Our Africa, Our Thoughts
A selection of blogs from the African Development Bank Group
Turning extractive resources (mining, oil and gas) into development outcomes has proven to be a challenge for African governments and developing countries in general. The channels linking minerals in the ground with higher living standards are complex. This article sets out some thoughts that the authors would like to share and also, initiatives taken by the African Development Bank and the Collaborative African Budget Reform Initiative (CABRI) to help African governments on the issue.
The discovery and exploitation of oil, gas and mining usually brings in its wake high expectations of employment opportunities for countries where the resource extraction is taking place. However, there is often a mismatch between these expectations and the actual jobs that the oil, gas and mining sectors can offer. In practice, oil and gas, and to a lesser extent, mining projects in Africa often do not generate much employment locally. This is partly as a result of the capital intensive nature of extractives and, especially oil and gas projects.
Typically, there are two kinds of sovereign wealth funds: saving funds and stabilization funds. The latter is particularly pertinent in countries whose economies are overly reliant on oil and commodity exports, and whose revenues are volatile in nature. Other reasons for the creation of Sovereign Wealth Funds (SWF) include war chests and, in the case of nations with an abundance of natural resources, a SWF can help to avoid the ‘resource curse’ or ‘paradox of plenty’. These are all valid ‘stabilization’ reasons for setting up a SWF. In Africa, however, stabilization reasons are not enough.
A previous post discussed some of the challenges Liberia is facing in the light of weaker economic growth and how it should focus its efforts on improving the business environment, increasing productivity and value-added in agriculture, and attracting investment in non-extractive sectors. A key part of this effort is to address Liberia’s severely inadequate energy and road infrastructure, which have been identified by various analyses as a critical binding constraint to private sector development and diversification, as well as public service delivery. As such, the government has placed strong emphasis on infrastructure development in its development agenda. This post discusses the country’s progress in addressing its infrastructure deficit.
African resource-rich countries are facing significant economic headwinds. Nigeria, Africa’s largest oil producer, depends on oil for over 90% of its foreign exchange earnings and three-quarters of government revenue. The slump in oil prices has adversely affected Nigeria’s economic prospects, pushing GDP growth into negative territory to -1.5% in 2016.