African Export-Import Bank (Afreximbank) says rising geopolitical tensions support the bullish run of commodities like gold, silver, cocoa and coffee but warned that further “escalation could lead to more volatile commodity prices”.
Despite rising uncertainty across the globe, Afreximbank, in the July edition of ‘Monthly Developments in the African Macroeconomic Environment’, is optimistic about the growth of the economy of the continent but identified low capacity utilisation as a drag on the economy.
The report specifically pointed out “underequipped” human resources as a major setback in the economy of Africa. The bottom 10 countries on global human capital index are from Africa – a challenge that has led to the development of focused initiatives on skill development across the continent. Despite the enormous efforts that have gone into the call-to-action to bridge the gap, Afreximbank says poorly developed skilled manpower is a major setback to harnessing the huge economic opportunities in Africa.
“Africa is a continent of opportunities” the report stresses. Its natural resources, it says, are underutilised with agricultural endowments largely untapped. In the face of the daunting challenges, states, the continent will make a remarkable difference if government policies target “areas with strong growth and employment potential” while attracting private investments.
Whereas global unemployment is expected to hover around 5.2 per cent this year, African unemployment is projected to finish the year at seven per cent. That will place the continent far above the global average.
Still, Afreximbank is counting on a stronger than expected growth that will be driven by “commodity prices and investments in infrastructure projects” across the continent.
Other research holds an optimistic view about the future outlook of Africa with some expecting a drastic reversal in the regional consumption pattern of commodities going forward. For instance, Africa’s crude demand is projected to increase by 11.5 per cent in the next 12 months to hit 4.9 barrels per day (mbpd) next year.
From 2022 to 2045, according to the Organisation of Petroleum Exporting Countries (OPEC) latest World Oil Outlook 2045, crude demand by the continent is projected to expand by as much as 86.4 per cent or 3.8mbpd to 8.2mbpd by 2045.
In the same period, the global demand is only expected to grow by 16.4 per cent to 116mbpd. That suggests that as global businesses cut fossil fuel demand and transition to renewable energies, African businesses will invest more in refining activities and increase their crude off-taking.
Indeed, it is a decade of cutting-edge investment in crude refining. For instance, the 650,000 barrel per day (bpd) Dangote Petroleum Refinery, has commenced production while dozens of modular refineries are taking off in Nigeria. In Angola, the 200,000 bpd Lobito Refinery is expected to start production next year just as another one, Soyo Refinery, will join later.
Whereas this project shows that Africa is gradually mainstreaming into value chain development, Afreximbank says the countries in the continent “are benefiting from commodity price rallies” in recent times, following the crisis in East Europe especially.
Its report spotlights milestone deals that could significantly increase economic activities in the continent and raise the speed of growth of the economy.
“Algeria has entered into a major hydrocarbon agreement with US companies ExxonMobil and Baker Hughes to boost its energy sector in response to Europe’s increasing gas demand. Sonatrach, Algeria’s state-owned oil and gas company signed the deals to explore opportunities for developing hydrocarbon resources in the Ahnet and Gourara basins with a focus on technological innovation and sustainability,” it states while analysing a cluster of potentials across different regional blocs.
Still, in North Africa, it argues that the inflow of $23.7 billion to Egypt through indirect foreign investment has increased the Pharaoh country’s reserve import cover to eight and added to the “strong macrocosmic outlook” of the country.
For South Africa, the bank is confident President Cyril Ramaphosa will mostly stay the course of fiscal and infrastructure development despite “expectations of the coalition’s fragility”. South Africa, of course, needs to steer the economy off uncertainty and drive sustainable growth create jobs and reduce social tension, especially among young people.
However, the fear of a possible spike in social tension is not only a problem for the South Africans. In Nigeria, the report acknowledges the government had proactively prevented a major industrial crisis that almost erupted during the recent minimum wage negotiation. It insists the government would need to work hard to prevent unrest over the growing cost of living and other challenges driving the mass public disenchantment.
At the regional level, the recent diplomatic row between Niger and Benin could be a growth nemesis that authorities in both countries would need to work hard to prevent, the monthly report points out, warning about the dire consequences of further escalation.
“The economy exhibited a robust growth in Q1 2024, surging 9.7 per cent year-on-year, driven by a resilient agricultural sector and a thriving services sector, which expanded 10 per cent. Key indicators include a 22 per cent increase in mining and quarrying, 16 per cent growth in construction, and a four per cent expansion in manufacturing,” it says of Rwanda.
Whereas national economies exhibit peculiar characters, the report centres on themes such as external debt, loan restructuring, output growth and political stability, warning that how the issues are handled would determine the sustainability of Africa’s prosperity.
