MCBTALK S3Ep3 

A compass for Africa

Deepa: A war in the Middle East may feel geographically distant from Africa, yet its ripple effects are rarely contained. They show up in energy prices, inflation, currencies, and capital flows, often unevenly across countries. So, what does the war in Iran really mean for African economies? What indicators feel the impact first? Where does pressure start to build? And in an environment shaped by volatility, geopolitics, and fast-moving markets, what does a realistic recovery path actually look like? Getting clear answers isn't always straightforward, especially in a world of rapid market reactions, fragmented information, and plenty of noise.

And this is where analysis comes in. This is MCB Talk, the podcast on matters that matter. I am Deepa, and today we discuss MCB's first Africa Economic Compass, a recently launched publication designed to bring clarity to Africa's evolving macroeconomic landscape and answer questions like the ones we've just posed.

 I'm joined today by Jessen Coolen, Economic Research Lead at MCB, and Hejila Padachi, Senior Economist, both part of the team behind this report. Jessen, Hejila, welcome to MCB Talk. 

Jessen:Thank you for having us, Deepa.

Hejila: Thank you very much, Deepa.

Deepa:  So, before we go all geopolitical, let's start with some context. Jessen, the clue obviously is in the name, but what exactly is the mandate of the Economic Research Team? 

Jessen: Well, the Economic Research Team is a group of 12 people who, I would say, are passionate about economics and statistics.
Our mandate is really to turn complexity into clarity. Now, how we do this is by keeping track of global, regional, and domestic developments and turning these developments into insights that can be useful for our decision makers within MCB, but also outside. I'm talking here about our clients, corporates, investors, and policymakers.

Deepa: Right. And obviously, you express this in reports. And the team's latest publication is the Africa Economic Compass, which comes a year after the Africa Trade Report. Talk to us about this new report. Hejila, it is suggesting that there's a theme there somewhere. Is Africa the new theme? 

Hejila: I think that's a really nice way to frame it, Deepa. I think Africa is more than just a theme. And for us at MCB, it really reflects our commitment to be very part and parcel of that kind of conversation when we talk about Africa, to be very much part of the socio-economic narrative of Africa. And we did that with the trade report, as you rightly mentioned.

And this time around, we felt it was very important for us to occupy this space, and especially with the noise today, it's very difficult to cut through the headlines. And I think as an African bank, I think we wanted to be a trusted voice in explaining the African narrative and take a more broader approach this time around, and looking at the macros when we're looking at Africa. And I think the publication comes at a very timely time, and we are looking at a war.

You can take that report and get a sense of understanding of what's happening. 


Deepa: Right. And as in everything, I mean, you mentioned timing. Timing is very important. So Jessen, why now? 

Jessen: Well, I think, and to bounce back on what Hejila has said, in the trade report of last year, we explained the supply chains. We explained the importance of boosting intra-African trade.

And I'm glad to see that at the time that we wrote the trade report last year, intra-African trade was like 15-16%. Now this year, at least for 2025 figures, it rose to 18%. And the momentum is on.

So with this report, we said, okay, let's take a broader view and really focus, deep dive, on the intricacies of Africa. Because Africa, as Hejila has said, is not a single story. It's a diverse story.

And the war impacts Africa in many ways. If you take two countries, for example, Nigeria, which is a huge economy, huge market, and then you compare this with Seychelles, which is a tiny market, the impact of the war would obviously be different on these countries. And with this compass, it's really about giving a guide to our readers to be able to navigate this uncertain landscape in a more prudent, in a more effective manner.

Deepa: Right. And we were talking about timing. And I mean, this is the period where the world is going through one of the most uncertain times. And yet, you say in the foreword that Africa entered this year in a stronger position than you've just given us the new figures with regard to trade. How are we to read this? 


Hejila: Well, maybe I can take that one, Deepa. So the point we were really making in the report is that Africa came into this year on a firmer footing.

What we mean by that is that we all know there was a series of shocks starting in 2020 till now. We continue to see a series of shocks. But what's interesting about Africa coming into this year is that many countries actually did a lot of heavy lifting on the policy front.

You have countries like Nigeria, Egypt that came in with very bold reforms of the FX system. And we're starting to see those gains. And they were able to build a lot of FX reserves.

And on the inflation front as well, disinflation was underway. And this was giving us a lot of comfort coming into this year that Africa is now on a firmer macro footing to brace any sort of conflict. So, Africa was coming on a firmer macro footing to actually brace through any sort of external shocks.

And we also saw many African countries tapping international markets, raising euro bonds. And there has been a lot of appetite for these euro bonds being oversubscribed. This sort of gives you an indication that, prior to the war, if we were to isolate the war at the very beginning of the year, many investors were actually looking at Africa as the bright spot.

And we were actually looking at Africa being home to one of the fastest economies this year, prior to the war. So we're looking at a growth of 4.5 percent. And with a lot of that growth happening in East Africa and West Africa, logistic corridors and big-ticket-sized projects.

So that is why we frame our opening with Africa starting this year on a firmer footing. We don't dismiss the vulnerabilities, obviously. But I think for us, this year, if not for the war, was actually going to be a very good year for Africa.


Deepa: That is really interesting. And I mean, it's always good to have good news, even if surprising. But tell us, Jessen, how the war is affecting African countries.



Jessen: I'd probably break it into four transmission channels. Number one is trade, which is the most obvious and immediate one. And that operates through commodity markets.

For example, since the onset of the war, Brent oil, which was at $70 a barrel, rose by above 60 percent. Natural gas, same, more than 50 percent. And that obviously impacts African countries, which rely a lot on imports of these commodities, especially from the Middle East region.

There is also the element of fertilisers. Around a third of global fertilisers trade go through the Strait of Hormuz, which is under severe disruptions, as you would know. So this also impacts African countries like Kenya and Tanzania, which rely a lot on imports of fertilisers from this specific region.

And what this does is that it filters through higher food prices. We know that Africa is a fragile region in terms of food security. So this could also impact the region in that manner.

Ultimately, what it does is basically feed into higher inflation and currency pressures. That's the first channel. The second channel is investment.

What do I mean by investment? In the past years, the Gulf region, especially UAE, Qatar, Saudi Arabia, have emerged as important sources of foreign direct investment into Africa. Just between 2022 and 2023, more than 100 billion USD of investment have been announced. Greenfield foreign direct investment projects into various parts of Africa.

I'm talking here about projects into the agriculture sector, into the infrastructure sector, renewable energies. Now, with the war impacting these regions, inevitably this could cause a pause or a halt in investment flowing into the African region. The third channel I would talk about is financial markets.

With the war, obviously there is a repricing of risk. You and I have spoken before about the prejudice Africa risk premium. Inevitably, what could happen is that there is an outflow of interest from an African point of view.

We've already seen the race to safer assets like the dollar. So obviously, then what this does is that the credit spreads with regard to African countries' rise. The last one I would talk about is remittances.

A lot of African countries like Gambia, like Lesotho, depend a lot on remittances. Remittances influence from other parts of the world, with a key part also coming from the GCC, the Gulf region. Twenty percent of GDP in Gambia and Lesotho come from remittances, which means that it is an important source of influence in these specific economies.

Basically, these are the four main channels through which African economies are impacted by the ramifications of the war. 

Deepa: So, different economies would be impacted differently? 


Jessen: Yeah, depending on their exposure to the region, depending on where they're starting, the point at which they're starting, the buffers that they have to face up to the war. 


Deepa: Oil obviously is the main topic in this war, and you've mentioned it briefly. Can you unpack how the commodities trade in Africa will be impacted? In the report, Hejila, you mention an “adverse terms of trade shock.” What do you mean by that? 


Hejila: Right, so at the very basic level, what we mean by adverse terms of shock is when the cost of your imports is rising faster than what you export. That's like economics 101.
Jessen expanded a lot on the channels of transmission. What we're really seeing on the ground is that when oil prices are rising on the global scale, it's being felt at the pump. Even here in Mauritius, we're feeling it, and we've seen countries from Kenya, Egypt, even Nigeria raising fuel costs.

When you're looking at that trade shock, it's also interesting to see how countries are reacting to that. So, obviously, you have certain countries that didn't have a choice and had to increase fuel costs, but at the same time, you have some countries like Namibia actually coming forward to cushion the impact by cutting the fuel levy.

So this, I think, is really important to, as we said in the report, we want to look beyond the headlines. And the terms-of-trade shock is very nuanced in terms of how African countries are reacting. And it's also showing you how trade flows are also shifting.

In the report, we mentioned Nigeria eventually emerging as a regional supplier of fuel. And we've seen that happening and we're seeing it.

You have South Africa reaching out and wanting to sign a 12-month contract. You have countries like Tanzania, for the longest time, over 60% of their oil trade was sourced from GCC countries. So I think we talk about that from a trade shock perspective, but I think there's also an interesting sort of new thing pattern that we're seeing, in terms of how African countries are eventually going to look inwards to look for fuel.

And I think this is something that, with the trade report last year, we've been advocating that it's time for Africa to start looking inward to support itself in terms of shocks. 


Deepa: This crisis, is that what you're saying, is that the crisis is accelerating the movement? 

Hejila: Yes.

Deepa: Okay. Jessen, I'd like to go back to what the report said, and Hejila mentioned it earlier, about the continent before the war in Iran. In particular, that you were expecting a growth of 4.5% in sub-Saharan Africa. What's the forecast now?

Jessen:  I think, prior to the war, Africa was poised to deliver a strong performance this year. Growth was, as you said, projected at 4.5%. With the war and all the uncertainties we're seeing right now, we can't just put a figure like this.

So what we've done is that we've looked at it in two scenarios. One first scenario is, I mean, the starting point is that we know that there is a ceasefire that was announced last week, and that it would last for two weeks. We've already seen some friction around this.

So scenario one, which is the moderate scenario, is that, okay, the ceasefire progresses, and the negotiations culminate in an agreement to stop the war. Okay, so under this assumption, under this scenario, what happens is that there is an agreement, but then disruptions continue to be felt at least until the end of June. Okay, oil prices, as I said before, are very high at the moment and average around $85 in this specific scenario.

Prior to the war, oil prices were trending at around, on average, around $60, were projected to average $60, $62 in 2026. In scenario one, as I said, $85. What this means is that, and we have already spoken about the challenge of transmission, and the impact on Africa is that this reduces the growth rate of the sub-Saharan African region from 4.5%, which was prior to the war, to 4% in this specific scenario.

Now, there is a worst-case scenario. The worst-case scenario is that the war is more prolonged, and the war is more prolonged, the ceasefire talks do not materialise, and the conflict resumes, it intensifies, and the war takes longer. The conflict goes on until at least September of this year, and disruptions continue to be felt until the end of the year 2026.

Right. Under such a scenario, oil prices would average $120 the barrel for the year, and disruptions around the Strait of Hormuz, around supply chains, would continue to be felt more severely than in the moderate case. Now, in this more protracted scenario, the growth rate of sub-Saharan Africa would be down to 3.4%. Okay.

So, just to summarise, 4.5% is the pre-war case. With the war, two scenarios. In the moderate case, 4%.

In the more protracted case, 3.4%. 

Deepa: All right. Well, forgive me for saying that, but that doesn't sound too dramatic.

Jessen:  The reason why it would not sound too dramatic to you is that it goes back to what Hejila was saying at the very beginning. Africa is such a diverse story. There are countries that are going to be more impacted than others. There are regions that are probably better prepared in terms of macroeconomic fundamentals going into the war than other countries.

There are countries that depend more, that are more exposed to the GCC region than other countries. 


Deepa: So, that's why it would be uneven because of that dependency on the oil. 

Jessen: Yeah. And what it does tell us also is that gradually, Africa is becoming increasingly resilient also to external shocks. Hejila spoke about the momentum that we're seeing in terms of Africa trading more with itself. Right. I think these are bits and pieces there that should be developed, should be explored further.



Deepa: This report comes with a lovely freebie. It's a tool devised by your team, the Macroeconomic Pressure Index, and you describe this tool in the report as a forward-looking tool for gauging economic signals. What does that mean, or rather, what does it do? 

Jessen: So, the Macroeconomic Pressure Index, or MEPI, as we call it, is really, as you said, a forward-looking tool. Why do I say forward-looking? Because it doesn't really assess what's already happening. It tells you where pressure is quietly building up, okay, even before it's actually seen in the data, in the macroeconomic data.

You can think of it as our pressure cooker that we use at home. When the lid is on, on your pressure cooker, and the heat is rising, nothing appears wrong, right, until something really goes wrong and you see things coming at the surface. The MEPI does exactly just that.

It tells you when the heat is rising gradually, before it actually comes out in terms of data release. 

Deepa: And it gives you likely scenarios? 

Jessen: Exactly. 

Deepa: Right, okay. It sounds like an obvious question, but why is it important? 

Jessen: Well, it is important, especially in the current context, where there's so much noise, so many uncertainties, so many scenarios going on in terms of ranging from a moderate case to a worst case that I just described. I think what the MEPI does, it helps us to be more grounded, understand, and also make the difference between what's our noise and what are fundamentally issues that are cropping up, that are of importance to be monitored.

Deepa: But can you, like, just, let's get into the practical a bit. What exactly does it measure? You mentioned pressure. What exactly is, what do you mean by that?

Jessen: So what it does is that it looks at several variables, ranging from economic growth measures, debt measures, external imbalances measures. It piles everything into a sort of tool, a tool that would tell you, okay, when the pressure is rising, it means that, okay, there are some issues that need to be investigated, that we need to be aware of.

Deepa: How would pressure rise? You mean like a crisis right now in Iran?

Jessen: Yeah, yeah, exactly this, exactly this. And we zoom at three countries in the report. For example, we know that Egypt got into this war on a pretty strong footing, but then, given Egypt's exposure to the GCC region, we see in the in the MEPI how the trend is shifting.

Deepa: Right, okay. So let's test it then. What did the index tell us about African countries in general before the war? 

Hejila: All right, so at the very beginning, we spoke about how African countries were coming in on a firmer footing, and that's exactly what the index confirmed.

With, for the most part of the African regions that the index actually covers, we were looking at countries being in the low-moderate pressure range. So it was telling us, it was actually confirming our narrative. And of course, as I said, there were pockets of vulnerabilities, and this was reflected in the index.

You know, you have countries like Senegal that are actually contending with a lot of fiscal vulnerabilities at the moment, even with Botswana. So this is something that the index actually caught on. And if you look, and for those who are going to read the report, you know, you can clearly see how, pre-war, the index were actually looking at low-moderate pressure, and how eventually with the shock, you know, the narrative starts shifting.
 You know, and these are things that you would obviously expect the index to pick up on. 


Deepa: Okay, so you're happy with its accuracy? 

Hejila: Yeah, obviously, as I said, you know, there are some caveats.

You know, earlier on I spoke about the measures, you might think of, you know, there are some countries that, for instance, you have Kenya, you know, that they've had to come in with tough measures. But obviously, if you look at where they are today, and last year when they had to sort of, you know, come in with tough tax measures, they've had to face with, you know, public outcry. 

So to some extent, obviously, there are some underground realities that, obviously, you can't predict, you know. Countries that you don't expect will be able to come with a fuel levy are actually coming in and doing it. So obviously, we are very happy with the kind of signal that the index is giving us, but obviously, as you said, you can't pick up on everything.

Deepa: And so this tool, who is it for? 

Jessen: Well, I think MEPI is for anyone who needs to make decisions before stress turns into problems. If I talk about investors, they will be able to distinguish between what is volatility from what is structural by looking at the MEPI.

For corporates, we've spoken about the Africa risk premium idea before. They're able to, you know, go beyond this and see really where are the pressures building up. For policymakers and institutions, it's about understanding whether buffers are thinning or are strong.

Deepa: I want to talk about inflation, currencies and commodities, real issues for the continent. What should we expect? 

Hejila: Right, I think when discussing the channel of transmission, I think Jason sort of touched on it.

And I think on the inflation part, and I think, you know, we talk about the cost of living crisis today, because if you look at the region, 50% of the average consumer basket comprises of food and energy. Right. And we're already seeing, since the onset of the war, how much oil prices have gone up, you know.

And with the state of home being so important, you know, Jason spoke about being an important sort of channel of distribution for fertiliser, and how this would eventually impact, you know, food. Yeah. So, if the war is prolonged, we're obviously looking at a cost-of-living crisis, you know, and that is inevitable.

 So, inflation, as you would recall earlier on, we're talking about disinflation. 

So, what we are obviously going to look at in the coming months is that it will likely reverse. You know, we're actually expecting inflation to eventually go down, and we're going to see a reversal in its strength. So, and with many African countries having onboarded aggressive monetary policy decisions over the past two years, so obviously now we're looking at maybe they're going to pause their interest rates, or in some cases, increase interest rate to actually, you know, curtail inflationary pressure. So this is the kind of policy decision that many African countries will have to face.

Are they going to increase interest rates? How are they going to manoeuvre around, you know, inflation risk and eventually how is this war going to eventually, you know, sort of frame the growth momentum? And then the currency front, you know, many African currencies actually saw a really, sorry, can I take, so many on the African currency front, you know, we saw some stabilisation coming in the second half of next year and coming into this year. A lot of that spoke to the softer dollar outlook and, you know, Trump's policy wanting a weaker dollar. And a lot of that also spoke to the reforms I was mentioning earlier on in Nigeria, in Egypt, we're seeing like stabilisation across many African countries, but obviously with the pressure and Jason mentioned very beautifully at the very beginning about the channel of transmission, currencies are going to take a hit because investor sentiment is low and, you know, flight to safety.

So African currencies are again, going to come under pressure. So that again, with a weaker currency, the feed through transmission into higher prices. So, you know, it's going to get a bit tricky on the currency front and on commodities.

I think we spoke about it, you know, how it could be good and bad as well. Right. You know, we spoke about how Nigeria could actually position itself as a regional player, but obviously it's going to take time.

It's not going to happen overnight. Even the Dangote refinery had a lot of delays, and it only came online last year. So to the extent that they will be able to support the neighbours.

Deepa: Yeah. But let's talk about that. The Dangote refinery, because we talked earlier about Africa's dependence on refined oil, despite being home to so much of the world's reserves and the case of Nigeria, as you say, stands out because the West African country hosts the famous Dangote refinery, the world's largest single train refinery.
Talk to us about the significance of this. 

Hejila: So today we're talking about the refinery being able to close 650,000 barrels per day. And now they're looking to increase capacity to 1.4 million barrels a day by 2028.

So you can see already that, you know, they are aware of how big of a player they can be in the region.

And, you know, we've seen a lot of traction around the investment commitments coming in to actually boost the refining capacity. So for us, it's going to be a game-changer. The way we look at Nigeria and the space it gets to play in, if done and scaled properly.

And, you know, we speak about the Dangote refinery; we also have the East African crude oil pipeline, which is set to come online this year and is expected to bring a lot of support to the East African region. So for us, there are a lot of interesting things happening in the oil and gas space in Africa. And as you said, Dangote, I think, is the one refinery that the world's going to watch.

And if I'm not mistaken, in the last week, you know, they got the first, the Netherlands got its first shipment of oil from Dangote. So you can actually see that, you know, European countries are also, you know, wanting to get their share because of the war. You know, you have to diversify your pool from where you get your oil.

Deepa: And presumably it will make other African countries think, yeah, we could get our own.

Hejia:  And we saw it with South Africa, as you mentioned, Tanzania as well, trying to get in that precious oil.

Jessen: Maybe just to add, Dangote refinery, yes, is associated a lot with refined oil, but it does even more than this. They also, in fertilisers, and they're starting to distribute to other parts of Africa.


Deepa: Jason and Hejila, what is, according to you, the biggest takeaway from this report?

Jessen: I think the biggest takeaway from this report is that Africa needs to stop being a passive observer of global shocks, because global shocks will come and go. After this one, there would be another one coming, but it would really start to take its destiny into its own hands.

And we're already seeing this. We spoke a lot about this last year when we had the trade report. It's interesting to see momentum building, and it's really a question now of going beyond this, moving into higher-value addition to reduce dependence on the rest of the world.

It doesn't mean that Africa needs to look on in a closed circuit on the net itself. What it means is that Africa needs to move up the value chain. 

Deepa: Hejila?

Hejila: Yeah, so I think, I mean, I very much share the same views as Jason, but I think if I were to bring in like the core message for me is what we actually try to do with the MEPI is that we, you know, Africa is 54 countries, right? And very often people tend to compare African countries with other countries. And there always seems to be this, you know, one-size-fits-all kind of metric for looking at how Africa is performing. So, with this report, we also wanted to treat Africa not as a single story, but to give each African country, you know, its own merits.

And really, Jason spoke about it, you know, the MEPI, it looks at a country, how it's performing, you know, and how pressure is building against its historical norms. So, it's not about us coming in with arbitrary thresholds. It's about looking at every single African country and how pressure is building, but you look at the country.

Yeah. So, it's not about peer comparisons. And it's really, you know, if you look at the pre-war and post-war map, and for those who, and you're all encouraged to read the report, and you know, how the index also is showing you that divergent story.

Deepa: I actually saw in the report how differently the countries are reacting to the same pressure. 

Hejila: And this speaks to, you know, the own structural reality of every African country. And I think for me, it's about, you know, Africa's 54 countries.

And I think every country needs its own merit in how it tells the story. 

Deepa: Absolutely. Well, guys, thank you very much for your time.
I have learned a lot from this discussion. Thank you so much. Thank you.

And you can find the link to the report in the podcast description. Bye-bye.