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African Policy Seminar: Fiscal Elements of Growth and Development. “Commodity price trends and the NEPAD SDP”. Paul Jourdan & Godwin Punungwe 7 September 2007 Durban, South Africa. Africa’s Natural Resources. Agriculture Contributes 40% of African GDP, but largest user of scarce water
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African Policy Seminar: Fiscal Elements of Growth and Development “Commodity price trends and the NEPAD SDP” Paul Jourdan & Godwin Punungwe 7 September 2007 Durban, South Africa
Africa’s Natural Resources • Agriculture • Contributes 40% of African GDP, but largest user of scarce water • Provides livelihood for 60% of population; • But, agri-commodities exported without processing (beneficiation) • Minerals • World’s top producer of numerous mineral commodities; • Has world’s greatest resources of many more; • But exported as ores, concs, metals: Need > beneficiation. • Energy • Significant fossil fuels (oil, gas and coal) • Large biomass and bio-fuels potential (ethanol, bio-diesel) • Massive hydro-electric potential (Inga 45GW, Congo River 200GW) • Forestry • 22% of African land is forested (650m hectares= 17% of world total); • Deforestation: Africa’s net change highest globally = -0.78% p.a; • Fishing • Decline in catch rate; • 68% of marine protected areas under threat; • Aquaculture/mariculture still nascent (large potential) • Tourism • Major potential (world’s greatest diversity: culture, flora, fauna, geomorphology) • Increasingly important source of livelihood
Thus, Africa’s short to medium term potential lies in our natural comparative advantage: Resource-based industries (competitive platform for finished products in the longer term and market for resource inputs industries) • Agricultural • Mineral • Forestry • Tourism • Fishing/Aquaculture • Energy (coal/gas & HEP) technology R&D marketing capital HR/HRD Finished High-Value Products transport services energy etc… Raw Mat. - Int. Product - Semi-Manufacture - Fabricated
Africa is well-endowed with mineral resources(however, much of Africa is still un-surveyed)Mineral Production&Resources (2004)
Africa is also a significant producer of some agri-commodities: And has enormous agri-potential
World Steel Consumption Commodity Research Bureau Metal Price Index. 2000=100 Commodities Boom Data Source: IISI; OECD
ASIAN BOOM: > Resources DemandNew “scramble for resources”? Global Steel Consumption t/$1 million GDP (proxy for all metals) 30 30 Majority World takes off 25 25 Post WWII Minority World growth 20 20 Steel Consumption t?$1 million GDP Steel Consumption t?$1 million GDP 15 15 10 10 Failure of Global growth (Minority World Hegemony) 5 5 Deflated GDP to 2004 $ terms Source: IISI 0 0 1940 1940 1950 1950 1960 1960 1970 1970 1980 1980 1990 1990 2000 2000 2010 2010 Year Year
How long will boom last?However, prices will fall with increasing supply over the medium-long term, but at a higher level (lower grades) Steel Intensity ? PRC $16,000 per capita China + India > 2X pop’n of First World! Data Source: IMF.
African FDI inflows Data Source: UNCTAD- World Investment Report 2005
Exploration by Region2006 (US$ billion) Data Source: Mineral Economics Group
Africa’s Undiscovered Resources Africa requires massive investment into basic geological mapping in order to assess & valorise its mineral assets. FDI for blue-sky exploration will only come in on an unacceptably high risk-reward basis! Source: USGS; USGS Mineral Resources Program. The Global Mineral Resource Assessment Project
Investment in Geo-knowledge • Numerous studies (USGS, W.Australia) have definitively showed the extremely high return to the state from investment in geo-survey (~1:10 investment to return ratio to the fiscus) • In general, the lower the geo-info base, the higher the risk, the lower the share of resource rents to the state: The less a state knows about the value of its mineral assets, the worse the deal it’s likely to be able to negotiate with foreign investors. • This will inevitably compromise the longer term sustainability of the investment: An unequal extractive deal serves neither the investor nor the host state over the longer term • Investment into African infrastructure should not only target physical infrastructure but also knowledge infrastructure (geo-survey)