MGAfrica.com: In 2016 Africa must end its addiction to commodities, or it will be the 1980s all over again

From: Berhane Habtemariam <Berhane.Habtemariam_at_gmx.de_at_dehai.org>
Date: Thu, 3 Mar 2016 23:55:33 +0100

The reason political scientists speak of the “commodities curse” is that during periods of high prices, the need to prepare for crashes is forgotten.

BETWEEN the years 2000 and 2015, the majority of African countries have been doing fairly well financially because the commodities they export have commanded high prices. 

Crude oil is the best example. Large oil exporters like Angola, Nigeria, Equatorial Guinea, and Gabon were earning over $100 per barrel for several years.  For the past two months, the price of crude oil has sunk to about $30 a barrel.  All of these oil exporters are now hurting quite badly as they see their revenue dry up.

The same holds true for African minerals’ exporters. The Democratic Republic of Congo (DRC) has been earning $5.00 per pound on 500,000 tonnes of copper exports per year.  Today, the price is only $1.75 per pound.

The reasons for the drop in African earnings are the economic slowdown in China, and the glut of worldwide oil production.

Crude oil production is way up in the United States, driving world prices down.  Because of its economic cooling, China’s imports of Africa’s commodities are way down. The resulting prospect for most African economies in 2016 is for a slowdown of growth, and an interruption of poverty reduction.

The period of the worldwide commodities’ boom between the years 2000 and 2015 represents the second lost opportunity for Africa.  There was a similar boom between 1960 and 1980 immediately after the end of colonialism.  The major decline of commodity prices during the second half of the 1970s left Africa with major commercial debts and with little revenue to maintain basic services.  The current decline of prices tells us that Africa has not learned the lesson of the earlier catastrophe.

The reason political scientists speak of the “commodities curse” is that during periods of high prices, policy makers and populations tend to forget about the need to prepare for price fluctuations.  During good times, people do not think of possible hard times.  This problem is especially strong in oil producing countries.

Invest in diversity

What Africa needs to do during periods of high commodity prices is to invest in production diversity.  They need to use surplus funds to modernise agriculture, improve infrastructure, and create good conditions for home grown investors so that they can engage in manufacturing.

Most of the African commodity exporting countries have failed to take advantage of the high price periods to diversify. The African countries that are hurting the most right now are Nigeria, Angola, the Republic of Congo, and DRC. Think of this. So many African countries that earn high revenue spend most of their earnings importing food.  This is unacceptable in countries with lots of unused and unirrigated arable land.

The current situation in Africa is not totally negative. There are several countries that have achieved a measure of diversity. Even oil obsessed Nigeria has begun to stick its toe in the water of modern agriculture. For example, cassava production is now in the millions of tonnes per annum. Ford Motor Company has established an automobile assembly plant in the country, from which the first car rolled out in November.

Private sector

The DRC is self-sufficient in cement production. Ivory Coast continues to dominate the world in cocoa production.  Unlike the majority of commodities, cocoa continues to command high prices of significant benefit to Cameroon, Ghana and Angola, as well as Côte d’Ivoire.

Of great importance, a growing number of African countries are beginning to understand the importance of investments by the private sector in infrastructure, especially electric power.  Why should an African country go into debt to build power plants when the private sector is willing to find financing for the same projects? 

Commodity prices will go up again as soon as the Chinese start consuming again, and rising countries such as India, Indonesia, and Brazil continue to expand.  The next time commodity prices go up, Africa will need to invest in economic diversification. They should not make the same mistake for a third time.

—Hernan J. Cohen was the United States Assistant Secretary of State for African Affairs from 1989 to 1993. He is the author of The Mind of an African Strongman: Conversations with Dictators, Statesmen, and Father Figures.

Received on Thu Mar 03 2016 - 17:55:33 EST

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