African Commodities Bonanza Still Not Financing Sustainable Development

BY HERMAN J. COHEN, 13 SEPTEMBER 2013

The major low-wage manufacturing expansions of certain "emerging economies", such as China, India, and Brazil, have driven up the world prices of a list of international commodities being produced in Africa in large quantities.

These include crude oil, copper, iron ore, phosphates cassiterite, and columbium-tantalum. Prices for these commodities are the highest since the early days of African independence.

The commodities boom has provided the producing African countries with a revenue bonanza. The opening of new mines and oil producing blocs has created both direct and indirect employment. New financialinstitutions have arisen to finance growing trade, and supporting industries have been created to service the producers.

The net result has been the growth of an African middle class with disposable income. This in turn has attracted investors who see profit opportunities in selling to this new class. For example, the largest American super market chain, Walmart, has established retail outlets in ten African countries. Retail banking is also growing.

What does this all mean for Africa's priority objective of achieving sustainable economic development? In other words, to what extent are high revenue earnings being invested in ways that will reduce poverty, increase local production of wealth, and set the stage for Africa's full entry into a globalized economy?

The answer, unfortunately, is very little. Once a powerhouse of agricultural exports, Africa is now heavily dependent on imports of food to feed its growing population.

The infrastructure that is needed to encourage African investors to move into manufacturing is still absent. There are still large deficits in electric power, roads, rail, ports, and potable water. In addition to infrastructure, educational systems continue to be sub-standard with very few school leavers possessing the skills required for modern economies.

African farmers continue to be inhibited by antiquated land tenure systems, the absence of farm to market roads, the lack of access to modern agricultural technology, and the absence of appropriate storage facilities.

Commodities are being exported with virtually no value added. Except for South Africa that came to majority rule with an established industrial base, nowhere in Africa are basic commodities being transformed into higher value products. Some Ghanaian cocoa is being transformed into chocolate, and Senegalese groundnuts are being transformed into oil, but that is about it for sub-Saharan Africa.

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