Africa's Fabulous Mineral Wealth That Isn't All There
Africa's Fabulous Mineral Wealth That
Isn't All There
BY BRIGHT SIMONS, 18
SEPTEMBER 2012
ANALYSIS
So let's assume for
one moment that you are an international corporate executive responsible for
your company's emerging market strategy. You are hearing a lot more about
Africa of late, and feel strongly that your organisation needs a
well-researched and informed strategy on a continent that has for so long
evaded your radar.
Be careful though how
much store you place on stock wisdom about Africa packaged as authoritative.
You may find that such
commentary does not always enlighten, so that, in a paradoxical sort of way,
the more you read the less truly educated you become.
Before you begin to
ponder what avenues may be available to your company as it seeks to escape this
information trap, let me illustrate what I mean with a classic example.
There is a near-universal
belief that Africa is the richest continent on Earth from a natural resource
point of view. This belief is most strongly associated with mineral wealth,
which is the form of natural resource endowment easiest to measure.
In what has become the
accepted narrative, Africa is poor both because of and in spite of its fabulous
mineral wealth. The logical implication of such a view is clearly then that
Africa has to do little more than just chuck out "its greedy
dictators" and/or "incompetent governments", for its natural
endowments to translate into economic and financial wealth. Obvious enough.
But is Africa that super-endowed?
Even economic analysts
who have covered Africa for a great many years are sometimes tripped by simple
questions like: which country is the world's largest producer of gold? Many of
them rush to say South Africa, and are puzzled when they learn that it is
indeed China.
The impression has
been so often created that China, like much of Asia, have developed
economically "despite" great natural resource poverty, when the truth
is that countries like China, Indonesia, India, Malaysia and the Philippines
are indeed amongst the world's most wealthy nations from a natural resource
point of view.
Indeed, many analysts
are often surprised to learn that South Africa is fourth down the list of major
gold producers and may soon be overtaken by Russia and Peru, if its remarkable
decline continues unabated.
The same confusion
registers on the faces of even supposedly well-informed observers when they learn
that comparing energy resource management models in the OECD to those in Africa
can be very misguided because of the huge gaps in resource per capita levels.
The most famous illustration of this situation is the belaboured 'Norwegian
model'.
Not quite Norway
When the point is
explained that Norway, according to the World Bank, has less than one-thirtieth
of Nigeria's population and yet (according to the International Energy Agency)
produces roughly the same amount of oil as the latter. Let me illustrate what
this means in clearer economic terms.
At May 2012 benchmark
prices, each Nigerian would receive $460 if the country's annual oil output was
shared equally. The average Norwegian, would, on the other hand, receive
$15,000 under the same method of distribution. I need not add that if oil was
the only thing both countries produced, and there was zero mismanagement in
either country, Norway would still be a much wealthier country today than
Nigeria. This analysis remains valid even after you account for production and
related oil industry costs.
The point of the
selected illustrations above is to underscore the lack of perspective that
usually attends the evaluation of Africa's natural resource endowment in a
global context. To strengthen the point, one needs to conduct a more
comprehensive and in-depth analysis.
The importance of data
So I have
intermittently, under the aegis of a think tank I am affiliated with
(www.imanighana.org), been poring over geological survey data from some of the
world's leading depositories, especially the British and US geological Surveys.
I have also looked at secondary analysis of mineralogical datasets held by
local agencies in Africa, in such countries as Ghana, Nigeria and Tanzania.
The results are
breath-taking. Both on a per-square mile and a per capita basis, Africa lags
behind the global average in mineral production and reserves.
Of a hundred minerals
considered highly important to industrial production, Africa features strongly
in only about ten.
This result obviously
flies in the face of the opinions usually shared in reference to Africa's
mineral wealth, like this one:
Africa is the richest
continent in the world, in terms of its natural and mineral resources...Africa
supplies up to 31 percent of the world's demand for bauxite, cobalt, gold,
manganese, phosphate and uranium. Additionally, it supplies 57 percent of the
world's need for chromium and diamonds, and the hydrocarbon deposits are
immense [the continent produces 12 percent of the world's oil and has about 8 percent
of reserves].
The African Union
Chief in June 2010, who made the above statement, mentions 9 of the minerals
produced in significant quantities in Africa. To round off the list, platinum
should have been added.
There are, however, a
number of filters one can pass this type of information through.
Firstly, with the
exception of bauxite and petroleum, these minerals are not as widely used in
industry (or in the same considerable volumes) as a number other minerals, such
as tin, copper, nickel, zinc, iron, coal, and lead, that Africa does not
produce in sufficient quantities. Indeed, of the top 5 metallic minerals which
constitute 62 percent of the total value of global production, Africa is only a
significant producer of one of them: gold. Africa has 8 percent of the world's
copper, 4 percent of aluminium, 3 percent of its iron ore, 2 percent of lead,
less than 1 percent of zinc, and virtually no tin or nickel. To put these
figures into perspective, recall that Africa has about 14.5 percent of the world's
population.
The case of bauxite
(which is processed into aluminium) is interesting. Guinea, which ranks fifth
worldwide, is the only significant producer among the world's top 15 countries,
producing 18 million tons per annum, compared to Australia's 70 million.
Guinea does hold the
world's largest estimated reserves of bauxite (7.2 billion tons), with
Australia closely following (6.2 billion tons). This fact brings the other
filter into play: reserves or untapped mineral deposits and their distribution across
Africa.
Of those few minerals
that Africa is believed to hold globally significant or dominant reserves,
nearly all of them are concentrated in 4 countries: South Africa, Angola,
Democratic Republic of Congo and Guinea. When one computes the level of
inequality of mineral distribution across different continental regions, Africa
pulls up strongly, showing a far higher than average level of distribution
'imbalance' per capita or square mile. In very simple terms, it means that
mineral wealth is more concentrated in a few countries in Africa compared to
other continents. We will return to this point.
How valuable are Africa's natural resources?
But let's pick up
again the earlier point about the minerals Africa produces in prominent
quantities being less valuable compared to those that it does not produce.
Take gold, one of the
main jewels in Africa's crown. The total value of known reserves is roughly
$2.6 trillion in May 2012's historically high prices. The total value of global
gold production in 2011 at May 2012 prices is $138 billion. Africa's share of
the reserve value of gold is $1.3 trillion. Its share of 2011 production value
was $30 billion.
Now, let's take iron
ore, a mineral that Africa lags behind the world in both reserves and
production.
The total value of
known reserves is roughly $128 trillion. The total value of 2011 production is
roughly $475 billion, with the largest producer, China, bagging over $200
billion of this. China's share of reserves can be valued at nearly $4 trillion.
Lastly, look at coal,
a fuel mineral that accounts for about 50 percent of the value of all
non-petroleum mineral production worldwide. Last year, $650 billion of the
substance was produced. Africa's share of worldwide output of coal however
totalled less than 4 percent.
If these examples are
generalised, one realises immediately that Africa's low production of the 'hard
minerals' minerals most intensely used in industry compared to the less widely
used 'soft minerals' reduces its total take from the global mineral trade. But
it also makes a nonsense of fashionable policy prescriptions that emphasise
import-substitution strategies based on value addition to minerals, rather than
export competitiveness through smart trade strategy and the deepening of the
financial system to support entrepreneurs.
Furthermore, this is
why one needs to be cautious when taking in information about Africa's reserve
position in respect of some minerals. Take cobalt. Some commentators tend to
use the fact that Africa produces nearly 60 percent of the world's cobalt as a
perfect illustration of mineral wealth. Yet, the total value of cobalt consumed
worldwide last year amounted to $380 million, meaning that Africa's earnings
came to $228 million. Compare this to roughly $50 billion in value of Chilean
copper production.
Super-concentrated production
This point is of
course secondary to the more fundamental one made earlier: that Africa produces
fewer minerals overall compared to the global average (in both per capita and
per square mile terms), and that production is super-concentrated in a very few
countries.
Indeed, the residual
value of Africa's mineral wealth is not only concentrated in a very few
countries but also in a very narrow mineral base.
For instance, South
Africa has 92 percent of its reserve wealth concentrated in platinum group
minerals, while at the same time it has 90 percent of Africa's coal and 95
percent of its chromium. Guinea mines 90 percent of Africa's bauxite. Congo
mines 90 percent of the continent's chromium. Ghana and South Africa accounts
for 60 percent of Africa's gold. South Africa, Gabon and Ghana produce
virtually all the manganese.
The state of affairs
described above is compounded by the fact that Africa is witnessing a decline
in the production of most minerals, such as gold, petroleum, and uranium, with
new discoveries failing to offset falls in production in key countries.
A conspiracy against Africa?
I put this point to a
number of experts and economists during a conference in Addis Ababa recently.
A major Ethiopian
industrialist was of the opinion that a conspiracy may be afoot to marginalise
Africa's mineral holdings. The truth though is that Geological survey data are
composite, making use of information provided by local mineralogical agencies
and international organisations.
There is also another
one strong reason why it is unlikely that reserve information in Africa is
being 'gamed': investors. Investors have some incentive to mask production data
to evade or avoid taxes, but they have just as much incentive to exaggerate
reserve estimates in order to raise money. Indeed, nearly every single oil
deposit discovered by mid-cap exploration companies in the gulf of Guinea in
the past decade was significantly exaggerated upon find.
I was also told that the
continent's low mineral reserve base is due to the low intensity of
exploration. In fact, I was pointed to a 2010 book by Professor Paul Collier in
which he makes this exact point. Curiously, the concession is made to look like
a belated acknowledgment based on new work. My 2007 comment on the subject for
OhMyNews and a 2010 co-authored piece with Professor Lehmann of IMD however
indicate clearly that Africa's relative resource-poverty is a fact that jumps
up at even the casual observer cursorily browsing through geological survey
data.
In actual fact,
Africa's mineral exploration intensity can be measured by the amount of
exploration dollars Africa attracts. Fifteen percent of all global exploration
capital is taken by Africa, higher than its per capita entitlement. It cannot
therefore be true that the search for minerals in Africa, dating from colonial
times, when colonial powers highlighted this resource and marginalised most
others, has been patchy.
If you are one of
those relatively well-informed international executives and yet you find the
message in this article perplexing and the conclusions novel, then you are
justifying the original premise of this article: relying solely on stock
wisdom, regardless of the source, can never match using primary data and
first-hand research in effectiveness.
Your business should
benefit greatly from using as much primary data and as little stock wisdom as
possible when and wherever critical aspects of the African economy are being
examined to guide your entry strategy.
Bright Simons is a Social Entrepreneur and Public Interest
Researcher. He invented the mPedigree anti-fake drugs system
(www.mPedigree.Net), and is a Fellow at IMANI, a think tank in Ghana.
See : Risk list 2012
An updated supply risk index for chemical elements or element groupswhich are of economic value
Figure 1: Chart indicates the number of times a country is the leading global producer of an element or element group of economic value.Source: BGS World Mineral Statistics. BGS©NERC. Click to enlarge.
