Iran war: what African countries can do to get through the crisis and emerge in a better place

it was still not clear when or how the war initiated by Israel and the United States against Iran would end. But what was already clear was that it would harm Africa in a number of ways.

Firstly, it would adversely affect the global supply and prices of oil and gas, fertilisers and food.

Secondly, local currencies would be affected. More than a month after the war had started a number of African currencies had begun to lose value against the US dollar.

Thirdly, interest rates stopped falling and further rate increases were highly likely.
Fourthly, there will be a decline in access to affordable foreign financing.

How should Africa respond?
African countries cannot avoid being harmed by the current Gulf war. Nevertheless, based on work in international economic law and global economic governance, two lessons can help the continent emerge from the crisis in a better place.

First: Pragmatism
Governments and societies need to be pragmatic. Their first priority must be to mitigate the impact of the war, particularly on their most vulnerable citizens. This will require trade-offs.

They will have to reallocate budgets to at least maintain the level of imports necessary to meet basic needs. They will need to convince creditors to help finance necessary imports. They will also need to persuade them to be flexible enough to leave governments with some policy space.

Second: Identify Opportunities
States and societies need to identify opportunities within the crisis for actions that, over the medium term, can help address financing, economic, environmental and social challenges.

This requires collaboration between:
Government
Business
Labour
Religious groups
Civil society organisations
International organisations
Action in the Short Run

The focus in the short term must be on minimising the negative effects of the war and managing external debt in a sustainable and effective way.

African countries will need to convince creditors that this crisis is beyond their control and that they should not worsen the situation. At a minimum, creditors should agree to suspend debt payments for the next year, as was done during COVID-19.

Creditors have already accepted this principle under certain conditions in recent debt contracts.

Role of Multilateral Creditors
African countries, already heavily indebted, are expected to challenge their multilateral creditors, including the World Bank, International Monetary Fund and African Development Bank.

These institutions are treated as preferred creditors, meaning they are paid before others and do not participate in debt restructuring. Instead, they continue lending, increasing total debt burdens.

There are calls for them to adopt more creative approaches, including:

Guaranteeing financial transactions to reduce borrowing costs and attract investment

Supporting debt-for-development swaps in sectors like health and education

Helping convert foreign currency debt into local currency debt at affordable rates

Strengthening African Financial Systems

Governments are also expected to work with the Alliance of African Multilateral Financial Institutions to better finance development.

Measures include:
Ensuring institutions follow their development mandates

Avoiding opaque transactions such as the one by the African Finance Corporation with Senegal

Activating the African Financial Stability Mechanism to provide a financial safety net

African governments are also encouraged to strengthen their advocacy at the global level.

This includes:
Developing common African positions on sovereign debt restructuring

Supporting initiatives like the African Expert Panel launched by South Africa

Medium-Term Actions
In the medium term, African countries are expected to:

Advocate for reforms within the International Monetary Fund to improve accountability and responsiveness to developing countries

Push for more creative use of IMF resources, including its gold reserves

Africa is also expected to call for a debate on the preferred creditor status of multilateral institutions, especially as members of the Alliance of African Multilateral Financial Institutions seek similar recognition.
There is a need for clear global principles to determine which institutions qualify for this status.

Longer-Term Priorities
African societies are expected to demonstrate greater control over their development by demanding accountability in financial, economic, environmental and social matters.

Another key objective is reducing illicit financial flows linked to international trade and investment. Progress in this area could be supported by efforts to establish a UN Framework Convention on International Tax Cooperation.

The ongoing war continues to pose economic risks for Africa. While the continent cannot avoid the impact, a combination of pragmatic policies, debt management strategies and financial reforms will be essential in navigating the crisis.

TNAM
Edited By Egwu Patience Nnennaya