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Commodity prices Good or bad for Africa?

Commodity prices Good or bad for Africa?

JOHANNESBURG – Soaring commodity prices should be good news for resource-rich Africa but the continent’s past suggests the tidings could also prove bad.

Commodities have long been a mixed blessing for the world’s poorest region. Mineral, timber and oil riches have created jobs and spurred growth in Africa but have also fuelled colonialism, conflict and corruption.”High commodity prices offer some financial breathing space, particularly for heavily-indebted countries. What is important is whether they use it in a prudent manner or if they blow it,” said Ross Herbert, an analyst with the South African Institute of International Affairs.A weak dollar and rising demand from emerging colossus China have helped to drive up the price of key resources, and analysts believe both trends which will hold for the foreseeable future.Gold was trading near 16-1/4 year highs above $445.00 an ounce on Monday while other metals such as platinum and copper have also been white hot.Meanwhile, bubbling oil prices are a windfall to big African crude producers such as Nigeria and Angola.THE GOOD NEWS …There have been some benefits from this trend.”At the moment it’s good for Africa …African countries are getting more for their exports,” said Standard Chartered Africa economist Razia Khan.”This means stable exchange rates which also helps to bring inflation and interest rates down,” she said.Foreign direct investment (FDI) in Africa surged in 2003, driven by the growing hunger for commodities, said the United Nations Conference on Trade and Development in its latest annual World Investment Report.FDI in Africa grew 28 per cent to US$15 billion in 2003 in contrast to a fall in 2002 of 40 per cent, it said.In September the International Monetary Fund nudged its 2004 economic growth forecast for Africa up to 4,5 per cent from an earlier projection of 4,2 per cent on higher oil and commodity output.Copper-rich Zambia upped its 2004 growth forecast in October to 4,6 per cent from 4,0 per cent — its second upward revision in two months, based partly on roaring copper prices…. AND THE BADBut with so many African economies dependent on one or a few commodities, the boom may provide little short-term incentive to diversify in anticipation of any bust which might follow.”Those who have not diversified and haven’t done a lot to encourage other engines of growth will probably find that they are worse off when the inevitable correction in commodity prices takes place,” said Khan.The boom has already proven to be a double-edged sword for some.Buoyant gold and platinum have helped propel South Africa’s rand on a three-year bull run.But while its gains have brought inflation and interest rates down, they have also eaten into the profits of miners, cancelling out the benefits of higher dollar prices.Elsewhere in Africa, mineral wealth has been the cause of many brutal conflicts, from Angola to Sierra Leone to the Democratic Republic of the Congo.High prices could entice rebels or even governments in some areas to take up arms to gain control of valuable resources.The reasons behind the hefty price tags for some commodities are also hardly conducive to development.While off recent peaks, world cocoa prices remain high because of conflict in world number one producer Ivory Coast.The history of resource extraction in Africa also suggests that the cash generated from commodity-based booms often finds its way into the deep pockets of a corrupt few, leaving the poor majority with little or nothing.But there are glimmers of hope here.Accused of graft on a grand scale, Angola has slowly become more transparent about its oil revenue.In a rare interview, finance minister Jose Pedro de Morais told Reuters this month that Angola will cash in on a US$600 million windfall this year from high oil prices, which it will use to slash the fiscal deficit and service loan repayments.- Nampa-ReutersMineral, timber and oil riches have created jobs and spurred growth in Africa but have also fuelled colonialism, conflict and corruption.”High commodity prices offer some financial breathing space, particularly for heavily-indebted countries. What is important is whether they use it in a prudent manner or if they blow it,” said Ross Herbert, an analyst with the South African Institute of International Affairs.A weak dollar and rising demand from emerging colossus China have helped to drive up the price of key resources, and analysts believe both trends which will hold for the foreseeable future.Gold was trading near 16-1/4 year highs above $445.00 an ounce on Monday while other metals such as platinum and copper have also been white hot.Meanwhile, bubbling oil prices are a windfall to big African crude producers such as Nigeria and Angola.THE GOOD NEWS …There have been some benefits from this trend.”At the moment it’s good for Africa …African countries are getting more for their exports,” said Standard Chartered Africa economist Razia Khan.”This means stable exchange rates which also helps to bring inflation and interest rates down,” she said.Foreign direct investment (FDI) in Africa surged in 2003, driven by the growing hunger for commodities, said the United Nations Conference on Trade and Development in its latest annual World Investment Report.FDI in Africa grew 28 per cent to US$15 billion in 2003 in contrast to a fall in 2002 of 40 per cent, it said.In September the International Monetary Fund nudged its 2004 economic growth forecast for Africa up to 4,5 per cent from an earlier projection of 4,2 per cent on higher oil and commodity output.Copper-rich Zambia upped its 2004 growth forecast in October to 4,6 per cent from 4,0 per cent — its second upward revision in two months, based partly on roaring copper prices…. AND THE BAD But with so many African economies dependent on one or a few commodities, the boom may provide little short-term incentive to diversify in anticipation of any bust which might follow.”Those who have not diversified and haven’t done a lot to encourage other engines of growth will probably find that they are worse off when the inevitable correction in commodity prices takes place,” said Khan.The boom has already proven to be a double-edged sword for some.Buoyant gold and platinum have helped propel South Africa’s rand on a three-year bull run.But while its gains have brought inflation and interest rates down, they have also eaten into the profits of miners, cancelling out the benefits of higher dollar prices.Elsewhere in Africa, mineral wealth has been the cause of many brutal conflicts, from Angola to Sierra Leone to the Democratic Republic of the Congo.High prices could entice rebels or even governments in some areas to take up arms to gain control of valuable resources.The reasons behind the hefty price tags for some commodities are also hardly conducive to development.While off recent peaks, world cocoa prices remain high because of conflict in world number one producer Ivory Coast.The history of resource extraction in Africa also suggests that the cash generated from commodity-based booms often finds its way into the deep pockets of a corrupt few, leaving the poor majority with little or nothing.But there are glimmers of hope here.Accused of graft on a grand scale, Angola has slowly become more transparent about its oil revenue.In a rare interview, finance minister Jose Pedro de Morais told Reuters this month that Angola will cash in on a US$600 million windfall this year from high oil prices, which it will use to slash the fiscal deficit and service loan repayments.- Nampa-Reuters

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