Lessons from Hormuz: Africa must close its processing gap
The continent's dependence on imported fuels, fertilisers and other manufactured products highlights the urgent need for regional value chains.
Africa holds approximately 119.6 billion barrels of proven crude oil reserves, representing about 7.6% of global proven reserves, with more than 82% concentrated in three countries: Libya (40.4%), Nigeria (31.4%) and Algeria (10.2%). Despite this crude oil endowment, the continent captures only a fraction of the value generated along the global petroleum value chain due to inadequate refining capacity. Around 75% of Africa's crude oil production is exported in raw form, while a significant share of refined petroleum products is imported to meet domestic demand.
This processing gap leaves Africa dependent on external partners and vulnerable to disruptions in the global energy market. Efforts to expand refining capacity have progressed slowly and unevenly, despite longstanding calls for value addition and industrialisation. The role played by Nigeria's Dangote Refinery during the ongoing Strait of Hormuz disruption underscores why accelerating domestic processing capacity is an economic imperative. Beyond retaining more value on the continent, greater refining capacity can help shield African economies from future external shocks.
The disruption of shipping through the Strait of Hormuz has exposed the economic costs of this dependence. As one of the world's most important energy and sulphur chokepoints, disruptions to traffic through the strait quickly translated into higher oil and fertiliser prices, demonstrating how external shocks can reverberate across African economies. Rising gasoline prices, in particular, have translated into higher production and logistics costs.
These cost margins are typically passed through to consumers, eroding household purchasing power, weakening economic growth prospects and exacerbating poverty.
Agriculture is particularly exposed because higher fuel and fertiliser prices increase production costs, putting pressure on crop yields and food supply. The resulting cost-push inflation has severe effects on low-income households, with implications for poverty, food security and social stability. African Futures scenario modelling indicates that these effects are likely to persist long after the Hormuz shock itself. Even if a peace agreement is reached by the end of 2026, extreme poverty will remain above a business-as-usual (Current Path) trajectory until around 2031
Even if peace returns by the end of 2026, the Strait of Hormuz shock will continue to push millions of Africans into poverty until 2031
By 2027, the shock is projected to push an additional 2.61 million people into extreme poverty relative to the Current Path forecast. The number will rise to 4.79 million by 2029 before gradually returning to the Current Path.
These findings highlight the need for a two-track policy response: immediate measures to protect vulnerable households and longer-term reforms that reduce Africa's exposure to external supply shocks.
In the short term, governments should prioritise targeted fuel and transport support for critical food supply chains, temporary fertiliser subsidies or concessional credit for smallholder farmers, strategic use of food reserves and stronger market oversight to limit excessive price mark-ups. To preserve fiscal sustainability, these interventions should remain transparent, targeted and time-bound.
Over the longer term, governments should prioritise investments in regional refining capacity, fertiliser production and integrated food systems to reduce import dependence and strengthen domestic value addition. Accelerating regional value chains through the African Continental Free Trade Area (AfCFTA) can help retain more value on the continent while creating new opportunities for industrialisation and employment.
Africa possesses many of the resources needed to support this transformation. Morocco, Egypt, Algeria and Nigeria have the resource base, industrial capabilities and strategic location to emerge as regional hubs for fertiliser production. Similarly, Nigeria, Libya, Angola, Algeria and Egypt could play a leading role in expanding refining capacity and supplying regional fuel markets, leveraging their abundant hydrocarbon reserves and existing energy infrastructure.
The continent also holds an estimated 60% of the world's solar resources. Further, proven gas reserves are of a similar magnitude to the continent's oil reserves. These figures, however, are almost certainly significant underestimates because Africa remains one of the world's least explored hydrocarbon regions relative to its size and geological potential, with many sedimentary basins yet to be fully assessed. Together, these natural endowments create significant opportunities to meet rising energy demand while supporting the transition to cleaner and more diversified energy systems.
Realising this potential will require substantial investment in refining and processing facilities, transport and logistics networks, energy infrastructure and green industrial development. The challenge is therefore not only one of industrial policy, but of mobilising sufficient public and private capital to finance these investments at scale.
Africa’s challenge is to mobilise sufficient public and private capital to finance the necessary industrialisation and processing investments at scale
The lesson extends beyond the Strait of Hormuz. Africa's long-term development prospects will depend on capturing more value from its natural resources before they leave the continent. Insufficient industrial capacity and regional integration leave economies unnecessarily exposed to external disruptions, with lasting consequences for growth and poverty reduction. Strengthening regional industries and value chains will not eliminate future crises, but it can make them more manageable while supporting industrialisation, job creation and more sustainable economic growth.
Image: Tumisu/Pixabay
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