Commodity diversification as a critical component of African economic growth.
The challenge of a single commodity economy
Across the continent, African countries are witnessing substantial GDP growth, the rise of a middle class and resulting increase in business opportunities. While this has been well documented, it is also important to ask the question; can this translate into real trickled down development across all sectors?
To answer this question, it is important to discuss one of the essential components of economic growth – diversification of the manufacturing industry. Historically, economies lacking in diversity of manufacturing and services and mainly focused on extraction (raw material industries) without making advancements towards a transformation economy usually face significant challenges for long-term economic growth. A third of African countries have been facing this challenge for decades.
The shift in strategy
African countries are increasingly aware of this pitfall and making the adequate changes needed to reverse this situation. This is especially true in the case of Nigeria with its government recently springing into action by putting in place an economic strategy geared towards drastically reducing the countries dependency on oil exports and focusing on other sectors like agriculture, IT, etc. Of course, the results of such actions will not be noticed overnight, but the process of rethinking and advocating for such forward-thinking strategies should not be underestimated both locally and in the international discussion on how Africa can move forward by embracing such best practices.
A look at the map of Africa
Certainly, commodity diversification is only one of many key components that have the potential to turn the tides for African economies. Although there is no clear-cut causality, there is a correlation here. Looking at a map of Africa (figure 1), one will notice that countries like Nigeria, Chad, Equatorial Guinea and Angola are high on the scale of nations heavily dependent on oil for their export revenues (well above 75% of export revenues from oil alone). Such dependency on one commodity alone puts these countries in a situation of massive dependence on commodity prices determined by world markets which heavily fluctuate with unexpected consequences. Meanwhile, countries like Cote d‘Ivoire, Ethiopia, Senegal, Kenya, and Tanzania, are leaning towards diversification of their commodities and moving away from the idea of heavily depending on just one key commodity thereby reducing the risk of economic shocks.
GDP growth and diversification of commodities
It becomes even more evident when we do a breakdown of African countries regarding GDP growth and forecast of future trends. The top 10 countries regarding GDP growth happen to be those with low export dependency on oil or metal and mineral. Even some oil exporting nations like Cameroon and Senegal are high on the GDP list from less dependence on the commodity and opting for a more diverse export basket
The words of Nigeria finance minister, Ngozi Okonjo-Iweala rides home the point in one short quote; ‘’The idea is that instead of young people in Nigeria waiting to get employment, they should create their jobs and employ their peers and employ other people’’
That is what we at Aphropean Partners are advocating for, and we welcome entities and individuals supporting this approach. If you have an opinion and wish to share with us, then drop us a line at firstname.lastname@example.org to facilitate a talk of your experiences.
Julius Timgum, Aphropean Partner