Africa Has to Shed Off the Resource Curse Stigma

By Sindiso Ngwenya, 3 January 2014 (The Star)

Africa has 10 per cent of the world's known reserves of oil, 40 per cent of its gold, and 80 to 90 per cent of the chromium and the platinum metal group, to list only a few. But a number of commentators still refer to this wealth of natural resources and minerals as "Africa's curse."

They associate the many wars, poverty and untold suffering of ordinary Africans to this abundance. It is true that the abundance of natural resources has been the catalyst for wars and conflict. But should an abundance of natural resources lead to Africa's decline? The answer must surely be a resounding no. Recent literature on the 'Resource Curse and Dutch Disease ' suggest that the real problem affecting commodity rich countries may be of commodities specialisation in an economy with little or no history of industrial development.

The curse and the disease refer to a situation in which a country's seeming good fortune proves ultimately to have a detrimental effect on the economy. Commentators on African economies still insist that the continent's future lies in export of commodities; that Africa should continue to export almost all they produce, without adding value, and import virtually all that the people living on the continent consume.

They claim that if Africa adopts this economic growth model, and assuming that commodity prices remain high (which seems to be the projection of most analysts) then the projected growth rates of the continent of an average of six per cent over the next 30 years or so will no doubt materialise. But at what cost to Africa? Africa's population is expected to double in the next 30-40 years to over two billion.

Already we are seeing civil and economic unrest as a result of a lack of employment opportunities. Many of them have had access to education and, with the consolidation of the democratic process, expect their popularly elected governments to deliver on their promises of employment and improved quality of life for the majority. If African countries adopt the economic model of commodity-export led economic growth, the most probable outcome will be economic growth but with a heavily skewed income distribution curve. In 30 to 40 years' time there will be a tiny minority of mega-wealthy Africans but the majority will be jobless.

Many will be surviving on the margins of poverty, alienated from their mineral wealth and living in communities characterised by civil unrest and personal insecurity. Africa's future is bright but only if Africans can use the resources they have as anchors for regional growth clusters and then ensure that they attract value-addition industries. Already the continent has a number of good examples of value addition though not many in the area of minerals; Kenya has a well-established export base of horticultural products to UK supermarkets.

With time, Kenyan producers have been able to meet increasingly stringent food safety regulations, demanding market requirements and private standards, but have also upgraded into value added products, such as chopped and ready to eat products. Ethiopia's strategy for the leather sector has revolved around a combination of an export tax on unprocessed hides, incentives for value added manufacturing firms, and aggressive measures on technology and skills transfer.

In particular, the export tax has forced reluctant European manufacturers to relocate tanning and manufacturing activities in Ethiopia. As a result, the composition of Ethiopia's leather exports has changed dramatically: the share of hides in leather group exports declined from 70 per cent in 2004 to 0 per cent in 2011. The share of finished leather increased from less than a third to 93% in the same period.

A recent success story has been the export of shoes under the Italian brand name Geox, a global leader in the footwear sector, with the 'Made in Ethiopia' trademark. There are exciting and lucrative value-addition opportunities throughout the Comesa and the Comesa-EAC-SADC tripartite region in a number of mineral sectors including coal, natural gas, mineral oil, copper, iron and steel, manganese, phosphates and nickel.

However it is the beneficiation and value addition of the mineral deposits and other commodities that holds the potential for the growth of industrial clusters in Africa. In this way Africa will be able to create jobs, regional markets, and equitable wealth. The author is the secretary-general, Common Market for Eastern and Southern Africa (COMESA)