Africa – Huge Oil Demand

Africa is one of the world’s most populous continents with a population of almost 1.2 billion. The population is greater than North America and South America combined, the population of Africa is greater than Europe. In fact, behind Asia, Africa is the second most populous continent in the world. Africa also consists of 20% of the world’s landmass.

Population

When you are trying to determine the future oil demand of a continent, one of the most important things to pay attention to is the population of the continent – and most importantly its growth.

Africa Population Using UN Data – Lees Words Fishing

In fact, as you can see here, Africa’s population has grown rapidly and is expected to continue growing rapidly. The population is expected to almost double by 2050 and continue growing past that.

The African Bulge Using UN Data – Static Economist

Looking at the long-term forecast for the world, Africa is expected to have almost 40% of the world’s population by the year 2100 – even when population in Asia decreases.

Oil Usage

When looking at the future usage of oil we have to look at where oil is currently used.

US Oil Demand By Sector – X Roil Price

Looking here we see that, contrary to popular belief, very little oil is used for electricity generation. Instead, the majority of the oil in the world is used for transportation and industrial uses. As a result, rapidly increasing transportation and industrial use would increase demand in Africa.

Current Africa Oil Demand

Oil Consumption Total Africa – Espgtl

As we can see here the overall oil consumption in Africa has grown very quickly. Africa has gone from using 2.5 million barrels of oil a day in 2000 to 3.5 million barrels per day in 2010. The country experienced a slight drop in 2008 but had already recovered past that in 2010.

Still we see that Africa’s oil consumption increased by 40% from 2000 to 2010 – that is significant growth. Even after all of this growth, Africa, with 17% of the world’s oil population – expected to grow to 40% of the world’s population. However, Africa uses just 3.5% of the world’s oil.

If we assume the rest of the world continues to use the same amount of oil in 2100 – and Africa uses the representing 40% – that represents a total world oil usage of 170 million. That is not counting the unreasonably low amount of oil that both India and China use for their size.

World Oil Demand – Money and Markets

Looking at just the US, Canada, and Western Europe these countries will have an estimated 10% of the world’s population in 2100. Currently, these countries use 30 million barrels of oil per day. Using this as a representation of future oil usage from developed countries, we get Africa using 120 million barrels of oil and the world using 300 million barrels of oil.

Africa Cars

Now lets talk about the true driver of oil consumption in Africa – cars.

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Africa Vehicle Ownership – EY

Looking here, Africans are expected to purchase several hundred million more vehicles over the next few decades. This is extremely rapid growth. Hundreds of millions more purchased vehicles represents significant growth in the amount of oil usage.

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Passenger Cars Compared To Per-Capita Income – UCTC

Looking at this chart of vehicles per thousand capita we see that many places have just ten to twenty vehicles per thousand people. Singapore and South Korea, crowded but more developed have ten times as many vehicles.

However, Nigeria, Africa’s largest country has just twenty people per capita. Kenya and Egypt, both with significant populations, both have ten and thirty people per capita respectively.

More so, we also see that car ownership is tied very closely to income per-capita. As these countries become more industrialized and increase their per-capita income, these countries will increase their number of cars.

Invest

For those looking to invest, Market Vector’s Africa ETF (NYSEARCA:AFK) represents an opportunity to invest in the country. Investing in developing countries is inherently a risky proposition.

Since its creation before the crash of 2008 at over $40, the ETF fell to a low of $17 during the crash. Since then the ETF has recovered to roughly $25 and remained there since then.

The ETF offers an almost 3% dividend for waiting, but for the risk, the dividend is nothing special.

I would recommend investing in the African ETF now and holding it if you are ok with the dividend. Otherwise, I would recommend waiting for a major dip to invest.

Conclusion

As you can see here, Africa has huge forecast demand in population. This will lead to record car demand and as a result record oil demand.

Many times for rapidly growing countries the predicted growth is lower than the average growth. Unlike China and India which both have a lot of their population in a relatively dense population centers, Africa has many cities spread out across the continent which will result in a car purchase rate similar to the United States.

The ETF will provide you with a good method of investing in the ETF, but the performance has not been particularly impressive so far. I would recommend waiting for a drop to invest in the ETF.

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