With soaring commodity prices, Africa was starting to flourish before economic problems emerged
Sanusha Naidu, Research Director, China in Africa 24 December 2008
At the beginning of the 1990s, Africa was written off as the “Hopeless Continent” ravaged by child-soldiers, HIV/AIDS, poor political and economic governance, and one of the worst genocides in history. Since then, however, Africa has rebounded in confidence, even if many of its problems remain unsolved. Investment soared and democracy spread (though it remains imperfect), while resource-rich African countries recorded phenomenal GDP growth rates, led by Angola (20 percent plus on average) and more recently Rwanda (10 percent). Overall, sub-Saharan Africa’s growth has averaged more than 6 percent in recent years. This was fuelled by a commodity boom generated by the emerging BRIC economies of Brazil, Russia, India and especially China.
However, its boom has peaked. The decline of global commodity prices means that some countries face budgetary constraints on their social development policies. On the other hand, some analysts say this problem will be short-lived. They point to China’s $586 billion stimulus package and its possible impact on Beijing’s demand for African commodities. The excitement focuses on the huge infrastructure projects identified in the package that will require the type of primary resources Africa can supply.
Similar expectations have energy pundits thinking that China’s new spending could be a boost for the price of oil. That would help some African countries but punish others. In any case, the stimulus package means that China’s African interests are not at risk and instead may even expand.
At the same time, however, China’s industrial output is slowing. There are other markets in Asia where demand for African resources could be stimulated. African governments and economists should be cautious in assuming that Chinese demand will by itself revive the commodity boom and bring windfalls to the continent.
So far, the decline in commodity prices has been steeper than the one in the 1970s. The International Monetary Fund predicts that economic growth for the sub-Saharan region will be a relatively healthy 6.2 percent in 2009. Yet such assurances should not be taken for granted in these unsettled times. African countries should diversify their economies to offset the negative effects of commodity-price cycles.
A greater concern in 2009 will be a continuing rise in global food prices. This affects consumers throughout Africa, exacerbating the problems of unemployment and rising consumer debt. In addition, non-African countries unable to achieve food sovereignty are on the hunt for commercial farmland in Africa. South Korea’s Daewoo Logistics, for instance, has reportedly been in talks over a 99-year lease for agricultural land in Madagascar. The purpose remains undisclosed – cash crop production for biofuels is one possibility – but the project may involve a Chinese company and use labour and technical expertise from South Africa. It has also been reported that China has bought land in Mozambique’s Xai Xai province for agricultural purposes. Even some of the more prosperous African island countries like Mauritius have reportedly secured contracts in Tanzania and Mozambique to engage in cash crop production. The purchase by foreigners of agricultural land will become an increasingly sensitive issue in Africa, especially for dispossessed peasants and landless farmers.
The Gulf of Aden will continue to be a zone for pirate attacks unless there is serious naval intervention by the international community. Piracy has already led to the Cape of Good Hope becoming an alternate navigational route. Nevertheless, the role of U.S. military Africom command may be extended to monitor the Gulf in collaboration with other international forces.
One island of stability amid the global financial crisis will be China-Africa relations. The 6th summit of the Forum for China-Africa Cooperation ended in October with promises of continued friendship and investment. But the broader financial crisis may affect China’s relations with other countries. The over-production of manufactured goods and the under-availability of credit mean that China may not have the usual outlets for its products. This could mean a more sober approach to the development assistance and generous financial terms China has extended to some African countries.
The developed countries of the North, preoccupied with reviving their own economies, are also likely to cut back on investment and development aid in Africa. As in all other regions, there will be winners and losers in the African landscape in 2009. All of them, however, may find that this will not be a good year to look abroad for solutions to their problems.
1 comment:
Global Financial Crisis: Life after the Boom
With soaring commodity prices, Africa was starting to flourish before economic problems emerged
Sanusha Naidu, Research Director, China in Africa
24 December 2008
At the beginning of the 1990s, Africa was written off as the “Hopeless Continent” ravaged by child-soldiers, HIV/AIDS, poor political and economic governance, and one of the worst genocides in history. Since then, however, Africa has rebounded in confidence, even if many of its problems remain unsolved. Investment soared and democracy spread (though it remains imperfect), while resource-rich African countries recorded phenomenal GDP growth rates, led by Angola (20 percent plus on average) and more recently Rwanda (10 percent). Overall, sub-Saharan Africa’s growth has averaged more than 6 percent in recent years. This was fuelled by a commodity boom generated by the emerging BRIC economies of Brazil, Russia, India and especially China.
However, its boom has peaked. The decline of global commodity prices means that some countries face budgetary constraints on their social development policies. On the other hand, some analysts say this problem will be short-lived. They point to China’s $586 billion stimulus package and its possible impact on Beijing’s demand for African commodities. The excitement focuses on the huge infrastructure projects identified in the package that will require the type of primary resources Africa can supply.
Similar expectations have energy pundits thinking that China’s new spending could be a boost for the price of oil. That would help some African countries but punish others. In any case, the stimulus package means that China’s African interests are not at risk and instead may even expand.
At the same time, however, China’s industrial output is slowing. There are other markets in Asia where demand for African resources could be stimulated. African governments and economists should be cautious in assuming that Chinese demand will by itself revive the commodity boom and bring windfalls to the continent.
So far, the decline in commodity prices has been steeper than the one in the 1970s. The International Monetary Fund predicts that economic growth for the sub-Saharan region will be a relatively healthy 6.2 percent in 2009. Yet such assurances should not be taken for granted in these unsettled times. African countries should diversify their economies to offset the negative effects of commodity-price cycles.
A greater concern in 2009 will be a continuing rise in global food prices. This affects consumers throughout Africa, exacerbating the problems of unemployment and rising consumer debt. In addition, non-African countries unable to achieve food sovereignty are on the hunt for commercial farmland in Africa. South Korea’s Daewoo Logistics, for instance, has reportedly been in talks over a 99-year lease for agricultural land in Madagascar. The purpose remains undisclosed – cash crop production for biofuels is one possibility – but the project may involve a Chinese company and use labour and technical expertise from South Africa. It has also been reported that China has bought land in Mozambique’s Xai Xai province for agricultural purposes. Even some of the more prosperous African island countries like Mauritius have reportedly secured contracts in Tanzania and Mozambique to engage in cash crop production. The purchase by foreigners of agricultural land will become an increasingly sensitive issue in Africa, especially for dispossessed peasants and landless farmers.
The Gulf of Aden will continue to be a zone for pirate attacks unless there is serious naval intervention by the international community. Piracy has already led to the Cape of Good Hope becoming an alternate navigational route. Nevertheless, the role of U.S. military Africom command may be extended to monitor the Gulf in collaboration with other international forces.
One island of stability amid the global financial crisis will be China-Africa relations. The 6th summit of the Forum for China-Africa Cooperation ended in October with promises of continued friendship and investment. But the broader financial crisis may affect China’s relations with other countries. The over-production of manufactured goods and the under-availability of credit mean that China may not have the usual outlets for its products. This could mean a more sober approach to the development assistance and generous financial terms China has extended to some African countries.
The developed countries of the North, preoccupied with reviving their own economies, are also likely to cut back on investment and development aid in Africa. As in all other regions, there will be winners and losers in the African landscape in 2009. All of them, however, may find that this will not be a good year to look abroad for solutions to their problems.
Post a Comment