Oil rich African countries will become complacent, economist warns

27 September 2013

“Oil distorts everything in economies,” said South African economist Dr Martyn Davies. According to Davies, CEO of investment advisory firm Frontier Advisory, African countries that rely on oil and gas are likely to become complacent in the future while non-resourced countries build agile economies.

“Oil distorts everything in economies,” says CEO of Frontier Advisory Dr Martyn Davies.

Speaking at the Africa Hotel Investment Forum in Nairobi, Kenya, Davies said over the next five years some African countries will differentiate themselves while others will remain complacent.
“Those with resources, largely, will remain complacent,” said Davies, adding that about 40 countries in Africa have either discovered or are currently exploiting oil and gas resources. He singled out Rwanda, a non-resourced country which has an agile economy.

The business analyst noted that while GDP figures indicate growth in Africa, this is being falsely confused with real development. He dismissed the ‘Africa Rising’ narrative as being too simplistic as he contrasted the infamous 2000 The Economist cover titled The Hopeless Continent with the 2011 cover titled Africa Rising.

“As always, the truth lies between two extremes. If you are in a region in the continent like eastern Democratic Republic of Congo and you see that hopeless continent cover, you kind of think it was published last week. The continent is moving in different speeds and that is something we need to recognise.”

He cited the case of oil-rich Equatorial Guinea which has the highest annual GDP per person in Africa – US$17,500 per capita – but has a mix of affluence and poverty.
“Sounds like a great place to live doesn’t it [Equatorial Guinea]? But it’s not quite is it? No, it’s not,” he said, adding that impressive figures showing Africa’s growth do not translate into real development.
He argued that “sub-Saharan African growth remains commodity driven” and the numbers are not resulting in “embedded Asian style middle-class driven economies”.

“Growth does not equal development. Oil distorts everything in economies. That is why Lagos is so damn expensive. That is why Luanda is the world’s most expensive city today.
“This is resource driven growth with varying degrees of trickle-down,” said Davies. “That is not sustainable. It is not Asian style. It’s more, dare I say, Russian style.”

This view was opposed by an executive from resource-rich Zimbabwe. CEO of Rainbow Tourism Group Tendai Madziwanyika said oil and other mineral resources will be the engine for development in Africa.

“Africa is well endowed with resources and we think resources are going to be the key igniter of growth in Africa,” he said. “In Zimbabwe we have been rated as the richest country in the world per capita in terms of natural resources. As soon as those resources are exploited, it will be the engine for igniting everything else.”
Industrial revolution?

According to Davies, Africa should capitalise on opportunities in the manufacturing sector, arguing that the continent is on the cusp of a 19th century style industrial revolution.
Davis noted that China is gradually losing its competitive edge as a low-cost manufacturing base with statistics indicating that it could shed up to 85m jobs over the next decade to Vietnam, Indonesia, Myanmar and Thailand. With only 10m people currently working in factories in Africa, Davies reckoned the continent could double its blue collar industrial workforce in a decade if it captures 10% of China’s departing jobs.

“Question for us is: is it going to be a Vietnam in Africa? Vietnam effectively has become… a sub-factory of Southeast Asia,” said Davies.
“This [manufacturing] I would argue is the greatest opportunity for this continent right now. But… wherever I go, politicians are obsessed with what’s in the ground.”
The economist argued that while Africa’s most populous nation Nigeria can easily attract foreign direct investment (FDI), other countries on the continent need to integrate regionally to survive economically.
“It’s a numbers game. If that’s the case, if it’s purely a numbers game, I am deeply concerned about the future of small countries in Africa. What about the Botswanas, the Namibias, the Malawis, the Gabons, the Burundis?”