Slower energy demand in China shows oil-driven economies' need to diversify to stay afloat

Although serious price fluctuations in commodity markets have shaken world financial markets in recent decades, this time they could more seriously obstruct African nations' short-term efforts to advance their global economic position.

This is largely because the region's commodity exports remain concentrated in natural resources, despite African leaders' continuing attempts to diversify trade. At the same time, China, still the continent's largest trade partner, is growing less quickly than expected.

Amid drops in world oil prices over the past six months, many African economies have seen negative shocks to their revenue and currency assets as a result of their strong reliance on oil exports.

While the challenges presented by declining prices are not unique to African producers, they are certainly likely to impact the continent's economies more sharply than in other developing regions.

In addition to sub-Saharan Africa's top oil producers - Nigeria and Angola - many developing countries across the world have suffered because of the oil price drop below $60 per barrel.

But while the range of countries impacted is wide, the ability to efficiently overcome these short-term revenue shocks remains weak for most significant oil producers on the African continent.

Most African countries are on the right developmental trajectory as they continue to diversify their intraregional and international trade. But important sectors of the economy such as agribusiness, tourism, manufacturing and IT contribute too little to Africa's export base and public revenue streams.

This is why, for instance, Nigeria's finance minister was forced earlier this month to slash the country's budget by 12 percent, or $3 billion, at a time when the country's challenges are numerous and complex.

Meanwhile, Nigeria's currency has slid by 15 percent since prices began declining earlier this year.

In Angola, sub-Saharan Africa's second largest producer, which derives half of its output from the oil industry alone, price drops have forced officials to rethink their projected revenues for 2015, as the country's budget was ratified under assumptions of world oil prices at approximately $90 per barrel.

At the same time, other oil-producing countries such as Gabon, Equatorial Guinea and Sudan have taken hard hits to their revenues, and will have to reduce their economic ambitions for the coming year.

But some crises have a silver lining. The price drop may inspire Africa's commodity-driven economies to take a look at solutions developed in other nations.

Although their number is far too few, some countries have done well to create the necessary conditions to maintain their economic stability over the past half year, and not all of them are mature economies.

Through sovereign wealth funds, foreign currency reserves and the development of alternative domestic industries, better-known commodity economies like Canada and Norway have built the foundations to effectively deal with short-term market shocks without compromising their overall economic activity.

At the same time, other energy-rich developing nations like Azerbaijan and Kazakhstan have aggressively adopted mechanisms to strengthen alternative industries like manufacturing, tourism and chemicals to lessen their reliance on oil revenues.

However, these energy powerhouses are not only investing heavily in various economic sectors to diversify their budgetary gains. They are also pouring billions into infrastructure projects that contribute to growing the middle class, while holding major global events to boost their image. Astana, the capital city of Kazakhstan, will play host to the prestigious Expo 2017 Future Energy. Baku, capital and largest city of Azerbaijan, is set to undertake the inaugural 2015 European Games, 2016 European Grand Prix and quarterfinals of the UEFA Euro 2020.

The results of these efforts have been recognized widely.

African countries can replicate these achievements if they are less nearsighted and modernize their commodity revenue management practices without overreliance on China's economic performance.

While China continues to make the headlines as Africa's preeminent trade partner, during this period of increased oil supply and flat demand, the Asian giant's performance has become even more critical for Africa and global oil markets. Although the continent should take comfort knowing that China's doors are open for mutually beneficial trade and oil exports, decreasing world prices should oblige Africa's leaders to exercise more potent, transparent mechanisms to become less dependent on exports.

The aggregate composition of Africa's commodity exports still unmistakably highlights the continent's dependency on fuel exports, which account for over two-thirds of commodity exports in the region.

Africa's trade-export relationship with China also is characterized by natural resources.

All that having been said, global market forces are again sending signals to a rising Africa. Abundant resources and reliable trade partners are very important. But more important is knowing how to leverage one's resources to create systems to protect socioeconomic well-being during market fluctuations.

For some time, China, a key trade partner of Africa, might run at a slower pace than initially expected.

Let's hope this triggers a hasty adjustment in economic policy from the continent's leaders.

The author is a managing partner of the Africa Investment Agency. The views do not necessarily reflect those of China Daily.