State intervention risking return of 70s-type resource sterilisation – by Martin Creamer ( – March 14, 2013)

JOHANNESBURG ( – Current African policies intended to capture a greater share of the resource rent through increased State intervention run the risk of bringing back the resource sterilisation of the 1970s, mining risk analysis company Eunomix warns.

The resource sterilisation risk, says the company, which specialises in de-risking resources and commodities projects in Africa – a destination of ever greater global strategic value – is already becoming evident in many countries facing mining disinvestment.

Headed by MD Claude Baissac, Eunomix has just completed a major study on African economic advancement through resource development.

Based on World Bank data, the study analyses the role of mining and oil and gas in Africa’s economic growth between 1970 and 2010 and tracks the relationship between economic growth, resource rent and commodity prices.

It says that Africa’s post-2000 “boom” was rooted in the private sector-friendly policies implemented in the 1990s and that, as in the era of 1970s sterilisation, the current rent-seeking State intervention is arriving post-super-cycle, and is as likely to produce the opposite of its intended effects.

Given this, governments’ priority should urgently shift to minimising the negative impact of greater market volatility and uncertainty.

Governments should seek to protect rent-generation first, because a dwindling rent hurts government revenues, decreases employment and slows growth.

He urges African governments to deploy measures that ensure that the rent is more fairly and transparently allocated throughout society.

“Critically, governments should urgently undertake policies that effect economic diversification toward balanced and sustainable economic growth and opportunity for all. Failing to do this is likely to undermine the great achievements of the past decade,” Baissac warns.

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