Ed Stoddard
Africa’s brisk economic growth over the past decade has been consumer driven, a much-hyped trend that masks the uncomfortable fact that the continent is still far too reliant on commodities.
Sub-Saharan Africa’s growth rate has been second only to Asia’s and cracked along at 5.8 percent last year, if South Africa is excluded, according to a World Bank estimate.
About two-thirds of growth in the past decade has been driven by domestic demand, which has been stoked by a number of factors including the continent’s fast-growing and young population. Consumption has had multiplier effects into a range of services, including banking and finance.
Yet unlike in Asia, Africa’s consumer boom has been financed mostly by income earned from the export of natural resources.
Without developing a manufacturing sector, the poorest continent has effectively skipped, or missed out on, the industrial revolution that has powered China’s rise. And that leaves it vulnerable to a sharp slowdown as the global commodities boom falters.
While commodities in the past decade only accounted for between a quarter and a third of African growth, depending on your measure, most of the $38 billion (R346bn) of Africa’s net foreign direct investment inflows last year were into extractive industries.
Natural resources still make up three-quarters of sub-Sahara’s exports, according to the World Bank’s latest Africa’s Pulse analysis.
It notes that the value of exports from the region soared to $420bn from $100bn between 2000 and 2011 – a promising trend that is also very much a double-edged sword.
“A lot of the growth in that value has been driven by the commodity boom rather than increased volumes or production,” ETM Analytics chief strategist Russell Lamberti said.
Signals abound that the commodity boom is running out of steam. Having poured $400bn into commodities over the past decade, many investors are selling. The cheaper food that may result will need a long lead time, while many African countries will feel pain before then.
Take fast-growing Angola, Africa’s top crude producer after Nigeria. Its exports are worth about 65 percent of its gross domestic product (GDP), and oil comprises 98 percent of total exports.
Consumption there has also been growing rapidly and the splurge has been on imports. So any sharp fall in oil production or prices could stymie that boom.
Government income in the big crude exporters would also take a massive hit. In Nigeria, oil and gas account for 80 percent of state revenue and 95 percent of foreign exchange.
“Any downturn in the oil price on the international market would certainly lead to lower fiscal revenues, and hence may have an impact on fiscal spending and economic growth,” said Thalma Corbett, the head of research at NKC Independent Economists.
On the flip side, domestic demand in Africa has been supported by slowing inflation, and falling oil prices will curb that further in the region’s many crude importers.
Even South Africa, the most diverse and developed African economy, remains heavily dependent on resources.
Metals and minerals account for well over a third of export earnings.
Manufacturing has been in relative decline in South Africa and though it has made some headway elsewhere in Africa, it remains tiny on a global scale. From 2000 to 2011, the value of Africa’s manufactured goods rose to $33bn from $13bn, according to the World Bank.
The region’s commodity exports grew far faster and remain worth about 13 times as much by value.
Africa’s overall consumption of the past decade, and the growth it has spurred, will clearly not be sustainable if commodity prices continue to come off the boil. – Reuters