What does the Israel-Hamas conflict mean for Africa?

African countries must exercise economic prudence and geopolitical tact to minimise war-induced disruptions.

Published on 12 December 2023 in ISS Today

By

Menzi Ndhlovu
Signal Risk Senior Country and Political Risk Analyst

Ronak Gopaldas
ISS Consultant and Signal Risk Director

Amid the devastating loss of life, African policymakers and investors are grappling with the economic and political implications of the Israel-Hamas war on their domestic economies. The fallout could significantly disrupt economies still reeling from COVID-19 and the Russia-Ukraine conflict.

This could cause ruptures in the fragile geopolitical patchwork and birth new security challenges. Most African sovereigns have limited buffers to absorb further external shocks and will need to manage any contagion carefully.

As with any geopolitical strife, global risk aversion rose when the war began. The flight to safety by investors saw the dollar strengthen and gold prices spike in line with traditional behaviours, which initially drove up risk premia.

However, in recent weeks, fears of regional and global contagion have tapered. Instead, investor attention has turned to whether the US economy might finally be slowing and whether a Fed pivot is imminent. By implication, the weaker dollar has boosted global risk appetite, with a less bearish outlook for emerging markets. This has signalled a slight reprieve for African policymakers, blindsided by the food and fuel inflationary pressures that followed the Ukraine war.

Al-Qaeda- and Islamic State-aligned groups across the Sahel could exploit the Gaza conflict

However, a significant escalation or involvement of other players, such as Iran and Lebanon, could change the outlook. For starters, currencies, bonds and stock markets would be hard hit as risk aversion again sees capital revert to safe havens and away from emerging markets.

Given the boom-bust nature of many African economies, which rely heavily on commodities, any wild swings in these prices would have a pronounced effect on the balance of payment and fiscal positions. Global energy flows, particularly developments relating to the Strait of Hormuz, will be of concern, given its centrality to global energy supply and its emergence as a strategic target.

In this context, the World Bank warned on 30 October that the Israel-Hamas conflict could trigger a global economic ‘shock’ – including oil prices rising to $150 a barrel and millions going hungry.

‘Policymakers will need to be vigilant,’ says World Bank chief economist Indermit Gill. ‘If the conflict were to escalate, the global economy would face a dual energy shock for the first time in decades – not just from the war in Ukraine but also the Middle East.’

Higher-for-longer energy prices would also raise global inflationary pressures, leading to tighter monetary policy and a more pessimistic financial market reaction.

The Israel-Hamas fallout may disrupt economies reeling from COVID-19 and Russia-Ukraine conflict

For African sovereigns, there’d be clear winners and losers. Gold producers such as SA, Ghana and Tanzania would benefit as major price rises boost their forex earnings. However, high oil prices will have a detrimental knock-on effect on oil-importing African economies such as Kenya and Mozambique, with many already struggling to cover their external bills due to currency depreciation and depleted forex reserves. Overlaid with a series of bond redemptions and elections across the continent next year, such developments would add to a long list of concerns.

Just as important as the economic fallouts are the geopolitical ramifications of an escalation in Gaza. Africa has already been forced to navigate a geopolitical Catch-22 induced by the Ukraine conflict. Countries must choose between an ally in the anti-colonial struggle in Russia and key benefactors from the West while straddling the moral dilemmas of aligning with either. Then there’s the contestation around non-alignment itself. Missteps could elicit significant backlash, as seen by international responses to SA’s debacle involving Operation Mosi, Lady R and the US Ambassador.

The Gaza conflict – and subsequent divergences between East and West – adds another layer of complexity to the current geopolitical minefield. Again, African states are in an apparent no-win situation. Hard alignment with Israel risks alienating the East; sympathising with Hamas risks alienating the West; non-alignment is deemed amoral and appeases nobody.

Meanwhile, there’s an unspoken requirement for Africa’s position on Gaza to be consistent with its stance on Ukraine, lest countries be labelled hypocritical. During a meeting between SA and Ukraine’s foreign ministers, Naledi Pandor was pushed on SA’s seemingly incongruent stance on Russia’s invasion of Ukraine and the Israel-Hamas conflict. Questions were raised as to how the country could be silent on one aggressor, Russia, but outspoken on another, Israel.

Africa can minimise losses by strategically positioning for fiscal, monetary and balance of payments risks

Similarly, Ethiopia and Egypt are in the middle of the ‘realpolitik’ minefield. Both must service interests with a BRICS bloc that boasts Iran and numerous allies to the Palestinian cause while maintaining solid relations with the West and Israel.

Egypt has been the one North African exception to maintain full diplomatic relations with Israel since the 1970s, rendering it a strategic conduit between the Arab world and Israel. Under Abdel Fattah al-Sisi and Benjamin Netanyahu, Egypt-Israeli relations have solidified. Ethiopia, meanwhile, plays host to one of Africa’s oldest Jewish communities – laying the foundation for firm ties between Ethiopia and Israel.

The regional rapprochement facilitated by the Abraham Accords and its economic benefits are equally worth noting. Public pressure is building in Morocco to renounce its assent to the Accords. Tunisia, which was in talks to sign the Accords before the conflict, is deliberating a draft bill to criminalise the normalisation of relations with Israel. Both countries formalising a U-turn on relations with Israel could trigger a domino effect across the Middle East and North Africa, especially as local populations remain largely averse to rapprochement with Tel Aviv.

The conflict is also testing fragile political and security dynamics. Kenyan President William Ruto came under fire when he condemned Hamas’s incursion and expressed solidarity with Israel in October. He retracted weeks later, emphasising instead that Kenya ‘stands for a two-nation solution’ and that ‘Palestine should be a free state.’ Although in an apparent signal of neutrality, Ruto authorised the deployment of 1 500 Kenyan farmers to Israel.

Social tensions have risen in countries with a large mix of Muslim, Christian and Jewish populations, such as Nigeria. Africa’s most populous country has seen successive pro-Palestine protests, some deadly. Dynamics in Gaza may also raise terrorism risks across numerous regions, as groups use the conflict to justify attacks, shift public sentiment and drive recruitment into insurgent groups.

Long War Journal editor Caleb Weiss says al-Shabaab has ‘routinely attempted to place itself within the same context as the Israel-Palestine conflict … by tapping into the anger and vitriol that the conflict invariably produces.’ So it was no surprise when Kenya’s counter-terrorism police warned on 11 October that ‘Al-Shabaab may conduct attacks in solidarity with Hamas to remain relevant.’ A similar risk extends across the Sahel, where al-Qaeda- and Islamic State-aligned groups could exploit the Gaza conflict for their ends.

Overall, the war exacerbates the challenge of resolving Africa’s polycrisis. Given the interplay of economic, political and security risks and rewards, African states cannot win from the prevailing dynamics. What they can do, though, is minimise losses by ensuring they’re better positioned for fiscal, monetary and balance of payments risks and avoiding self-sabotage in the delicate geopolitical balance. This calls for prudence in economic administration and tactfulness in political positioning.

Ronak Gopaldas, ISS Consultant, Director at Signal Risk and Menzi Ndhlovu, Senior Country Risk and Political Risk Analyst, Signal Risk

Image © Correspondence with Wiki Palestine

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