Three years since the start of Russia’s war on Ukraine, the fallout of the ongoing conflict continues to exacerbate Africa’s economic vulnerability and debt burdens, according to a report by UK thinktank ODI Global.
“Our research reveals that the shocks have been multifaceted and, in some cases, long-lasting. The economic and financial pathways from the price shocks stemming from volatile fuel, food and fertiliser prices are now compounded by the persistent and broad-based strength of the US dollar, which has appreciated significantly in trade-weighted terms,” ODI researchers say.
The report finds that although price shocks in fuel, food and fertilisers have subsided somewhat, they appear to be stabilising at higher levels compared to pre-Covid-19 trends. (See Figure 1)
“While some economies have managed to mitigate the economic impact of the conflict, low-income countries with weaker buffers and less resilience against shocks continue to feel the long-term reverberations.”
Debt risks rise
Global uncertainty over the Russia-Ukraine war, tightening financial conditions, and increased borrowing costs have increased debt sustainability risks. According to the World Bank, the proportion of these countries at high risk of and in debt distress has doubled from 27% in 2015 to 54% as of September 2024.
“Adverse initial conditions exacerbate shocks, particularly unsustainable debt burdens. Global debt was already on an increasing trend, especially in 2020, as governments needed financing for their Covid-19 rescue packages. However, continued global uncertainty over the Russia-Ukraine war, tightening financial conditions, and increased borrowing costs have raised debt sustainability risks in some low-income and middle-income countries,” the report says.
The narrow fiscal space has led to lower financing for public investment and social spending – from 2020 to 2022, 46 developing countries spent more public resources on debt interest payments than on health, and 15 spent more on debt interest than education, according to UNCTAD.
Women most affected
The report indicates that rising prices of fuel and food are disproportionately affecting women. ODI researchers say gender imbalances are among the factors making the shocks from the war even stronger.
“Gender inequality and women’s welfare were already hurt by Covid-19 through disproportionate negative impact on income, unemployment, unpaid work and access to public services, and were further negatively affected by the gender gap in food insecurity and access to modern energy during the Russia-Ukraine war,” the report finds.
However, macro-economic policies have largely failed to address these repercussions, mostly due to structural inequalities in Sub-Saharan Africa including women’s limited access to finance and the burden of unpaid care.
“Policies that build resilience are now critical, and must be gender-sensitive. Targeted policy levers are essential, both to mitigate the immediate effects of the shocks and to address the underlying structural vulnerabilities that amplify them. These could include price subsidies, a reframing of bank regulations and prioritising long-term capital inflows to address external imbalances.”
Peace dividend?
As US President Donald Trump launches a controversial initiative to end the war by negotiating directly with Russia, the researchers suggest that a “peace dividend” from the war could offer a timely boost for African economies. Yet targeted support for vulnerable populations, debt relief and sustainable investments are still required, ODI says.
“The cumulative long-term effects of a potential “peace dividend” from the war could prove economically significant. However, the broader-based risks of deglobalisation and trade fragmentation have intensified significantly since the 2022 invasion of Ukraine.
“Therefore, understanding shock transmission mechanisms and prioritising resilience as a cornerstone of economic policy is paramount for low- and middle-income economies in Africa,” the report concludes.
