A look at the role resources have played in Africa's growth story
“Minerals are not a curse. They can certainly be the best boon," says Chamber of Mines of South Africa boss.
The Investing in African Mining Indaba, held this week in Cape Town, saw many from the government and private sectors debate the notion of a resource curse in Africa. According to economist and Rhodes University professor, Gavin Keeton, it is easier to find articles about how the discovery of coal is a risk to Mozambique’s economic future than it is to find articles highlighting its benefits.
“Why is there such a negative view of the industry in terms of its contribution to growth? One of them of course is environmental, where the industry is viewed very negatively. But there is also a negative view of mining which is deeply embedded in economic thinking, and this comes from two articles that were written by Sachs and Warner... in which they popularised the resource curse,” highlighted Keeton. “And I think there [are] few economic articles that have had such an impact on popular discourse as the Sachs and Warner article.”
He explained that the article made a comparison of per capita economic growth and natural resource endowment and found a negative relationship between these.
“And this was very quickly taken up in popular discourse and I think still feeds thinking today,” said Keeton, adding that mining has undoubtedly played an important role in Africa’s growth.
Roger Baxter, chief operating officer at the Chamber of Mines of South Africa, agrees. “Minerals are not a curse provided countries pursue the right governance structures both in the private sector and in the public sector. They can certainly be the best boon for development and so I am certainly of the view that the resource curse is only for those countries that don’t pursue those right sorts of policies,” Baxter said during a panel discussion at the Mining Indaba.
Africa’s growth story based on its growing extractive industries
According to David Hale, global economist and founding chairman of David Hale Global Economics, only four countries in Africa will have growth rates below 3% this year. While sub-Saharan Africa is seeing continued positive growth, expected at around 6% this year, a large portion of Africa’s population remains poor and a lot of Africa’s growth and investment is reliant on its wealth of natural resources.
The great commodities super cycle seen over the last decade, alongside Chinese economic take over, has most notably played a significant role in Africa’s growth.
“Africa is well placed in this commodities super cycle because it is a major producer of a wide range of raw materials... Africa produces 74% of the world’s platinum, 62% of cobalt, 54% of diamonds, 42% of chromite, 30% of manganese, 26% of phosphates, 19% of gold, 19% of uranium, 8% of copper and 11% of oil,” stated Hale.
An obvious result of this commodities super cycle is an increase in trade, which Hale said has gone from US$200bn per annum in the 1990s to now just under $1tr.
The resources grab encourages FDI inflows
Africa’s wealth of resources has also seen an increase in foreign direct investment (FDI), generally from Asia and more specifically from China.
“China has invested $75bn dollars in Africa since 2005 – $25bn in mining, $25bn in energy, and $6bn in financial services, with much of that occurring here in South Africa when ICBC (Industrial and Commercial Bank of China) bought 20% of Standard Bank in South Africa four years ago,” said Hale.
He added that China has 38 mining bureaus throughout the world, with 21 of them being in Africa. This is compared to only six mining bureaus in Latin America and eight in Asia.
“And the fact that they have got all these mining bureaus here tells you that they are very, very much focused on Africa,” Hale continued. “And they are not just financing mining, with the help of the Chinese Development Bank and the Export-Import Bank, they are also financing a huge amount of infrastructure development.”
Other Asian countries are also investing in Africa. For example, Hale said Malaysia has invested $19bn in Africa over the last decade and India $14bn.
South Africa has also become a major investor in other countries in Africa. “South African companies now have invested $18bn elsewhere on the continent, but not just in mining, they are also a major player in retailing, telecom and financial services,” continued Hale.
“Africa’s problem although is, despite this FDI from Asia, its overall rate of capita spend as a share of GDP is only 22%. That’s a very modest number. It compares to 48% in China, 36% in India and around 30% in many other Asian countries.”
Democracy and privatisation fuel investment
Alongside the grab for Africa’s resources there has also been a movement towards democracy over the last decade.
“We now classify 16 countries as being effectively democratic and about nine more as trying, but not yet being fully there... Back 25 years ago we classified only three Africa countries as democratic... So on the political front Africa is making progress.”
Hale added that African governments are also starting to realise that the real solution to many of Africa’s problems will come from private investment, not government investment. For example, Africa’s inadequate power shortages remain a significant concern across the continent. Hale highlighted that the entire sub-Saharan region produces less power than Spain, a country that has only 40m people, compared to the 900m people in sub-Saharan Africa.
“Nigeria announced last year a very radical report; they privatised their electricity system. This has been a chronic problem for many years. They have very severe power shortages; all businesses must operate with diesel generators. Now that they have privatised it, there will be a massive investment boom,” explained Hale.
“And I think they will probably increase power output threefold over three years, and tenfold over 10 years. And this could boost Nigeria’s growth rate of the recent trend of 6%-7% to possibly as high as 10%. So by the year 2020, the GDP of Nigeria will be 50% larger than South Africa.”
He added that the next step in Africa’s growth story would be to ensure that African governments put into effect adequate mining governance structures, and encourage investment through clear policies on ownership and reduced mining taxes.