African states struggle to exit resource trade trap

Thursday, February 19, 2015

The shale revolution has dented the United States' need for African oil, but China's demand remains strong

Impacts

  • For now, the decline in US demand for Nigerian crude will be offset by buyers from elsewhere, particularly India.
  • The EU remains a leading African trade partner, but will attempt to phase-out preferential terms for African states.
  • Trade between African states will grow slowly, with a focus on low-grade manufactured items.

Conclusion

In export terms, Africa's global trade footprint is dominated by three countries. With the exception of South Africa, the top two are natural resource exporters. The decline in US demand for crude exposed the vulnerabilities of the continent's undiversified trade profile, even before the oil price drop began to bite. A fall in Chinese demand would be a painful development.

While exports to the US have declined, imports have grown. On one optimistic reading, this reflects growth in African domestic demand. However, the import composition is dominated by items such as expensive refined fuel and manufactured goods. A flood of such imports may further undermine Africa's industrialisation ambitions, keeping the continent in its natural resource trade trap.

References

see PROSPECTS 2015: Africa's economies - November 17, 2014

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