Estimated reading time: 6 minutes
Recent leadership changes or upcoming elections in Nigeria, Ghana, and South Africa will impact economic and trade policy. This could be a tipping point for these countries, either strengthening their trade position or creating new challenges.
Sub-Saharan Africa’s most important countries for trade stand at a political and economic crossroads. Nigeria, Ghana, and South Africa could become crucial players in the global economy: their trade opportunities in oil, minerals, and maritime hubs, along with quickly growing economies and longstanding peace, all make them attractive trade partners in Africa.
However, challenges such as crumbling infrastructure, inflation, corruption, and internal unrest could have wide-ranging effects on supply chains and export capabilities, impacting trade flows worldwide. Nigeria and South Africa have just elected new leaders in hotly contested elections, while Ghana is set to do so in December 2024.
The new presidents promise ambitious infrastructure investments and reform but must balance it with a cautious economic policy to reduce inflation and comply with IMF loan terms.
A crucial trio for trade
Macroeconomic changes in Sub-Saharan Africa will be consequential to global trade. Nigeria is one of the most populous countries on earth, with a population set to surpass that of the US by 2050; it is an important crude oil exporter, with exports that have grown in recent years and are projected to keep doing so.
South Africa is crucial for global trade because of its strategic position and long coastline; it is also the world’s largest exporter of precious metals like platinum and vanadium, in high demand to fuel the green energy transition. Ghana, long hailed as one of the best-run countries in Africa, is a hub of stability on the strategically important Gulf of Guinea, an important cocoa exporter, and a large African import market for Western goods.
All three countries have solid economic growth rates of around 2 to 3% annually, democratic governments, and a highly educated and growing population, making them attractive trade partners and investment opportunities.
Crumbling infrastructure and energy systems in South Africa
However, challenges abound. South Africa has been experiencing serious infrastructural issues, among them energy shortages and the breakdown of transportation. Frequent planned blackouts, locally called “load shedding,” leave the country without power for hours on end, for a record total of 280 days in 2023.
Medium and large businesses make do with expensive diesel generators and solar panels, but small enterprises are forced to shut down until power returns. South African state energy company, Eskom, has been battling crumbling infrastructure, corruption, criminal activity, and an antiquated model almost entirely reliant on coal.
If this continues, it could have a devastating effect on South African exports, as many countries in the EU and beyond enact regulations to ensure imported goods meet a minimum environmental threshold. South African ports and railways are poorly maintained and crumbling under years of use, which has led to an increase in road transportation, causing traffic and delays.
This not only worsens the energy crisis, as transporting coal in trucks is much less efficient and leaves trucks vulnerable to theft; it also directly affects export markets, causing long delays and disrupting supply chains globally. Attacks by the Houthi militia in the Red Sea have led to the diversion of trade to the southern African cape, with many ports reporting a 50% increase in traffic.
In the Durban container terminal, 79 vessels have been forced to wait at sea for months, and average delays are 10 days or more. Imported and transiting goods are further delayed by the breakdown in railway transportation, creating large backlogs.
A difficult economy in Nigeria
In Nigeria, double-digit inflation, soaring food and fuel prices, and corruption have affected production and exports, leading to disappointing growth in the last few years. Fuel subsidies, which made Nigerian oil among the cheapest in the world but were a significant burden to state finances, were removed in May 2023, causing a spike in transportation costs which snowballed into high inflation. Corruption on many levels of government makes oil production much lower than it could be and has distorted exchange rates. The arrest of a former Central Bank chief accused of corruption as well as recent monetary policy changes led to a massive devaluation of the local currency.
Energy and debt in Ghana
Ghana, whose economy is closely tied to the rest of Africa’s, has been feeling the impact of Nigeria’s economic troubles. The country imports much of its energy from Nigerian power stations and has recently announced a round of blackouts reportedly caused by infrastructural issues on Nigeria’s side.
The government will need to import around £400 million worth of other fuel like natural gas in order to make up for the shortfall, which added to the already existing almost £1 billion debt to various energy suppliers could spell trouble for the state’s coffers. A recently announced IMF bailout may carry terms that would further disrupt the economy.
Effect on exports
In the short term, the transportation breakdown in South Africa will mean delays and supply chain disruptions become more common, especially if more goods are diverted from the Red Sea. The Nigerian and Ghanaian energy crises are likely to affect oil prices and may reduce exports from the region as factories scale back production due to blackouts.
In the short to medium term, the economic effect of these issues will further affect trade: rising inflation might mean a struggling economy is less open to trade, while the currency devaluations happening in Nigeria may boost exports but will make many imported goods unaffordable. The higher-level effect of all this may be popular unrest: if the Kenyan protests of the past month are anything to go by, any meaningful response from the government to end inflation or promote austerity could lead to widespread disorder.
New policies and developments
This moment of crisis could spell the region’s demise or accelerate its rise as an important hub for trade and industry. South Africa and Nigeria’s new leaders are fighting for the latter outcome, as will the winner of the Ghanaian December 2024 elections.
Nigeria’s president Tinubu, who took on the role in May 2023, has been enacting a series of economic policies to diversify the economy away from oil and drive down inflation. While critics say the short-term effects of his so-called “Tinubunomics” are unbearable for the population, the measures are likely to attract foreign investment and lead to more economic stability in the long term.
South Africa’s newly elected coalition congress has promised concrete measures to end the energy crisis, including substantive investments in green energy sources and an end to the Eskom monopoly on the electricity market.
Foreign investments in port infrastructure, including a recently announced £2.3 billion project financed by an Emirati firm, may make South Africa a new trade hub, its stability a welcome change from the turmoil in the Red Sea. Ghana’s elections will usher in a new president, who will have to tackle high inflation and an IMF bailout as well as significant trade challenges.
These changes, if successful, could cement Nigeria, Ghana, and South Africa as regional leaders and place them at the centre of global energy and commodities trade. The ultimate driver of their success will be the direction their newly elected political leaders take, and whether the reforms they enact can deliver on promises of growth and increased trade.
