Refugees, lost trade and security costs: how conflict in one African country drives up debt for its neighbours

Conflicts in Africa vary in scope and intensity. They range from large-scale civil wars to territorial disputes, localised insurgencies, inter-communal violence, political instability, armed conflict and terrorism. The continent has earned the reputation of being the world’s bloodiest. These conflicts can be felt across country borders. I am an economist whose research has focused on inclusive growth, debt sustainability, geopolitical risk, economic policy and climate-related uncertainties. In a recent paper I looked at whether conflict had an effect on government debt among countries sharing geographical borders in regions of Africa. The research sampled 38 countries from western, central, eastern and southern Africa using data from 2000 to 2022. I applied the Spatial Durbin model, which looks at how local and nearby factors affect an outcome in one place. The study examined how conflict is linked to government debt across neighbouring African countries. Instead of looking at each country on its own, it considered how events in one country can affect its neighbours. This made it possible to identify both the effects within a country and the effects across borders. The findings show that debt is shaped not only by domestic conditions but by developments in nearby countries. Conflict generates cross-border spillovers, raising the debt level in geographically proximate countries. Military spending by neighbouring countries amplifies the spillovers. These findings are important because they show that no country’s economy is isolated. Even if a country is peaceful and stable, its financial position can be weakened by conflict in a neighbouring country through refugee flows, disrupted trade and humanitarian costs. The results also suggest that regional instability can have a greater impact on government debt than domestic conditions alone. Countries may need to borrow more even when they are not directly involved in conflict. Mapping the ripple effects of conflict To see how conflict is associated with debt across borders, I used a specialised mapping technique that links countries based on their shared borders. The research analysed historical data from the World Bank and a conflict database for the selected countries and period. This made it possible to measure three things: the direct impact of conflict on a country’s debt within its own borders the indirect effect of conflict in one country on a neighbour’s debt the total effect, summing up the direct and indirect effects. Examining 38 countries in different regions ensured that different kinds of conflicts were accounted for. For instance, conflicts in central Africa are often linked to weak governments, political instability and tensions between ethnic groups. In west Africa, conflict related to competition for natural resources and land is more typical. The composition and structure of debt are not the same either. In francophone West African Economic and Monetary Union countries, the level of debt is high due to their reliance on foreign borrowing and their historical dependence on France for external financing. In east Africa, Kenya, Ethiopia and Uganda have borrowed large amounts to finance roads, railways and other infrastructure projects. As a result, east Africa recorded the highest average debt level among the regions studied. Southern Africa has experienced fewer large-scale wars. But some countries, including Mozambique, Angola and Zimbabwe, have faced local conflicts and political violence. South Africa relies more on borrowing from its own financial markets, making it less dependent on foreign lenders. Because neighbouring countries are closely connected through shared borders, trade and regional institutions such as the Economic Community of West African States and the Southern African Development Community, the effects of conflict often spread from one country to another. The results varied across regions. The impact In western Africa, the direct and indirect effects of conflict on debt are significant. Indirect spillover effects are substantial in triggering higher debt levels in a neighbour. For example, instability in the western Sahel and Lake Chad Basin made governments borrow more to manage the fallout. Domestic conflict, such as the Boko Haram insurgency in Nigeria, drives debt accumulation through local destruction, fiscal pressure and the cost of militarisation. The region is also susceptible to indirect effects. For example, instability in Mali has created a fiscal burden for neighbours such as Niger and Burkina Faso. Refugee movements, humanitarian emergencies and disrupted trade routes create fiscal pressure, leading to debt accumulation, even when countries are not directly involved in the conflict. For example, there’s spillover from South Sudan to Uganda, where the cost of hosting refugees and providing public services has placed a heavy strain on the host country’s budget. Conflict also erodes revenue. Insecurity weakens tax compliance and state capacity to provide public goods. This narrows the domestic resource base, culminating in debt. Illicit value chains generate money for armed groups, prolonging violence and intensifying government debt. Trade disruptions, border closures, damaged infrastructure and conflict-related uncertainty deplete trade flows, lower customs revenues, and disrupt supply chains. Military spending amplifies the indirect spillover effects of conflict on debt in western Africa. Neighbouring countries may have to prevent insurgent incursions and maintain internal security. Security costs can add to debt levels. I further found that risk perceptions regarding regional risk may increase sovereign debt premiums for countries in a region – not just the country where the conflict or debt is. Creditors will demand higher risk premiums from the neighbouring countries. Even relatively stable countries within the region pay high interest rates by association. What needs to be done The findings highlight the need for interventions: regional financial safety nets, reducing the need for excessive and costly borrowing regional peace programmes and cross-border security cooperation on conflict prevention coordinated fiscal stabilisation strategies regional defence cooperation to reduce militarisation.