Africa is blessed with untold wealth in the form of its huge reserves of natural resources. Anything and everything is available throughout the continent, from oil to diamonds, and some of the worlds most productive bauxite, gold and copper mines. And yet Africa suffers from an almost complete lack of wealth. As P.J. O'Rourke once remarked, Africa is exceptionally wealthy in "other ways".
But none of those ways involve actual money. Many many commentators have sought to explore the reasons for this, but the proverbial elephant in the room is what we might call "African culture". Before I start African-bashing once again it's important to lay out exactly what the issues are, and also to reply to an anonymous commentator on a previous post about Botswana's economy, one of the most persistently successful in sub-Saharan Africa (relatively speaking of course).
One of the main issues is the so-called Dutch Disease, named after the Netherland's experience of discovering huge gasfields in the early 1960s. It is directly relevant to Africa in that Africa is fabulously wealthy in natural resources.
Discovering natural resources in an undeveloped economy is comparable to a, er, person of low income and education, who suddenly wins the lottery. Evidence has shown that such people are frequently bankrupt within three years, through a combination of binge spending and ill-advised investments. Ironically, only someone who is already quite well established is likely to make a success of a decent-sized windfall.
Similarly with countries, the only countries that have made a success of their natural resources are countries that were already doing quite well. Norway instantly springs to mind. Poor countries frequently end up worse off than before, the best example of which being oil-rich Nigeria, the most indebted nation in Africa.
How the Dutch Disease works is that mining resources employs relatively few workers and is highly dependent on technology, which has to be imported. The country exports its mineral, driving up the value of the currency, thus affecting other exports particularly in the manufacturing and farming industries. Wealth tends to accrue to the very few, while the many are driven out of what little employment they have.
There is no real antidote for this. The law of Comparative Advantage theoretically suggests that the country in question should specialise in exporting its minerals and live off the profits. That is the kind of thinking that most African nations seem to have adopted. Most processing of the resources happens abroad in any case, as the instability of African nations has encouraged investors to keep these operations in Europe and America.
Africa is uncompetitive in everything it does. That's almost a universal law. Its workers are the world's least efficient, and even when it comes to basic products, Latin America is more efficient at almost everything. That's one of the reasons Africa is losing out to Latin America with international aid agencies and Western governments. Africa is also losing out to the Far East, and mineral wealth is one of the only things Africa has to trade with the world.
Nationalisation is often mentioned as a natural solution to this problem, but this has never worked. Without the experience and technology required to run the industry, mining quickly becomes inefficient and dangerous. Corruption and theft destroy what's left of the economy, which has already been ruined by the Dutch Disease.
Even if an operation could be made profitable, the wealth earned will be spread too thinly to alleviate poverty. African government have proven they're not too good at maths. Many seem to believe they can sell their resources and then redistribute their profits and there'll be enough to go around. In socialist fairyland, maybe, but in the real world many other factors come into play to keep this in the realm of fantasy.
Botswana has found the best answer for Africa. They were able to strike a deal with diamond producer De Beers, some details of which can be found here, here and here. It allows the government to extract a fair rent for its resources, and allows the company to reinvest profits without fear of government interference, keeping shareholders happy. This situation provides maximum stability and efficiency, and is a template for the rest of Africa.
Botswana has crucially managed to fend off the worst effects of the Dutch Disease. For now. But it is a stable country with a small population, an exception by African standards. South Africa, in contrast, has a large population and a dwindling manufacturing sector. Its small businesses are being plundered by government, while its public sector employees are being awarded huge pay increases during a recession. This is a recipe for disaster, and nationalisation of the mines may occur in the not too distant future if present demands for it continue.
South Africa has all the right resources, natural and human, to keep at bay the worst effects of the Dutch Disease, and even to diminish it completely. But a government that refuses to learn from history, and from one of its neighbouring economies, is doomed to failure. Determined to strangle the golden goose, and the belief that it can always falls back on its mining industry, has all the hallmarks of impending disaster that is the signature of many African countries.
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