Global Financial Fragmentation Threatens Nigeria, Others — WEF

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LAGOS – A new report by the World Economic Fo­rum (WEF) has sounded the alarm over the growing fragmentation of the glob­al financial system, warning that rising geopolitical tensions, trade restrictions and economic rivalries are imposing hundreds of billions of dollars in costs on the world economy and could dis­proportionately hurt Nigeria and other emerging markets.

According to the report, ‘The Cost of a More Fragmented Financial System’, geoeconomic fragmentation is currently costing the global economy between $213 billion and $307 billion annually. More troubling, however, is the possibility that the world could be moving toward a deeper structural divide that may in­flict economic losses of up to $6.9 trillion, equivalent to 6.4 percent of global Gross Domestic Product (GDP).

The report, produced in collabora­tion with Oliver Wyman, comes at a time when global trade and financial relationships are undergoing signifi­cant changes. What began as tensions between major geopolitical rivals has evolved into a broader trend affecting even long-standing allies and trading partners.

The findings suggest that the international economic order that has underpinned global growth for decades is facing increasing strain as countries place greater emphasis on eco­nomic security, supply chain re­silience and strategic autonomy.

Why Emerging Markets Face The Greatest Risk

While fragmentation pres­ents challenges for all econo­mies, the WEF report identifies emerging markets and develop­ing economies (EMDEs) as the most vulnerable.

Under the report’s most se­vere fragmentation scenario, countries outside the major geopolitical blocs could experi­ence output losses of up to 10.7 percent, substantially higher than the projected global average decline of 6.4 percent.

The reason lies in the struc­tural characteristics of many developing economies.

Unlike advanced economies with deep and liquid financial markets, many EMDEs rely heavily on international capital flows, foreign direct investment and external financing to fund development projects and sup­port economic growth.

What It Means For Nigeria

For Nigeria, Africa’s largest economy by GDP, the implica­tions are significant.

The country is actively pur­suing economic reforms aimed at attracting foreign investment, strengthening foreign exchange liquidity, modernising infra­structure and diversifying the economy away from oil depen­dence.

These objectives depend, in part, on continued access to global capital markets and inter­national investment flows.

A more fragmented global fi­nancial system could complicate these efforts.

Higher global uncertainty may discourage foreign inves­tors from committing capital to emerging markets, while tight­er financial conditions could increase the cost of external borrowing for governments and corporations.

Nigeria’s infrastructure fi­nancing needs remain substan­tial, spanning transportation, power generation, manufactur­ing, housing and digital infra­structure.

Any disruption in global capital availability could make financing these projects more difficult and expensive.

Furthermore, Nigeria’s ambition to become a regional economic hub relies heavily on cross-border trade and invest­ment. Fragmentation that weak­ens international commerce could slow progress toward these goals.

Africa’s Opportunity Amid The Chal­lenges

Despite the risks, the WEF believes Africa possesses unique opportunities to build resilience.

The report points to this as one of the continent’s most important tools for reducing dependence on external mar­kets.

By promoting trade among African countries, the AfCFTA has the potential to create larg­er regional markets, strengthen supply chains and stimulate in­dustrial development.

Similarly, it is helping sim­plify cross-border transactions by enabling payments in local currencies, reducing reliance on foreign exchange and lowering transaction costs.

For Nigeria, these initiatives align closely with broader ef­forts to expand intra-African trade and position the country as a major player in continental commerce.

The report also notes that Africa continues to benefit from powerful long-term growth driv­ers, including rapid population growth, urbanisation, technolog­ical adoption and vast reserves of critical minerals needed for the global energy transition.

These structural advantages could help offset some of the neg­ative effects of fragmentation if supported by sound policies and stronger regional integration.

Policy Actions To Limit The Damage

Recognising that fragmenta­tion is unlikely to disappear in the near future, the WEF out­lines several measures policy­makers can adopt to reduce its economic costs.

These include establishing shared international guardrails to protect the integrity of the fi­nancial system, improving poli­cy predictability, maintaining in­teroperability between payment systems and digital currencies, and supporting the development of domestic and regional capital markets.

The report also calls for great­er coordination around the use of economic statecraft measures to ensure that national security objectives do not unnecessarily undermine global economic growth.

For Nigeria and other emerg­ing economies, strengthening domestic financial systems, expanding regional trade net­works and diversifying sources of investment may prove criti­cal in navigating an increasingly fragmented world.

As geopolitical tensions continue to reshape global com­merce and finance, the challenge for policymakers will be to pre­serve economic resilience while adapting to a new era in which fragmentation is becoming a defining feature of the interna­tional economy.

A New Era Of Economic Rivalry

The report notes that 2025 and 2026 marked a turning point in the use of economic statecraft as governments increasingly deployed tariffs, sanctions, ex­port controls and investment restrictions to pursue strategic objectives.

Unlike previous periods of trade disputes that were largely confined to geopolitical competitors, the latest wave of restrictions is spreading across traditionally aligned economies, including the United States, the European Union, Canada, Japan and South Korea.

This development is creat­ing uncertainty for business­es, investors and financial institutions that rely on stable cross-border flows of capital, goods and services.

In recent years, multinational corporations have increasingly reassessed supply chains, diver­sified production locations and reconsidered investment desti­nations amid concerns about geopolitical risks.

The result is a more frag­mented global economic land­scape in which businesses face higher compliance costs, great­er uncertainty and reduced ef­ficiency.

According to the WEF, the cu­mulative effect of these trends is beginning to weigh heavily on global economic growth.

“The global financial system has faced increasing pressures from geopolitical and economic fragmentation,” said Managing Director and Head of the Centre for Financial and Monetary Sys­tems at the WEF.

Despite these challenges, Blake noted that financial mar­kets have so far demonstrated resilience and policymakers have largely avoided actions that could fundamentally undermine confidence in the international financial system.

However, he warned that pre­serving trust and stability will become increasingly important as fragmentation deepens.