Africa must add value to its vast natural resources

Although a number of African countries have experienced rapid economic growth over the past decade, substantial developmental challenges remain.

According to the World Bank’s latest World Development Indicators, Africa has recorded almost 20 years of continuous decline in extreme poverty, from 60% in 1993 to 48% in 2010, yet the region is still home to a third of the world’s extreme poor, defined as people who live on US$ 1.25 per day or less.

That being said, the economic outlook for the continent remains positive, underpinned by improving political stability and governance, the growing importance and potential of the agricultural and mining sectors, and significant oil and gas discoveries. According to the International Monetary Fund, Sub-Saharan Africa is set to grow by 5.6% this year, with 18 countries achieving growth rates of at least 6%.

These factors bode well for continued consumer spending, which McKinsey & Company estimates makes up more than 60% of Africa’s gross domestic product. Yet herein lies the dilemma. Africa’s significant natural resources are being extracted and exported in their raw form and these commodity exports are financing the continent’s consumer boom, which history has shown to be short-lived.

Unlike its Asian counterparts, Africa has not developed a robust manufacturing sector, leaving the continent vulnerable to commodity downturns and price shocks.

To deliver on Africa’s promise, the continent needs to add more value to its natural resources within its own borders, as a means to create more robust, diversified and sustainable economic growth. Improving infrastructure, in particular the supply of reliable and affordable electricity, will be crucial to realizing sustainable growth.

From an exploration perspective, Africa is emerging as the next frontier in the oil and gas industry, and is becoming an integral part of the global energy mix. This is especially true for natural gas discoveries in East Africa: Wood Mackenzie estimates that 100 trillion cubic feet of gas has been discovered in Mozambique and Tanzania to date, and ranks the Rovuma Basin as one of the most prolific conventional gas plays in the world.

Natural gas can play an important role in meeting the future energy needs of the continent. However, despite emerging as a major force in the global liquefied natural gas market, until recently it lacked the versatility to address other pressing energy needs. Innovative solutions, particularly in liquid fuels and power generation, are called for.

One such solution is gas-to-liquids (GTL) technology. GTL technology can transform natural gas into a range of high-quality, cleaner-burning energy and chemical products, including transport fuels, base oils, waxes, paraffins and naphtha.

During construction, GTL projects typically employ between 5,000 and 10,000 people. Such large workforces and infrastructure-intensive projects also create significant commercial opportunities for the local economy. Even when completed, a GTL plant can sustain 400 to 700 new and often skilled jobs which, in turn, are estimated  to create up to a further 3,000 indirect jobs.

GTL technology can help countries further reduce the need for imported oil, while deriving greater value from its natural gas resources. The well-documented environmental benefits of gas also make it an ideal fuel for power generation. Generating electricity from gas requires relatively low capital investment and it can contribute towards a more sustainable energy supply – an imperative for sustainable economic development in Africa.

Africa must get more value from its vast natural resources, including natural gas. Doing so will ensure economic benefits are more widely shared, reaching ordinary Africans and lifting them out of poverty.

Author: Christine Ramon is an Executive Director and Chief Financial Officer at Sasol Limited, South Africa. She is a former World Economic Forum Young Global Leader.

Image: A gas processing plant in South Africa REUTERS/Juda Ngwenya