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Africa Ready to Reverse its Resource Curse

Despite current setbacks in the global economy and Africa’s failure to take advantage of the last decade’s resources boom, experts believe agricultural, mining and energy resources can boost the continent’s economic growth in the next two years.

According to African Economic Outlook 2013, a report published every year by the African Development Bank, the OECD Development Centre, the Economic Commission for Africa (ECA) and the UN Development Programme (UNDP), the outlook for the continent remains promising.

The document highlights that “what has been holding back Africa is not the large share of its primary sector in itself, but the poor performance of this sector."

The continent did benefit a bit during the boom in resource prices of the last ten years, as the continent’s GDP grew by 64% between 2000 and 2011. Natural resources contributed 35% to that growth, mainly fuelled by a tripling of prices for metals and fuels.

Related article: SOMALIA: This New Frontier Isn’t Ready for Oil

However, the report also shows that growth has been accompanied by insufficient poverty reduction, persisting unemployment, increased income inequalities and in some countries, deteriorating levels of health and education.

“Now is the time to step up the tempo of economic transformation, so that African economies become more competitive and create more gainful jobs”, say the authors in a press release, adding that “widening the sources of economic activity is fundamental to meeting this challenge.”

The experts warn African countries must efficiently tap into their natural resource wealth to accelerate the pace of growth and ensure the process can benefit most of the continent’s population.

Resource curse

The continent, says the document, must work hard to revert its so-called "resource curse." This happens when poor countries fail to move beyond dependence on natural resources and end up with small elites controlling resource rents.

"Nigeria provides a sad example of a country that squandered much of its oil wealth through corruption. Angola stands out as an example of “Dutch disease”, which describes the process of soaring price levels crowding out the non-resource economy. Equatorial Guinea has a per capita income level on a par with the European Union (EU), but because of extreme inequality most of its people continue to live in abject poverty," the report says.

Governments failing to properly manage the volatility inherent in high commodity prices often magnify these issues.

Related article: NAMIBIA: First Oil Discovery Overrides Earlier Disappointments

"Cross-country comparison shows that controlling for volatility can eliminate most of the negative effects of natural-resources … However, dependence on natural resources acted as a brake on financial sector development and the relationship between the share of natural resources in GDP and the lack of access to finance across African countries remains positive," the research adds.

The document ends on a fairly upbeat note saying that, while the boom in resource prices seen over the last decade is expected to cool, prices are likely to settle at higher average prices over the medium term.

And, "driven by recent discoveries, the expansion of proven reserves and resource production in Africa is set to accelerate."

By. Cecilia Jamasmie




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