In March this year, the 2013 edition of the Economic Report on Africa stated that African countries had the opportunity to transform their economies through a commodity-based industrialization strategy that would see the continent begin to reap the benefits of its abundant national resources. Although Africa boasts about 12% of the world’s oil reserves, 40% of its gold, 80-90% of chromium and platinum group metals, 60% of arable land and vast timber resources, a failure to add value is leaving producers with a paltry return on the exports of these highly prized commodities. The coffee industry gives a stark example – 90% of Africa’s total income from coffee goes to consuming countries in Europe, North America and Asia.
This need to harness the potential of Africa’s natural resources has been echoed in the Africa Progress Report 2013, published on Friday. Kofi Annan, former UN Secretary General and member of the Africa Progress Panel has said that Africa has an “unprecedented opportunity to convert the region’s vast resource wealth into investments that could lift millions out of poverty, create jobs, and bring hope to future generations.”
Africa’s vast natural resources was just one aspect of last week’s World Economic Forum in Africa, held in Cape Town under the title “Delivering on Africa’s Promise”. Buoyed by the optimistic predictions of these reports, discussions were firmly focussed on how, and not if, Africa can continue its remarkable progress. Dr Mo Ibrahim, chair of the Mo Ibrahim Foundation, Trade Out of Poverty Board Member, and co-chair of WEF Africa 2013, spoke of his delight at the “new determination of governments to create conditions where the private sector can grow and investment is encouraged.”
Dr Ibrahim emphasised that for Africa to fulfil its potential, governments and the private sector require an enabling trade environment. Despite the dramatic growth seen across the continent, only around 12% of Africa’s registered trade happens within the continent, compared to internal trade of 40% in North America and 63% in Western Europe – “Action so far to remove the barriers to the free movement of goods, people and capital between neighbouring countries has been haphazard and piecemeal, hampering the growth of trade within regions and Africa’s ability to compete in global markets. Trade restrictions must be lifted to encourage the creation of larger markets.”
Talk of regional economic integration in Africa must move from rhetoric to action if the potential of the continent’s resources is to be truly harnessed. But alongside this there must also be a “structural transformation” as put forward by the African Development Bank in its 2012 Annual Report. Addressing the infrastructural deficit is essential if Africa’s expanding population is to be able to take full advantage of the burgeoning economic opportunities that open trade will create.
While there has been a lot of attention recently on breaking down the barriers to intra-African trade, the international community must also deliver on its promist to provide duty-free, quota-free access to least developed countries (34 of which are in Africa). Countries such as Ethiopia have stressed their goal of moving “from aid to trade and investment” and donors should respond to these aspirations accordingly by opening their markets and by shifting their role to that of investors.
According to the Washington-based Center for Global Development, China is financing 1,673 development projects worth £48 billion in 50 African countries – not as part of an aid package, but as a form of trade finance. Europe, however, continues to aggressively pursue its policy of signing Economic Partnership Agreements with its African trading partners. This could well hamper Africa’s industrialisation process – a key element in capitalising on natural resource reserves by adding value – and reduce the opportunities for Europe to benefit from Africa’s economic development.
Africa can deliver on its promise, but the international community has a key role to play. Economic policies must be carefully structured to facilitate Africa’s integration into the global market and ensure that the continent’s growing population receive a fair share of the benefits. Opening developed markets to Africa and investing in the exciting opportunities available, would be a win-win approach, allowing Africa to move away from aid dependency and trade its way out of poverty.
Although Africa boasts vast quantities of the world’s raw material reserves, a failure to add value is leaving producers with a paltry return on their exports. African countries now have the opportunity to transform their economies through a commodity-based industrialization strategy that would see the continent begin to reap the benefits of its abundant national resources. But converting the region’s vast resource wealth into investments that could lift millions out of poverty will require not only an infrastructural transformation, but also the removal of trade restrictions that currently hamper regional trade and Africa’s ability to compete in global markets.