Extractive resources, global volatility and Africa’s growth prospects

Abstract

Africa is endowed with an incredible amount of natural resources of whichthe extractive sector is a key component. Unfortunately, however, the continentis characterized by a paradox of plenty or resource curse, depicting a situationof abundant resources that have not translated into economic growth andprosperity for the population. The potential role of the extractive sector isfurther affected by global volatilities. This article reviews the importance ofthe extractive sector to selected African countries. It identifies sources ofglobal volatility that affect the sector and further attempts to establish thefactors that drive the volatility-growth nexus. We use panel data covering 18selected African countries from 1970-2013 to explain the gross domesticproduct (GDP) growth. Volatility persistence estimates are also calculated.The article further examines the policy space that African governments mightconsider to make the extractive sector play a major role in the developmentof the continent. We find that the extractive sector makes a huge contributionto GDP of the selected countries. The empirical evidence also indicates that12 out of 18 countries find it difficult to adjust their economies back toequilibrium when hit with volatility shocks or changes in the volatility ofGDP growth.