The global economic crisis sparked by the Covid epidemic in 2020 and Russia’s invasion of Ukraine in February this year has heightened the possibility of countries’ commercial integration deteriorating. Deglobalization of commerce is a term used to describe this phenomenon.
The epidemic wreaked havoc on supply networks all around the world. As a result, businesses in certain sophisticated economies have begun to prioritise bringing previously outsourced production back home – or closer to home. This is expected to prevent current – and future – supply-chain interruptions, providing a consistent and dependable supply of commodities.
Following the outbreak, Russia’s invasion of Ukraine has increased worldwide supply shortages. It’s also fueling expectations that corporations would become less reliant on global supply networks. This is especially true for businesses in Europe and the United States.
This tendency risks putting extra burden on African economies, on top of the current economic misery caused by the conflict in Ukraine’s skyrocketing food and gasoline prices. Africa faces grave dangers as the globe becomes more deglobalized. The findings of a recent World Bank analysis corroborate this. It reveals that reversing globalisation through value chain reshoring has the potential to throw another 52 million people into extreme poverty.
The people of Sub-Saharan Africa would be the most affected. Africa would be a worse place as a result.
In the 1990s, global trade integration (trade’s share of global GDP) accelerated, then decreased after peaking in 2008, when the financial crisis triggered an economic slowdown. The fast expansion of global value chain commerce is directly linked to the spectacular rise in global trade integration throughout the 1990s and 2000s.
Connecting to the global economy is critical for the continent’s growth and development. This is due to the fact that it allows businesses to specialise in specialised jobs. As a result, even if they lack the competitive edge to create a full product domestically, they may integrate into sections of a global value chain.
Furthermore, increased engagement in global value chains gives African businesses better access to money, technology, and other inputs they need to improve their goods and diversify their portfolios.
This is crucial because African businesses incur much greater expenses, limiting their ability to compete in regional and worldwide markets. Small and medium companies (SMEs), which are the backbone of many African economies, are particularly hard hit by these expenses.