Surging oil price not all bad news for Africa

30th November 2007 By: Irma Venter - Creamer Media Senior Deputy Editor

Sub-Saharan Africa is currently enjoying its strongest period of sustained economic growth since the early 1970s.

Industrial Development Corporation (IDC) research and information depart- ment head Jorge Maia says gross domestic product (GDP) growth for the region is forecast to be 6,9% for 2007, and 6,4% in 2008.

In fact, Africa is the only region in the world where a higher economic growth rate has been forecast for 2007 compared with the rate for 2006.

It is especially the continent’s oil- exporting countries which have witnessed stellar growth over the last three years, as crude oil prices continued to reach new record levels.

Maia says the countries benefiting most from this price surge include Angola, Chad, Equatorial Guinea, Nigeria, Sudan and the Republic of Congo.

The impact of the commodity becomes clear when it is considered that GDP growth for the whole of Africa reached 5,4% in 2006, with oil exporters achieving 5,6%, and oil importers 5,3%.

This difference is expected to remain, with average GDP growth in sub-Saharan Africa expected at 6,9% for 2007, but with oil-exporting countries in the region forecast to reach an average of 11,6% GDP growth.

It’s not all about the oil price, though.

Maia adds that Africa, on the whole, has seen exports increase by more than 10% a year in many countries, while foreign direct investment (FDI) has increased progressively.
Inflation rates have also been declining in many countries.

Africa’s 2005 FDI was a 78% increase over the $17-billion recorded in 2004.

Factors in support of the higher levels of FDI include robust economic growth, the boom in the commodity markets, and rising corporate profits that led to increased corporate investment, particular in natural resources.

Other contributing factors include efforts by many African countries to improve their investment environment, such as Ghana, Rwanda and Tanzania, notes Maia.

However, he says 2005 FDI inflows into Africa still accounted for only 9,6% and 3,4% of developing economies and global FDI inflows respectively.

The bulk of FDI went to Asia in 2005.

Also, while 34 African countries experienced increased FDI in 2005, it declined in 19 countries on the continent.

Of the 2005 FDI into Africa, 66% ($20,4-billion out of $30,7-billion) went to five countries only, with South Africa receiving the most at $6,4-billion, Egypt second, with $5,4-billion, and Nigeria third, with $3,4-billion. Maia notes, however, that the $5-billion Barclays/Absa deal distorted the picture somewhat in favour of South Africa.

He adds that South Africa is increasingly investing in the rest of the continent, with Africa’s share of total South African FDI abroad increasing from 4% in 1996, to roughly 11% by 2004, but declining to 8,2% by 2005, or $3-billion.

China, India, Taiwan and Malaysia have emerged as members of the top ten sources of FDI into Africa. However, France, the Netherlands, South Africa, the UK and the US still dominate FDI into Africa, accounting for more than 50%.

Maia warns that Africa still relies heavily on commodities, with GDP and export growth mainly commodity-diven – particularly oil-driven.

He says the cost of doing business also remains high on the African continent, and that private-sector growth and job creation are being constrained by poor infrastructure and governance, besides other factors.

He also notes that the “impressive economic growth rates” have not translated into increased incomes for the poor, one of the reasons being that growth has been achieved through capital-intensive technologies and sectors.