Africa’s poorest countries are at an especially critical juncture. The continent’s working-age population is about to boom. About 1.1 billion Africans will be of working age in 2040; if employment opportunities are not available the future is likely to be plagued by deepening instability and poverty.
The current resources boom has delivered the prospect of a more promising future. But the drivers of African growth are not just China’s booming resource import demand; improved political and macro-economic stability and micro-economic reforms have been vital.
The improved business environment has benefited from government debt relief for the most highly indebted countries. Increased pledges of overseas development assistance are providing fresh opportunities to free up resources for investment in human and physical capital.
These factors have supported GDP growth of 6.4 per cent in sub-Saharan Africa (excluding South Africa) in 2011. These indicators suggest that Africa may be at a turning point as a global resource supplier. Guinea’s Bellzone and China International Fund joint-venture operating company, Forécariah Guinea Mining, is an example of how once high-risk greenfield projects in Africa are becoming realistic investment opportunities.
To get the minerals to the buyers will require massive investment in infrastructure – ports, rail, roads and energy capacity. This is where China is connected at the hip to the prospects for economic change in Africa.
China offers capital to countries considered too risky by Western banks, and on terms that can make projects in Africa profitable, where in the past there was little hope of competing. Over the coming five years China’s Ministry of Commerce has announced it will support a further US$390 billion in Chinese overseas direct investment (China’s current global direct investment stock is around US$170 billion) in order to use its estimated US$3.5 trillion in foreign exchange more effectively.
There is no guarantee that this money will be delivered for the development of Africa’s resources. Stronger governance and more transparent policies will be needed to reduce the risk profile of recipient countries. China’s State-Asset Supervision Administration Commission is requiring increased due diligence and increased executive accountability as it seeks to avoid embarrassing investment failures such as Sino Iron’s CITIC Pacific Project in Australia.
Getting the minerals to buyers is only part of the challenge.
Ensuring the benefits of the current mining boom are captured by Africa’s resource-rich countries will require further policy reform; retreat from strategies that favour beneficiation over high-value extractive activities; and more robust institutional and legal frameworks. Here’s where Africa is looking for help.
The huge lift in the terms of trade of resource exporters in the past decade has opened new opportunities for Africa, as it has for Australia at a very different stage of development. Neither continent could hope to take advantage of these opportunities without the help of foreign investment.
Securing an attractive foreign investment environment is Africa’s challenge, a challenge of interest to the scores of Australian miners (as well as Chinese, European and American) now active across the continent — in 2011 more than 150 Australian resource companies were active across more than 40 African countries.
Not corroding its attractive investment environment in the face of the modest surge of Chinese investment is the challenge for Australia, which has the institutional infrastructure that should allow it to capture the gains from the resource boom, stay in the game as prices inevitably wind back over the coming few years and move forward. Africa is desperately trying to put the institutional infrastructure in place.
Australian miners and mining services firms are already big in Africa. An effective relationship between Australia and Africa will need a clear focus on Africa’s struggle to secure better economic development outcomes from exploiting its resources and delivering real benefits to its people. It will need to engage people who have the aspiration and the capacity to connect to the desire for change that is now palpable across the African continent.
Peter Drysdale is editor of the East Asia Forum and Luke Hurst is a PhD candidate in economics at the Crawford School of Public Policy, the Australian National University.
This article was first published here in the Financial Review.