Africa could still benefit from resources boom – by Geoff Candy (Mineweb.com – May 28, 2013)

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According to the African Economic Outlook 2013, while Africa failed to capitalise on the resource boom of the last decade, there still remains hope for growth.

GRONINGEN (MINEWEB) – While Africa failed to capitalise significantly on the resources boom of the last decade, there remains hope that agricultural, mining and energy resources could boost the continent’s economic growth in the future, says the African Economic Outlook 2013.

According to the report, produced annually by the African Development Bank,the OECD Development Centre, the Economic Commission for Africa (ECA) and the UN Development Programme (UNDP). “What has been holding back Africa is not the large share of its primary sector in itself, but the poor performance of this sector.”

That is not to say the continent has not benefitted at all from the boom in resource prices seen over the last ten years, indeed according to the report, Africa’s GDP grew by 64% between 2000 and 2011, of which, 35% was accounted for by natural resources – primarily fuelled by a tripling of prices for metals and fuels.

But, during this period, “resource production and exploration increased in all regions of the world, and mostly faster than in Africa”.

“Africa’s share of global natural capital shrank from 11.5% in 1995 to 8.5% in 2005,” the report says, while Africa’s share of mineral assets dropped by half from 10.3% to 5.2%.

“Oil is the only resource in which Africa kept its share of global assets. At the same time, Africa’s share of global output dropped only in mining and there only by 2 percentage points (or by 15%; from 14% of global output to 12% of global output). Africa’s share in global output in energy and soft resources increased by 1 percentage point each.”

Part of the reason for this is the so-called “resource curse” which occurs when a poor country fails to move beyond dependence on natural resources and ends up with small elites controlling resource rents.

“Nigeria provides a sad example of a country that squandered much of its oil wealth through corruption. Angola stands out as an example of “Dutch disease”, which describes the process of soaring price levels crowding out the non-resource economy. Equatorial Guinea has a per capita income level on a par with the European Union (EU), but because of extreme inequality most of its people continue to live in abject poverty,” the report says.

According to the research, these issues are often magnified by governments failing to properly manage the volatility inherent in high commodity prices.

“Cross-country comparison shows that controlling for volatility can eliminate most of the negative effects of natural-resources … However, dependence on natural resources acted as a brake on financial sector development and the relationship between the share of natural resources in GDP and the lack of access to finance across African countries remains positive,” the report notes.

Further exacerbating the issue is a lack of transparency and high levels of “rent seeking”.

“Research has shown that countries where non-competitive bidding and non-transparent contracting procedures exist are likely to face a large “corruption premium” on capital-intensive projects. Public investment in those countries is typically larger than average, but expenditures for maintaining public capital are extraordinarily low, which obviously undermines the efficiency of the investments.”

Adding, “In the same vein, revenues from natural resources can break the accountability link between government and citizens when governments can rely exclusively on such revenues without the need for any further tax collection from citizens. Consequently, the institutional environment will develop to ensure the government’s power, not prosperity and common rights for all.”

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