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23/01/2006 | The Commodity Boom on the Commodity Continent

WMRC Staff

In 2006, the global commodity boom will have a visibly transformative effect on African states and societies. Virtually since independence, economic analysts of Africa of many different ideological persuasions have agreed that the continent's reliance on primary product exports is its principal weakness. The problem worsened throughout the 1980s and 1990s as prices dropped and terms of trade tipped away from the producers of primary products such as foodstuffs, metals and fuels, while African attempts to create value-added industries fell by the wayside, labelled as uncompetitive in the global economy. Now, however, at the beginning of the 21st century, the economic take-off of a set of other developing nations, led by China, has kick-started demand for commodities, which has seen prices soar to new highs. African countries should be well placed to take advantage of what forecasters are predicting will be a cycle of up to 20 years in length - but what can we expect the political ramifications to be?

 

There are already a whole range of international political trends emerging as a result of the commodity price hikes, with one of the most noticeable being the greater diplomatic, political and investment engagement of countries such as China and Brazil in African states previously considered marginal to their interests. A few dominant players within Africa are also becoming involved in such expansive undertakings, as South Africa for example tries to maximise its access to regional energy and metals supplies. Meanwhile, within Africa the upgrading of transport infrastructure needed to ship such products to international and regional markets means new cross-border projects like railways and pipelines, which in turn necessitate new forms of regional political co-operation or the deepening of existing relationships. Such dynamics are clearly evident in new, shared developments between Mozambique, Malawi and Tanzania, and in Kenya and Uganda's readiness to form a transport corridor to newly autonomous southern Sudan. However, other international implications are as yet in the balance: the combined bargaining power that commodity-producing, developing nations enjoy in the world is currently at stake in World Trade Organization (WTO) debates on developed-world producer subsidies.

Less obvious are the internal political implications within the commodity-producing countries. The price rises in global markets will trigger social and political dynamics, which will be fundamental to the future histories of these countries. They will cause not only governments, but also the public to behave in different ways, accompanied by the rise of new political constituencies. The trend is already beginning, but the outlines are only just starting to take shape. 

Luckily, in trying to forecast the political and social impact of the current commodities boom, we have the benefit of two previous historical episodes to draw upon for comparative perspective. Africa's raw materials booms of the 1930s/40s and 1960s/70s give us clues to this. The first boom drew upon the global recovery from the Great Depression, in the aftermath of which colonial powers realised they had to maximise economic returns from what had previously in many cases been overseas territories primarily of prestige or strategic value. However, production boomed more in the intense demand for raw materials to feed the industrial engines of the 1939-1945 war economy. At the end of that process, African producers of agricultural and mineral products with cash in their pockets found themselves facing exhausted colonial powers and began to assert their power, both as political publics and as consumers, in processes that eventually led to independence two decades later - and that independence coincided with the next commodity boom of the 1960s and 1970s. This time, with the leeway afforded by sovereignty, the effects were more obvious. Most of Africa's new universities and transport systems date from this time, as do the best-known indigenous consumer products, including music and other cultural products that were exported worldwide. Of course, so do the state-funded white elephant industries that now stand abandoned by the continent's major roads and the extravagant luxury imports beloved of the era's political elites - the ramifications of the commodity boom were not all positive. Prestige and cheque-book diplomacy abounded, with new heads of state nearly bankrupting their countries in bids to host regional summits or sporting events and, at the same time, former colonial powers, eager to preserve their privileged access to African commodity suppliers, flattered and failed to criticise the excesses of new autocrats. But at the same time, some of Africa's most durable regional political structures date from this time: West Africa's Economic Community of West African States (ECOWAS) was a project conceived by Togo's phosphates-happy General Eyadéma and Nigeria's oil-flush General Gowon. 

However, although these are clues to what we might expect, both processes took place in very different geopolitical contexts to today - those of World War and Cold War - and events since have altered the map of Africa and the world in ways that our forecast must take into account. Colonial powers and superpowers have risen and fallen, and African states have moved in different directions: some have disintegrated; some have reformed; some are mired in war; and some are bastions of regional peace and security. To explore current trends properly, we must first disaggregate the effects. The economic, social and political impact of commodity price rises differ depending on whether the resource in question is a fixed, non-renewable resource, such as metals or hydrocarbons, which must be extracted from specific locations in capital-intensive processes, or whether it is a renewable resource such as an agricultural output - in Africa often grown by peasant smallholders - the production of which is limited in theory only by land, climate, and labour.

Price Index Forecast for Crude Industrial Materials

 

The above graph shows Global Insight's price index forecast for crude industrial materials, including oil. As can be seen, the present price increases seem to be in part a bubble that is likely to correct itself in the short term. However, even after that, the profiles of global demand and the constraints upon supply - investments in new commodity production typically take a long time to come on-stream - suggest that the long-term trend is still upwards, forming part of what analysts call a 'secular' commodity boom, a long-term boom of the type that has historically tended to occur in a 20-year cycle.

There is already a large amount of literature on natural resource-dependent economics. Arguments about the 'resource curse' rage on, but an undeniable characteristic of such economies is that when governments gain most of their revenue from 'rents' on natural resources extracted by companies in enclave developments, they are much less responsive to the demands of domestic publics who in other polities might enjoy stronger leverage as taxpayers. This is already the case in countries like Nigeria or Congo-Brazzaville and, despite efforts at democratisation, the opposite trend - towards centralisation - may be reinforced as rents grow in value and importance. In rent-based states, access to wealth is dependent on political power, so the premium on it is likely to grow, leading perhaps to more conflicts in countries where the question of who exercises authority is already highly disputed. However, that also brings the problem of enforcing governments' grip on the resources in question - especially when they are far from the seat of power. Nigeria's Niger Delta is already locked in fierce battle with the national capital, Abuja, over oil revenues and regional autonomy; the same trend is evident in DRCongo's mineral-rich province of Katanga and, although it is not currently the case across the border in Zambia's copper belt, there is room for such a dynamic to emerge. Greater global demand for commodities also means a search for new sources of supply. Already, investors are moving into 'pristine' minerals provinces such as Madagascar, bringing with them a new link between that country and South Africa, the location of many major global mining players. It can mean the reopening of new areas - Mount Nimba's iron ore might once again bring investors to the troubled Guinea-Liberia borderlands. Such developments will also mean population shifts as labour and associated services congregate on new investment sites and, with it, Africa could see the emergence of some new urban centres along the lines of the mining camps that sprung up around the colombo-tantalite mines in DRCongo's eastern Kivu province during 2000's telecoms boom-fuelled coltan rush. 

The boom in prices of agricultural products - from oils to grains, to cocoa, to cassava - has some very different potential dynamics. First of all, many more people typically share in the process of wealth creation, meaning a more assertive public. But that producer public is likely to be mainly based in rural areas, triggering a shift of power back to rural areas from the urban constituencies that have typically defined African grassroots politics throughout the 1990s, be it through popular democracy movements or consumer price protests. With the new influence of the rural public comes the rise of its leaders - people like the Islamic Mouride leaders who control peanut production in Senegal could once again reassume the salience and political centrality they enjoyed in the immediate post-independence years. However, rural communities and their leaders, whether traditional or elected, are characteristically conservative forces, with powerful reasons for preserving ethnic identities and associated political agendas, so we may be about to see a very different kind of grassroots politics come to the fore from the urban democracy movements of the past decade. This is even more so where agricultural expansion puts greater pressure on finite resources, such as land. Population growth has meant that such pressure is much greater than in Africa's two previous 20th century commodity booms. So we may see more, not fewer, indigene-settler conflicts of the kind in south-western Côte d'Ivoire, which lie at the root of that country's civil war, and more leaders who are primarily beholden to powerful, localised ethnic constituencies in the mould of Ivorian president Laurent Gbagbo. Additionally, the continued disconnection between African population centres and their hinterlands means it is far from clear that increased production will also mean more products available on domestic markets - global demand could push food prices up - a correlation that seems evident in Nigeria through 2005, and that, combined with increased costs of fuel and other inputs, could also mean more hardship and therefore more protests and instability in urban areas of countries whose rural regions are prospering.  

All of the above are long-term trends and their full effects may not be immediately apparent in 2006, but the coming year will see the groundwork laid. To better illustrate what is to come, Global Insight below examines the situation in Gabon, an archetypal resource economy in transition.

Contact: Raul Dary

24 Hartwell Ave.
Lexington, MA 02421, USA
Tel: 781.301.9314
Cel: 857.222.0556
Fax: 781.301.9416
raul.dary@globalinsight.com

www.globalinsight.com and www.wmrc.com

 

WMRC (Reino Unido)

 



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