Extractive resources, global volatility and Africa’s growth prospects

Abstract

Africa is endowed with an incredible amount of natural resources of which the extractive sector is a key component. Unfortunately, however, the continent is characterized by a paradox of plenty or resource curse, depicting a situation of abundant resources that have not translated into economic growth and prosperity for the population. The potential role of the extractive sector is further affected by global volatilities. This article reviews the importance of the extractive sector to selected African countries. It identifies sources of global volatility that affect the sector and further attempts to establish the factors that drive the volatility-growth nexus. We use panel data covering 18 selected African countries from 1970-2013 to explain the gross domestic product (GDP) growth. Volatility persistence estimates are also calculated. The article further examines the policy space that African governments might consider to make the extractive sector play a major role in the development of the continent. We find that the extractive sector makes a huge contribution to GDP of the selected countries. The empirical evidence also indicates that 12 out of 18 countries find it difficult to adjust their economies back to equilibrium when hit with volatility shocks or changes in the volatility of GDP growth.

Keywords: economic diversification, extractive sector, growth, natural resources, resource curse, volatility