Africa’s oil-and gas-rich nations have been recommended by the World Bank to diversify their oil and gas businesses’ assets. This was mentioned in the May 2023 report titled: “Harnessing Natural Resources for Economic Transformation during the Low-Carbon Transition.”

In the report, the international financial institution said oil and gas rich countries in Africa have not recorded a lot of success working toward export diversification, so it is time to switch things up.

According to the report cited, policy makers in oil and gas-rich countries on the continent may have more success working toward asset diversification rather than export diversification. Asset portfolio diversification is an important step toward sustained growth and is more feasible for resource-rich countries to achieve than traditional export diversification.

The report further quoted the 2021 Changing Wealth of Nations report, which states that targeting asset portfolio diversification, by investing in the expansion of human and physical capital, may be a more successful policy than export diversification for sustainable economic growth.

Bitter Legacy Of A Golden Era

According to the World Bank, the economic climate in Africa’s resource-rich nations has yet to improve.

The global lender brought attention to the fact that the boom in oil and gas resources between 2004 and 2014 did not result in a major change in the asset portfolio composition of resource-rich nations.

“Despite the rising value of non-renewable natural assets in resource-rich countries, the value of natural capital available per person grew by less than 2%. The boom could have brought the opportunity for resource-rich countries to mobilize economic resources to build better institutions that could secure revenue savings to protect them from price shocks given the commodity market volatility.
“However, evidence shows that resource-rich countries missed this opportunity and instead some indicators of institutional quality tumbled.”
World Bank

According to the World Bank report, oil and gas resources can jeopardize fiscal sustainability even before the first drop of oil is pumped. Giant discoveries, mostly of oil and gas, lead to permanently higher government debt and, eventually, debt distress episodes, specifically in countries with weaker political institutions and governance.

Nigeria and other oil and gas rich countries in Africa failed to maximize the boom era. The higher rents and attractive windfalls that came with the boom era were not sufficiently channeled into diversifying the economy or into efforts to reduce poverty and inequality. Instead, poverty and inequality increased in many resource-rich countries during the boom.

Now, the dependence on these resources introduced Nigeria and other African countries to serious macroeconomic risks. Analysts at KPMG Nigeria have said that if Nigeria’s oil sector does not make a recovery, Nigeria’s gross domestic product (GDP) growth could be between –0.23% to –1.18% in 2023.

In recent times, the Nigerian economy has faced some challenges and the oil sector is a contributing factor because of crude oil theft and low investments in the country’s upstream sector.