Africa’s oil exporters need to enhance growth through diversification – Report



Africa’s oil and gas exporters, especially the three largest producers – Algeria, Angola, and Nigeria are said to have the continent’s highest Gross Domestic Product (GDP) per capita, but the least diversified economies.


For these countries, rising oil prices lifted their export revenue significantly, having earned about $1 trillion from petroleum exports from 2000 through 2008, compared with about $300 billion in the 1990s. Many analysts believe these countries have strong growth prospects if they can use petroleum wealth to finance the broader development of their economies.


“The experience of other developing countries, such as Indonesia, shows this is possible. Continued investments in infrastructure and education will be essential. Africa’s oil exporters face challenges that are common to others around the world, including maintaining political stability and momentum for economic reforms; resisting the temptation to overspend and overinvest, which would create vulnerability to commodity price declines; and creating a business environment that enable companies across industries to flourish,” McKinsey Global Institute stated in its latest report titled ‘Lions on the move: The progress and potential of African economies.’


The analysts also believe that for oil exporting African economies, there is more than a resource boom. Oil prices climbed from less than $20 a barrel in 1999 to more than $145 in 2008, enriching Algeria, Libya, and Nigeria and other producers. Prices for minerals, grain, and other raw materials also rose. Not only have African producers benefited from rising global prices, they have also increased production.


“Our analysis shows that oil and other natural resources directly accounted for just 24 percent of Africa’s GDP growth from 2000 through 2008. (Government spending from resource-generated revenue was equivalent to an additional 8 percent of GDP growth over the period). Other sectors accounted for most of the growth surge,” said McKinsey.


At this point, there is no doubt saying that African economies will continue to profit from rising global demand for oil, natural gas, minerals, food, arable land, and other natural resources. Currently, the continent boasts of an abundance of riches, including 10 percent of the world’s reserves of oil, 40 percent of its gold, and 80 to 90 percent of the chromium and the platinum metal group. Demand for raw materials is growing fast in the world’s emerging economies, which now account for half of Africa’s total trade. As trade patterns have shifted, African governments are forging new types of economic partnerships in which buyers from these countries provide up-front payments, make infrastructure investments, and share management skills and technology.


“Africa’s economic growth is creating substantial new business opportunities that are often overlooked by global companies. Our projections show, at least, four categories of opportunities that together could worth about $2.6 trillion in annual revenue by 2020. These are consumer-facing industries (such as retail, telecommunications, and banking); infrastructure-related industries; agriculture; and resources,” the report stated.


The analysts also believe that consumption will grow even faster in other categories as household incomes rise, with the most rapid increases occurring in retail banking, telecom, and housing. This growth will create more consumer markets, large enough to be attractive to multinational companies.


The report revealed that, “The continent’s five largest consumer markets in 2020 -Alexandria, Cairo, Cape Town, Johannesburg, and Lagos – will each have more than $25 billion a year in household spending and be comparable in size to Mumbai and New Delhi. More than a dozen other African cities (among them Dakar, Ibadan, Kano, and Rabat) will develop consumer markets worth more than $10 billion each per year.


“Africa’s consumer-facing sectors (consumer goods, telecom, and banking, among others) present the largest opportunity and are already growing two to three times as fast as those in countries belonging to the Organisation for Economic Co-operation and Development (OECD). The continent’s households spent a combined $860 billion in 2008, more than those in India or Russia. This is projected to rise to $1.4 trillion over the next decade if real GDP continues to grow at its current pace. Food and beverage spending is projected to increase more in absolute terms than any other consumer category, though spending patterns will shift toward higher quality goods.”


Out of 30 African countries, namely: Algeria, Angola, Botswana, Burkina Faso, Cameroon, Chad, Côte d’Ivoire, Democratic Republic of the Congo, Egypt, Equatorial Guinea, Ethiopia, Gabon, Ghana, Kenya, Libya, Madagascar, Mali, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Republic of the Congo, Senegal, South Africa, Sudan, Tanzania, Tunisia, Uganda, and Zambia, growth of three ( Botswana, Côte d’Ivoire, and Mauritius) is not accelerating.


Further growth in Africa’s resource sectors continues to be promising. “Our analysis suggests that continent’s production of oil, gas, and most minerals, measured by volume, may continue to grow steadily at between 2 percent and 4 percent per year. Even at current prices, this would raise the value of resource production from $430 billion today to $540 billion by 2020. Higher global commodity prices could lift this even further. However, with the entrance of China and other new players, the field of buyers is getting more crowded. More common are deals that now include foreign investment in infrastructure and resource processing in addition to extraction,” McKinsey noted.


The analyst further stated, “We see large opportunities for companies in building Africa’s infrastructure. Currently, African governments and private sources combined are investing about $72 billion a year in building new infrastructure across the continent. This accounts for 13 percent of the emerging market total, up from 7 percent in 2000. However, Africa still faces huge unmet needs – particularly in the provision of power, water, and transportation – that will require, at least, $46 billion more in spending per year.


“Looking ahead, a critical question is whether Africa’s surge represents a onetime event or an economic takeoff. The continent’s growth also picked up during the oil boom of the 1970s, but slowed sharply when oil and other commodity prices collapsed during the subsequent two decades.Today, while individual African economies could suffer many setbacks, our analysis suggests that the continent’s long-term growth prospects are strong, propelled by both external trends in the global economy and internal changes in the continent’s societies and economies.”






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