Africa’s natural resource wealth is well-known. Unlike in some other more nascent areas of economic potential, the continent’s natural resource wealth has long been an area of concerted local and foreign interest.
Yet a confluence of factors, including surging demand from the world’s rapidly advancing emerging economies and more favourable investment climates have led to swelling demand for Africa’s natural bounty over the course of the past decade.
In addition to its solid minerals and energy resources, Africa is increasingly being courted for its abundant arable land as a rapidly rising global population, coupled with elevating in-comes and concomitant increases in per capita food consumption throughout the emerging south, places pressure on agricultural production.
Africa has a dominant share of a variety of core commodities, most profoundly PGMs, chromite ore, phosphate rock, and cobalt, according to the United States Geological Survey (USGS).
The DRC is home to more than half of the world’s cobalt reserves, South Africa to more than 90 per cent of the world’s platinum, and Morocco and the Western Sahara to more than three-quarters of the world’s phosphate rock.
Meanwhile, Africa’s potential is equally alluring in a range of commodities for which future production prospects are elevated.
The continent has around 27 per cent of the world’s bauxite reserves, yet only accounts for eight per cent of global bauxite production.
At the end of 2010, Africa was understood to have proved crude oil reserves of 130.2 billion barrels, 9.5 per cent of the world total, as well as 14.7 trillion cubic metres of natural gas reserves, eight per cent of the world total.
Most important is the fact that Africa’s proved oil and gas reserves have increased at a rate far in excess of the world average since 1990.
Even more important is the relative accessibility of Africa’s oil and gas reserves, compared to some markets in the Middle East and Latin America.
Much of the renewed interest and investment in Africa’s commodities wealth has originated within the world’s rapidly advancing, industrialising, and urbanising emerging economies.
Consider, for instance, that while in 2010 just over 45 per cent of the total BRIC population was urbanised, by 2050 this ratio will exceed 65 per cent — implying that over 2.2 billion people will be living in BRIC cities.
This mass urbanisation, when coupled with robust economic growth and industrialisation, is creating demand for commodities. To be sure, China’s appetite has been most voracious.
Buoyed by increasing automobile production, China has emerged as a leading PGM consumer — accounting for 24 per cent of total global consumption last year.
In 2010, China accounted for 85 per cent of total global chromite ore consumption.
It also accounts for 35 per cent of total copper consumption worldwide.
Importantly, Africa has emerged as a key source of commodity imports for China and India, as well as other prominent emerging markets. Indeed, within the last decade, BRIC-Africa trade has swelled dramatically, largely inspired by demand for African commodities.
Where in 2001 trade volumes stood at around $20bn, in 2010 the BRICs trade with Africa had increased ten-fold to $200bn.
African crude oil exports have been a core driver of this swell. In 2010, crude oil made up virtually two-thirds of all African exports to China.
Beyond the trade dimension, the BRICs hunger for African resources is evident in the scale of investments made since 2000.
According to Bloomberg, worldwide deals in energy, power and basic materials made up about one-third of the merger and acquisition (M&A) market in 2010, compared with about 20 per cent in the previous decade.
The BRICs have undoubtedly pioneered this alteration. In Africa, the investment surge has been led by a host of state-owned and private institutions such as Brazil’s Vale, India’s Oil and Natural Gas Corporation (ONGC), and China National Offshore Oil Corporation (CNOOC).
In 2009 the BRICs’ largely commodities-based foreign direct investment (FDI) stock in Africa amounted to around $60 billion — engulfing a wide arc of African nations.
Given these and other prominent drivers, BRIC-Africa trade could swell to over $350 billion by 2015, with the BRICs FDI stock tripling in the same time period to reach around $150bn. Malthusian concerns around the earth’s ability to nourish a population of six billion people, expected to rise to nine billion by 2050, are increasingly abundant.
The UN’s FAO says food production will have to increase by 70 per cent to feed the globe’s larger, more urbanised, and more affluent population, by 2050, necessitating a total average annual net investment in developing world agriculture of $83bn.
The realities and pervasive threats posed by climate change add gloom to an already challenging vista.
Volatility in food prices carries the inherent potential for mass social unrest, a reality that presses on large and populous countries throughout the emerging world in particular.
Meanwhile, once abundant land and water resources in several of the world’s pivotal economies are diminishing.
Two recent, and dramatic, global food price hikes have culminated in a substantial reconfiguration of global perceptions around food security.
While efforts to control such wild fluctuations are under way, food, and the means to produce it, is being viewed as the “new oil” of the 21st century. Rising incomes and changing diets are elevating demand throughout the emerging world.
As people’s wealth and food consumption increases, so too do their dietary habits and preferences.
Research has shown that as incomes rise by between $2 and $10 per day, people tend to consume more meat, dairy, fruits, vegetables, and edible oils.
All of these shifts exert pressure on local agricultural systems, necessitating either deep reforms to elevate productivity or, as is increasingly the case, greater agricultural imports.
Naturally, as nations seek external sources of nutrition, focus is narrowing on those regions which still have large untapped agricultural potential. No region epitomises this residual allure more than Sub-Sahara Africa.
It is estimated that over 60 per cent of the world’s available and unexploited cropland is in SSA, compared to 31per cent in Latin America and eight per cent in all other regions.
In all, seven of the top ten countries ranked according to their share of total available cropland are in SSA. Of Sudan’s 105 million ha of cultivable land, only 16 per cent had been cultivated by 2009.
Interest in Africa’s farmland is taking a variety of forms, all of which have been intensified in the wake of the recent global food price hikes. For one, donor institutions have positioned agriculture in Africa as a means to support socio-economic growth.
While estimates vary, it is believed that upwards of 50 million ha of land in Africa has been purchased or leased since 2001.
The Oakland Institute has estimated that, by 2009, 60 million ha of land had been purchased or leased in SSA.
Gulf States have been prominent, though several Asian nations, most prominently China and South
Korea, continue to play pivotal roles.
Many African governments have positioned themselves to attract land deals. As part of its bid to inspire investment, for example, the Ethiopian Ministry of Agriculture and Rural Development (MoARD) in 2009 detailed the land available for investment by sector in the country.
Beyond government transactions, the potential value inherent in untapped farmland within a climate of elevated global demand and volatile prices has inspired a surge of private and institutional investor interest.
For instance, London-listed Agriterra owns a variety of African agricultural assets, including 14,000 ha of land for ranching, as well as a maize processing facility in Mozambique.
Indian horticultural firm Karuturi Global has, for instance, emerged as the world’s largest exporter of fresh cut roses on the spine of its investments in Kenya and Ethiopia.
In Ethiopia, the firm has since branched out into agriculture, leasing 100,000 ha of land in the Gambella Province to produce crops primarily for local demand.
Overseas development assistance for agriculture in Africa has also picked up in recent years.
While there are meaningful objections to the nature and structure of much of the new investment in African agriculture, it is clear that the introduction of new capital, skills, and technology is an essential component in unlocking the continent’s ultimate allure.
Ghanaian agricultural productivity has, for instance, fallen substantially short of its potential.
Recall that investments of $83bn annually are believed to be required to elevate the developing world’s agricultural sector.
At least half of this amount is required in SSA alone. Land leasing deals, if managed well have the potential to supply infrastructure, create employment, increase public revenues, and introduce new technologies and skills to local farmers in Africa.
These investments, as well as renewed government policy vigour, are particularly important when considering the manner in which Africa’s agricultural sector has persistently underperformed for much of the past half century.
Indicatively, Africa has gone from being a net food exporter in the early 1960s to a net importer.
The reasons for Africa’s underperformance are complex, and varied. Yet, certain elementary causal dimensions are clear.
For one, African governments have persistently underinvested in the sector.
On average, African countries allocate four per cent of their budgetary expenditures to agriculture, compared to 14 per cent in Asia. Spending on agricultural research and development (R&D) has also been consistently minimal, even declining between 1991 and 2000 in SSA.
In Africa, irrigation has the ability to raise agricultural productivity by more than 50 per cent. Also, access to and use of fertilisers remains low.
Sub Saharan Africa uses just 11.6 kg of fertiliser per hectare, compared to a world average of 119 kg/ha, and a South Asian average of 148 kg/ha of arable land, according to World Bank data.
Meanwhile, given inadequate storage and transport facilities in Africa, post-harvest waste is a perennial concern.
It is estimated that post-harvest grain losses in SSA are equal to $4bn per year —approximately 15 per cent of total output.
Finally, smallholder farmers in Africa are generally locked out of the formal economy, unable to raise finance for investing to secure increased output.
Fortunately, new levels of investment in African agriculture are increasingly being supported by enhanced policy frame-works. Under the New Partnership for Africa’s Development’s (NEPAD), 22 African countries have committed to raise the budget share for agriculture to 10 per cent.
Meanwhile, critical research support is being lent to small-scale farmers by organisations such as the Alliance for a Green Revolution in Africa (AGRA). And innovative financing mechanisms between donor institutions and commercial banks are increasing access to financing for African farmers.
For instance, in Kenya, Equity Bank is administering a $47.6 million credit line from AGRA and the International Fund for Agricultural Development (IFAD) for small-scale Kenyan farmers.
These shifts are inspired in part by the tremendous success of so-called green revolutions in other emerging markets, principally Mexico, Brazil, China and India.
In many SSA economies agriculture forms the bulk of economic output, and, across the continent virtually two in three adults are employed in the agricultural sector.
As such, formative agricultural reforms have the ability to drastically alter Africa’s economic destiny, providing the nutrition for its growing population, and the means for economic prosperity for vast rural populations across the continent.
The appreciation of Africa’s natural resource wealth is not novel.
To be sure, much of the continent’s impressive economic gain over the course of the past decade can be attributed to a commodities boom brought about largely by demand from rapidly rising, and industrialising, emerging markets.
Relatively benign political environments throughout much of SSA have added support to the continued unlocking of the continent’s mining and energy potential.
Africa’s economic destiny
The arrival of the BRIC economies, as well as a host of other equally dynamic emerging markets, has provided resource rich African nations with a wider array of commercial opportunities; importantly, these trends are unlikely to substantially abate.
Meanwhile, nascent shifts will contribute substantively towards African economies elevating the sustainability of the commercial gains possible through resource extraction.
Regarding agriculture, the opportunity is immense.
Though much is required, and a collective inertia still in large part remains, there are increasing signs of how Africa’s agricultural fortunes are changing.
If adhered to, for instance, NEPAD’s select and pointed reforms could produce a doubling in African agricultural output within the next decade.
Demand for upstream products linked to the broader agri-business sector will also result, creating new economic opportunities for a range of African and international enterprises.
Meanwhile, deepening intra-regional trade networks, supported by gradual but meaningful improvements in infrastructure networks, will support the emergence of commercial farming operations in key African countries.
There is clear evidence that permitting greater cross-border transfers and adopting improved agricultural technologies can have a large spill-over multiplier effect on overall economic welfare in Africa.
Freemantle is an economist with Stanbic Bank.