Global Ripples, African Resilience: Navigating Geopolitical Shifts in 2025

Introduction: Why This Edition Explores Geopolitics

In my work with capital allocators—fund managers focused on attracting capital, allocating it profitably, and ultimately delivering strong returns to investors in Africa and beyond—geopolitics is never far from our conversations. Every week, as we sit to discuss how best to allocate capital or support the companies in our portfolios, the global context often looms large.

The re-election of Donald Trump as U.S. President, alongside rising tensions between major global powers, raises important questions about how shifting trade policies, competition for critical resources, and currency instability will impact the environment in which we invest. From trade dynamics to regulatory changes, the ripple effects of these geopolitical shifts could influence the performance and resilience of African portfolios in ways that deserve careful attention.

As we entered the new year, it felt timely to think about how these dynamics might shape our discussions and decisions—and ultimately the economic trajectories of the portfolios we manage. This edition dives into the potential ripple effects of Trump's return on trade, capital flows, regulation, and the broader economic landscape.

The Butterfly Effect: Ripple Impacts from Global Trade Wars

As global powers like the United States, China, and the European Union continue to compete for dominance, African economies often bear the unintended consequences of these geopolitical struggles. This "butterfly effect" plays out in ways that may not be immediately obvious but have far-reaching implications.

Cheap Imports and the Threat to Local Manufacturing

One of the clearest ripple effects of a U.S.-China trade war could be an increase in the influx of cheap imports from China into African markets. While this is not a new phenomenon—markets across Africa are already flooded with low-cost, often low-quality Chinese goods, particularly disposable consumer items—it could intensify under such circumstances.

Take, for example, the area of Santaner in Dakar, Senegal, a bustling hub where small shops and stalls are packed with affordable Chinese-made goods, many of which are practically disposable. Similar commercial hubs can be found in other African capitals, underscoring how pervasive this dynamic is. While these goods offer short-term benefits for consumers, they undermine opportunities for local manufacturers to compete, especially on price.

Throughout 2024, in our investment committee discussions, we frequently reviewed companies that manufacture locally and are working to expand their operations—not only within their home markets but also across borders into other African nations. These businesses are critical for driving industrialization and reducing dependence on imports, yet they face immense challenges:

* Their products are often directly threatened by cheaper imports, making it harder to maintain market share.

* Many of these companies are reliant on imported components paid for in foreign currency, exposing them to additional risks from currency instability.

This highlights a significant tension: while cheap imports may offer short-term benefits for consumers, they present long-term obstacles to building resilient local industries. ??

The Fight for Rare and Critical Minerals

Another area where African countries risk being "the grass that suffers when elephants fight" is the competition for rare and critical minerals. The U.S., China, and the EU are all vying for access to resources such as cobalt, lithium, and rare earth elements—many of which are abundant in Africa.

However, this competition often leaves African nations in the familiar role of resource suppliers, capturing little value from their wealth. The Democratic Republic of Congo, for instance, supplies the majority of the world's cobalt but sees limited local benefit due to a lack of downstream processing and value addition.

Indonesia's recent approach to leverage its nickel reserves by requiring Apple to establish manufacturing facilities locally is a noteworthy example of how resource-rich nations can turn the tables. This model demonstrates how strategic use of natural resources can yield broader economic benefits. ??

That said, I doubt any single African nation could approach this challenge frontally. This may instead be a case where collaboration, perhaps under the aegis of South Africa's G20 presidency, could prove more effective. Working as regional conglomerates or powers, rather than individual nations, appears to be the more likely path to success for African countries seeking to avoid simply being resource suppliers.

Currency Pressures and Second-Order Impacts

Currency stability is another critical issue tied to global trade dynamics. Trade balances, deficits, and overall balance of payments are directly linked to the strength and stability of currencies, particularly in emerging and frontier markets.

Extreme Currency Instability and the Broader Impact

For countries like Nigeria, South Africa, and Ghana, external shocks—whether due to trade wars, declining commodity prices, or reduced foreign inflows—can lead to extreme instability in their currencies. Such instability creates ripple effects across the economy, including increased inflation, higher debt servicing costs, and reduced investor confidence.

This dynamic poses particular challenges for businesses that rely on foreign exchange to fund operations, especially those importing critical inputs. Companies unable to access sufficient foreign reserves often face higher costs, disrupted supply chains, and, in some cases, the inability to continue operations.

Capacity to Earn Foreign Exchange: A Key Advantage

In our conversations and investment committees, companies that are in a position to mitigate foreign currency risk clearly have a significant advantage. Those that can earn foreign exchange through exports or raise dollar-denominated capital from investors are far better positioned to weather the effects of currency instability.

This underscores the importance of preserving and enhancing the capacity to earn or raise foreign exchange. Export-oriented strategies and access to international capital markets not only provide resilience in the face of currency volatility but also allow companies to scale and thrive in challenging environments. ??

Reflections: A Case for an "Africa First" Strategy

Reflecting on these challenges and opportunities, two major themes stand out:

1. Uncertainty Around U.S. Policies

The re-election of Donald Trump brings renewed uncertainty regarding U.S.-Africa relations. While programs like the African Growth and Opportunity Act (AGOA) have historically been beneficial, there is no guarantee they will remain a priority. Countries like Kenya, which established bilateral agreements during Trump's first term, may see continued benefits. However, Africa as a whole is unlikely to command significant attention under his administration.

2. An Opportunity to Double Down on African Collaboration

This uncertainty reinforces the importance of prioritizing intra-African trade and economic integration. Just as Trump's "America First" approach prioritizes U.S. interests, Africa must adopt an "Africa First" mindset. ??

The African Continental Free Trade Area (AfCFTA) offers a powerful framework for this shift, enabling countries to reduce trade barriers, strengthen local industries, and create a unified market of over 1.3 billion people. Beyond AfCFTA, countries must also explore strategic partnerships, diversify trade relationships, and advocate for fairer global trade practices.

Conclusion: Unlocking Africa's Potential in a Shifting World

Trump's re-election and the broader shifts in global trade dynamics represent both a challenge and an opportunity for African economies. While external shocks and policy changes will inevitably create hurdles, they also underscore the urgency of reducing dependency on external markets and building resilience through regional collaboration and industrialization.

The key lies in adopting proactive strategies, from leveraging natural resources more effectively to deepening regional trade under AfCFTA. By doing so, African nations can position themselves not just as participants, but as leaders in shaping their economic futures. ??

As always, remember: we have the keys.