Higher Prices Lower Growth

Russia’s war against Ukraine has provoked a massive energy price shock not seen since the 1970s, which is taking a heavy toll on the world economy. 

Estimated energy expenditures – on oil, natural gas, coal and electricity – have risen sharply this year in OECD countries to around 17% of GDP.

Although Europe has taken steps to replenish its natural gas reserves and curb demand, this winter in the Northern Hemisphere will likely be challenging. 

Higher gas prices, or outright gas supply disruptions, would entail significantly weaker growth and higher inflation in Europe and the world in 2023 and 2024.

While fiscal policies need to become more targeted and temporary, accelerating investment in the adoption and development of clean energy sources and technologies will be crucial to diversifying energy supplies and ensuring energy security.

Source: OECD Economic Outlook


The risks from crypto assets are evident — it’s time to regulate.

The collapse of the world’s third largest crypto exchange FTX, and subsequent plunge in the prices of Bitcoin, Ethereum, and other major crypto assets, is prompting renewed calls for greater consumer protection and regulation of the crypto industry.

Regulating a highly volatile and decentralised system remains a challenge for most governments, requiring a balance between minimizing risk and maximising innovation. 

Only one-quarter of countries in sub-Saharan Africa formally regulate crypto. However, as a recent IMF chart shows, two-thirds have implemented some restrictions and six countries — Cameroon, Ethiopia, Lesotho, Sierra Leone, Tanzania, and the Republic of Congo — have banned crypto. 

Zimbabwe has ordered all banks to stop processing transactions and Liberia directed a local crypto startup to cease operations (implicit bans).

Africa is one of the fastest-growing crypto markets in the world, according to Chainalysis, but remains the smallest, with crypto transactions peaking at $20 billion per month in mid-2021. 

Kenya, Nigeria, and South Africa have the highest number of users in the region. 

Many people use crypto assets for commercial payments, but their volatility makes them unsuitable as a store of value.

Policymakers are also worried that cryptocurrencies can be used to transfer funds illegally out of the region and to circumvent local rules to prevent capital outflows. 

Widespread use of crypto could also undermine the effectiveness of monetary policy, creating risks for financial and macroeconomic stability.

The risks are that much greater if crypto is adopted as legal tender — as the Central African Republic recently did.

If crypto assets are held or accepted by the government as means of payment, it could put public finances at risk.

The Central African Republic is the first country in Africa, and the second in the world after El Salvador to designate Bitcoin as a legal tender. 

The measure has put the country at odds with the Bank of Central African States (BEAC) —the regional central bank that serves the Economic and Monetary Community of Central Africa (CEMAC), which the Central African Republic is a member of – and violates the CEMAC Treaty. BEAC’s banking sector supervisory body — Central Africa’s Banking Commission — has banned the use of crypto for financial transactions in the CEMAC region.

This article first appeared here.


Duty Free Access to China for selected African Countries

China announced that it will grant zero-tariff treatment to 98% of taxable items originating in 10 least-developed countries (LDC) effective 1 Dec 2022.  The LDCs are:

•     Afghanistan
•     Benin
•     Burkina Faso
•     Guinea-Bissau
•     Lesotho
•     Malawi
•     Sao Tome and Principe
•     Tanzania
•     Uganda
•     Zambia

The policy will cover 8,786 items, including agricultural products such as olive oil, cocoa powder and nuts, as well as various chemicals and product materials.

Prior to this move, China announced plans to offer zero-tariff treatment for 98% of currently taxable products imported from 16 LDCs including Togo, Djibouti, Laos and Rwanda, which came into force on September 1, 2022.

The move will further help African products explore the Chinese market.

China earlier announced plans to set up a green lane for African agricultural products to enter China and expand the range of products covered by zero-tariff treatment and import $300 billion worth of products from Africa in the next 3 years.

China-Africa economic cooperation has expanded rapidly in scale and extent. 

Over the past five years, China’s imports of African agricultural products have grown at an average annual rate of 11%.

This makes China the 2nd largest export destination for African agricultural products. 

In 2021 China imported $5 billion of agricultural products from Africa, a record high.

This is a quasi AGOA type of agreement.
Let’s hope utilisation is higher vs that of AGOA (African Growth and Opportunities Act) from the USA.


Globalisation is changing course — that much is clear. But don’t call it a retreat, it’s just reconfiguring according to a new report from McKinsey.

International businesses are confronting the complexities of an increasingly contested global order where war, national security, supply-chain disruptions and technological change are all driving a shift in global trade flows.

The result of this shift, is that some supply chains could shorten and become more regional in the coming years. 

A real example of such shifts is making headlines today.

Apple, which makes most of its iPhones in China, is preparing to start sourcing chips for its devices from a plant under construction in the US sunbelt state of Arizona, marking a major step toward reducing the company’s reliance on Asian production. Apple may also expand its supply of chips from plants in Europe. 

This may be closer to the beginning than the end of the transformation. The evolution of global value chains took years to establish and reconfiguring them may yet take many more to complete.

Why so slow? 

Because supply chains are more interdependent than ever.

Over the past three decades, China emerged as a critical hub for exports of electronics and textiles, the Americas became a more concentrated market for key agricultural products, and Europe became the primary manufacturing hub for medical and pharmaceutical products.

Pivoting supply chains takes 5 to 10 years — not something you do in months.

Currently, some 60% of all global trade flows cross regional boundaries and every region on the planet is dependent on another region for a quarter of their imports of at least one critical resource or manufactured good.

In other words, it will be difficult and likely painful to unwind the trade ties that bind the global economy.

Take for example, supply chains for certain critical minerals such as those needed to manufacture electric vehicle batteries. These networks are particularly sticky because any attempt to reconfigure them would involve not only exploration but also development of processing capabilities in new geographies.

As a result, it’s likely that pronounced interdependencies among major trading nations will continue to be a feature of the global economy for the foreseeable future.

Going forward, multinational companies, which account for about two-thirds of global exports, will need to navigate this new era of economic interconnection by balancing the risk of being too dependent on one particular market.

That means international companies should not retreat from globally interconnected value chains, rather, they should re-imagine ways to reshape their manufacturing capacity in ways that contribute to both growth and resilience.

This is not just a place for worry, but companies should look to partner with others to make sure the world is a more predictable place.

Source: Bloomberg