I have a good deal of sympathy with all of this: much crisis coverage is reductive, over-generalised and quick to alarm. But in the months that have followed, I have also found it quite hard to find detailed analysis of how the conflict in the Middle East is affecting different African economies.

One way to help get away from this catastrophising tendency is to look backwards rather than forwards and to try to better understand the mechanics of how specific shocks propagate (or not) through to national economies. The impacts can linger on long after journalistic interest has passed; while by the same token other dire warnings turn out to be overblown. These patterns can vary significantly across countries and different kinds of economy.

Making crises more easily legible is not straightforward. Reverberations from events in the Middle East (or Russia and Ukraine before) depend on the interaction of many moving parts. Effects run through goods markets, fuel, fertiliser, food, which can be affected in turn by international financial markets, the weather and social unrest or even conflict. The effects of shocks also play out with a lag, and some of the damage does not reverse: less a tyre bursting than one slowly deflating.

For this piece, I try to trace out how the 2022 and 2026 shocks have seemingly affected the four largest economies in East Africa (Ethiopia, Kenya, Tanzania and Uganda) drawing on publicly available information. I pay particular attention to the role that external constraints can play in further amplifying and reinforcing shocks in fuel, food and capital markets and what that might mean for efforts to reduce the exposure to shocks still to come.

1. The 2020s vintage of shocks to real things

A lot of the literature on economic shocks focuses on business cycles or international capital flows and how macroeconomic policies can (or cannot) dampen their impact. A distinctive feature of the crises in this decade has been disruptions in international markets for critical inputs to economic production. Changes to interest rates and counter-cyclical fiscal policies have limited purchase when it comes to dealing with physical shortages of energy supplies.

Energy markets

While the conflicts in the Middle East and Ukraine each have their own specificities, there are clear parallels in how they affected markets for energy and fertiliser. When Russia invaded Ukraine in February 2022, oil and natural gas prices in Europe and Asia spiked and stayed elevated for close to a year. The rise in gas prices was especially severe. Europe had been heavily reliant on gas piped from Russia, and it is much harder to reroute natural gas than oil, so the cost of gas spiked at more than ten times the previous year’s price and has remained higher since.

European gas spiked sharply in 2022. The 2026 energy shock has been led by oil, where concerns over global supply have resurfaced in September.

East African energy systems do not rely on imported natural gas in the way many European and Asian economies do. However, the region has its own version of that exposure. Where gas underpins the industrial base at the core of the German economy, diesel underpins East Africa’s agricultural base. Transport alone runs to around 16 per cent of the final maize price, and running the pumps, cold stores and mills adds further diesel-related costs. In each case, a core part of the economy’s productive heart runs on a single imported fuel it can neither quickly substitute nor reroute. The region’s diesel is imported: it arrives through a handful of ports, and there is no domestic alternative when the price moves.

On the face of it, the increase in crude prices looked to be more severe back in 2022 than 2026 (certainly up until the last month). A comparison of international benchmark prices does not capture well the specific pressures on the costs of importing refined fuels. Diesel and petrol are refined products, so what an importer pays reflects not just crude but the cost of turning crude into fuel. Given the conflicts in the Middle East and Ukraine’s recent strikes on Russian refineries, that margin has widened sharply. It is difficult to know the exact refining margin being paid in East Africa, but in the United States, the ‘refining margin’, normally around $14 a barrel, blew out past $70 in 2022 and by September 2026 had reached some $92, wider than at any point in the earlier crisis. In addition, East African importers have faced elevated premiums for freight and insurance.

By September 2026, the refining margin for diesel was wider than at any point in 2022

The chart below shows how the increased costs of imported diesel have been translating into higher pump prices in Kenya and Tanzania (the two economies where recent data on fuel prices is available). Retail prices have risen both more sharply and higher than in 2022, reflecting both cost pressures and differing approaches to ‘cushion’ the increases through tax and subsidy policies. The price increase back in May resulted in nationwide transport strikes in Kenya, even after the government moved to reduce VAT on fuel.

Pump prices have risen higher and faster than in 2022

An even sharper concern relates to threats to the physical availability of refined fuels and the knock-on effects for production in the economy. When diesel cannot be found to move a crop to market or run a generator, production does not just cost more, it stops altogether. Businesses may be forced into administration if shortages are not quickly addressed.

In 2022, there were instances of temporary fuel shortages in East Africa, but they were primarily related to affordability issues. In Kenya for example, the government accumulated significant arrears with oil-marketing companies, leading to queues at the pumps and fuel stock-outs in April 2022. Strains in Kenyan fuel supply were not only a Kenyan problem: they spilled across the sub-region, where access to tight supply became a source of friction. Uganda, Rwanda, Burundi and South Sudan all largely draw their fuel through the same corridor.

In 2026, the risk is potentially of a different kind: not so much whether fuel can be afforded, but whether it can be secured at all. The year has already shown this is no abstraction: when the Strait of Hormuz closed, an ADNOC refinery supplying Kenya declared force majeure, and Gulf suppliers told Ethiopia they could no longer meet their obligations, stranding over a hundred thousand tonnes of contracted fuel.

In the event, the initial shortages proved short-lived. The chart below shows how Kenya’s UAE supply through Hormuz gave way to Saudi barrels routed via the Red Sea. Ethiopia bought refined jet fuel from Nigeria’s Dangote refinery rather than its historical supplier, Kuwait. Uganda secured imports of refined fuels from India.

As Hormuz closed, Kenya’s fuel supply swung from the UAE to Saudi Arabia

The threat of physical shortages is a danger that remains open. The recent attacks on Saudi Arabia’s East-West pipeline (the very route that made the Red Sea alternative possible) are a reminder that the picture of global fuel supply remains unsettled. Nobody knows what will happen next in international oil markets (as illustrated by JP Morgan’s recent widely reported investor note) because of uncertainty around whether the conflict widens and supply routes for refined fuel stay passable. A sufficiently large physical break in the supply of refined fuels could behave less like the modest move in Brent prices and look more like the European gas spike of 2022.

Fertiliser markets

In 2022, when gas prices spiked in Europe and Asia, it fed straight through to the global prices of nitrogen-based fertilisers. Fertiliser is a globally traded commodity which, unlike gas, can be easily shipped. More than two-thirds of Europe’s ammonia capacity was idled because fertiliser production became too costly and Russian and Belarusian supply of fertiliser was also disrupted. The disruptions to European production and its impacts on the global supply of fertiliser fed through to prices faced by buyers around the world including East African farmers. Expensive gas kept both the cost of making fertiliser high and much capacity offline for the better part of a year.

After an initial spike, international urea prices have come back down relatively quickly in 2026

There is no industrial-scale fertiliser production currently located in East Africa and so the region is vulnerable to imported-price movements and physical shortages. Ethiopia is by far the most exposed to disruptions to fertiliser imports because it uses fertiliser more intensively in agricultural production (Uganda in contrast uses almost no inorganic fertiliser at all). This exposure should not be read on its own as a sign of economic weakness. Unlike its neighbours, Ethiopia has achieved significant productivity growth in its maize farming doubling its yields between the 1990s and 2010s. This is the result of a package of interventions including making greater use of inorganic fertilisers.

Increases in fertiliser prices raise the costs of agricultural production (borne by farmers or in part by the government). Higher costs can also result in reduced application of fertiliser which can depress yields in seasons to come. It is difficult to get exact data on fertiliser usage, but the chart below showing import values and volumes would suggest that there was a reduction in fertiliser demand in 2022 relative to long-term trends.

The region imported (and applied) less fertiliser in 2022 when the costs of imports rose sharply

It is too early to tell how fertiliser prices have affected application in the most recent planting season; but developments in fertiliser markets have been less dramatic in 2026 than 2022. Prices of urea rose earlier this year given the Gulf’s role in global fertiliser production, but came back down relatively quickly. Other fertiliser exporters, notably Egypt and Nigeria have responded to fill supply shortages from the Gulf. Depending on procurement timings and growing cycles, farmers (or governments) may have been spared the worst of the price increases. The Ethiopian agriculture ministry, which handles much of national fertiliser procurement, suggests it locked in contracts before the conflict. Prices of phosphate-derived fertiliser remain elevated, for reasons largely unconnected to recent developments in the Gulf.^[1]

Food markets

Grain prices were another of the defining headlines of 2022. Russia and Ukraine are both major wheat exporters, and the war posed threats to global supply. Although the region’s wheat is largely imported (with the exception of Ethiopia), it is eaten mainly in cities. The chart below shows that maize prices, grown within the region, also rose sharply through 2022 and in 2023.

In 2022 and 2023, locally produced maize prices rose as much or more than imported wheat

Part of the price increase relates to the rising costs of inputs used in production that then take time to work through into retail prices. This should not however just be read as a fuel-and-fertiliser story. The onset of the Russia-Ukraine war also coincided with a prolonged drought in East Africa. Tanzania’s price spike in 2023 was also linked to the drought that affected its 2021 and 2022 growing season. When the rains returned in 2023, prices eased back towards pre-drought levels across most of the region.

In 2026, price pressures in maize markets are seemingly more muted, however the worst impacts may still be to come given the time taken for higher input costs to be reflected. Like in 2023, food markets will also depend on interactions with weather patterns. A mid-year dry spell has already cut this season’s harvest across the northern belt (from parts of Ethiopia to northern Uganda and Kenya’s grain areas). A strengthening El Niño risks causing flooding in months to come.

A third area of uncertainty relates to wider external pressures. Looking at the developments in maize prices, it is striking how Ethiopia’s domestically denominated maize prices have remained elevated long after they had fallen back in the rest of the region. Maize inflation here is not so much a story of higher input costs, or a ‘tight maize market’ story, it is reflective of wider balance of payments pressures in the Ethiopian economy and the consequent inflationary pressures. To understand this, we need to look at the wider macroeconomic picture.

2. Cascading crises? Or converging demands on foreign exchange?

Back in 2022, the Russian-Ukraine war coincided with central bank efforts to stem inflationary pressures that had built up in the wake of the pandemic and were being exacerbated by rising commodity prices. East Africa faced a sudden deterioration in its terms of trade (due to a rising import bill) at the same time as a tightening in international financial markets that especially affected emerging economies that had built up large external debt servicing obligations.

Fuel demand is relatively inelastic, so higher fuel costs land predominantly on the value of imports rather than on the quantity consumed. In Kenya for example, consumption fell by less than 3 per cent in 2022/23 even as the fuel bill rose an extra $1.8 billion, equivalent to 7 per cent of the previous year’s total imports. On their own, higher import bills may not have necessarily been insurmountable; export earnings across much of the region were rising too (although Ethiopia in particular had sustained large current account deficits).

Fuel drove rises in import bills in 2022 and 2023, but foreign-exchange earnings rose across most of the region too

The Russia-Ukraine war coincided with a global monetary tightening led by the US Federal Reserve. As the United States and other major economies raised rates to contain post-pandemic inflation, capital flowed out of riskier emerging-market debt. Issuing new dollar-denominated debt on capital markets became prohibitively expensive, just as higher import bills and interest payments were raising the demand for foreign exchange. Kenya, a regular issuer on international capital markets, was directly exposed to this kind of sudden stop. Ethiopia’s vulnerability was of a different kind: it had borrowed heavily, much of it bilaterally, to finance its state-led investment drive, and now carried a debt burden it could no longer easily refinance.

With import bills still elevated and external financing closed off, Kenya and Ethiopia had little choice but to find ways to choke off private demand for foreign exchange as pressures built into 2023. Total import bills fell by around 6 and 16 per cent respectively, while Uganda’s and Tanzania’s continued to rise. The adjustment ran through different mechanisms: in Kenya, a steady depreciation of the shilling, from about 122 to 167 per dollar; in Ethiopia, administrative rationing of foreign exchange and then a sharp devaluation in late 2024, bringing the official rate into line with the parallel market.

Kenya’s shilling slid in 2023 and Ethiopia’s birr was devalued in 2024. The region’s currency have held broadly steady so far in 2026.

This year, exchange rate pressures have been seemingly more muted, reflecting relatively more benign external conditions. One key offsetting factor on the trade side has been the rising prices of the region’s key export commodities, most especially gold. Over the past two years, gold has risen sharply as investors have sought a safe-haven asset. For Tanzania especially, the benefit has been substantial. In the year to date, reports from the Reserve Bank show that fuel imports rose by around $1 billion, but gold exports by roughly $1.5 billion, more than covering the difference. Higher coffee prices have helped the region’s coffee producers too. The benefits of gold prices have not just accrued to the mining sector. Higher foreign exchange earnings have eased the pressure on central banks to devalue, which would otherwise have raised the domestic price of imported fuel even further.

The prices of the region’s main commodity exports have surged cushioning the impacts of a higher fuel bill

In the build-up to events in the Middle East, central banks have been using the same improved exports to rebuild the reserves run down in the previous crisis. Concessional borrowing (including through large World Bank development policy operations) and steadily growing remittance inflows have also been used to bolster the external position. The reserve position could still weaken if the high cost of fuel persists. Much of the fuel in the region is bought through relatively generous lines of credit and so will not have fully worked through yet (for example, Kenya’s ‘Government to Government’ arrangement provides a six-month credit period). Ethiopia has gone further still, reportedly securing fuel on credit terms stretching towards a year — an arrangement that defers the dollar outflow rather than removing it. Nevertheless, this build-up of foreign exchange reserves gives the Central Bank more breathing room to intervene if needed in foreign currency markets. This is less ‘luck’ than deliberate choice, in the same self-insurance logic that followed the East Asian crisis of the late 1990s.

Reserves run down in the last crisis had been deliberately rebuilt in the run-up to the Middle East conflict

A second key difference relates to calmer international financing conditions in the year so far. Global rates may face upward pressure, but the charts below show that there has so far been no ‘flight to safety’ of the 2022 kind. If anything, the pressure has been on the traditional safe assets themselves: US Treasury yields have climbed as foreign holders reconsider their portfolios. Although yields have drifted up in recent weeks across all sovereign borrowers, Kenya’s sovereign spreads are at long-term lows. The financing squeeze that compounded the 2022 pressures has not recurred.

September’s rise in yields is a US-rates story. Spreads between Kenya’s dollar-denominated debt and US Treasuries are at their lowest since 2021.

3. The slower squeeze of building fiscal pressures

The surge in energy prices is not just an ‘external’ macro problem; it can also have implications for the public finances. This is in part linked to decisions taken around taxes and subsidies on the commodities in question. Ethiopia in particular has a history of subsidising fuel and fertiliser and the removal of costly fuel subsidies was one of the conditions for accessing the 2024 IMF programme.

It is difficult to get an up to date read on public finances. The government of Ethiopia has reintroduced subsidies on diesel since the onset of conflict earlier in the year with a view to cushioning drivers from the full hike in costs. Tanzania and Kenya, which raise significant revenue from fuel taxation, have also taken measures to ease the full pass through of more costly imports (although higher fuel prices also mean higher ad valorem revenues).

The chart below shows that interest payments have been steadily building as a share of revenues across the region, rather than a sudden jump in the face of specific shocks. Some of the rising interest burden relates to the international debt story: the dark blue bars have grown since 2020 as interest rates have risen internationally. Where currencies have depreciated, it has contributed to a rising local-currency cost of servicing external debt.

Interest costs on external and domestic debt have climbed steadily as a share of revenue.

However, a large portion of interest costs is linked to the domestic debt burden shaped by borrowing decisions and the performance of the economy including during the Covid-19 pandemic, but also during the 2010s. A debt ratio falls only when an economy grows faster than the interest rate it pays on its debt; where a succession of shocks pushes growth below that rate, debt no longer stabilises of its own accord. It instead requires that a finance ministry finds savings to pay back debt through achieving a primary surplus (or ultimately seeking to restructure debt with the associated fall-out).

Concerns over rising debt levels as well as required external adjustment (and the contraction of imports described above) have led to a squeeze on fixed capital investment in Ethiopia and Kenya relative to the previous decade. Investment (both public and private) can undoubtedly be used well or badly, but building out the capital stock is key for further building up the economic resilience required to deal with future shocks.

Fixed capital investment has fallen in Ethiopia and Kenya following the debt-driven expansion in 2010s.

4. The road ahead

I started out by echoing the warnings of Opalo, Usman and Ang against the tendency to catastrophise. This is not the 1970s or 1980s, when energy shocks tipped many economies in the region into debt crises and ‘lost decades’. Countries in the region are much better placed to withstand a trade shock. Foreign exchange earnings are significantly greater, and economies less reliant on aid inflows. Trade in services and remittance inflows have come to play a much more important role.

The region has expanded and diversified its sources of foreign exchange

For the economies looked at here, 2026 has so far not been as severe a crisis as 2022 when the term ‘polycrisis’ was the flavour of the hour. Crises can cascade and compound, but bad things do not necessarily all go together. Over the past seven months the region has been buffeted by higher fuel-import costs. However, it has also gained from the efforts to diversify reserve holdings beyond US Treasuries that have led to a higher gold price and relative calm in emerging-market bond markets. The global fertiliser market (for urea at least) has also responded quickly to shortages in the Gulf.

That said, some of the strain is deferred rather than avoided. Higher input costs are still feeding through to retail prices. Much of the region’s fuel has been bought on extended credit, so part of this year’s import bill in dollars has yet to fall due. Should events in the Middle East slow growth, the debt arithmetic would worsen too, further squeezing fixed capital investment the region can ill afford to lose.

The conflict in the Middle East is of course still playing out. Over the short-term, the economies of the region remain highly exposed to developments in global diesel markets over which they have limited influence. If too little refined diesel reaches global markets and diesel prices remain higher for longer, then there are risks not just of higher prices, but the spectre of potential shortages and renewed pressures on the balance of payments. Ethiopia would be especially vulnerable given its thin foreign exchange reserves. In recent days there have been reports of renewed conflict in the Tigray region. Shifting sentiments towards gold or emerging market debt would also heighten pressures on the region’s economies. The strengthening El Niño, and the flooding it could bring, add yet another layer of uncertainty.

However, the external conjuncture is not long-term destiny. Policy makers within the region are looking at ways to reduce the vulnerabilities of importing critical commodities through concentrated supply routes. Kenya is reportedly moving forward with exploiting its oil reserves in Turkana, as well as investing in a refinery. Uganda is poised to start supplying crude to the regional market and is looking for investment in a refinery. Tanzania is building oil storage facilities and looking at ways in which it can substitute natural gas for oil in transportation. Ethiopia is going ahead with investment in industrial-scale fertiliser production that will draw upon domestic natural gas reserves. The investments in question target vulnerabilities in particular commodity markets, but can also serve to strengthen the external position of the region’s economies by bolstering export revenues and/or reducing import requirements.

These are, in the main, fixes to particular import dependencies. They matter, but resilience also stems from a broader, more sophisticated export base that earns foreign exchange from more sources and leaves an economy less hostage to any single commodity price or import bill. The rising weight of services and remittances points that way; as, more ambivalently, does the gold boom now cushioning parts of the region, a windfall whose real test is whether it is used to broaden the export base over the longer-term.

In that respect, the vulnerabilities revealed by events in the Middle East (or the Russia–Ukraine conflict before it) should not be read only as fragility. Albert Hirschman argued that development is driven less by balanced plenty than by the tensions and bottlenecks that force a response: a shortage in the right place is a signal and a spur, calling forth investment that easier conditions, or generalised exhortations to ‘Build Back Better’ (remember that?), never would. Much of what this piece has traced can be read in that light. Ethiopia’s reliance on imported fertiliser is the by-product of a real productivity gain, and the bottleneck it creates is lending fresh urgency to the domestic fertiliser production that could relieve it. The scramble for kerosene and diesel is doing the same for refineries, storage and a turn towards domestic sources of energy, renewable and fossil alike. Whether this decade’s bottlenecks become a source of dynamism, or simply of doom, will depend on how clearly their mechanics are traced, and how well they are answered.

^[1] Phosphate depends on a scarce mined rock. China, the world’s largest producer, has restricted exports since 2021 to protect its own domestic supply. A newer, structural source of demand, booming production of lithium-iron-phosphate batteries, adds to the pull on global phosphate. Either way, it is a tightness that predates the disruption in the Gulf and will outlast it.

One key challenge in answering this question relates to the way that health systems are funded. There is a patchwork of different organisations with different funding mechanisms and supply chains. Financial reports are generated by separate donor reporting systems, often with a lag. National budget reports also have limitations: typically, spending is reported by department and facility rather than by health condition (because departments and facilities choose how to control money rather than health conditions). This makes it hard to tease out of budgetary reports whether governments are closing any gaps in funding arising from cuts to vertically funded programmes focused on particular interventions.

Trade data is a less obvious place to look at the impact of aid cuts, but it can reveal useful insights. Most aid-dependent countries rely on imports for the key commodities at the heart of vertically-funded programmes such as PEPFAR for HIV, the Global Fund for HIV, tuberculosis and malaria, the President’s Malaria Initiative, Gavi for immunisation, and UNFPA for family planning. Tracking imports of vaccines, antiretrovirals, antimalarials and contraceptives therefore provides a useful input into understanding what is happening to procurement under these programmes.

One helpful feature of trade data is that it is reported by both exporters and importers. Most major pharmaceutical exporters update their information frequently. For example, India, the largest exporter of pharmaceutical commodities to Africa, has reported its export data up to October 2025. Even if the importing country has not yet updated its trade data, you still have a useful steer on what is happening.

Trade data also has its limits: it records the arrival of goods at the border, not where they go from there or who paid for them. The data is also lumpy at country and commodity level, with procurement arriving in large discrete shipments that can swing single-year numbers significantly. It also tells us nothing about whether staff are being paid to actually hand out medicines. With those qualifications in mind, what does the trade data show?

Have aid cuts disrupted pharmaceutical flows?

For an eleven-country panel[1], Comtrade data from January to October 2025 suggests that in aggregate pharmaceutical imports have not collapsed over the period. Total imports were 2.5% higher than in the same period of 2024. Beneath the aggregate, vertically funded commodity lines, including vaccines, antiretrovirals and contraceptives, were also broadly stable. There is one substantive exception: antimalarial imports are 15% less in value terms relative to the previous year.

Comparing value of commodity imports (US$m), January to October, 2024 vs 2025

Looking at the quarterly breakdown of imports, you see a sharp fall in the values of vaccines and ARVs imported in the first quarter of the year consistent with the USAID closure and associated disruption. The flow of these commodities then seems to recover in the second and third quarters. Antimalarials are the exception to this recovery pattern and the trajectory is harder to read. Imports were modestly below their 2024 level in the first quarter, broadly flat through the second, and substantially lower in the three months from July to September. This is the only commodity class in the picture where the disruption pattern deepened rather than reversed across the year.

Within-year pattern of pharmaceutical imports, 2025 vs 2024

These year-on-year changes need to be set against the scale of what is being measured. In per capita terms, the total value of pharmaceutical imports in 2024 came to just under six dollars per person per year, which is about a cent and a half per person per day. The African Union Development Agency estimates that 70%-80% of medicines consumed across Africa are imported, with local production filling the remainder. For the panel of countries here, the share is likely higher as the panel largely excludes major African producers like South Africa and Egypt (although Nigeria is captured in the panel and has a growing pharmaceutical manufacturing sector). The $6 per-capita import figure understates annual average per-capita consumption of pharmaceutical commodities, but probably not by much.

What has changed over the past decade?

The disruptions to commodity flows in early 2025 follow a decade where the overall value of pharmaceutical imports has barely shifted. There has been an increase of about 5% over the past ten years, which translates to a per-capita decline of roughly 17%. Yet underneath this aggregate picture, you see a striking divergence across different groups of commodities.

In the chart below, the two green lines highlight vertically funded commodity lines. Vaccines surged during the COVID procurement period of 2020-2022 and partially unwound, but their 2024 level is still 65% above 2014. The group of other vertically funded commodities (combining antiretrovirals, antimalarials, and contraceptives) grew by roughly 60% across the decade and were still rising into 2024.

In contrast, you see a purple line of ‘other pharma’ that has declined by roughly 10-12% over the same period. For the purposes of this chart, ‘other pharma’ is a residual category covering everything in the pharmaceutical chapter of the trade statistics that does not fall into the named donor-funded commodity lines above. It is dominated by other finished medicines, including for example antibiotics, cardiovascular drugs, diabetes medications, painkillers, and basic over-the-counter medicines[3]. This ‘other pharma’ category is paid for predominantly through a mix of public health budgets and out-of-pocket spending. At the panel level, ‘other pharma’ constitutes about 60% of the total import basket.

Pharmaceutical imports in to 11 African countries, 2014 - 2024

What is driving this divergence?

Zooming in to trends in specific countries can give some clues as to what might be driving these diverging patterns. Take, for example, Nigeria, which is the panel’s largest market for pharmaceutical imports. The vertically-funded commodity lines rose roughly 70% between 2014 and 2024. In contrast, imports of ‘other pharma’ were about 20% less in 2024 than ten years previously.

Pharmaceutical imports in to Nigeria, 2014 - 2024

The observed decline in the value of ‘other pharma’ might not mean that there have been fewer medicines available. The prices of generic medicines have fallen substantially over the decade. Some of the apparent decline may also reflect domestic production filling part of what was previously imported. Nigeria also has the largest domestic pharmaceutical sector in the panel, with around 115 licensed firms manufacturing basic generic medicines for the local market.

However, this downward trend has not been a gradual decline. The divergence with the vertically-funded commodities begins to widen around 2021, when Nigeria was beginning to face acute shortages of foreign exchange in the economy. Official and parallel exchange rates became increasingly detached before a sharp devaluation took place in 2023. Imports of dollar-priced pharmaceuticals compressed as domestic buyers (the public health system, private importers, pharmacies etc.) adjusted to tighter foreign exchange markets. In contrast, imports of donor-procured commodities, which sit outside the domestic foreign exchange system, continued to grow.

Some confirmation of this reading is visible in the more recent data, which the chart above does not yet capture. Through the first ten months of 2025, as foreign exchange conditions stabilised, Nigerian commercial pharmaceutical imports rebounded sharply. The ‘other pharma’ category was up roughly 24% on the same period of 2024, and 16% above 2023 levels. A rebound on this scale is more consistent with demand having been suppressed by foreign exchange scarcity than more demand now being permanently met by domestic production.

A similar dynamic of import compression is visible in Ghana, although the specific timings differ. A decade ago, the cedi depreciated sharply during the course of 2014 before the country entered an IMF Extended Credit Facility in April 2015. Ghana’s ‘other pharma’ imports fell by roughly a third in dollar terms over two years, while imports of vertically-funded commodity lines held essentially flat through the same period. A similar but smaller compression is visible after Ghana’s recent default. The country’s ‘other pharma’ imports drifted lower from 2022 through 2024, while vertically-funded lines remained well above their 2014 baseline.

Pharmaceutical imports in to Ghana, 2014-2024

What does this mean for the beyond-aid transition?

The fact that the imports of donor-backed commodities have diverged from wider pharmaceutical imports may not come as a particular surprise to global health specialists. It is widely appreciated that donor funding is subject to different kinds of external pressures. However, the picture in Ghana and Nigeria described above does point to structural risks to health financing beyond aid that are often glossed over.

Typically, the beyond-aid transition in the health sector is framed as a fiscal challenge. The core argument essentially runs that governments need to step up and collect more taxes and prioritise certain health services to fill the gaps left by dwindling aid budgets. This is certainly an important element of the overall puzzle. Without sufficient tax collection, governments cannot fund the public health functions that no individual will pay for privately, or pool resources at the scale needed to protect the most vulnerable from health costs they cannot meet themselves.

What such discussions miss, however, is that imported health commodities depend on foreign exchange. Contrary to common discourse, aid and tax are not in this regard perfectly substitutable forms of finance. An aid dollar buys an imported ARV; a cedi or naira raised through taxation buys whatever can be procured in local currency at the prevailing exchange rate.

The availability of foreign exchange is not directly linked to the government’s tax collection capacity. It comes from the wider economy: from exports, from remittances sent home by workers abroad, from foreign investment, and historically also from aid flows themselves. Of these, only exports and remittances are reliably present in an imagined ‘beyond aid’ future. Aid is precisely what is contracting; external borrowing is intermittent and conditional, and ultimately has to be repaid. The availability of foreign exchange that is reliable enough to plan health procurement around depends on the breadth and depth of the wider economy's productive capacity: on having a range of goods to sell, or labour to provide, that the rest of the world wants to pay for.

This then is global health’s long-term dollar problem in a world beyond aid. Earmarked aid flows have enabled lower-income countries to import cutting-edge technologies embodied in pharmaceutical products developed and manufactured elsewhere. This model has done much to drive remarkable gains in health outcomes over the past two decades. The structural question is not whether that model was effective; it clearly was. The question is what happens to commodity flows if that financing dries up.

The post-aid transition implies replacing donor financing with domestic tax revenues. Those revenues have to be exchanged for hard currency before any imported commodity can be procured. At that point, vaccines and antimalarials move from one financing regime to another. They lose the insulation that donor procurement provided, and the trajectory visible in the “other pharma” line in both Nigeria and Ghana becomes relevant for the entire import basket. A health ministry trying to buy antimalarials is now competing for foreign exchange with firms importing machinery, households buying imported food or fuel, and other parts of government meeting their own dollar-denominated obligations.

A common response might be that domestic budget allocations would need to shift accordingly. Technical assistance might focus on better cost-effectiveness analysis or tracking resource flows for treatment of certain conditions. Investments could be channelled to advocates to make the case for increased health spending. The implicit theory in these tools is that the binding constraint on outcomes is the quality of allocation decisions, and that better information, better processes, and better political preferences will translate scarce resources into more health gains.

The constraint identified by the trade data above sits upstream of all three. It is not really a constraint on the quality of allocation processes: it is a constraint on what the procurement portion of the budget can actually buy given the relative cost of foreign exchange. A government can have the same doctors and nurses on payroll and the same political commitment to health spending, and still find that the budget for health commodities buys twenty per cent less medicine than it did the year before, because of exchange rate movements.

This is not an argument that the global health community should retool itself toward trade and industrial policy. The comparative advantage of the field sits with disease control, clinical evidence, procurement, and health systems strengthening, and there are good reasons for that to remain the case. But it does point to certain limits of what budget advocacy alone can deliver, in countries operating under sustained foreign exchange pressure. People who care about how health services will be financed ‘beyond aid’ should be as concerned about exports and remittances as they are about taxes and budgets.

[1] The panel comprises eleven sub-Saharan African economies: Kenya, Tanzania, Uganda, Ethiopia, Mozambique, Malawi, Zambia, Rwanda, Nigeria, Ghana, and the Democratic Republic of the Congo. Together they account for around 760 million people (roughly half of Africa’s population) and include most of the region’s largest recipients of donor-financed health programmes. Francophone West African economies are excluded primarily because France, a major source country for their pharmaceutical imports, files Comtrade returns with substantial delays, making the recent-period comparison less reliable for them.

[2] Comtrade data fills in over time, so comparing complete past years to partial current ones produces apparent declines that are reporting artefacts. The “reliable reporter” subset used here restricts both years to exporters that filed substantively and on time in both. It captures around 78% of total panel pharmaceutical exports for 2024. India accounts for roughly half; the principal excluded reporters are China (12%), France (4%), Korea (2%) and Indonesia (2%).

[3] It also includes wound dressings and bandages, diagnostic reagents, and a handful of smaller medical preparations, but finished-medicines constitute around three quarters of the total.

[4] The long-run charts use the OECD’s Balanced International Merchandise Trade Statistics (BIMTS) rather than Comtrade. BIMTS reconciles exporter and importer reports for each bilateral trade flow and applies a consistent methodology for imputing missing values, which produces a cleaner long-run series than raw Comtrade does. The trade-off is that BIMTS publishes with a longer lag (currently through 2024), so it cannot be used for the most recent period.

The case for investing in clean energy has been quietly rewritten over the past few years. The Middle East conflict is the latest chapter in a line of argument that increasingly justifies investments in renewables as the smart geoeconomic move and not just an investment in protecting the planet.

The Chief of the International Energy Agency has stated:

I expect one of the responses to this crisis will be [an] acceleration of renewables. Not only because they are helping to reduce the emissions but also, they are [a] homegrown domestic energy source.

This argument is salient across countries that rely on fossil fuels, but this vulnerability varies in scale. Ethiopia is an example of an economy that is acutely exposed to the volatility of international markets for fossil fuels. The figure below shows the scale of Ethiopia’s fuel imports relative to sources of foreign exchange across the economy, compared to an industrialised fuel-importer like Germany with a diversified industrial base.

Figure 1: Comparing exposure to fossil fuel imports

Given this exposure, it is not surprising that Ethiopia has been looking to make greater use of its abundant hydropower potential. More than 90 percent of Ethiopia’s electricity is generated by domestic renewables, with the Grand Ethiopian Renaissance Dam now operational. In January 2024, Ethiopia became the first country in the world to ban the import of internal combustion engine vehicles. This was not motivated by ardent environmentalism but a deliberate attempt to reduce import bills, having recently defaulted on its sovereign bonds.

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The standard argument that I hear at conferences is that the main barriers to building out renewable energy systems are financial: the capital is there, it is just not being invested in the right place. The thesis points to the insufficient scale of finance relative to needs. Plugging that gap requires more private finance because of public budget constraints. Mechanisms need to be found to reduce the cost of capital in lower income countries, especially because of the high up-front capital costs in renewables relative to other energy investments.

This is all good and well, but you rarely get much of a sense of what would actually be needed to sustainably draw in and absorb increased flows of capital beyond a rather superficial discussion about the thin pipeline of bankable transactions. There is a macroeconomic arithmetic that is often overlooked. It bites hardest in lower-income countries that need to expand their energy systems but face binding constraints on foreign exchange.

2. Renewables require imports too

While renewables may be domestic in their ‘fuel’, they are largely imported in their hardware. Solar panels, wind turbines, inverters, transformers, batteries, transmission infrastructure are overwhelmingly produced in a small number of industrialised economies (see chart below). The fuel imports that these technologies displace are not replaced by a costless natural resource; rather they are replaced by capital equipment that itself has to be paid for in foreign currency.

Figure 2: Export market shares of various low-carbon technologies by country in 2020 (retrieved from Survival of the Greenest, Amir Lebdioui, 2024)

Building out an energy system is not a single project, or even a portfolio of projects. It is a sustained programme of installations stretched across years or decades that might include solar parks, wind farms, transmission upgrades, grid storage, distribution modernisation and electric vehicle networks. At the project level, the financing of each asset can potentially be structured to produce a manageable life cycle. At the national level, what the country faces is a sustained surge of capital goods imports, and it has to find the foreign exchange to pay for them. Even where the financing is arranged domestically in local currency, the underlying dollars (or yuan or euros) to settle the equipment still have to be sourced from the country’s overall external position.

In an ideal situation, investment in the energy system stimulates a response in the tradeable goods sector. Firms and farms that could not previously access reliable power become able to compete in international markets, and the export earnings that follow service the claims the build-out created. However, this response is by no means guaranteed.

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In its absence, the foreign exchange has to come from somewhere else. The country can borrow to meet its external obligations, but this defers the problem rather than resolving how the imports will ultimately be paid for. It can draw down reserves, but reserves are finite and exist to absorb shocks the country cannot otherwise withstand.

This leaves import compression: essentially the dollars spent on solar panels and transmission infrastructure are dollars not spent on something else that the country imports (e.g. food, medicine, machinery, intermediate inputs for domestic industry). In an energy-rich economy like Germany, the offset can come from the avoided fuel imports themselves. The installation that creates the financing claim also displaces fossil generation that would have required imported fuel, freeing up the foreign exchange to service it. The argument does not hold so well in a country like Ethiopia, where firms and households would consume far more energy if incomes allowed. Substitution alone does not generate the foreign exchange to service the claim; growth in tradeable production (or remittances) has to do that work.

3. When the FX constraint bites

This is not just a theoretical concern: Pakistan and Ghana illustrate the dynamic (even if the technologies in question were largely thermal rather than renewable). Both countries have undertaken substantial power expansion programmes financed through dollar-indexed contracts: Pakistan through successive waves of contracts for independent power producers since the mid-1990s; Ghana through the post ‘dumsor’ procurement push of 2014–2017 that produced 43 power purchasing agreements.

At the project level the contracts were successful in attracting private investment (the projects were ‘bankable’. Plants were built and generation capacity was added, but the overall push to increase power generation has given rise to major financial difficulties. There was PKR 2.6 trillion of ‘circular debt’ in Pakistan by 2025; the government of Ghana cleared $1.47 billion of legacy energy sector debt earlier this year. Roughly thirty to thirty-five percent of Pakistan’s consumer electricity tariff now consists of debt servicing rather than energy costs.

There have been a series of reports (see examples here for Pakistan and for Ghana) documenting some of the shortcomings in approaches to procurement and utility management. Proposals to improve procurement, take alternative approaches to contracting, and improve cost recovery are all valid.

There is also a macro challenge here that compounds these difficulties within the power sector. Capital flowed into the power sector at scale, on terms that made individual projects bankable for international sponsors. The resulting obligations were denominated in foreign currency, but the country’s capacity to generate that foreign currency has not kept pace with the cumulative obligations being created. Macroeconomic adjustment forced the country to compress not only demand for power, but also for imports across the economy as exchange rates devalued.

A contrast with Vietnam is instructive here. Vietnam also expanded power generation rapidly over the past decade and much of it under a feed-in tariff regime that drew in international capital. Like Pakistan’s and Ghana’s arrangements, contracts were denominated in or indexed to hard currency. Vietnam’s power sector has not been trouble-free: there have been disputes over curtailment and delayed payments to renewable developers, and the state utility’s finances have come under strain. But that stress stayed contained within the sector. It did not escalate into a balance-of-payments crisis, because the dong remained broadly stable: manufacturing-led export growth continued to generate the foreign exchange to service the obligations as they accumulated. The contracts created similar foreign-currency claims; what differed was the capacity of the wider economy to absorb them.

Figure 3: Comparing exchange rate movements against the US dollar over the past decade

Balance of payments constraints need not show up as a Ghana-style stress event. The more common pattern is one where insufficient capital is flowing because of a perceived lack of ‘bankable projects’. Project bankability is not just a function of project preparation and the capabilities to undertake good feasibility studies. It is also a function of the country’s external position. Innovations like local currency lending can shift who bears that risk, but they cannot eliminate it; the risk shows up in the cost of the project somewhere. Work to improve project finance structures may do useful work at the margin, but the cost of capital is at least partially endogenous to the country’s external account. The architecture’s emphasis on instrument innovation at the project level cannot transcend a constraint that operates at country level.

4. How to absorb more capital

None of the above should be read as an argument against upscaling investment in clean energy systems, rather it is a suggested corrective on where energies should be focused. ‘Unlocking’ climate finance is not just an up-front financing problem; a sustained increase in capital imports also requires sustained growth in ongoing foreign exchange earnings. Expanding the availability of foreign exchange is a precondition for absorbing the capital flows that the international financial architecture is ostensibly trying to mobilise.

There is of course a horrible chicken-and-egg problem here. Firms in low-income countries consistently identify unreliable electricity as a binding constraint on their growth and particularly growth in tradable goods and services whether that be garment factories in Ethiopia, agro-processing in Tanzania, or digital services in Nigeria. All face power costs and reliability problems that limit their competitiveness in international markets. Building out power requires sustained inflows of foreign exchange, which requires exports: a country needs power to grow exports, and exports to fund power.

The link between power investment and tradeable production deserves more weight than it typically receives. Direct electricity exports are one way to make the arithmetic work. Ethiopia is pursuing this approach, anticipating exports of hydro-generated electricity to neighbouring countries, but when it comes to renewables, this model depends a lot on the demand and infrastructure of your neighbours. For most countries the indirect route matters more: power investment that supports export diversification through industrial development, processing of agricultural and mineral exports, or services exports that depend on connectivity.

At the national level, the structures oriented to tackling constraints to exports are not the same as those required for coordinating flows of money. Less focus would be paid to coordinating different donors (through e.g. country platforms); more would go to the coordination mechanisms between government and the productive economy itself, particularly the firms that would generate an export response. Less time would be spent coming up with ever more elaborate efforts to link fiscal systems to climate concerns; and more about surfacing and addressing concrete operational constraints faced by firms such as customs delays, input availability, skills gaps or regulatory barriers.

None of this may be a revolutionary insight, but it does feel like greater scepticism is warranted about the idea that the world’s largest asset managers hold the secret to unleashing a wave of clean energy investment. For many lower-income countries the constraint is not the capital on offer but the capacity of the economy to absorb it: to earn the foreign exchange that the imported hardware, and the obligations attached to it, will eventually have to be paid in. The harder question, and the more useful one, is what it would take to absorb more capital. Otherwise efforts to engineer ever more elaborate financing structures and strategies will feel like pushing on a string.

Next week the UK’s FCDO is co-hosting the Global Partnerships Conference in London, alongside South Africa, the Children’s Investment Fund Foundation and British International Investment.

It’s a difficult conference to host. The UK has cut back its aid spending faster than any G7 country. The conference can make the right noises about the UK’s commitment to shared challenges, but it is hard to avoid being defensive. It will not alter the arithmetic FCDO officials are working through as they look for cuts to make across programmes providing basic health and education services, or humanitarian assistance.

At the same time, there is a clear desire to look forward. It is being talked about as a conference on the future of ‘international development’ but not about ‘aid’. Much will be said about the UK’s stated ambition to think like an ‘investor’ rather than a ‘donor’.

It is worth stating up-front that catalytic finance and blended instruments will not directly replace programmes providing maternal health treatments. Not all flows of international money play the same role. At the same time, efforts to look at how the UK can usefully contribute to development beyond its aid budget should not be summarily dismissed. The UK’s international footprint does not stop neatly at the 0.3% or 0.5% of gross national income accounted as official development assistance. There is another 99% plus of economic activity that may also contribute to the stated goal to ‘drive shared growth and prosperity’.

Recognising the broader footprint is a useful starting point, but it does not automatically translate into a coherent strategy. What I want to suggest here is that the nature of the UK economy may not lend itself to unleashing major investment flows. The UK’s main attraction to partners and contributions to future economic development might be in areas that the conference does not really talk about much at all.

The UK’s economic structure shapes what kind of partnerships are possible

There is an instructive comparison to be made here with China and the Gulf (especially UAE). Over the past two decades, both have been major outward investors in emerging markets, and in neither case has this been spearheaded by anything resembling a development agency. China’s footprint runs through its policy and commercial banks, exports credit agencies and state owned and private firms. and a labour force that has at times exceeded a million workers across Africa. The Gulf’s runs through sovereign wealth funds, firms like DP World and Mubadala, and securing concessions in logistics, oil and gas, and renewables.

These outward investment drives have not been positioned as gestures of altruism, but as mutually beneficial investments. Motivations have included capital surpluses to recycle, excess construction capacity to deploy, critical inputs to secure, exerting greater control over logistics routes, securing early advantage in rapidly growing consumer markets and geoeconomic positioning to advance.

The development consequences of these outward investment drives have emerged more as a by-product than a primary goal. They can be substantial, they can promote growth, they can also be deeply problematic, sometimes both at once. However, the scale of the investment flows arising from these economic strategies dwarfs anything the relevant aid budgets do. The transformative effects on host economies is what give these engagements their weight (for better or worse).

The UK has a very different economic model to China and the Gulf countries. The UK does not have capital surpluses to recycle (in fact it needs to draw in international capital to finance its current account deficit). The British state also has a lighter hand to play when it comes to directing where private capital flows. The City of London may be a world-leading provider of financial services, but part of its attractiveness is the state’s ‘light touch’ when it comes to influencing how that money is used. BII has a useful role to play, but it does not have the balance sheet of a Chinese policy bank or Gulf sovereign wealth fund. This sets certain limits on what a UK ‘donor-to-investor’ pivot can plausibly look like.

A more important point is that even in more state-directed models like China and the Gulf, investment flows are not allocated and programmed in the same way that an aid budget is. Economic interactions still depend on the interests of firms, banks, and non-state actors aligning with what state institutions are encouraging, and on those interests overlapping with the interests of partner on the other side. Economic partnerships are not designed on blank canvases; they follow the contours of how partners’ respective industrial strengths and resources respond to each others’ own needs.

The UK’s economic strengths look very different to these comparators. The UK is one of the world’s largest exporters of services. Key industries that draw other countries into the UK’s orbit include finance, law, accounting, consulting, media, video games, and university education[1]. These service industries depend more on the movement of people, ideas and data than on the flows of goods and bricks and mortar. This does not mean the country has no ‘partnership offer’, but it does not easily lend itself to big eye-catching investment commitments.

One visible example relates to the UK higher education sector’s increasing reliance on attracting students from emerging markets (especially since Brexit). This includes China, but also historical beneficiaries of UK’s bilateral aid including India, Nigeria, Bangladesh, Pakistan and Nepal. The higher education sector plays a critical role in the UK economy. Innovation in industries including life-sciences, AI and advanced manufacturing can often be traced to research done at UK universities. Universities also support second-city economies (like Manchester, Glasgow, Birmingham, Cardiff, Leeds, Sheffield, and Nottingham) in a country where wealth is overly concentrated in London and the South-East. Attracting international students has become central to the financial sustainability of UK universities. The fees paid by international students underwrite teaching and sustain a research base whose costs domestic fees and funding do not cover.

Trends in international student numbers in the UK

Source: The Higher Education Statistics Authority, ‘Where do Higher Education students come from?’, Chart 6 (January 2026 update)

For prospective students, the offer is the chance to study at a credible institution, but also potentially gain two years of work experience under the graduate route. There is also the possibility of building professional networks and in some cases a longer-term stay in the UK. The English language, a tradition of openness to migrants (relatively speaking) are other selling points.

The time spent studying and working in the UK can potentially provide a formative experience to future political and business leaders. Mo Ibrahim is one such example. He came to the UK for postgraduate work (a PhD at Birmingham in mobile communications) and was then recruited by British Telecom to help design the UK’s first cellular network. He later went on to set up Celtel, which built the first pan-African mobile phone network across 14 countries. (Charles Kenny offers a structurally similar example of Sridhar Vembu in his recent CGD piece on emigration as a growth strategy). The links to development through these kinds of career trajectories are clearly different from those of grant-financed projects providing basic services in low-income settings. They operate on different time horizons, reach different populations, and work through different mechanisms.

The levers for shaping development impact also look different from the ones the donor-to-investor framing implies. They are not primarily about catalysing private capital through institutional vehicles. They are relational and institutional, and they operate in the UK rather than internationally. Regulation can shape who applies, the student experience, and the integrity of the system. The Migration Advisory Committee’s 2024 review pointed to recruitment agents, standards at weaker institutions, and the treatment of dependants as the obvious places to start. Grant makers and foundations could shift from funding international advisers to mentoring individuals as they consider return, supporting work experience, and sustaining collaborations between UK and home-country institutions. The work is closer to shaping the conditions in which talent and ideas circulate than to programming where capital flows. Much of this can be done through universities, individual employers or professional bodies without waiting for a sympathetic government.

Donor to investor - or to something else?

This version of partnership is unlikely to be much discussed next week. The flow of international students to UK universities is not really within the FCDO’s mandate. Flows of money remain the dominant currency of development dialogue even as aid flows are drying up. Anything related to migration is seen as a minefield to avoid. The recent ban on students from Sudan, Afghanistan, Cameron and Myanmar are part of a wider competition over who can adopt the most hostile posture toward migrants. There is a strand of British economic thought, associated with Reform and parts of the Conservative right, that sees the country’s reliance on migrant flows as a symptom of economic weakness to be cured rather than a comparative advantage to be built on. Polling on student migration[2] suggests attitudes may be more permissive than the political conversation suggests, but the political conversation is what drives the window for policy discussions.

Set the political conversation aside for a moment and a picture of a different kind of partnership comes into view. It is not run by the British state. It is not coordinated through bilateral agreements or summit communiqués. It is the cumulative result of universities, research institutes, professional bodies, students, families, and employers making decisions that happen to align. It involves Nigerian families looking for credible degrees, British universities looking for international fee income, researchers looking for collaborators with complementary expertise.

The example of universities matters not just for what it says about the higher education sector, but for what it reveals about how the UK thinks about partnership. The development conversation has been organised around the slice of the relationship that civil servants design and ministers announce. It focuses on the flows of public money to specific countries for specific purposes. That slice is shrinking, and the parts of the relationship that are growing are ones the UK government does not get to programme.

The question then is whether to recognise the partnership that has already emerged, or to keep talking about partnership as if it were about something else that can be moulded to suit more comfortable development narratives. The answer is being given anyway, in lecture halls, research labs, graduate employers and family decisions taken thousands of miles from London. It requires recognising what is real and valued in what the UK has to offer.

[1] See for example this essay by Springford and Sissons or the work of the Resolution Foundation on the structure of the UK economy which describe the UK’s strengths in services industries. Not everybody agrees that this is a good thing. See for example UK Onward’s proposals around Reindustrialising Britain.

[2] Polling consistently shows that public attitudes to international students are markedly more positive than to migration generally. A majority do not want student numbers reduced although this might be linked to how questions are asked. See for example British Future and the recent Comment is Freed post by Sam Freedman

1. The external conjuncture

Speaking to the Mirror before flying to Washington for this year’s IMF Spring Meetings, UK Chancellor Rachel Reeves made no attempt to hide her frustration. “I feel very frustrated and angry that the US went into this war without a clear exit plan, without a clear idea of what they were trying to achieve,” she said of the US-Israeli military action against Iran. This was, she emphasised, “a war that we did not start” and “did not want.” The Resolution Foundation estimated that the average British household stood to be £480 worse off over the year as a direct result of the conflict, not because of anything the UK government had done, but because of decisions made in Washington and Tel Aviv.

For African finance ministers arriving at the same Spring Meetings, the experience of having your economy knocked sideways by decisions made elsewhere is not a shock. It is a permanent fixture of the job.

As Thandika Mkandawire once observed1:

“Most analysts underestimate the enormous importance to African economies of external conjuncture… African economies generally do well when the global conjuncture is good and poorly when it is bad. This is a lesson that the Bretton Woods Institutions have gradually learnt as their own stabilisation and adjustment programmes have on several occasions been unscrambled by external factors.”

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This recognition sits awkwardly alongside the dominant language of economic policy advice directed at Africa. There remains a persistent presumption that if finance ministries could simply get the public purse in order - raise more taxes, spend within their means, improve debt management — then growth and resilience would follow. The IMF’s most recent annual report2 on Macroeconomic Developments and Prospects in Low-Income Countries, (which covers much of sub-Saharan Africa) illustrates the point:

“Building resilience and reinvigorating growth remain urgent. This agenda calls for continued fiscal consolidation in most LICs, with pace and calibration tailored to country circumstances, and supported by stronger domestic revenue mobilisation, expenditure prioritisation, and improvements in public financial and debt management.”

This is not necessarily wrong advice as far as it goes. In a crisis, governments often have no choice but to tighten their belts. But it starts from the wrong place. The question worth asking is not how to manage the pain of an external shock once it arrives, but why some economies are structurally more exposed to those shocks than others — and what determines their capacity to absorb them without resorting to painful adjustment. That is often more a question about the balance of payments than the budget.

2. When external developments dominate economic management

In a 2011 article, José Antonio Ocampo challenged the idea that “fiscal dominance” (excessive government borrowing crowding out private investment and stoking inflation) is the primary driver of macroeconomic instability in lower income countries. He argued that in lower-income contexts, short-term macroeconomic dynamics tend to be predominantly shaped by external shocks, positive or negative. He calls this “balance of payments dominance”.

Two channels matter most. The first is the boom-bust cycle of international capital flows. External finance becomes readily available during boom periods and then abruptly dries up or becomes prohibitively expensive during crises. Where demand for foreign currency outstrips supply, exchange rates come under pressure. Currency depreciation raises the domestic cost of servicing dollar-denominated debt, tightening fiscal space precisely when it is most needed. Depreciation also raises the cost of imported goods (which might include certain food-stuffs and fuel), it feeds directly into inflation, and complicates monetary policy.

Since the Covid-19 pandemic, these dynamics have been acute – and well documented. For example, Boston’s Global Development Policy Center has tracked the retreat of Chinese lending to Africa. The Finance for Development Lab has documented how access to international capital markets tightened and costs rose. Eurobond spreads for many African issuers reached levels that made new borrowing effectively impossible. Aid cuts have also denied countries precious resources often earmarked for the provision of basic services.

The second channel is trade. Many African countries are currently facing significantly larger import bills as a result of the Middle East conflict. But vulnerability to trade shocks is a perennial challenge for economies that rely on a narrow set of primary commodities to generate their export earnings. When commodity prices fall or import costs rise, the external constraint tightens regardless of how well the fiscal house is managed.

3. Reading foreign exchange constraints – the case of Tanzania

To make this concrete, consider what Tanzania’s balance of payments actually looks like over time.

Chart 1: Tanzania balance of payments in USD per capita, 1990–2024. Blue bars below the line show imports. Orange bars show export revenues. Green bars show grants and remittances. Grey bars show net financial flows including external borrowing.

Several things stand out. The first thing to note is the scale of the constraint. Around the year 2000, Tanzania’s export earnings were equivalent to approximately $40 per capita. When aid, remittances, and concessional borrowing are added in, the country had sufficient foreign exchange for imports worth roughly $60 per person. That is $60 to cover all the things that are not produced in Tanzania. It is barely enough to cover basic consumption, let alone the import-intensive investment that sustained structural change requires.

A second key observation relates to how that constraint has shifted across different periods. In the 1990s, export earnings were stagnant. They began to grow in the 2000s, partly on the back of the global commodity super-cycle. In the 2010s, export growth tailed off, but import growth was sustained through increased borrowing (the grey bars expanding to fill the gap). The early 2020s brought a sharp contraction in net financial flows, but export earnings have since begun to recover.

Different factors are at work in driving export growth. Tanzania, like other African gold exporters, has benefited from sharp rises in gold prices, driven in large part by gold’s rising appeal as a ‘safe-haven’ asset (and likely a good dose of speculative fervour in international financial markets). Tanzanian coffee exports have grown (along with Ethiopia and Uganda) partly because climate shocks in Vietnam and Brazil, the world’s two largest coffee producers, have disrupted global supply. These gains are in a sense ‘windfalls’ driven predominantly by the ‘global conjuncture’ that may not be sustained.

The growth in services exports tells a different story. Services exports, driven by tourism revenues have roughly doubled on a per capita basis over the past fifteen years. Unlike gold, this is not primarily a function of global prices: it reflects a decade of deliberate investment in infrastructure, access, and positioning.

Chart 2: Export and import composition in Tanzania in per capita USD, 1990 - 2024

Tanzania is not a lone example. Similar patterns of export growth are visible across other major sub-Saharan African economies. The panel below shows a recovery of export earnings in the 2020s across a range of non-fossil-fuel exporters. In each case, improved export earnings have helped counterbalance some of the pressure arising from tighter international monetary conditions.

Chart 3: Export earnings recovery in selected sub-Saharan African economies

The pattern matters because of what happens at the extremes. When foreign exchange constraints bite— as they did for many African economies in the early part of this decade — currencies come under pressure, the local cost of dollar-denominated debt rises, imports become more expensive, and governments face pressure to cut spending precisely when households are most stretched. The boom-bust dynamic is one reason that growth in Africa has tended to be episodic.

When export earnings rise, the same mechanisms work in reverse: the currency stabilises, debt service costs ease in local terms, and governments retain room to maintain spending without receiving a single dollar of export revenue directly.

The magnitudes involved can dwarf official finance flows that are pored over by analysts. Data from the Bank of Ghana shows that Ghana’s formal gold exports surged to over $20 billion in 2025 — almost double the previous year — driven partly by rising prices and partly by the formalisation of artisanal mining through the new Ghana Gold Board. The IMF’s entire three-year balance of payments support programme came to $3 billion. IMF support provides genuine credibility and policy anchoring that the numbers alone do not capture. But the relative scale is striking: the most powerful determinant of whether Ghana needed to impose painful austerity was not the quality of its fiscal management. It was the price of gold.

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4. Beyond the fiscal consolidation fix

None of this is a counsel of fatalism. Recognising the primacy of the external constraint does not mean that domestic policy choices are irrelevant, or that governments should simply wait for commodity prices to turn in their favour. It does mean redirecting attention toward the structural drivers of macroeconomic stability.

Fiscal consolidation manages the symptoms of external vulnerability. It does not reduce the vulnerability itself. That requires something harder and slower: growing the volume and diversifying the composition of export earnings, so that structural change becomes financeable and external shocks become absorbable.

Tanzania remains highly exposed to events in the Middle East because of its geography and the structure of its economy. But fuel imports that absorbed half of export earnings a decade ago now absorb perhaps thirty to thirty-five percent — not only because the export base diversified, but because it grew. Back in 2000, Tanzania had just $40 of export earnings per person to finance everything the economy could not produce domestically. That number has risen substantially. The constraint has not disappeared, but it has loosened a little, and that loosening is what resilience actually looks like in practice: not the ability to avoid shocks, but a reduced susceptibility to being overwhelmed by them.

The external conjuncture will keep changing. Commodity prices will rise and fall. Conflicts will break out in places that move energy markets in ways no finance minister can anticipate.

What governments (and the organisations that advise them) can do is keep a clear view of where the structural vulnerabilities lie, and invest patiently in reducing them.