African Development Forum discusses how Africa can benefit from its natural resources

By Emmanuel K. Dogbevi

There is no doubt that the African continent is rich in natural resources.

The continent with an estimated over one billion population is rich in renewable and non-renewable natural resources, however, there is general agreement that the continent does not benefit from its vast resources. These resources are mined and exported in their raw form.

Africa produces more than 60 metal and mineral products and is a major producer of several of the world’s most important minerals and metals. But issues about Africa’s natural resources are vexatious.

Some of the minerals mined out of Africa include gold, diamond, PGE’s, silver, iron, uranium, bauxite, manganese, chromium, nickel, bauxite, cobalt and copper. Platinum, coal, and phosphates are also mined on the continent.

Africa also has rich forests, marine and aquatic resources that have been exploited for years, but Africa’s share of the revenues, “have been miniscule compared to what the mining companies have realised,” said Dr. Stephen Karingi, the Director, Regional Integration, Infrastructure at the United Nations Economic Commission for Africa (UNECA) in 2011.

Dr. Karingi has also said the top 40 mining companies operating in Africa reportedly made net profits of about $110 billion in 2010 alone. And these companies have a net asset base which exceeds $1trillion.

Information available also indicates that mining has come to dominate the export earnings of many African countries. In 2005 minerals accounted for more than 80% of exports in Botswana, Congo, DRC, Guinea, and Sierra Leone and more than 50% in Mali, Mauritania, Mozambique, Namibia and Zambia. By 2008 sustained demand from a burgeoning Chinese economy had seen prices for minerals reach new heights.

Jean Noel Francois, the Acting Director, Department of Trade and Industry at the African Union (AU) Commission has also said in 2011 that even though Africa’s mineral resources are fuelling growth and development in many industrialised and emerging economies of the world, Africa still remains poor, under-developed and dependent on donor assistance for national budget support.
He further reiterated the fact that Africa consumes very little of its own mineral resources and exports most of it as raw materials, “with little or no local value addition and beneficiation.”

The Eighth African Development Forum (ADF VIII) held from October 23 to 25, 2012 sought to discuss these issues and chart the way on how Africa can harness it’s natural resources to benefit its people.

The conference jointly organised by the UNECA, the African Union Commission and the African Development Bank is under the theme “Governing and Harnessing Natural Resources for Africa’s Development”.

“The ADF, an ECA) flagship biennial event created in 1999, is a multi-stakeholder platform for discussing the effectiveness of Africa’s development policies and strategies…. It is to establish an African-driven development agenda that reflects consensus, and has the  potential to yield specific programmes for implementation,” the conference concept paper has said.

The Concept paper further states that the Forum will build on the outcome of the Fifth Joint African Union (AU) Conference of African Ministers of Economy and Finance and ECA Conference of African Ministers of Finance, Planning and Economic Development held in March 2012 in Addis Ababa under the theme “Unleashing Africa’s potential as a pole of global growth” and the analytical work carried out in the Economic Report on Africa 2012 under the same theme.

It adds, the platform offers as much an opportunity to build partnerships as for the occasion to further deepen discussions on implementation of: the Africa Mining Vision (AMV); the AU Declaration on Land; the Framework and Guidelines for Land Policy in Africa (F&G); the Implementation Strategy for the Accelerated Industrialization Development for Africa (AIDA); Voluntary Guidelines on the Responsible Governance of Tenure of Land, Fisheries and Forests; and other frameworks for best practices in the management of mineral, land, fisheries and forest resources.

The overall objectives of the Forum are to  raise awareness and cultivate deeper understanding of the role of Africa’s natural resource governance in its economic transformation. It will also provide an opportunity to discuss frameworks, policy options and strategies to better integrate mineral, land, fisheries and forest management into national resource management programmes, strategies and policies.

And some of the specific objectives include to demonstrate the role that Africa’s mineral, land, fisheries and forest resources could play in its broad social and economic development; Deliberate on the challenges that mineral, land, fisheries and forest resources mismanagement pose to Africa’s development, and offer governance and management models that can best support the continent’s transformation; and promote sharing of models, experiences, best practices and lessons learned in enhancing the role of natural resources in development in Africa among others.

Some of the expected outcomes include the following; Better-informed stakeholders about the role of natural resources in Africa’s development; Deeper understanding of stakeholders on how to translate frameworks and visions for natural resources management into practical policies and actions; and Strengthened capacity of stakeholders to advocate for prudent management of minerals, land, fisheries and forest resources to enhance their contribution to development.

African countries must go beyond talk to action. The global economic crisis and the eurozone crisis are enough evidence for action now.

The citizens of Africa have waited long enough. The teeming youth of Africa need jobs.

The 2012 African Economic Outlook (AEO) argues that youth unemployment figures will increase unless African countries move swiftly to make youth employment a priority, turning its human capital into economic opportunity.

The AEO has also warned of looming domestic and external risks posed by the continued economic crisis in the eurozone.

This crisis, according to the AEO, threatens to constrain growth by lowering the demand for Africa’s exports, reduce tourism earnings and financial flows from foreign direct investments, Official Development Assistance and remittances.

Dr. Emmanuel Nnadozie, the Director of Economic Development and NEPAD Division, United Nations Economic Commission for Africa (UNECA) has also argued that, “Exporting raw materials is equal to exporting your jobs.”  He indicated that, processing those raw materials on the continent would offer jobs to citizens and add value to exports.

According to him, it is important to get Africans into the global value chain. He said that can be done through natural resource governance, knowledge and human resource development and growth that is strong and broad-based.

2012 Economic Report on Africa shows continent has potential to be pole of global growth

By Emmanuel K. Dogbevi

The 2012 Economic Report on Africa has been launched. The report was launched last week in the Ethiopian capital, Addis Ababa during the 5th Joint Annual Meetings of the AU Conference of Ministers of Economy and Finance and ECA Conference of African Ministers of Finance, Planning and Economic Development.

The report which makes a strong argument that Africa has the potential to be a pole of global growth, calls for efforts to unleash the continent’s full potential to fully play that role.
The 2012 edition of the report titled ‘Unleashing Africa’s Potential as a Pole of Global Growth’, examines recent developments in the world economy and implications for Africa and analyses the economic and social prospects for 2012.

Africa’s potential to be the next global pole of growth has never been in doubt. Despite the ripples of the 2008 global economic crisis which are being felt and as the current Eurozone crisis goes on, Africa has shown resilience and continues to grow, even though the report acknowledges that the Eurozone crisis could negatively affect Africa.

The report  provides evidence among other factors to show that Africa could be a pole of global growth and goes on to propose a clear plan on how to unleash the continent’s development capacity and mobilize resources for its structural transformation.

According to the report, after a strong rebound in 2010, the world economy slowed in 2011 owing to increased risks and uncertainties that are expected to remain in 2012 and beyond.

It takes note of the negative effects of the triple crisis of 2007–2009 – food, energy and finance – which still linger, and the euro area sovereign debt crisis, it says, has aggravated the structural imbalances in the world economy and cast doubt on the prospects for sustained growth and a quick recovery.

The shift of “toxic assets” from private sector to government balance sheets in major developed economies did not relieve the global financial system as expected, “but instead worsened government fiscal positions, paced by new global financial turmoil with the onset of the euro area crisis,” it says.

Noting that the depth and complexity of the global crisis has so far defied the many policy responses applied by the major developed countries, which kept interest rates low and pursued fiscal austerity measures to restore fiscal credibility, the report posits that, despite these measures, however, long-run structural problems, such as increased income inequality, dysfunctional labour markets and global imbalances, have intensified.

African economies, the report said, rebounded quickly from the 2008 financial crisis as commodity prices rose and export revenues returned to pre-crisis levels, enabling them to finance the necessary investments.

But with the political turmoil in North Africa, coupled with the euro area crisis, growth slowed in 2011. Still, some African countries continued to post double-digit growth, reflecting increased commodity prices and strong domestic demand, the report said.

Citing the world economy which grew at 2.8 per cent in 2011, down from 4 per cent in 2010, largely because of decreased demand and greater uncertainty, it indicated that gross domestic product (GDP) growth in developed economies declined from 2.7 per cent in 2010 to just 1.3 per cent in 2011, on both demand and supply factors.

Domestic demand, however, the report said, particularly in the developed world, stagnated owing to obstinately high unemployment and depressed consumer and business confidence, as fear of a second recession became widespread. Low growth in the developed world is expected to persist at least until the end of 2012.

Outlining examples of growth in the European Union, the US and Japan, it said growth in the European Union (EU) levelled off from 2 per cent in 2010 to 1.6 per cent as the euro area registered only 1.5 per cent growth in 2011. The euro area crisis struck at consumer and business confidence, and lowered private consumption and investment against a backdrop of re-emerging financial turbulence and a bank credit crunch. The EU is expected to register minimal growth of 0.7 per cent in 2012, and the euro area a mere 0.4 per cent.

Growth in the United States (US) it shows, declined to 1.7 per cent in 2011 from 3.0 per cent in 2010, reflecting continued sluggish private consumption and reduced government expenditure. An elevated oil price, high unemployment and persistent deleveraging held down disposable household income. US growth is forecast to slip to 1.5 per cent in 2012. Downside risks lie in fiscal policy choices and the spillover effects of the euro area crisis on still fragile financial institutions.

However, the report says, some positive signs have emerged in job markets, which might
influence the 2012 presidential election and the subsequent economic policy orientation and the pace of the recovery.

Japan’s economy, it stated, switched from 4.0 per cent growth in 2010 to a contraction of 0.5 per cent in 2011, mainly owing to the shock of March’s devastating earthquake and tsunami on private consumption and investment.

Export growth slowed, reflecting the disaster’s disruption to supply chains as well as the yen’s climb. Post-disaster reconstruction expenditure and rising manufacturing confidence are, however, projected to enable the economy to rebound with 2.0 per cent growth in 2012. In the medium and long term, though, an ageing population, mounting public debt and deflationary pressures will weigh heavily on growth, it said.

The ‘economies in transition’ grew 4.1 per cent in 2011, as in 2010, but still below pre-crisis rates, the report said.

It indicated that domestic demand remained weak, as high unemployment and increased household indebtedness constrained private consumption and investment. However, export revenue rose on high commodity prices. The economies in transition are expected to grow 3.9 per cent in 2012, yet they remain vulnerable to spillovers from the euro area crisis owing to their close economic links to that bloc.

In 2011, developed economies’ overall fragility weighed heavily on developing countries’ growth, which stood at 6.0 per cent, down from 7.5 per cent in 2010; growth is projected to decline further to 5.6 per cent in 2012, the report said, adding that, overheating worries have receded, but high unemployment and political turmoil in some countries are still threatening growth prospects.

Developing countries, it said, have tried to make up for the decline of external demand by stimulating domestic demand and pursuing expansionary policies.

East and South Asia—the world’s growth engine—also felt the global economic chill through slackening exports, it noted.

It said, growth slowed to 7.1 per cent in 2011 against 8.8 per cent in 2010, despite robust private consumption and investment. Natural disasters affected regional industrial production and supply chains. Growth is projected to further decelerate to 6.8 per cent in 2012 as external demand from developed countries stays depressed.

Citing China and India, the report inidcated that the two largest emerging economies, were slowed by headwinds from the world economy in the fourth quarter, though they maintained excellent growth of 9.3 per cent and 7.6 per cent, respectively, in 2011.

“High inflation eroded Chinese household incomes and government attempts to limit bank credit—stemming from anxieties of an overheating economy—put pressure on private investment. The major risk for China’s economy comes from a possible external demand slump, which would depress export growth. China is forecast to grow 8.7 per cent in 2012,” it said.

“India’s buoyant private consumption was its main growth driver. Rising prices of basic foods, water and electricity have, though, become a source of public protest against government policies. India is expected to keep its growth momentum, at 7.7 per cent in 2012. Low productivity of rain-fed agriculture and a possible reversal of capital inflows are the main risks,” the report said.

According to the report, Western Asia’s economic growth edged up from 6.3 per cent in 2010 to 6.6 per cent in 2011, mainly on a high oil price and greater social security spending.

Increased energy export income and supportive macroeconomic policies propped up growth in oil-exporting countries, while some oil-importers saw recovery led by fiscal stimulus and domestic demand. Others contracted  or stagnated because of social and political instability.

Growth for the region is expected to decline sharply to 3.7 per cent in 2012 as a result of regional political uncertainties and a possible downward trend in the oil price.

Economic growth in the Latin America and the Caribbean (LAC) region, it said, decelerated to 4.3 per cent in 2011 from 6.0 per cent in 2010, despite the vigorous domestic demand attributable to favourable labour markets, high commodity prices, global low interest rates and currency appreciation. Growth rates were divergent across the region: South American countries continued to benefit from emerging economies’ commodity demand, sound economic fundamentals and increased domestic demand. Mexico and the countries in Central America and the Caribbean, in contrast, experienced slow growth, influenced by the weak US economy.

The world economy, the report explains, is entering a period full of uncertainties and challenges. In the short term, the euro area sovereign debt crisis might push the global economy into another prolonged and deep recession or slow global growth, at steep social cost. High unemployment and rising food and energy prices have already widened income inequality and stirred up widespread discontent and social instability around the planet. The failure of developed country governments to provide long-lasting solutions to correct global imbalances deepens the malaise.

Africa, the report noted, is not immune to the global crisis, though it is now in a much better position to deal with external shocks. The expected global economic slowdown may well cut demand for its commodity exports, reduce prices and thus hurt its export revenues, but increased output alongside its gradual moves to diversify its exports—as well as recently improved intraregional trade—can help the continent to better weather adverse global developments.

ODA shortfalls, it noted, could threaten many aid-dependent African countries’ social development programmes, but could also encourage the continent to mobilize more domestic resources and reduce over-dependence on foreign financial assistance.
In view of these risks and challenges, the report calls on African governments to implement growth-supportive macroeconomic policies in the short run, while adopting long-term development perspectives.

“To be more specific, they should increase their investments in programmes such as education, health and infrastructure that can enhance their economies’  long-term growth potential in the bounds of their fiscal space. Monetary policy needs to be accommodative to support growth, but must be combined with income policies to provide a minimum social security cushion for the weakest groups in society, so as to consolidate the achievements in reducing poverty over the last decade,” it says.

In the long term, Africa’s, it says, governments need to pursue economic diversification and structural transformation vigorously in order to reduce vulnerability to external shocks, such as the euro debt crisis or volatility in commodity prices. Moreover, African countries must continue to diversify their export destinations and expand economic partnerships, including those with new development partners, while deepening intra-African trade and investment.

The report believes that, crucially, African countries can grow faster by unleashing their productive potential—by aggressively investing in infrastructure and human capital, and by promoting good governance.

“This will require strong political leadership and a firm institutional framework to fulfil the broad, transformative long-term agenda,” it says.

The report is a joint publication of the Economic Commission for Africa (ECA) and the African Union (AU).