How African Business Can Succeed Amid Trade Wars

In recent years, the global economic landscape has been increasingly shaped by trade tensions among major economies, notably between the United States and China as well as between the European Union and Russia. These translated into trade restrictions, embargos and supply-chain recalibrations which have at times acutely impacted global markets. Less spoken of, they have also impacted, directly or indirectly, African businesses and economies – sometimes visibly, such as in the price of grains for Egyptian households and sometimes less visibility, such as increasing investment uncertainty. 

That in turn leaves African businesses having to contend with global supply chain disruptions, currency fluctuations, tariff shifts and realignments in trade alliances. Furthermore, exporters of primary commodities are, inherently, particularly vulnerable, as their products often serve as the foundation of global industrial supply chains and also have the highest price sensitivity. 

That said, every change in environment offers significant opportunities for those businesses willing and able to adapt – and while the continent’s businesses are highly heterogeneous there is every indication that African business, broadly, can do so quite successfully. Key to that are diversification, positioning, natural hedging and communication.

Diversification

One self-evident strategy for African businesses is diversification — both in terms of markets and supply chains. 

While sometimes choice has been limited to begin with, relying on a limited number of trade partners exposes firms to unnecessary risk, namely risk that is non-systematic and can thus be diversified away. By focusing on trade networks that include intra-African partners, facilitated in no small part by the African Continental Free Trade Area (AfCFTA) which joins 1.3 billion people across 55 countries, businesses can reduce dependency on external markets as this internal market offers a buffer against global shocks and may be seen as less correlated with global markets.

Positioning 

Another potential adaptation for African business is investment in local manufacturing and processing capabilities, roughly known as in-sourcing, for themselves as well as, potentially, others. With many global businesses in the process of de-risking their supply chains by near-shoring or friend-shoring production, African nations can position themselves as potentially attractive alternatives. Ideally, this might be the moment when governments and private sector actors collaborate to improve infrastructure, reduce regulatory bottlenecks and incentivize foreign direct investment through joint-ventures for the simple reason that the potential gain would enable all parties to benefit.  

Natural Hedging

The go-to solutions for hedging are financial derivatives such as forward contracts, options, and swaps but many African businesses operate in currencies that may not have a high availability of suitable financial products or are being offered at fairly steep premiums. 

Beyond derivatives, African companies can also adopt structural financial strategies to mitigate risk. One approach is natural hedging, which involves balancing revenues and costs in the same currency — for example, sourcing inputs locally when revenues are in local currency or matching foreign currency revenues with foreign currency liabilities. Diversifying revenue streams across multiple markets can also reduce dependency on any single currency or economy. 

Communication

Lastly, but just as important is communication and information. Businesses – and particularly smaller businesses which may not be inherently diversified – should stay informed and agile in policy navigation. This means leveraging trade associations to engage with governments and international partners to understand the shifting legal and tariff environments. This might mean a whole host of things, with each business best adapting options to suit itself, either by building in-house expertise or collaborating with trade consultants can help interpret at times Byzantine trade rules and identify opportunities within shifting regulations. As a rule of thumb, participating in global trade forums, leveraging digital trade intelligence platforms, and forming strategic partnerships with firms in other regions can enhance their negotiation power and ensure they are well-positioned to adapt to and influence evolving global trade dynamics.