
optimizing opportunities in African (2023b) shows that a total of 84 per cent institution
markets (see box IV.2 on some of the of exports, 67 per cent of imports and to protect
instruments that can be deployed at a 60 per cent of external debt are priced in themselves
scale to manage currency risk in Africa). dollars in the median country in Africa.
against a
In 2023, 32 per cent of the African Firms holding debt in local currency or potential
firms that took part in an enterprise trading within a monetary union, such as depreciation
survey conducted by the World Bank in the West African Economic and Monetary
of the local
13 countries in Africa4 identified finance Union, may still face exchange rate risk
and investment opportunities as a principal but the nature and extent of that risk can
currency
challenge to their operational, financial differ, as opposed to firms operating in
and trading performance (figure IV.3). In countries with floating exchange rates.
South Africa, where the enterprise survey Firms holding debt in local currency are
was last carried out in 2020 (World Bank, generally less exposed to exchange rate
2020b), about 240 exporting firms (12 per risk, compared with firms holding debt
cent of the firms surveyed) were found denominated in foreign currency. This is
to be vulnerable to translation risk. Their because their debt obligations are in the
competitiveness is limited in a host economy same currency as their revenue streams,
with long-term currency appreciation. reducing the risk of currency mismatches.

Figure IV. 3
Business environment obstacles faced by African firms, 2023
(Percentage)
Transportation
Tax rates
2
8
Tax administration
3
32 Access to finance
Practices of the informal sector 8

Political instability 6

labour regulations 3

Inadequately educated workforce 6

6 Access to land
Electricity 6 2
7 Business licencing and permits
4
Customs and trade regulations 6 1 Corruption
Crime, theft and disorder Courts

Source: UNCTAD calculations, based on data from the Enterprise Survey database (World Bank).
Note: The latest available data for the 13 countries covered are from 2023.

4
The countries surveyed are as follows: Botswana, the Central African Republic, Cote d’Ivoire, the Gambia,
Ghana, Lesotho, Mauritius, Morocco, Rwanda, Seychelles, Sierra Leone, Togo and the United Republic of
Tanzania.

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However, firms holding debt in local currency generates revenue from domestic tourists
may face exchange rate risk if they have (paying in Kenya shillings) and foreign
significant operations or revenues in foreign tourists (paying in dollars or euros). The
currencies and, as such, their portfolio company incurs expenses, such as staff
flows can exhibit greater sensitivity to salaries and utilities, in Kenyan shillings. As
fluctuations or volatility in foreign currency- a strategy, the company can use natural
denominated debt markets (Bertaut et hedging practices to offset its foreign
al., 2024). Exchange rate movements can exchange risk. By diversifying its revenue
have an impact on the competitiveness streams across multiple currencies, the
of their exports or the cost of imported company can reduce its dependence on
inputs, affecting their profitability and ability any single currency and mitigate the impact
to service debt. Furthermore, if there are of currency fluctuations on its financial
concerns about currency depreciation or performance. Additionally, the company
inflation in the local currency, firms may can align its expenses with the currency
face increased borrowing costs or difficulty composition of its revenue to naturally
in accessing credit markets. Firms trading hedge its exposure. For example, it could
within a monetary union such as the West negotiate supplier contracts and payables
African Economic and Monetary Union in the same currency as its primary revenue
For SMEs,
share a common currency, the West source, reducing the need for currency
careful financial African CFA franc, eliminating exchange conversion and minimizing exchange rate
planning based rate risk among member countries. Since risk. See box IV.2 on some of the currency
on mechanisms member countries of the Union peg their hedging practices in Africa and related
for robust risk currencies to the euro, exchange rate regulations and policies that can help firms
management fluctuations between those countries and mitigate their exposure to financial risks.
the euro are minimal. While exchange rate
could provide For SMEs, careful financial planning
risk within the West African Economic
a strong buffer and Monetary Union is mitigated, firms
based on mechanisms for robust risk
management could provide a strong buffer.
operating in the Union may still be exposed
This should be complemented by closely
to external shocks that have an impact on
monitoring exchange rate movements
the value of the euro, such as changes in
and tailoring trading and investment
European Union policies or global economic
decisions accordingly to soften the
conditions (Santillán-Salgado et al., 2019).
impact of currency volatility, for example,
There is not much room to alleviate reversing entry decisions to certain markets
exchange rate risks in Africa, as firms have and reshoring business relationships.
limited opportunities to implement hedging Furthermore, as SMEs face a vicious
strategies, such as forward contracts, cycle of limited capital access, worsening
options and hedging practices. SMEs could creditworthiness and higher borrowing
enter into a forward contract with a bank costs – which could lead to insolvency
or financial institution to sell dollars and and smaller sales margins – policy
euros forward at an agreed-upon exchange interventions promoting financialization,
rate, locking in the exchange rate for the credit-guarantee schemes and SME support
futures transaction. By doing so, they can can palliate these effects on trade and
protect themselves against a potential investment and foster business resilience.
depreciation of the local currency, ensuring
that they receive the expected amount of
local currency when converting dollar and
euro receivables into the local currency.
Firms engage in natural hedging practices
and can use them as leverage. For instance,
in the tourism sector, a company in Kenya

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Box IV. 2
Creating opportunities through foreign exchange hedging practices

While predicting the trajectory of domestic and foreign currencies can be challenging, and
unforeseen fluctuations can have an impact on the cost of goods and transactions, disrupt
company balance sheets and potentially raise their investment risk premium, there are practical
measures that can help diminish such currency-related risks. The need for a currency risk
premium is more prevalent in a flexible exchange rate regime than in a fixed exchange rate regime
where currency fluctuations are generally minimal. For instance, when currency fluctuations
become excessive, investors risk earning negative risk-adjusted returns on the foreign assets
in their portfolios, forcing them to require a premium commensurate with the perceived risk of
volatile exchange rate fluctuations.

In other circumstances, investors prefer to hedge currency risk by diversifying the investment
portfolio across investment assets, stages, vintage years,a sectors and/or by investing in
the exporting companies to mitigate currency depreciation risk. However, many SMEs and
investment funds, especially in African markets, may need more liquidity, market access and fund
management experience than others, all essential requirements of such portfolio diversification.
According to the African Private Equity and Venture Capital Association, 94 per cent of general
partners in the private equity industry do not hedge against currency risk because of the high
cost of hedging facilities. Only a few stock markets in Africa, such as those in Egypt, Kenya,
Morocco, Nigeria and South Africa, offer sophisticated currency-hedging products, for example,
foreign exchange options and cross-currency swaps. Commercial banks on the continent mainly
offer foreign exchange forwards but with limited tenors or periods of the forwards contract
(12–36 months), often subject to liquidity. Moreover, the administrative costs and the regulatory
and compliance challenges related to the use, monitoring and supervision of currency hedging
instruments can discourage African firms, especially SMEs, from taking advantage of financial
instruments and tools to hedge against currency fluctuation risks, stabilize revenue flows
and reduce uncertainties in cross-border and international transactions. Robust policies and
regulatory frameworks governing not only the trading and hedging instruments in the securities
and derivatives markets but also the protection of funds and assets belonging to financial
institutions and corporations are essential. Such measures will contribute to enhanced financial
stability, increased market liquidity and improved cross-border de-risking across the continent.

Regional banks, such as the African Export–Import Bank, the Ecobank and the Standard Bank,
are increasingly addressing the currency hedging gaps on the continent. For instance, the African
Export–Import Bank and the African Continental Free Trade Area Secretariat established the
Pan-African Payment and Settlement System, a centralized payment and settlement system for
intra-African trade in goods and services. It allows companies in Africa to pay for intra-African
trade transactions in their local currency, thus reducing the costs of trade transactions. The
network comprises 8 central banks, 28 commercial banks and 6 switches.b As a partner of the
Pan-African Payment and Settlement System, a leading pan-African commercial bank, such as
Ecobank, can leverage the capabilities of the aforementioned system through its local offices
in 33 countries in Africa and hence diminish the cost and risks of funds transfers in African
currencies. The investment arm of commercial banks, such as the Standard Bank, also offers
currency-hedging products and provides equity investors with information and advice on foreign
exchange regulations and risks in cross-border transactions.

Source: UNCTAD, based on African Private Equity and Venture Capital Association et al., 2022; Kenton, 2022;
Kodongo and Ojah, 2018; Opus, 2024.
a
A vintage year is the year in which the first influx of investment capital is delivered to a project or company,
marking the moment when capital is committed by a venture capital fund, a private equity fund or a combination
of sources.
b
A payment switch platform is a technology that connects system participants and supports the passing of
financial transaction data. Switches enable dynamic payment transactions among acquirers and endpoints of
payment services providers, in cross-border payments, electronic-commerce platforms, online billers, banks and
other service providers.
© Adobe Stock

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Value and resilience These trends raise risks to investment and

trade in Africa in that they create both costs
through the energy, and benefits. For instance, the European
infrastructure and trade Union renewable energy plan, known as
nexus “REPowerEU”, aims to accelerate its green
transition,5 reduce reliance on fossil fuels
The current state of energy, infrastructure
from the Russian Federation and diminish
and trade in Africa leaves economies and
its energy consumption6 (European Union,
businesses vulnerable to adverse global
2022). This will have an impact on the global
and domestic events, affecting their
energy market in terms of price, sourcing
growth prospects. Energy, infrastructure
and supply. There is a risk that these
and trade are three enablers of economic
shifts in the global energy landscape may
development; when lacking, this results
increase the strains on African economies
in binding constraints on development in
(International Energy Agency, 2023c) and
Africa. Moreover, with the interdependencies
diminish the energy supply in Africa, which is
between them, shortcomings in either one
already low in absolute and relative terms. In
can accentuate and worsen shortcomings
2022, 43 per cent of the population in Africa
in the other. In recent decades, countries in
lacked access to electricity and fossil fuels
The risks inherent Africa have made great strides in building
accounted for more than 50 per cent of its
in the polycrisis up their energy, infrastructure and trade
energy supply; only 3 per cent of its energy
require a major capabilities. However, any trend in the
supply was being sourced from renewables
upgrading of global economy with an impact on energy,
(International Energy Agency, 2023c).
infrastructure and trade investments implies
infrastructure However, the global shift in energy security
both costs and benefits for Africa. In the
in Africa, failing context of the global polycrisis and the levels and strategy also creates an opportunity
which, the of exposure and vulnerability of countries for those countries in Africa that can supply
economic in Africa to the polycrisis shocks described gas to Europe. The shift of China, the United
risks of doing in chapter I, the energy, infrastructure and States and the European Union, as well
as other countries, towards renewables,
business trade nexus serves as a bulwark against
the risks that the polycrisis represents including green hydrogen, creates a
will grow potential cost in terms of a new rush for
for African economies and businesses.
substantially African minerals and the diversion of clean
Energy capabilities energy away from addressing local energy
poverty towards providing resources for
One of the main risks perceived by many
the global North. However, the rise of the
countries and businesses is that of energy
green hydrogen economy also generates
security and costs. Two global trends have
opportunities for countries in Africa to
increased uncertainty. The war in Ukraine
supply energy-related minerals and green
led to raised energy prices, but more
hydrogen to domestic and external markets.
importantly, it led to the European Union
moving away from the Russian Federation as However, there is much expansive potential
a source of natural gas and fossil fuels. The in Africa, both in terms of its rich natural
agreement of the twenty-eighth Conference resource base and the potential to fully
of the Parties to transition away from fossil meet its energy needs and significantly
fuels is inspiring many regions, including the contribute to global energy systems.
United States and the European Union, to
quickly seek access to renewable energy
and the minerals and materials necessary
for renewable energy production.

5
The European Union seeks to obtain 45 per cent of its energy from renewable sources by 2030.
6
For example, the European Union plans to lower its gas consumption by 30 per cent by 2030.

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For instance, Africa has 60 per cent of economic risks of doing business will
the world’s solar resources. Yet the region grow substantially. To spur infrastructural
has only 1 per cent of this solar potential investment, it is necessary to improve,
in use, notwithstanding its increasing upgrade and diversify infrastructure,
affordability (International Energy Agency, especially energy infrastructure required to
2023c). Moreover, Africa is utilizing only extend connective infrastructures to facilitate
about 8 per cent of its hydropower capacity, regional economic integration and bridge the
and about 60 per cent of the hydropower digital divide. A major obstacle to the ability
infrastructure is outdated (over 60 years old) of Africa to invest in and build the additional
and in need of modernization to enhance infrastructure required to deal with the costs
its efficiency. Similarly, the International and benefits created by the global context
Finance Cooperation estimates that Africa is being able to finance such investment. At
has an onshore wind energy potential of least $190 billion will be required annually
180,000 terawatt hours per year, enough between 2026 and 2030 to address energy
to meet its electricity demand by more needs and risks, implying energy investment
than 250 times or supply the current levels equal to 6.1 per cent of GDP by 2030
of global wind energy 90 times. However, (International Energy Agency, 2023c).
the region accounts for only 1 per cent of
The energy transition can increase
the 650 gigawatts of installed global wind
economic risk in Africa if the costs it
energy capacity. Overall, at least 40 per cent
imposes outweigh the benefits with regard
of the total electricity that Africa generated
between 2020 and 2022 was from natural
to infrastructure needs and capabilities. The rise of
Under the Sustainable Africa Scenario, the green
gas, followed by coal, water, oil, wind
in which Africa transitions to renewable
and solar energy (International Energy
energy-related development goals, triples
hydrogen
Agency, 2023c; Pricewaterhouse Coopers,
the rate of access to affordable electricity economy
2023). Industrial productivity and growth
and achieves its climate pledges, the generates
are being undermined by low electricity
projected expansion of energy-generating opportunities
generation in more than 80 per cent of Africa
(figure IV.4). Access to electricity is also
capacity across Africa will require an for countries in
additional investment of $80 billion per year Africa to supply
limited; 43 per cent of the total population
over the period 2021–2030 (International
lacked access to electricity in 2022. energy-related
Energy Agency, 2023c). Given growing
Notably, for most African firms, the low domestic energy needs, however, the benefit
minerals and
level of energy generation entails both is that supply for local use may be more green hydrogen
intermittent power supply and high per abundant and perhaps cheaper. Realizing to domestic
capita energy costs. The limited access this benefit requires the development of and external
of SMEs, in particular, to a reliable energy appropriate energy infrastructure, including markets
supply has adverse impacts on their storage and distribution infrastructure,
productivity and competitiveness, which in to meet domestic demand for transport
turn undermines their profitable involvement fuels and liquid petroleum gas. Moreover,
in national and regional value chains. rolling out such infrastructure, as well as
Minimizing energy costs and maximizing upgrading and extending existing grids
the benefits of renewables would require and installing new solar-based local grids
that countries in Africa fundamentally across Africa to provide universal access
address the weaknesses in their energy to electricity, can create millions of new
and related infrastructure capabilities. jobs. Infrastructure is also central if regional
integration is to be a source of resilience in
Infrastructure capabilities the face of the polycrisis (see chapter III).
The risks inherent in the polycrisis require
a major upgrading of infrastructure in
Africa (see chapter III), failing which, the

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Figure IV. 4
Access to electricity, by country, 2022
Algeria 32.1
Angola 5.8
Benin 0.4
Botswana 20.2
Burkina Faso 2.1
Burundi 0.3
Cabo Verde 15.6
Cameroon 5.8
Central African Republic 0.5
Chad 0.3
Comoros 1.5
Congo 6.2
Côte d'Ivoire 7.5
Democratic Republic of the Congo 2.1
Djibouti 10.3
Egypt 33.4
Equatorial Guinea 5.8
Eritrea 2.1
Eswatini 13.9
Ethiopia 1.8
Gabon 26.3
Gambia 2.4
Ghana 8.4
Guinea 2.6
Guinea-Bissau 1.6
Kenya 3.4
Lesotho 4.3
Liberia 0.4
Libya 97.2
Madagascar 1.6
Malawi 2.5
Mali 2.4
Mauritania 3.2
Mauritius 43.0
Morocco 16.7
Mozambique 9.7
Namibia 10.4
Niger 0.4
Nigeria 2.7
Rwanda 0.7
Sao Tome and Principe 7.6
Senegal 4.8
Seychelles 84.5
Sierra Leone 0.9
Somalia 0.4
South Africa 76.7
South Sudan 0.8
Sudan 6.2
Togo 1.7
Tunisia 30.2
Uganda 1.5
United Republic of Tanzania 2.1
Zambia 12.5
Zimbabwe 9.1

Source: UNCTAD, based on data from the African Infrastructure Development index.
Note: The index is measured in millions of kilowatt hours per inhabitant. It captures the total of domestically
produced and imported electricity. It takes values between 0 and 100, with higher values reflecting higher levels

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Moreover, infrastructure investment in These changes in the nature of trade hold

ICT is needed to underpin the expansion costs and benefits for countries in Africa.
of the data-driven economy; digital As industries across the advanced and
platforms and artificial intelligence-enabled emerging economies attempt to reduce
businesses are sorely needed to prevent their carbon emissions, they may move
the digital divide between Africa and the production closer to mines and input
rest of the world from widening. To minimize sources or closer to where renewable
these costs and maximize the benefits, energy carriers, such as green hydrogen,
it is necessary for countries in Africa to may be used. In addition, the global shipping
address the fundamental weaknesses in industry, which is responsible for 2 to 3 per
their infrastructure capabilities, namely, cent of greenhouse gas emissions, will
those related to roads, transport and undergo structural changes that affect
ICT. Infrastructure investment in ICT international shipping, the means by which
requires complementary investments in the bulk of African goods is transported.
skills and research and development,
Thus, the potential cost is that demand
areas in which Africa is lagging.
for many African exports (outside of green
technology minerals) will decline as these
Trade capabilities
carbon-reducing measures are adopted Intraregional
Underlying the polycrisis is a world in in its main markets (China, the United trade is a
which the nature of trade has changed States and the European Union) and bulwark against
in significant ways. Polycrisis-induced that global transport costs may increase
instabilities have had a bearing on as the shipping industry adjusts.
the risks of
developments in international trade, adverse trade
With regard to benefits, the changes and changes
including a tighter monetary stance by
discussed here offer potential opportunities
central banks in advanced countries, a more
for countries in Africa where critical
in the global
geostrategic policy approach to international
resources, including energy-related minerals, shipping
economic relations, the growing influence industry
are available and where green hydrogen
of industrial policy on the trade strategies of
production can be economically scaled up.
major economies and multiple geoeconomic
They also offer an opportunity to expand
risks (UNCTAD, 2023h). This is reflected
intraregional trade. Indeed, intraregional trade
in waning growth in trade, as well as a
is, from this point of view, a bulwark against
decline in foreign direct investment and
the risks of adverse trade and changes in
in participation in global value chains (see
the global shipping industry. Minimizing
chapters II and III). Driving this are various
trade costs and maximizing the benefits
factors: mounting conflict, geopolitical
requires countries in Africa to tackle the
fragmentation within and between countries,
weaknesses in their energy and infrastructure
inequality and secular stagnation in some of
capabilities, as discussed previously.
the advanced economies. The impact of the
polycrisis on the external position of Africa Other aspects of trade that need to be
is further compounded by unfavourable strengthened to allow the enhancement
external factors, for example, weak of the cost–benefit ratios in energy and
export demand from its principal trading infrastructure include fostering the integration
partners (China and Europe); restrictive of African economies into global value and
monetary policy in the leading developed supply chains; diversifying their exports
economies, resulting in higher borrowing and ensuring appropriate governance
costs and associated debt vulnerabilities where a country’s exports are concentrated
for African borrowers; and negative in commodities and fuels, the prices of
pressures on African currencies and related which may increase and lead to earning
foreign exchanges (UNCTAD, 2024h). windfalls; and supporting intraregional trade
by investing in regional infrastructure and
reducing trade barriers in intra-African trade.

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The next section will assess the impact of This can be partly explained by the recent
these capabilities on the export performance energy crisis experienced in the country
and resilience of firms by discussing the and which the Government of South Africa
case of South Africa. Box IV.3 provides an has been actively addressing by investing
empirical analysis of the factors that can in new energy generation capacity and
affect the performance of the country’s promoting the development of renewable
exporting firms, and hence underscore the energy mixes. This is particularly the case for
significance of the energy and infrastructure microenterprises and SMEs in South Africa,
capabilities in facilitating trade and building which represent over 98 per cent of formal
resilience to shocks and stressors businesses and have recently experienced
two-digit growth (UNCTAD, 2023j).

Insights from South Africa: To assess the factors and risks that may
Dynamics of risks and have an impact on the export status of
South African firms, export data from the
The most capabilities for exporting world enterprise survey of 2,028 firms was
common means firms collected for the years 2007 and 2020
of financing (792 firms in 2007, 958 firms in 2020 and
South Africa is the third-largest country
SMEs are in Africa in terms of electricity generation,
278 firms surveyed in both years). The
from their own suggesting minimal energy-related
survey is a comprehensive assessment tool
resources, designed to gather data on the business
hindrances to the productivity and growth
environment from the perspective of firms
followed by of firms relative to most countries in Africa
operating in various countries worldwide.
credits from (figure IV.4). While South Africa has a more
Conducted by the World Bank, the survey
suppliers developed multimodal transport network,
collects information on key aspects of the
compared with many countries in Africa, a
(purchases business environment, including business
score below 30 in the transport component
on credit) or of the Africa Infrastructure Development
regulations, access to finance, infrastructure
customers Index suggests that pertinent gaps persist
and labour market conditions. The firm-level
micro data consist of a stratified random
(advance in ensuring the smooth flow of goods and
sample of non-agricultural formal private
payment for services within and across its borders.
sector businesses, which are stratified
merchandise) Moreover, as regards cross-border trade,
by firm size: small (5–19 employees),
the net effectiveness of good transport
medium (20–99 employees) and large (over
and logistics infrastructure goes beyond
100 employees). The sectors in which those
the domestic economy to include transit
South African firms operate are the following:
cities and countries, as well as trading
manufacturing, construction, motor vehicle
partners to some extent. Such infrastructure
sales and repair, wholesale, retail, hotels and
is largely underdeveloped in most of its
restaurants, storage, transportation, ICT and
trading partners based in Africa. Figure IV.5
other services. See box IV.3 for the model
shows the perception of South African
used to estimate the effects of obstacles on
firms of key obstacles that can affect
the export status of firms in South Africa.
their activities. Some 54 per cent of firms
interviewed in 2020 found lack of access to
electricity to be the biggest obstacle they
faced in South Africa, compared with only
15 per cent of those interviewed in 2007.

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Figure IV. 5
Main obstacles faced by South African firms, selected years
(Percentage)

(a) 2007
Tax administration Tax rates Transportation
0.1 1.7 Access to finance
Practices of the informal sector
Political instability 1.1 2.3 7.5 Access to land
4.9
2.7 Business licensing and permits
Labor regulations 2.9
5.6
7.1 Corruption
Inadequately educated 6.7
workforce 1.2 Courts

Electricity 14.7

Customs and trade regulations 1.1 40.4 Crime, theft and disorder

(b) 2020
Tax administration Tax rates 0.6 Transportation 0.1
Practices of the informal 0.8 0.5
sector
Political instability
16.1 Access to finance
Labor regulations 0.8 13.3
Access to land
Inadequately educated 0 0.7
workforce 0 Business licensing
and permits
5.8 Corruption
2.6 Courts
3.7 Crime, theft and disorder
0.5
Customs and trade
regulations

Electricity 54.6

Source: UNCTAD, based on data from the enterprise survey database (World Bank).

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Box IV. 3
Random-effects probit estimates of the export status of firms in South
Africa

It is hypothesized that factors and risks associated with trading within Africa, as
well as firm-specific characteristics, are correlated with a firm’s export status (the
dependent variable). The dependent variable is used as a dummy variable, which
takes on the value of 1 if the South African firm engages in exports and 0 if the firm
serves the domestic market only.

The explanatory variables included in the regression are as follows:

• Women’s ownership (a dummy variable related to whether the firm has at least one
woman owner).
• Foreign ownership (a dummy variable related to whether the firm is foreign- or
domestic-owned).
• Power outage (a numerical variable related to the number of power outages
experienced by the firm in a typical month in the past fiscal year).
• Transport (a dummy variable that takes the value of 1 if the firm identifies transport
as an obstacle).
• Trade and customs regulations (a dummy variable that takes the value of 1 if the
firm identifies trade and customs regulations as an obstacle).
• Informal competition (a dummy variable that takes the value of 1 if the firm has
competed against unregistered or informal firms).
• Breakage in transit (a dummy variable that takes the value of 1 if the firm has
incurred a loss of value in transit due to breakage or spoilage).
• Theft in transit (a dummy variable that takes the value of 1 if the firm has incurred
a loss of value in transit due to theft).
• Working capital (share of the firm’s own resources or retained earnings used to
finance operations and manage the business).
A random-effects probit model is estimated to analyse the probability that each firm-
specific factor and risk contributes to a firm’s export status, as follows:

where y is a dummy variable that takes the value of 1 for exporting firms and 0 for
non-exporting firms, Xit denotes a vector of explanatory variables capturing firm-level
characteristics and risk factors associated with firm i at year t and υi represents the
error term. The regression estimates of the export statuses of South African firms
are provided in the table.
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Random-effects probit estimates of the export status of South

African firms

Explanatory variable Coefficient Standard error

Women’s ownership 0.1349015 0.1028234
Foreign ownership 0.4757686a 0.1324881
Quality certification 0.9629764a 0.0881171
Power outage 0.003825 0.0045893
Transport 0.0734484 0.0949082
Trade and customs regulations 0.4412665a 0.1001962
Informal competition -0.3256052 a
0.0965716
Breakage in transit -0.3234966a 0.1077387
Theft in transit 0.1906519 0.1197621
Working capital -0.0058727a 0.0013858
Contant -0.9513529a 0.1339498
Observations 1 915
Number of firms 2 028

a
p<0.01(statistically significant at the 0.01 level).
Source: UNCTAD.
Note: Direct information on firm productivity based on a single or proxy variable is not available.
Another caveat is the data availability and relevancy for all factors of production, which prevents
the consideration of productivity as a variable in the regression. However, the availability of data on
working capital can be considered as proxy for input of capital used in the measure of total-factor
of productivity at a firm level.
Source: UNCTAD.

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As shown in box IV.3, the gender dimension Duong, 2020; Wakasugi and Zhang, 2012).
of business ownership does not significantly
The potential of better access to business
limit a firm’s potential to engage in exports
financing is also considered to be a key
in South Africa. In particular, the results
indicator of a firm’s export performance.
suggest that the odds of a firm’s involvement
In South Africa, only 19 per cent of the
in international trade do not increase with
companies surveyed indicated that they
either the proportion of men or women
used bank loans, while 3 per cent and 4 per
owning and/or managing the business. This
cent indicated that they had borrowed
is aligned with the contention of generally
from family and friends and used other
higher productivity in firms, regardless of
non-bank sources of financing for their
ownership, that are engaged in international
businesses, respectively. The most common
trade, as it increases their odds of exploiting
means of financing SMEs are from their
economies of scale and enhancing their
own resources (98 per cent), followed
productivity. While the findings suggest
by credits from suppliers (purchases on
that the gender dimension does not limit
credit) or customers (advance payment for
export potential in South African firms and is
merchandise). However, these two modes
aligned with the importance of productivity
of business financing are inadequate for
and economies of scale, it remains a
the effective growth of most businesses in
debatable topic. There are nuanced
Africa and in other regions. South Africa has
considerations of gender dynamics, context-
also been affected; as shown in box IV.3,
specific factors and broader definitions of
the odds of a firm’s export growth diminish
success (for example, qualitative aspects
with increased reliance on the owners’
of business management and leadership)
credit and funds to finance a business.
that could merit further exploration but
One potential The negative and significant coefficient
are beyond the scope of this report.
solution is to Engaging with these complexities can lead of informal competition suggests that
facilitate the to a more comprehensive understanding pervasive informality is a principal factor
utilization of of the interplay between gender, firm affecting the ability of firms to export.
cross-border characteristics and international trade. Notably, informal firms often operate
financial outside the regulatory framework, allowing
However, these dynamics differ with
them to undercut prices, avoid taxes
de-risking regard to the extent of foreign ownership
and bypass regulations. This distorts the
instruments in a business. In general, the literature
optimal functionality of markets through
indicates a higher propensity to export
unfair competition for formal firms and
with some level of foreign ownership. The
may squeeze their profit margins. Lastly,
foreign-direct-investment component of
notwithstanding its potential effect on the
these firms makes them more competitive,
overall revenue of firms, incidences of
including through capital, technology and
theft in transit are not a deterrent to the
specialized skills that come with the foreign-
export drive of firms in South Africa.
investment component of the firm that is
potentially not competitively available for Trade rules and quality certification are
firms with full domestic ownership (Boddin related in that a common principle guiding
et al., 2017; UNCTAD, 2020; Vinh and international trade pertains to the quality of
Duong, 2020). Accordingly, some studies products being sold in different markets.
have shown that the higher the foreign- All regional and international agreements
share component, the better the export have specified standards for traded goods
outcomes in terms of complexity and and services. These are essential in raising
diversity of goods and services for export. the quality of markets and eliminating
In this context, firms with 100 per cent information asymmetry and associated
foreign ownership are seen to be more market failures. Notably, stringent trade
productive and with more competitive rules, including strict quality standards, could
exports relative to joint ventures (Vinh and be a potential market entry barrier for most

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SMEs. On the other hand, the fairly set trade enabling businesses and investors to
rules that accommodate the capabilities channel investments toward high-risk-
of SMEs could enhance their participation adjusted return projects, especially in
in regional and global markets as more high-risk perception regions such as Africa
SMEs meet the quality requirements. (Economic Commission for Africa, 2020).
This also applies to South Africa, as the Financial risk-management instruments,
trade regulations and quality certification such as derivatives, can allow companies to
coefficients are positive and significant, lower their exposure to volatility in exchange
highlighting that they are not among the rates, interest rates and commodity prices
market entry barriers undermining a firm’s (Holman et al., 2013), thus allowing investors
ability to export. South Africa is one of the to unbundle and transfer financial risk.
few countries in Africa whose indicators on In Africa, the development of derivatives
trade facilitation and logistics are generally markets could enable companies to self-
above the global average (see chapter III). insure against volatile capital flows and
lower their dependence on bank financing
(Adelegan, 2009). Other risk-management
Maximizing the benefits of tools and practices, such as strategic
cross-border transactions planning and business continuity, are also
in Africa through financial driving forces behind firms’ resilience to
hedging and enterprise risk shocks and disruptions (Kalia and Muller,
2019). This section will explore some of
management the risk-management solutions that can
Global shocks and crises can create market be used by African firms, particularly
vulnerabilities and heighten companies’ those involved in cross-border trade, to
Underdeveloped
exposure to financial risks, including volatility foster resilience, stability and growth.
or poorly
in foreign exchange rates, interest rates
and commodity prices (Holman et al., Managing financial risks structured
2013). In response, one potential solution through derivatives de-risking
(among the available options discussed In many countries around the world,
instruments can
earlier in this chapter) for African countries Governments and central banks responded hinder the ability
is to facilitate the utilization of cross-border to the global financial crisis and the of companies
financial de-risking instruments. Companies COVID-19 pandemic with significant fiscal to self-insure
and financial institutions can employ a
range of derivative instruments to hedge
stimulus and moratoriums on debt to against volatile
support the survival of households and capital flows
against commodity price volatility, currency businesses and facilitated buffers to enable
exchange risks, credit defaults and interest markets to provide foreign-exchange liquidity
rate fluctuations. This strategic approach and financing for economic recovery.
aims to mitigate potential losses, reduce
financial distress, alleviate the impact of Financial shocks and the resulting volatility
earnings and cash flow volatility, lower in stocks and interest rates have spurred
transaction costs and minimize the overall demand for financial instruments to
costs associated with external financing. unbundle risks (Prabha et al., 2014). In many
Moreover, the implementation of supportive of the advanced countries, derivatives are
policies and regulatory frameworks is used to manage such risks. Derivatives
essential in promoting the effective use are financial instruments used by banks,
of these instruments, thereby fostering investors and businesses to insure against
greater financial stability within the region. potential risks on their portfolios, advance
or postpone cash flows7 or accumulate
Effective risk-management tools can wealth (Jarrow and Chatterjea, 2019).
contribute to risk diversification, thereby

7
This includes borrowing or lending and earning or scaling a return on investment.

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They are financial contracts that derive However, when markets are underdeveloped
their value from the price of an underlying (for example, small, less liquid or providing
asset (Jarrow and Chatterjea, 2019). The unsophisticated hedging instruments), these
underlying asset can be a commodity, de-risking instruments are poorly structured
a stock or an interest rate. Firms use or unavailable, which can hinder the ability
derivatives to manage risks associated with of companies to self-insure against volatile
cash flow volatility arising from adverse capital flows and take other risk measures.
changes in interest rates, exchange rates This is the case in many countries in Africa
and commodity and equity prices (Prabha (for example, underdeveloped financial
et al., 2014). This section will focus on markets), which can result in limited
using derivatives for insurance or hedging access to credit for firms, especially SMEs;
purposes, especially for use by firms and low investment rates; and high cost of
financial institutions to protect against production and supply (see UNCTAD,
unfavourable outcomes of the polycrisis. 2023f). Alabi et al. (2023) note that financial
markets in Africa are characterized by
Forwards, futures, options and swaps are
volatility, regulatory shortcomings, illiquidity,
the most common types of derivatives (see
high prevalence of non-performing loans and
box IV.4). The underlying assets are usually
inadequate risk-management frameworks,
By entering stocks, bonds, commodities, currencies
which, when combined, render their ability
into interest- and interest rates. The use of over-the-
to mitigate shocks difficult and costly. The
rate swaps, counter derivatives in global markets has
relatively limited depth and low liquidity of
been growing, and companies are being
companies can most financial markets in Africa, which offer
increasingly exposed to both internal and
exchange fixed- external risks. They are deploying such
few ranges of financial products, restrict
rate and floating- financial risk instruments for hedging (for
the ability of firms to diversify their portfolios
and manage financial risk effectively.
rate interest example, price risk, revenue stabilization),
payments to risk management (such as financial, climate, By adopting derivatives, African financial
manage their insurance and counterparty), leverage and markets can gain more influence and help
credit enhancement, price discovery and enhance financial and economic stability,
exposure to
transparency, agricultural financing (for while fostering bank lending towards the
interest-rate instance, commodity derivatives), portfolio business sector (Bekale et al., 2023).
fluctuations diversification and product standardization While the use of derivatives offers lucrative
caused by (see box IV.4). According to the Bank for opportunities that can incentivize speculative
political events International Settlements (2023), the notional behaviour (many analysts have linked this
value of outstanding over-the-counter function of derivative markets to systemic
derivatives reached $715 trillion at end- risk formation in banking ecosystems),
June 2023, up by 16 per cent ($97 trillion) the hedging function of derivatives, rather
since end-December 2022. In South Africa, than speculation, has been effective in
which provides the most attractive African maintaining a negative relationship towards
market for over-the-counter derivatives, risk-taking (Cyree et al., 2012). The use
the value of those derivatives traded on of this risk management function of
the Johannesburg Stock Exchange at derivative markets is also growing in Africa.
end-July 2024 stood at R166.5 billion, For example, the Johannesburg Stock
equivalent to $9 billion. Although this is Exchange, the Nairobi Securities Exchange
relatively low, compared with the world and the Central Bank of Nigeria are among
value of over-the-counter derivatives, trade those developing derivatives markets.
in derivatives on the Johannesburg Stock On the Johannesburg Stock Exchange,
Exchange rose sharply, from $14 million companies can use trade-bond derivatives,
in 2005 to $264 million in 2018 and about interest-rate derivatives, equity derivatives,
$9 billion in mid-2024 (Bekale et al., 2023; commodity derivatives and currency
Johannesburg Stock Exchange, 2024). derivatives. Box IV.4 provides a description
of these various types of derivatives.

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Box IV. 4
Derivatives

Derivatives are an increasingly common method used for hedging against commodity
price volatility and providing protection against various types of risk, including currency
exchange risks, credit defaults and interest rate risks. They are also used to mitigate
losses and manage exposure to shocks. These financial instruments, whose value
is derived from an underlying commodity, enable market participants to speculate on
price movements, hedge against price risks or gain exposure to commodity prices
without physically owning a commodity.

Three principal types of derivatives are as follows:

• Forwards and futures contracts. These are agreements between two parties to
buy or sell an asset such as a specific commodity, currency or other product at
a specific date at a price agreed upon in advance. For instance, by entering into
a forwards contract, companies can lock in an exchange rate and hedge against
potential adverse movements in currency exchange rates. Futures contracts are
settled through established clearing houses, while forwards contracts are settled
between counterparties, and mostly over the counter. Banks and non-financial
firms use futures contracts to help manage risk, enabling banks to extend more
loans and firms to invest more capital. Derivatives commodity exchanges facilitate
the trading of derivatives contracts based on commodities.
• Options contracts. These give the right, rather than an obligation, as in forwards
and futures contracts, to buy or sell an underlying asset (for example, a specific
quantity of commodities, currencies or other product) at a pre-determined price
known as the strike price. Options can be traded either as a call option (the right,
not an obligation, to buy an underlying asset) or a put option (the right, not an
obligation, to sell an underlying asset).
• Swaps contracts. These are agreements between counterparties to exchange a
series of cash flows at a specific rate and date in the future. These series or streams
of cash flows are known as legs of the swap. Interest rate swaps are used to
hedge against risks that may have an impact on interest rates, such as changes in
monetary policies or government regulations. By entering into interest-rate swaps,
companies can exchange fixed-rate and floating-rate interest payments to manage
their exposure to interest-rate fluctuations caused by political events. Banks also
make use of interest-rate swaps to lower their exposure to risks generated by
market interest rates. Credit-default swaps are also used by investors to protect
themselves against the risk of default on debt securities issued by Governments
or corporations. By purchasing credit-default swaps, investors can hedge against
the potential negative impact of political events or policy changes that may lead to
a government or corporate default.

Source: UNCTAD, based on African Development Bank, 2013; Bekale et al., 2023; Chidaushe,
2019; Chui, 2012; International Monetary Fund, 1998; Jarrow and Chatterjea, 2019; Prabha et al.,
2014.
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As the use of derivatives, especially The next section will explore some of the
when used for speculation, can expose risk management practices that can help
businesses, banks and economies to African firms better identify and navigate
shocks, cross-border contagion and the risks of doing business in Africa.
systemic distress (Bekale et al., 2023), it
is important that certain characteristics Risk management practices at
of the derivatives market be in place. the firm level
Several requirements are necessary for the
In an increasingly globalized and integrated
effective use of derivatives instruments and
world where geopolitical tensions, economic
the development of a derivatives market.
crises and political instability are merging
These include a well-developed financial
to create a challenging risk environment
infrastructure, robust clearing and settlement
(Pillai-Essex et al., 2024) that can curtail a
systems, appropriate legal and regulatory
firm’s financial and operational performance,
frameworks that can facilitate the trading of
the systemic identification, assessment and
derivatives, sound institutional frameworks
mitigation of such uncertainties or threats is
and governance that can enforce derivatives
becoming a critical process for the growth
contracts and protect investor rights and
and survival of firms across the world. For
skilled personnel using sophisticated
The benefits instance, analysing the likelihood and impact
financial instruments to perform back-office
and value tasks such as compliance, structuring,
of shocks emanating from the polycrisis
creation of risk and developing strategies to minimize the
clearing and settlement, as well as a
harmful effects of such shocks on firms’
management is diverse pool of knowledgeable investors
goods and services can help prepare such
evident, yet the (Chidauche, 2019; Jarrow and Chatterjea,
firms to enhance their ability to anticipate or
practice remains 2019). When used for hedging, instead of
control market uncertainties and crisis-proof
speculation, derivatives increase efficiency in
underdeveloped their portfolios in the event of disruption
financial markets by allowing more interbank
among many trading of sophisticated financial products,
or failures. The benefits and value creation
firms, especially increasing the capitalization potential of
of risk management is evident, yet the
practice remains underdeveloped among
SMEs banks and improving private sector access
many firms, especially SMEs in developing
to resources. Bekale et al. (2023) note that
countries. Gius et al. (2018) found that
derivatives contribute to deepening financial
non-financial corporate board members
markets by enabling a self-efficient process
spent only 9 per cent of their time on risk
that reduces risks related to bank insolvency
management, mainly because of their lack
and systemic risk formation, and hence
of capabilities in aligning risk-management
promote banking diversification and market-
operating models with their corporate
based financing. Policy efforts should be
and performance strategies. Developing
aimed at enhancing financial conditions
risk-management capacities across all
in Africa to facilitate the development
sectors or departments of a company is
and use of financial innovations such as
important to raise awareness, understand
derivatives. See box IV.5 on the case of
and prioritize risks, measure and recalibrate
Viet Nam in developing its financial market
performance against these risks and reduce
and facilitating cross-border transactions.
the company’s overall exposure to threats
As derivatives strengthen the ability of from imminent or future events. In addition
firms to raise capital and insure their to assessing and mitigating threats or
assets against adverse effects of shocks uncertainties, risk-management practices
or market uncertainties, it is important can also be a catalyst for a firm’s pursuit
for firms to extend the valuation of such of growth opportunities (Gibson, 2023).
hedging instruments by ensuring that their
overall portfolios and operations are well
safeguarded against downside risks.

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Box IV. 5
Insights from Viet Nam: Reaping the benefits of private capital flows

Since the 1980s, one of the most crucial developments in Viet Nam has been the attraction of cross-
border capital inflows, mainly in the form of foreign direct investment. A 1997 report by the World
Bank noted that foreign-invested operations contributed to nearly 10 per cent of the county’s GDP,
over 30 per cent of its gross capital formation, 8 per cent of its total exports and the creation of more
than one million direct and indirect jobs at the time. This was facilitated in part by a number of reforms
and policy measures aimed at liberalizing the banking sector and financial market and allowing foreign
credit institutions to establish a commercial presence in the country or engage in joint ventures. The
financial market reform programmes included the restructuring of joint stock banks, the restructuring
and equalization of State-owned commercial banks and the improvement of regulatory frameworks,
including greater transparency. Such measures opened the banking market to full foreign competition.
The series of reforms brought forth sizeable gains for the country, which attracted substantial foreign
capital inflows for a period of sustained growth.

The significant amounts of foreign capital inflows can also be reflected in the provision of loans by local
banks. As capital demands of Vietnamese firms rose sharply, local banks and foreign financial institutions
cooperated to provide offshore loans, making it more attractive and profitable to do business in the
country. A multitude of local banksa collaborated with international banks and financial institutions to
provide syndicated loans to SMEs. In 2019, banks in Viet Nam provided syndicated loans worth over $2
billion. The increasing integration in the international finance market is poised to improve the country’s
capital mobilization structure and meet the demand of local firms and consumers for foreign currency.

Another transformative force within the financial landscape of Viet Nam was the development of
the derivatives securities market, which provides investment opportunities and risk-mitigation tools
for investors and businesses. In August 2017, Viet Nam opened a derivatives market, with financial
derivatives instruments trading on the Hanoi Stock Exchange and the Ho Chi Minh Stock Exchange. The
dimensions and liquidity of the derivative securities market in the country have expanded considerably,
with the average trading volume of Viet Nam 30 (commonly known as VN 30) Index Futures contractsb
reaching 225,178 contracts per session in mid-2024, compared with 10,954 contracts per session
in 2017. Such transactions experienced significant growth – up by 79.9 per cent from 2019 to 2020,
followed by 43.8 per cent growth between 2021 and 2022 – demonstrating the strength and resilience
of the derivatives market in Viet Nam during global shocks such as the pandemic. Moreover, the
fact that transactions by foreign investors account for a relatively small share of the total volume of
financial products traded on the derivatives market in Viet Nam (3.47 per cent in 2023, compared with
0.1 per cent at the end of 2017), demonstrates that the derivatives market plays an important role in
risk hedging and leveraging investment avenues for traders, investors and businesses in the country.

The Viet Nam case study suggests that attracting cross-border capital inflows can be essential to a
country’s sustainable development. The many policies behind the success, including those that facilitate
regional and global trade integration, enable financial market liberalization and promote cooperation
with international lending organizations, have profound and replicable significance for many emerging
markets and developing countries such as those in Africa. For instance, countries in Africa can learn from
the experience of Viet Nam in implementing the types of reforms that create a stable and predictable
policy environment, with more transparent regulations, predictable taxation regimes and stronger private
investor rights. Moreover, the success of Viet Nam in improving infrastructure (such as transport, energy
and ICT), which has been a critical factor in attracting private capital and fostering sector-specific export-
oriented industries in manufacturing and agriculture, contributing to raising its levels of productivity and
competitiveness, are other lessons learned that may be applied in countries in Africa.

Source: UNCTAD, based on Asian Development Bank Institute, 2008; Viet Nam Chamber of Commerce and Industry,
2023; Hanoi Stock Exchange, 2024; Jun et al., 1997; Thanh and Quang, 2008.
a
LP Bank, Saigon–Hanoi Commercial Joint Stock Bank, Orient Commercial Bank, Viet Nam Prosperity Joint Stock
Commercial Bank, Tien Phong Commercial Joint Stock Bank and Viet Nam Technology and Commercial Joint Stock Bank.
b
These are derivatives securities products representing potential stocks listed on stock exchanges in Viet Nam.
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Several conceptual frameworks serve as While enterprise risk-management

guidelines for firms, especially SMEs, in their guidelines and structured approaches to
strategies and practices of managing risks. risk management have proven effective in
Internationally standardized, recognized helping organizations develop sustainable
and widely used guidelines include the business processes to mitigate risk and
United States-based Committee of improve performance, their use by SMEs
Sponsoring Organizations of the Treadway in many developing countries, especially in
Commission enterprise risk-management Africa, has been limited. Dioubate (2023)
framework, the International Organization and Al-Tarawneh and Al-Smadi (2018) note
for Standardization 31000 standard and that many SMEs in Africa are constrained
the Australia and New Zealand standard by the lack of resources and expertise in
4360, known as AS/NZS 4360. implementing enterprise risk management,
which makes it difficult for them to prioritize
The enterprise risk-management
tools and practices that can reduce risks,
framework defines risk management as
such as conducting risk assessments,
the culture, capabilities and practices,
developing risk-management strategies
integrated with strategy-setting and its
and applying risk controls. In Nigeria, for
performance, that organizations rely on
instance, Akinyomi et al. (2020) found
Lack of resources to manage risk in creating, preserving
that the implementation of enterprise risk
and expertise and realizing value. The framework
management by SMEs operating in the
in implementing comprises five interrelated components:
country is mostly constrained by inadequate
enterprise risk • Governance and culture. capital, lack of access to credit and poor
management, • Strategy- and objective-setting. infrastructure. In other countries, such
makes it difficult as Burkina Faso, Sawadogo and Zerbo
• Performance. (2018) observe the lack of knowledge,
for SMEs to
• Review and revision. limited resources and cultural factors
prioritize tools as significant barriers to the adoption
and practices • Information, communication and
of risk-management tools by SMEs. If
that can reporting (Society of Corporate
SMEs are to implement enterprise risk
Compliance and Ethics and Health
reduce risks management and better understand its
Care Compliance Association, 2020).
different components – risk identification,
Australia and New Zealand standard risk assessment, risk response and
4360 provides a four-pronged systematic monitoring and reporting – there is a need
approach to risk management that to build a risk-management culture within
aims to establish the context, identify an organization, by promoting awareness
the risks, assess the risks and treat the of the benefits of such a strategy and
risks (Dioubate, 2023). The International ensuring that all employees in the company
Organization for Standardization 31000 are involved in the risk-management
standard enables firms to integrate process (Ziemska and Ciesielska, 2018).
risk-based decision-making into their Beasley et al. (2016) argue that the
governance, planning, management, effective implementation of enterprise risk
reporting, policies, values and culture. Its management requires addressing cultural
principles-based system can be applied and organizational challenges associated
by all organizations, regardless of type, with risks, which can be facilitated through
size, activities and location, and covers all effective leadership, management of
types of risk (International Organization for organizational change and staff training.
Standardization, 2018). The enterprise risk-
management framework and the Australia
and New Zealand 4360 standard can be
applied to any organization, regardless
of its size or sector (Dioubate, 2023).

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If SMEs adopt effective risk-management performance and corporate governance.

frameworks and integrate the approach into In conclusion, risk-management practices
their business processes, they can reduce can help firms in Africa, especially SMEs,
the impact of risks on their operations and develop sustainable business processes to
enhance their resilience to unforeseen mitigate risk and build resilience to shocks.
events (Chen et al., 2020). The value of
enterprise risk management was also
argued by Brustbauer (2014), who stated
Conclusion
that adopting risk management gave a In Africa, firms face a unique set of
competitive advantage to firms by facilitating risks that distinguish them from their
mechanisms that could lessen potential counterparts in other regions. One of
losses in the event of market disruption the most prominent challenges is the
or failures, or simply when exploiting volatile political and regulatory landscape,
growth opportunities. For instance, more which undermines investor confidence,
effectively planning, organizing, directing and hinders long-term planning and increases
controlling resources – risk management, the cost of doing business. Moreover,
in essence – can help SMEs reach their inadequate infrastructure, including
growth or expansion objectives in an unreliable electricity supply, poor transport
environment where unexpected positive or networks and limited access to finance,
negative events occur (Crovini et al., 2021). constrain the operational efficiency and
competitiveness of firms. These challenges
In a sense, enterprise risk management not Enterprise risk
only contributes to the ability of SMEs to are compounded by external factors, such
as climate change, resource scarcity and
management can
mitigate the effects of unexpected threats or
shocks on a specific project or investment, global economic volatility, which further also be a catalyst
but it can also be a catalyst that drives SME exacerbate risks for African firms. that drives SME
performance, particularly in revenue growth Managing cross-border transaction risks in
performance,
and profitability. Such contributing factors of Africa requires a comprehensive approach particularly in
enterprise risk management were shown by that involves collaboration between revenue growth
Odubuasi et al. (2022) in their investigation Governments, businesses and financial and profitability
of the effect of enterprise risk management institutions to address structural and
on the earning capacity of African banks. financial constraints, enhance institutional
A significantly positive correlation was capacities and foster an enabling business
established between effective risk- environment that builds resilience to
management practices and the enhanced shocks and promotes sustainable
earning capacity of selected financial growth and development. Moreover, the
firms in Africa. In developing countries in development of deep and liquid financial
Asia, such as Indonesia, Malaysia and markets that provide a platform for
Pakistan, it was found that enterprise risk companies, Governments and individuals
management increased the value of firms to raise capital, manage risks and trade
and shareholders, enhanced corporate securities is necessary to erect a bulwark
governance and improved the quality of in Africa against the global polycrisis.
internal audits, which together contributed
Considering the positive and sustainable
to the overall performance of non-financial
effects of enterprise risk-management
firms (Husaini and Saiful, 2017; Nasir, 2018;
practices on the financial performance of
Ping et al., 2017). In the Middle East, for
SMEs, stakeholder relations and strategic
example, in Bahrain, Jordan, Kuwait, Oman,
planning, it is important to overcome
Qatar, Saudi Arabia and the United Arab
resource and infrastructure challenges
Emirates, Altanashat et al. (2019) and Rao
and identify the key drivers for the
(2018) found that the adoption of enterprise
successful adoption and implementation
risk management by selected firms in
of these practices by SMEs in Africa.
those countries boosted their institutional

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 Economic Development in Africa Report 2024
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The benefits of enterprise risk management business outcomes in new markets and
extend beyond identifying, assessing and industries. Chapter 5, the final chapter of
mitigating potential threats or losses, and this report, will set forth some practical
hence building resilience and reliability in recommendations that can help the public
unpredictable risk environments such as that and private sectors in Africa navigate
of the polycrisis. It is increasingly becoming complex and uncertain environments
a valuable tool for sound performance, while building resilience and stability in
sustained growth and competitive economies, markets and businesses.

Risk-management
practices can help
Pull quote right, firms in Africa,
14pt, 10 to 20 especially SMEs,
words In the develop sustainable
word documentbusiness processes to
you can insert mitigate risk and build
pull quotes as resilience to shocks
comments on
the margin

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Economic development
in Africa report 2024

Chapter V

Conclusions and
recommended
policy actions
 Economic Development in Africa Report 2024
Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Introduction

The previous chapters emphasize that interconnected global risk landscape.

the simultaneous and interconnected Moreover, the importance of collaborative,
global crises can significantly harm global resilient and adaptive policies to protect and
prospects for growth, amplify economic and advance economic and social development
societal shocks and increase the vulnerability in Africa and help strengthen its resilience
of African countries to volatile economic to the polycrisis cannot be overstated.
and trade conditions. Between 2012 and
In particular, economic resilience should be
2022, numerous covariate shocks and
reinforced to alleviate potential exposure
interconnected uncertainties had a major
to shocks stemming from the polycrisis.
impact on the global economy, shifting the
This requires the adoption of sound,
rhetoric on economic prosperity, financial
stable macroeconomic stability policies
stability, social cohesion and environmental
that consider the different dynamics of
sustainability. While market dynamics remain
African countries in terms of economic
unpredictable, there are opportunities to be
explored to harness the economic potential
and trade structure and institutional To mitigate
systems. African economies remain or recover
of domestic and regional markets in Africa.
largely undiversified and heavily reliant
These include the African Continental Free from crises,
on primary commodity exports, making
Trade Area and subregional economic
them particularly susceptible to external
policymakers
communities. To mitigate or recover from
economic disturbances and price volatility. and businesses
these crises, policymakers and businesses should
For those countries dependent on fuels,
should collaborate closely to build resilient
minerals and metals, this involves reinforcing collaborate
economic, trade and financial ecosystems
that enable stronger crisis preparedness
the use of fiscal and monetary policies closely to
to incentivize diversification away from
and response, encourage inclusive build resilient
the fuel and mining sectors into other
policies and enhance overall stability.
economic sectors. Countries dependent
economic, trade
As outlined in chapter I, interconnected on agricultural exports should renew and financial
global crises exacerbate trade risks in Africa. policies and invest in technology, skills ecosystems
Six categories of shock – political, economic, and sustainable practices to enhance that enable
demographic, energy, technological and resilience against economic, financial, social stronger crisis
climate – pose significant threats to African and environmental shocks. Additionally, preparedness
trade and development. The differences improving public financial management and
and response,
among the vulnerability landscapes of adhering to fiscal targets can boost financial
African countries, particularly across the stability and revenues, helping countries
encourage
economic, governance, connectivity, recover from shocks without excessive inclusive
social, energy and climate domains, will borrowing and debt risk (chapter II). policies and
determine the extent to which they will
The potential of regional economic
enhance overall
be exposed to threats emanating from
integration in setting the pace of industrial stability
the polycrisis. Many African countries are
growth and development in Africa should
highly vulnerable across the economic and
be taken into account. It is important to
connectivity domains, and their vulnerable
broaden the capabilities of African countries
economic and infrastructure systems
to effectively leverage the opportunities
increase their exposure to shocks. Hence
accorded by regional trade agreements,
the need for a multidimensional approach
such as the Agreement Establishing the
to risk management in Africa that addresses
African Continental Free Trade Area.
specific vulnerabilities across domains to
build resilience against a complex and

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 Economic Development in Africa Report 2024
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However, infrastructure gaps raise the Some businesses prosper amid the
cost of production and trade, undermining polycrisis, maintaining consistency and
industrial productivity in the process, success. However, many African businesses,
and eroding the competitiveness of particularly SMEs, are faced with high
African exports and the ability to develop trade costs, limited infrastructure and
viable value chains. While countries regulatory complexities that are worsened
continue to prioritize their own economic by weak energy infrastructure and limited
infrastructure development, it is also financial support systems, which challenge
important to further strengthen regional their ability to manage risks effectively. To
infrastructure development programmes. navigate the complex challenges posed
A balanced approach to infrastructure by structural vulnerabilities, polycrisis
development remains essential for the shocks and global market fluctuations,
sustainable development of intra-African there is an urgent need for SMEs in Africa
value and supply chains. The current to mitigate financial, operational and
regional market dynamics in Africa signal a regulatory risks to bolster resilience and
broader narrative about the opportunities capitalize on opportunities in an increasingly
to foster stronger trade networks aimed competitive environment. For instance,
at promoting value added production and access to financial instruments, such as
the supply of goods and services, and to derivatives and risk-management tools at
enhance trade risk defence capabilities. the enterprise level, is essential for African
Moreover, greater efforts and capabilities firms to manage risks effectively and
towards a coordinated continental enhance their stability in volatile market
approach to tackle infrastructure gaps, conditions. Enterprise risk management
streamline trade procedures and foster can guarantee a safer and more reliable
deeper integration through the African future for SMEs in Africa. Dealing with
Continental Free Trade Area are necessary firm-related risks and opportunities calls
if Africa is to build resilient, diversified and for systemic, policy-driven efforts to equip
competitive trade networks, enabling it African firms with the resilience required
to better withstand global shocks and to thrive amid global uncertainties and
drive sustainable economic growth unlock their full economic potential within
across the continent (chapter III). regional and global markets (chapter IV).

A balanced approach
to infrastructure
development
remains essential
for the sustainable
development of
intra-African value
and supply chains
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 Economic Development in Africa Report 2024
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Considerations
for policy guidance

UNCTAD concludes its 2024 edition of the mechanisms that reduce their potential
Economic Development in Africa Report vulnerability in navigating the waters of
by proposing short-, medium- and long- uncertain economic environments. Trading
term actionable policy recommendations partners and international organizations
for key stakeholders – Governments, are urged to support and share knowledge
private sector trading partners and about best practices to foster resilience
international organizations. In particular, to shocks emanating from the polycrisis.
Governments are encouraged to adopt These proposed policy actions could
policy measures that help enhance crisis enhance macroeconomic stability in African
preparedness and foster resilience to countries, optimize the resilience potential of
polycrisis shocks. Private firms are invited regional trade markets, strengthen financial
to develop stronger productive and trade markets to facilitate hedging instruments
capabilities by leveraging cost-effective and encourage SMEs to manage risk and
Optimal policy
risk-management strategies and other useful improve performance in a proactive manner.
responses
to multiple
Enhancing macroeconomic lingering
shocks with
stability to lower economic spillover effects
should focus
vulnerability to shocks on restoring
macroeconomic
stability,
In a polycrisis environment beset with warding off harmful activities. For example, enhancing
successive severe shocks, policymakers fiscal policy can stimulate economic growth, productive
face multiple challenges. In the short particularly during periods of shocks.
capacity and
term, prioritizing actions such as limiting
economic losses, reducing inflation or
Nonetheless, caution should be observed promoting
when utilizing fiscal and monetary policy sustainable
rebuilding monetary and fiscal buffers is
tools. For African Governments where equity
a difficult undertaking. This complexity consumption,
should be a central objective, policies should
arises when responding to a single supply-
be applied in such a way as to avoid the
savings and
side shock, such as an energy sector
creation of uncertain environments or enable investment
commodity price shock, with measures
an unfair and uncompetitive environment
such as inflation targeting, monetary
that places other sectors or firms at a
tightening or foreign exchange intervention.
disadvantage. For instance, corporate taxes
Optimal policy responses to multiple that remain higher for longer in one sector
lingering shocks with spillover effects than another disadvantage firms and forge
should focus on restoring macroeconomic an unequal operational environment. Policy
stability, enhancing productive capacity and tools should be calibrated to strengthen
promoting sustainable consumption, savings diversification with sunset clauses. Fiscal
and investment. Fiscal and monetary and monetary policy regimes should aim
policies are useful for achieving objectives for long-term application and consistency,
such as ensuring economic stability, wealth as this ensures economic stability.
redistribution and revenue collection, and

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For instance, open market operations Revenue could be generated from existing
supporting the agricultural sector should revenue streams, such as direct or indirect
focus on implementation through a long- taxes. Such revenue could be earmarked
term development plan rather than one that for the activities and inputs identified
brings frequent changes in the medium term. for increasing economic resilience.
Conversely, revenue could be derived
Proposed policy actions to
from deficit financing and borrowing
strengthen macroeconomic (see medium-term actions below).
systems and achieve resilience
Medium-term actions
Based on the above, the following
policy actions, aimed at strengthening Detailed budgets should be drawn up,
macroeconomic systems to help build including the initial overall budget broken
resilience across the economic domain, down into medium-term budgets. Budgets
are presented to African policymakers and should be tied to specific objectives and to
financial regulators for consideration: the inputs required. For instance, setting a
target amount for infrastructure financing
• Optimize government spending needs over a 5- or 10-year period can
and revenue through shock-
Improving help Governments in Africa frame fiscal
sensitivity analysis. decision-making. Having this medium-term
public financial
• Apply a vulnerability lens to plan would not only help promote fiscal
management and
public financial management, responsibility and sustainability; it would
adhering to fiscal monitoring and reporting. also help Governments perceive how
targets can boost changes due to shocks could affect the
• Facilitate optimal monetary
financial stability spending and revenue changes needed
policy by tailoring capital and
and revenues, liquidity requirements to risks
to reach specific infrastructure targets.
helping and vulnerability to shocks. Deficit financing should be addressed,
countries with details on where to borrow (internal
• Increase institutional capacity
recover from for policy action and impact.
or external) and the borrowing instruments
shocks without and estimated borrowing terms. This
would require African Governments to
excessive Optimize government spending
enhance debt management practices by
borrowing and revenue through shock- improving debt reporting and reducing
and debt risk sensitivity analysis reliance on non-concessional borrowing.
It is recommended that African Seeking concessional financing (loans
Governments earmark expenditure for with favourable terms and lower interest
building infrastructure (physical and human rates) from multilateral institutions, such
capital) and essential public services as the African Development Bank and
that can help reduce business costs and the World Bank, can alleviate interest
support long-term economic benefits. burdens and lengthen repayment
periods, aiding in fiscal sustainability.
Short-term actions
Moreover, it is recommended that African
It is recommended that African
Governments establish comprehensive
Governments identify and analyse
debt management frameworks that include
revenue streams that can be used to
caps on borrowing, regular assessments
sustainably finance the inputs and activities
of debt sustainability and prudent terms for
identified within the sectors allocated for
new loans. This is particularly relevant for
diversification and resilience-strengthening.
countries that rely heavily on foreign debt,
as seen in the case of Ghana (chapter II).

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Effective debt management can Facilitate optimal monetary

prevent unexpected debt distress policy by tailoring capital and
and improve credit ratings. liquidity requirements to risks
and vulnerability to shocks
Apply a vulnerability lens to
public financial management, It is recommended that African countries
monitoring and reporting adopt financial stability tools to address
stresses in the banking system while
It is recommended that African ensuring monetary policy stability.
Governments apply a vulnerability lens
when designing and implementing fiscal Short-term actions
policies to keep track of targets versus African Governments are encouraged to
actuals for both government revenue and design a framework that promotes a resilient
expenditure to ensure the fiscal sustainability financial system in which banks can provide
of their development plans. By doing so, valuable credit, risk-management and
they can gain a better understanding of liquidity services throughout the business
financial management issues and assess and financial cycles, and in which financial
how their vulnerability to specific shocks regulation and supervision can lessen the
or crises can affect their public finances probability of systemic risks and the potential
and fiscal management processes. costs of a shock hitting the financial system.
Short-term actions A periodic review of such a framework
should be undertaken to make sure that the Applying a
Applying a vulnerability lens to existing regulatory and supervisory requirements vulnerability
frameworks and tools used at the country
level to assess the status of public financial
deliver the same level of stability and/or lens to public
resilience as new sources of risk emerge.
management entails adding risk assessment financial
criteria based on a country’s vulnerability Central banks should implement clear management
to global shocks when conducting public inflation-targeting frameworks that maintain entails adding
inflation within a defined range, such the 3 to
expenditure and financial accountability risk assessment
reviews. Two factors should be taken into 6 per cent target set by South Africa. These
frameworks help stabilize prices, enhance
criteria based
account. First, most countries already
investor confidence and mitigate the risks on a country’s
have budget and financial accountability
mechanisms in place, with some countries of imported inflation, particularly in countries vulnerability to
having conducted reviews of their budgeting with fixed exchange rates (see chapter II). global shocks
and financial systems (see chapter II on Medium-term actions
fiscal policy). Second, although countries
It would be advisable for central banks
tend to score well in budget reliability, their
in Africa to support the capitalization
scores in other areas are not as high.
growth and resilience of banks, which
Medium-term actions would contribute to lowering the risks
Mechanisms to ensure appropriate of macroeconomic shocks. This would
monitoring, including regular audits and entail, for instance, the increasing use of
publication of documents, should be tools, such as open market operations,
established. This is particularly relevant in a to provide financial guarantees to
global polycrisis context where countries’ commercial banks that lend at lower rates
vulnerability to shocks can have a bearing to businesses most vulnerable to shocks
on the functions of their oversight institutions or to sectors identified for diversification.
and the effectiveness of their public financial
management and accounting practices.

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Moreover, facilitating loan-targeting sets, such as geology expertise for ministries

instruments that can expand private in charge of water resources or roads.
credit at favourable and sustainable rates
Long-term actions
will help diminish the vulnerabilities of
households and businesses to shocks that African Governments should invest in the
have an impact on financial conditions. technical capacity of fiscal and economic
planning institutions to improve long-term
Long-term actions
economic forecasting, debt analysis and
Regional development banks could have fiscal policy implementation. Transparent and
utility in financing long-term projects, predictable fiscal policy processes, including
for example, large-scale infrastructure publishing budget plans, debt statistics and
projects and environmental projects economic performance reports, can improve
that strengthen development. Investing accountability, reduce corruption and build
in regional infrastructure projects, such confidence among investors and citizens.
as transport and energy networks, to
facilitate cross-border trade and support
the free movement of labour and capital
Optimizing regional market
within regional trading blocs, such as the opportunities to reduce
Regional market African Continental Free Trade Area, will trade-related risks
dynamics in stimulate growth and stability in Africa.
Africa signal A dynamic network of value added exports
Increase institutional capacity and imports connecting businesses,
a significant
suppliers and institutions across the
opportunities for policy action and impact
various components of the supply chain,
to foster It is recommended that countries can enhance industry clustering and
stronger trade in Africa institutionalize better risk- competitiveness. Such a network can
networks and informed public financial management boost efficiency, technological innovation,
enhance trade processes by strengthening the skills transfer, infrastructure development
capacity of public accountants, auditors and regional economic growth, thereby
risk defence and other relevant functions. strengthening the ability of African countries
capabilities
Short- to medium-term actions and regions to withstand shocks to
trade and disruptions in supply chains.
The functions of audit offices can be Opportunities to effectively leverage
reinforced or expanded with trained regional markets, such as the African
auditors who specialize in different functions Continental Free Trade Area, both in
related to line ministries whose purpose sourcing competitive inputs and in relocating
is to ensure comprehensive monitoring production where necessary, will increase
of existing frameworks. While African value addition in the exported products and
countries generally perform well in budgeting reinforce existing and new trade networks
and planning areas, many lack efficient at the subregional and continental levels,
oversight institutions and often fall short and thus help curb the cascading effects of
in monitoring. Monitoring usually occurs trade risks and supply chain uncertainties.
through audits carried out by one office, with
the office expected to audit all government As value added trade networks provide
functions, often with limited staff. an appropriate route for improving the
technical efficiency of African firms, their
Within capacity-building frameworks, effective participation in such networks
Governments should target the acquisition requires the upgrading of technical
of longer-term technical skills and provide capacities to decrease inefficiencies and
short courses and workshops to match enhance the ability of firms to scale up
each function. In addition, Governments production and exploit economies of scale.
should aim to ensure the availability of skill

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The first step in this direction would be production of goods, particularly more
the development of an effective industrial complex manufactured goods. Energy
ecosystem to support the growth and security can help SMEs expand their
development of firms, including SMEs. production processes and diversify
This should be complemented by stable, their goods, which in turn can help
consistent and credible macroeconomic and develop viable regional trade networks,
trade policies to ensure the predictability and while lowering production costs.
stability of the business environment and
lower risk and uncertainty when engaging in Proposed policy interventions
cross-border trade and financial activities. to encourage participation
For now, infrastructure gaps remain a major in regional and global trade
obstacle to trade, raising investment, trade networks
and marginal production costs; undermining
To offset trade-related risks and enhance the
industrial productivity; and eroding the
participation of African countries in regional
competitiveness of African exports and
and global trade networks, the following
the ability of countries in Africa to develop
policy intervention recommendations
strong value chains. While these countries
are put forth for consideration: Leverage
continue prioritizing the development
of infrastructure that can support the • Create more diversified regional trade
the African
growth of domestic economies, it is also networks through improved economic Continental Free
important to focus on further reinforcing infrastructure and value addition. Trade Area,
regional infrastructure development.
• Strengthen regional mechanisms to
to enhance
A balanced approach to infrastructure manage cross-border trade-related risks regional trade
development remains essential for the and mitigate external demand shocks. networks
sustainable development of intra-African
• Develop stronger capabilities to
and reduce
value and supply chains. Similarly,
enhance industrial productivity, supply exposure to
investments in the energy sector are
chains and resilient markets. economic,
necessary to secure the seamless
governance
and
connectivity
risks
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Create more diversified to diversify their portfolios while controlling

regional trade networks risks. Such regulations are more appropriate
through improved economic for investing in alternative assets, including
infrastructure and other long-term assets.
infrastructure and value
Given the energy potential of Africa,
addition
investments in renewable energy sources
It is recommended that African Governments and regional power-sharing mechanisms are
and regional institutions improve value necessary. Improving energy infrastructure
added production and trade networks by reduces production costs and increases
prioritizing investments in transport, ICT the competitiveness of African industries.
and energy infrastructure to strengthen
Medium-term actions
connectivity across African economies.
This prioritization should be aligned with The African Continental Free Trade Area
existing continental initiatives such as could be leveraged to mobilize investment
the African Continental Free Trade Area in infrastructure through the liberalization
and the Programme for Infrastructure of services and the Protocol on Investment
Development in Africa, which focuses to the Agreement Establishing the
on the cross-border implementation African Continental Free Trade Area.
of energy and transport corridors and The provisions for trade in services can
regional Internet exchange networks. provide opportunities for businesses in
the infrastructure sector that could reduce
Short-term actions
investment costs and increase return on
Regional trade agreements offer investment. By addressing the fragmentation
opportunities for African businesses to of investment regulations, the Protocol
scale up their operations and increase is designed to be the single standard
production capacities for goods and for investments in Africa, which should
services that would otherwise be imported. provide a more predictable governance
Offering incentives that aim to promote regime for investments and a more positive
industrialization and local manufacturing investor experience. Further, the Protocol
and sourcing (or supply) of goods and has established the Pan-African Trade
services targeted at regional markets is and Investment Agency to assist investors
therefore recommended. For instance, in mobilizing financial resources and
African Governments could offer reduced provide technical and business support.
corporate tax rates for companies that invest
Regional and international financial
in manufacturing or industrial projects, while
organizations and institutional investors
financial institutions could offer low-interest
could work closely with African Governments
loans or credits on income tax for capital
to set up co-investment programmes
investments in machinery, technology and
for financing subregional infrastructure
facilities that boost production capacity.
networks. In the form of equity (for example,
These incentives would enhance productivity
the Pan-African Infrastructure Development
and value addition, reduce the dependence
Fund) or debt (for example, the Managed
on exporting unprocessed raw materials
Co-Lending Portfolio Programme of the
(for example, crude oil or minerals) to
International Finance Corporation), these
global markets, where prices are volatile,
co-investment vehicles could help leverage
and help stabilize export revenues.
the credibility, expertise and experience
Moreover, it is recommended that African of regional and international organizations
regulators introduce risked-based to mobilize additional private capital to
investment regulations with clearly defined finance infrastructure projects in Africa.
standards of accountability for the fiduciaries
of institutional investors and investment
managers, which would allow such funds

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Development partners, such as UNCTAD, crisis-response trade finance and supply

are encouraged to support countries in chain finance facilities to support African
reinforcing their investment regulation, businesses affected by global demand
building human capacity to promote shocks, helping them pivot to regional
standards of accountability and diversifying markets. Such financing can stabilize
their investment portfolios. This could help businesses that depend on exports and
improve market and regulatory conditions prevent job losses in key industries.
and thus facilitate safety in the investment
Medium-term actions
decisions of institutional investors in co-
investment platforms for regional and cross- The establishment of an efficient
border infrastructure financing. Broadening management system and associated
investment opportunities in regional capacity-building for the harmonization of
connectivity infrastructure would help bring standards relating to regional production
down logistical and trade costs, enhance and trade networks would lead the way
connectivity and raise trade efficiency. to better regional connectivity. Potential
financing solutions could include setting
Strengthen regional up a regional fund or pooling public and
mechanisms to manage cross- private resources to help implement African
border trade-related risks Continental Free Trade Area strategies,
and mitigate external demand build early warning systems, develop
contingency plans and provide insurance to
shocks in Africa Set up
manage trade-related risks and challenges.
It is recommended that African emergency or
Development partners such as UNCTAD
Governments and trading partners take
could provide support for customs
crisis-response
steps to leverage regional markets, such
departments to simplify procedures and trade finance
as the African Continental Free Trade Area,
to enhance regional trade networks and
reduce time and costs for businesses. and supply
reduce exposure to economic, governance
This encourages trading countries to chain finance
and connectivity risks. Regional trade
recognize their respective clearance facilities to
forms, thereby helping to resolve
agreements can shield African economies support African
time and compliance issues faced by
from external demand shocks by building
entrepreneurs (see https://asycuda.org).
businesses
stronger, more diversified intra-African affected by
trade relationships, reducing reliance on Long-term actions
global demand
external markets and fostering regional
production and value addition.
African countries and regional institutions shocks, helping
are encouraged to establish regional trade them pivot
Short-term actions hubs and industrial parks that specialize in
to regional
high-demand sectors such as agriculture,
It is important to promote the alignment of
pharmaceuticals and technology. Regional
markets
national strategies with regional integration
trade hubs can attract investment and
goals through the use of uniform or
promote manufacturing within Africa, making
compatible mapping and assessment
the continent more self-reliant and capable
standards. This allows for harmonized
of responding to global demand fluctuations.
customs procedures for a more active
participation of the private sector in Developing or expanding regional financial
interconnected value and supply chains markets that offer options for financial
and streamlined border processes for integration and currency stability for intra-
rapid and efficient response mechanisms African trade would help increase the
to sudden external demand shocks. ability of African businesses to grow within
the continent, stabilize exports and build
African Governments and domestic,
resilience to external economic conditions.
regional and multilateral financial institutions
are encouraged to set up emergency or

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When exporting or sourcing goods, more regional trade organizations, such as

stable currencies can lessen inflationary the African Continental Free Trade Area,
pressures from currency fluctuations, by expanding cooperation in regulatory
particularly during external economic frameworks, quality standards and trade
turbulence. The creation of regional payment dispute mechanisms. Strengthening
systems, such as the Pan-African Payment African regional trade agreements
and Settlement System, would allow African would contribute to the development of
businesses to transact across borders resilient regional value and supply chains
without relying on international currencies, and increase trade volume within the
reducing their exposure to exchange rate continent, making economies in Africa less
risks and external financial market volatility. vulnerable to external demand shocks.

Develop stronger capabilities to

enhance industrial productivity,
Strengthening institutional
supply chains and resilient and organizational settings
markets to mitigate risks to cross-
It is recommended that African countries
border transactions
Access to design industry-tailored training and To facilitate more effective leveraging of
financial capacity-building programmes to improve intra-African trade opportunities and the
instruments, labour skills and encourage technology potential for regional trade agreements
such as and innovation that can boost firm-level to create buffers against global market
specialization and competitiveness in
derivatives and shifts, African businesses would need to
regional production and trade networks. address foundational challenges, such as
risk-management
Short- to medium-term actions regulatory inconsistencies, infrastructure
tools, is deficits and financial market limitations.
essential for the Strengthening the institutions responsible
Access to financial instruments, such
management for trade and industrialization policies
as derivatives and risk-management
of currency and is necessary to identify gaps and
tools, is essential for the management of
opportunities and thus improve industry
interest rate competitiveness and ensure compliance
currency and interest rate risks, enhancing
risks, enhancing the stability of African firms amid volatile
with international standards.
market conditions. For instance, the use
the stability
Regularly assessing and monitoring of financial derivatives, such as forward,
of African productive capacities in key industries and future, option and swap contracts, can help
firms amid sectors is useful to evaluate and mitigate traders and investors manage or trade, that
volatile market the impact of macroeconomic shocks and is, transfer a specific financial risk1 when
conditions trade policies on value added production engaging in a cross-border business or
demand linkages. For instance, UNCTAD financial activity. However, the structuring,
assessments of national productive valuation and settlement of financial
capacities gaps can help African countries derivatives contracts, which are either
identify and address their limitations traded within organized exchange markets,
and exploit opportunities to reinforce such as stock market or commodity
microeconomic and macroeconomic exchanges, or processed over the counter,
fundamentals for industrial growth and require sound financial infrastructures
integration into value added trade networks. and institutional settings, including
sophisticated exchange markets and robust
Medium- to long-term actions
clearinghouse systems that provide a safe
It is important to provide support for and regulated trading platform for these
the institutional capacity-building of risk-mitigating financial instruments.

1
Either interest rate risk, currency risk, commodity price risk, equity and credit risk.

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To guarantee that financial instruments • Enhance financial risk-management

serve their intended purposes to hedge practices and culture
against risk,2 boost trade opportunities
• Institutionalize enterprise risk
and empower a larger group of
management practices.
market participants3 to access capital,
a supportive legal and regulatory
Create a supportive
framework should be put in place.
environment for the use
However, underdeveloped financial markets of sophisticated financial
and limited access to sophisticated instruments and stability
instruments hinder African businesses in cross-border financial
from fully utilizing these instruments. Many transactions
advantages can be gained by developing
and strengthening financial markets in Short- to medium-term actions
Africa, primarily enabling traders and In countries with existing exchanges, it is
investors to manage their price risks more recommended that African Governments
effectively, but also boosting linkages and regulatory authorities assess the
between trade and finance, improving current laws and regulations governing
the marketing of goods and services the exchanges and their operations
manufactured and traded across Africa to identify potential institutional and
and making African industries and regional operational vulnerability to shocks and
markets more efficient and competitive. propose supportive actions through
Furthermore, the success of these financial which derivatives and other risk-mitigation
markets would also require sound risk financial instruments can be best deployed
management strategies and frameworks, and used by traders and investors when
as well as regulatory enhancement that engaging in cross-border activities in Africa.
can protect financial institutions and
non-financial participants4 alike and It is important to enhance the effectiveness
safeguard domestic financial stability. of African regulators in supervising
exchanges and their operations by
Proposed policy measures to increasing the adoption and use of
supervisory and regulatory technology and
mitigate risks to cross-border
tools. The use of emerging technologies,
transactions
such as artificial intelligence and
In view of these opportunities and the machine learning, could facilitate greater
potential to reduce the adverse effects of the and better processing of regulatory
polycrisis on cross-border trade in Africa, a data and improve supervision.
more effective partnership and collaborative
In some countries in Africa, this would
approach is recommended to promote the
require setting up innovation and/
development of viable markets and tools that
or digital technology units within a
can serve the needs of African businesses
regulatory authority, such as a central
in mitigating risks to cross-border
bank, which could contribute to the
transactions. In particular, there is a need to:
design, testing, adoption and monitoring
• Create a supportive environment of supervisory and regulatory solutions.
for the use of sophisticated financial
instruments and stability in cross-
border financial transactions

2
Including cross-border transaction risks emanating from internal and external shocks.
3
For example, buyers and sellers in derivative contracts, exporters, importers, brokers and clearing banks.
4
For example, firms engaged in trading financial derivatives and other risk-mitigating financial instruments.

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Financial infrastructure, such as a clearing programmes would help African regulatory

and settlement infrastructure, is important experts better understand the benefits of
for the good functioning of domestic the Basel standards and hence contribute to
markets, including the money market, the effective implementation of international
interbank market and bond market. Such standards towards more resilient
infrastructure would also be essential economic and financial environments.
in strengthening the ability to hedge
Moreover, close coordination and interaction
currency risk and mitigate credit risk in
between regulators, policymakers and
response to future crises. For instance, it is
the private sector would help regulators
recommended that African countries set up
better understand the specific challenges,
a strong clearinghouse that complies with
needs and interests of market participants
international standards and can manage
(in this case, both public and private
payment flows that are associated with
investors) and thereby remove unnecessary
the clearing and settlement of derivatives,
obstacles to the participation of investors
including cross-border transactions,
and market users in those exchanges.
and create the necessary conditions for
This would entail, for example, joint
attracting domestic and international
research on the policy, legal and regulatory
investors and market participants to trade
African banks determinants of derivates markets or
derivatives on the domestic exchange.
and financial market and risk assessments on financial
institutions to Medium- to long-term actions markets, financial instruments and
digital financial services that can further
make basic It is necessary for African countries to
financial stability and financial inclusion.
financial hedging comply with all Basel standards and, in
particular, ensure full implementation of A practical example of UNCTAD technical
tools, such as
the Basel risk-based capital standards, cooperation that aims to help countries
derivatives, more which would lower financial institutions’ manage financial risk more effectively
affordable and exposure to financial shocks and safeguard and raise investment through enhanced
accessible stability in cross-border capital flows. An regulation and stock exchange development
to SMEs assessment by the Basel Committee on is the Sustainable Stock Exchanges
Banking Supervision (Bank for International Initiative. This is a United Nations partnership
Settlements, 2023) found South Africa to programme that includes UNCTAD, the
be compliant with the Committee’s large United Nations Global Compact and the
exposures framework. This means that United Nations Environment Programme. Its
the exposure of South African banks to purpose is to provide a global platform for
a single counterparty or to a group of exploring how exchanges, in collaboration
connected counterparties was within the with investors, companies (issuers),
required limit of 25 per cent of the banks’ regulators, policymakers and international
tier 1 capital, and hence an indication of organizations, can strengthen performance
their capacity to manage systemic risks. in dealing with environmental, social
and corporate governance issues and
It is further recommended that African
encourage sustainable investment. The
countries (mainly regulators) and
Sustainable Stock Exchanges Initiative
standard-setting bodies at the domestic
seeks to achieve this by conducting
or international level, such as the Basel-
evidence-based policy analysis, facilitating
based committees, design tailored training
a network and forum for multi-stakeholder
programmes that focus on the components
consensus-building and providing technical
of the Basel standards that address key
guidelines, advisory services and training.5
risks in the banking sector or help mitigate a
particular vulnerability to shocks that affect
the financial sector. Customized training

5
See https://sseinitiative.org.

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 Economic Development in Africa Report 2024
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Enhance financial risk- Medium-term actions

management practices and It is recommended that African countries
culture develop and deepen derivatives markets
In addition to building the necessary skills in key regional financial hubs, for example,
of the regulators and supervisors who have Kenya, Nigeria and South Africa, which
the authority to set the conditions and can provide firms across the continent with
rules of derivatives activity, review risk- access to more advanced risk-management
management and governance processes, products, such as currency options, swaps
and track risk exposures, it is important and futures (chapter IV). The development
that market participants6 understand of such markets would require stronger
and appreciate the role and potential of partnerships with regional institutions
derivatives markets in managing risks and (for instance, development financial
strengthening the resilience of the economy. institutions) and established international
markets to build the necessary technical
Short-term actions capacity and expertise for managing and
It is recommended that African regulating derivatives markets effectively.
Governments and the private sector Fostering partnerships with regional banks
promote basic financial risk awareness and financial institutions in developing
Facilitate the
by providing training programmes to risk-management products and focusing access of African
improve awareness and understanding on currency stability and transaction cost businesses to
of financial risk management for SMEs, reduction, can be achieved under the risk-management
including introductory training on simple Protocol on Investment to the Agreement resources,
financial risk tools and operational risk. Establishing the African Continental Free
including
In addition, it is important to encourage Trade Area (chapter IV), the Pan-African
Payment and Settlement System and
guides on
African banks and financial institutions
to make basic financial hedging tools, similar regional initiatives to improve mitigating
such as derivatives, more affordable financing opportunities in intra-African cross-border
and accessible to SMEs. This could trade and lower currency risk when financial risks
be accomplished by launching pilot engaging in cross-border transactions.
programmes in sectors exposed to currency A strong and well-functioning derivatives
volatility, for example, export-oriented market or exchange also calls for the
industries, and simplifying the process development of capacity-building and
for SMEs to access currency hedging training programmes to strengthen the skills
and other basic instruments by reducing of financial market experts in structuring,
regulatory hurdles and transaction costs. pricing, trading, leveraging, settling and
Other recommendations are to establish safeguarding financial derivatives and
public–private support platforms that can other financing models. Such institutional
facilitate the access of African businesses capacity-building are a necessity for both
to risk-management resources, including policymakers (regulators) and the private
guides on mitigating cross-border financial sector (investors and market users).
risks, and to support the implementation of
credit-guarantee schemes that encourage Developing such knowledge and skills
banks to lend to SMEs. These credit- can be achieved by designing training and
guarantee schemes can help mitigate the capacity-building programmes, ranging
risk for banks and encourage them to offer from hedge accounting and standardization
financing options that SMEs can use to certificate programmes to financial risk-
manage financial risks more effectively. management training workshops and
management training on valuation and

6
Including financial institutions, such as pension funds, asset managers, insurers and banks, as well as traders
such as exporters and importers that hedge trade-related risks with derivatives.

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 Economic Development in Africa Report 2024
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information systems for measuring and Moreover, effective risk management

reporting exposures at the firm level. would enable SMEs to make better
strategic decisions relating to operational
Long-term actions
and financial performance.
It is recommended that African countries
It is therefore important to formulate
and partners expand investment in the
policies and practical guidelines on
building of a comprehensive financial
enterprise risk management at the SME
market infrastructure that includes
level, including the necessary processes,
derivatives exchanges, clearinghouses
structures and reporting and monitoring
and robust settlement systems across
systems relating to risks (for example,
Africa. This would provide SMEs with
strategic, operational and financial).
secure, regulated platforms for managing
financial risks. Strengthening regulatory Similarly, there is a need to set risk-
frameworks would contribute to the good management standards tailored to the
governance and trading of derivatives African context and better adapted to
and other risk-management products, the resource capacity of local SMEs. For
ensuring transparency, stability and instance, such standards could include
accessibility for all businesses. processes by which risks are appraised
and mitigated based on the level or type
At the regional level, efforts towards
of vulnerability to shocks (for instance,
harmonizing financial regulations
vulnerability across domains identified in
across African countries to support
this report) or initiatives to align enterprise
the development of integrated financial
risk-management strategy and regulatory
markets are highly encouraged, as they
frameworks with regional trade agreements,
would enhance liquidity and access
such as the Agreement Establishing the
to risk-management instruments. It is
African Continental Free Trade Area,
also recommended that intraregional
to ensure that cross-border risks are
banks and financial institutions develop
adequately identified and managed.
specialized financial products for SMEs,
such as currency swaps and risk-sharing Table V.1 presents a strategic approach
facilities, that mitigate financial risks to institutionalizing enterprise risk-
associated with cross-border trade. management practices in African SMEs
and outlines strategic steps and key actions
Institutionalize enterprise risk- adapted to the unique economic, cultural
management practices and regulatory environment in Africa.

Many private sector businesses, particularly By implementing the policies, practices

SMEs, operate in unfavourable business and tools outlined in this chapter, all
climates or in complex industry-specific risk stakeholders in Africa – Governments,
environments and face risks arising from local businesses, trading partners and
macroeconomic uncertainties or connectivity international organizations – stand to benefit
vulnerabilities. These conditions affect their from a more favourable environment in
business operations, production, trade which complex and interconnected crises
of goods and services, and finance. Risk and risks are assessed and managed
management strategies and practices are effectively to reduce exposure to potential
pivotal approaches that can help them shocks and disruptions, stimulate growth
ensure against market uncertainties. and further development on the continent.
This entails, for instance, their ability to
anticipate, minimize or mitigate risks from
internal (domestic) or external (regional,
global) sources of shocks or vulnerability.

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Table V. 1
Strategic steps and key actions for institutionalizing enterprise risk-
management practices in Africa
Strategic steps Key actions
Understand the local
Become familiar with the local regulations and cultural attitudes towards risk
regulatory environment and
and decision-making and take them into account.
cultural context
Promote enterprise risk-
Develop and offer enterprise risk-management training to SME owners
management training
and managers. Organize events to spread enterprise risk-management
programmes and build
knowledge and share relevant case studies.
awareness
Utilize established frameworks,a with local adaptations to adopt best
Set up a clear enterprise
practices. Also, the enterprise risk-management framework should be
risk-management framework
adapted to address specific local risks.
Design enterprise risk-management policies and procedures aligned with
Integrate enterprise risk organizational strategy and national priorities. African enterprise risk-
management into corporate management practices should address emerging risks, focusing on scenario
governance planning and resilience-building. Risk management should be integrated into
strategic planning and decision-making processes of African firms.
Apply risk management to operations and decision-making, while integrating
Foster a culture of risk enterprise risk management into the organizational culture. This requires
awareness training SME owners and employees to adopt and implement risk-
management practices.
Determine risk identification and prioritization processes and develop
Draw up effective enterprise strategies to mitigate identified risks, for example, diversification and
risk-management infrastructure for climate-related risks. Each sector has a unique risk profile,
implementation processes and enterprise risk-management practices should be tailored to meet sector-
specific needs.
Explore enterprise risk Utilize enterprise risk-management tools and software suitable for the
management and ICT tools local context. Implement data analytics to enhance risk identification and
for business growth assessment.
Envisage monitoring, review Conduct regular audits and reviews to ensure enterprise risk-management
and evaluation practices processes remain effective.
Collaborate to share best practices on enterprise risk management with
Engage in enterprise
government, industry networks, universities, and international organizations
risk-management learning
for systemic risk management. Public–private partnerships are gaining
platforms, networks and
recognition as an effective means to manage large-scale risks, particularly in
cooperation
infrastructure development.

Source: UNCTAD, adapted from Commonwealth Secretariat (2023); International Labour Organization (2023);
KPMG (2021); Lungisa et al. (2023).
a
For example, Enterprise risk-management framework of the Committee of Sponsoring Organizations of the
Treadway Commission; standard 31000 of the International Organization for Standardization.

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Risk management
strategies
and practices
are pivotal
approaches that
can help African
SMEs ensure
against market
uncertainties

© Adobe Stock

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Unlocking Africa's trade potential: Boosting regional markets and reducing risks

Databases

Bank for International Settlements Data Portal. Available at https://data.bis.org.

Economic and Social Commission for Asia and the Pacific–World Bank trade cost database.
Available at: https://www.unescap.org/resources/escap-world-bank-trade-cost-database
International Debt Statistics database. World Bank. Available at www.worldbank.org/en/
programs/debt-statistics/ids.
Trade Facilitation Indicators database. OECD. Available at https://compareyourcountry.org/trade-
facilitation/en/0.
UNCTADstat database. UNCTAD. Available at https://unctadstat.unctad.org/datacentre/.
World Bank Enterprise Survey database. World Bank. Available at: https://www.
enterprisesurveys.org/en/enterprisesurveys
World Bank metadata glossary. Databank. Available at https://databank.worldbank.org/
metadataglossary/World-Development-Indicators/series.
World Development Indicators database. World Bank. Available at https://databank.worldbank.
org/source/world-development-indicators.
World Economic Outlook database. International Monetary Fund. Available at www.imf.org/
en/Publications/SPROLLs/world-economic-outlook-databases#sort=%40imfdate%20
descending.
World Uncertainty Index. Available at https://worlduncertaintyindex.com/data/.

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