Watch the Throne: Nigeria is Now leading Africa in GDP

Photo Courtesy of Zouzou Wizman: https://www.flickr.com/photos/zouzouwizman/
Photo Courtesy of Zouzou Wizman: https://www.flickr.com/photos/zouzouwizman/

Nigeria has catapulted ahead of South Africa for the title of largest economy on the African continent. On April 6, Nigerian government officials announced that they had revised their 2013 GDP calculation to the tune of $510 billion. But in 2012 the World Bank estimated Nigeria’s GDP at $262 billion. So what can account for this rapid change? The answer lies in how the Nigerian government did the math.

The process is called “rebasing.” To calculate any country’s GDP, economists must first set a base year on which to model the economic growth. Then economists try to paint a picture of the economy in that year by studying different industries like agriculture, energy, and manufacturing. In the years to come, economists look at how these industries have grown. All GDP calculations, sometimes many years later, are based on this initial point of reference. However, this system of measurement does not account for the informal economy. Nor does it account for rapidly developing sectors such as telecommunications and film—industries that have sprung up in Nigeria over the last 20 years.

Nigeria’s model year was 1990. The new base year is 2010. As we will see, much has changed in the Nigerian economy since 1990. New industries have emerged and historically strong industries have fallen. Thus far, the World Bank has supported Nigeria’s recalculation. It is recommended that a country rebase its GDP numbers every five years. Since Nigeria has held off for so long, the change was quite drastic. Nigeria saw the highest gains in the service industry. The agriculture, oil, and gas industries decreased in terms of percentage of GDP. Telecommunications shot up from less than one per cent to 8.7% of GDP. The Nigerian film industry, known as Nollywood, makes up about 1.2% of GDP.

Sadly, despite these good numbers, the average Nigerian citizen will not see improvements in their quality of life. South Africa, who Nigeria unseated from the throne, has a GDP per capita of $7,336, a long way from Nigeria’s $3,000 (and that is with the new rebased numbers). There is still corruption, terrorism, power outages, and vast inequality in Nigeria. Many have criticized the new calculations, saying that nothing will ultimately change for poor Nigerians. What the new numbers can do, however, is open the door to more Foreign Direct Investment. As Africa’s largest economy, Nigeria has put itself in an advantageous position in the world marketplace by calling positive attention to themselves. As Forbes recently reported, the country is full of potential. They have a growing educated class, energy reserves, and a spirit of entrepreneurship. But as of today it seems that there remains many political and institutional barriers to overcome.

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Russian Actions against Greenpeace International Part of a Familiar Trend

Last week, the CGP blog commented on the state of the CSO sector in Russia amidst the oncoming 2014 Winter Olympic Games in the country. The highly controversial interactions between the environmental group Greenpeace International and the Russian government in the past weeks align with the past grievances we reported on:

A Russian coastguard official points a knife at a Greenpeace International activist who tried to scale an oil platform owned by state-owned energy giant Gazprom (Source: Denis Sinyakov/Greenpeace).

30 people from 18 countries detained on the Greenpeace International ship “Arctic Sunrise” are awaiting trial on piracy charges and face up to 15 years in prison if convicted related to a September 18th  incident in which some of the activists tried to scale an oil rig in the Pechora Sea owned by the national oil-giant Gazprom. The activists may spend up to two months in pre-trial detention in a Murmansk jail awaiting the decision of Russian prosecutors. Greenpeace International director Kumi Naidoo called the seizure of the vessel and the arrest of its crew the worst “assault” on the environmental activist organization since one of its ships was bombed in 1985. The detained activists are reportedly being kept in “solitary confinement for 23 hours a day,” while others are held in “extremely cold cells.” Russian officials have called the protest “pure provocation” and an “encroachment on the sovereignty” of Russia.

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Fiat Lux: Observations on the Power Africa Initiative

Despite posessing only 12% of the world's population Sub-Saharan Africa accounts for nearly 45% of those without access to energy.
Despite constituting only 12% of the world’s population, Sub-Saharan Africans account for 45% of those without access to electricity.

“God said, Let there be light: and there was light. And God saw the light, and it was good; and God divided the light from the darkness.” Although this verse from the Book of Genesis has been recited to the point of being a hackneyed cliche in energy literature, it nonetheless speaks to two powerful truths; that light—a pure form of energy—is good, and that it is ever-present. This statement is taken as gospel by many in the developed world, as a proclamation of energy’s abundance and virtue.  Indeed, other than a handful of outlying commentators, few would deny the former quality and even less the latter. For an appreciative American consumer—who pays some of the lowest energy rates in the world—such a system must seem nothing short of providential. This providence, however, is hardly universal, indeed as Genesis proclaims the light has been divided from the darkness. For many without light, without energy, this line of demarcation is the Sahel region of Africa, separating Sub-Saharan Africa from the rest of the world.

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The Coming “African Boom”

With the wars in Iraq and Afghanistan winding down, the Horn of Africa has emerged as the new base for global terrorism uprooted 12 years ago in Afghanistan.

As American politicians depict a future of peace to their war weary population, European leaders have taken a decidedly more militaristic tone towards extremism in the region. Only one day prior to Obama’s Inaugural address, Britain’s David Cameron, in response to French military intervention in Mali and the subsequent Algerian hostage crisis, described the Africa’s Islamists as a “large and existential threat” that would require a response “that is about years, even decades, rather than months”.

As Western leaders pivot their military might onto a region mired in radicalism and political instability, this blog is largely concerned about the implications for African development and the future of oil security and energy growth in the region. Such instability threatens what many have referred to as the coming “African boom,” economic growth fueled in large part by the rise of oil exports and revenue.

“Each year, in the oil sector alone, a major new discovery is heralded, from Ghana to Uganda and most recently Kenya, pushing Africa’s share of world oil reserves to 10 percent. African oil production growth has already been the fastest in the world over the past 10 years, all of it in sub-Saharan Africa (SSA). Africa now produces 10m barrels a day, as much as Russia or Saudi Arabia, with the 6m barrels of SSA alone worth $235 billion of oil revenue annually or 20% of 2011 GDP. Renaissance expects volume increases to ensure this tops $300 billion even with no change in oil prices by 2019….Nearly a trillion dollars of oil revenue every three years means unprecedented inflows of foreign exchange to fund imports of investment and consumption goods. Rapid economic growth means growing African demand for resources.”

Will energy companies continue to invest in oil production in the face of instability and security concerns after Mali, Algeria, and the continued deterioration in Libya? The most recent attack on Algerian oil fields and the ensuing hostage crisis was grand in scale, but not unique to the area or oil companies. It is said that where there is oil, there is conflict. In fact, militants have a long history of targeting oil installations because they represent high profile targets symbolic of political and economic might. In 2004, Bin Laden specifically citied oil installations as a legitimate target of war, because their damage would result in both economic pain and higher oil prices to U.S. and European markets.

This tragedy is not unprecedented, as there has always been a bit of high risk/high return for investors in the region. The question is how markets and potential investors will react to the North African upheaval. History and recent indicators suggest acts of terrorism will result in heightened security over key oil installations, rather than a reduction of foreign capital and reduced investment into the region. The promise of African oil provides incentive for companies to safeguard and continue to invest in the region’s future.

The importance of securing energy production in a developing country cannot be overstated in terms of future growth.  Talks regarding Algeria at Davos provided a clear look at how world leaders are looking once again at issues of security and investment in Africa. The World Economic Forum’s focus on sustainable development, energy infrastructure, and security lead European leaders to conclude:

“The energy sector constitutes a relatively modest share of GDP in most countries, except for those in which oil and gas income loom large. However, the energy sector’s impact on the economy is greater than the sum of its parts. Most importantly, almost none of the economy’s goods and services could be provided without it. Thus, stable and reasonable energy prices are needed to reignite, sustain and expand economic growth.”

How energy markets and foreign investors react to the threat posed to economic growth through radicalism will determine the future growth of Africa, and produce either an economic or a literal ‘boom.’ The immediate reaction to the Algerian crisis has produced a wait and see attitude on the part of investors, which has been perceived as a hopeful sign for continued development in the region.  This response suggests companies may not walk away from the region as the perceived risks of investing in future projects fail to outweigh the promise of development and economic growth. How energy markets respond to the challenges of continued economic growth in “an arc of instability” will reverberate across the international development field.

A Big Frackin’ Deal

A development boom in the energy sector is set to challenge the traditional geo-political landscape. For decades, Americans have bemoaned an energy policy dependent upon sending U.S. money for foreign oil buried deep beneath hostile sands.

‘But The Times They are A-Changin’

2012 marked a record year for U.S. energy production, and projections show that the United States is set to become the number one exporter of oil by 2020, passing Saudi Arabia. Within the next decade, the United States could actually become energy independent.

This boom in U.S. oil and gas production has become a modern day gold rush. In an economy defined by stagnant economic growth, natural gas has become big business. Massive investments into new technology and a refined process of drilling have made vast areas of shale gas available for extraction through a process of horizontal drilling and hydraulic fracturing — or fracking.

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