For 500 years world history has been dominated by the economic ascent of the West. Now there is an epic shift taking place, one which is witnessed only once every half millennia, says Niall Ferguson, a professor of history at Harvard University. The era of western economic and political influence is waning, and will end within our lifetime, he says. The economies of the east have reawakened and East and West are converging in a competitive-dependency which has profound implications for Africa and for those who wish to exploit her mineral wealth.
Hastening the decline of Western economic and ideological hegemony is the recent financial crisis which has seen the levels of public debt held by the developed (and developing) world, rise to unsustainable levels. Cumulatively, public debt levels now top $41.2trn, according to the Economist magazine, with Japan and the US bearing the lions share. In the US, public debt as a share of GDP will soon pass 80% and will reach 100% within the decade, a level not reached since the second world war. “There are few bigger problems than this,” Ferguson told the assembled audience of miners and financiers at Cape Town’s recent Mining Indaba.
Addressing this debt through the normal mechanisms of cutting expenditure or raising taxes is not that simple. To stabilise its debt to GDP ratios Japan would have to make fiscal adjustments to the tune of 9% of GDP. The US needs to do 8%, and has achieved 3% so far, according to the OECD. Reducing it further would require unpopular levels of fiscal responsibility.
Just ask Greece, and Ireland.
But if these problems cannot be resolved what will happen, and how will this impact Africa? Ferguson advances his theory of the two kinds of countries dominating the world at present. “Those with the loaded guns of accumulated wealth and those who have to dig themselves out of the debt they have created.”
Those with the loaded guns will spend large part of this decade buying the assets of those that are digging. He predicts a massive asset transfer from the likes of the heavily indebted US to the likes of China with its nearly $2.8trn of reserves.
And Africa’s mineral treasure buried deep under her lakes, plains and mountains is of particular interest to both those with the loaded guns and those with the shovels. If the world was to tot up the value of its entire known mineral reserves – precious and rare as well as the coal, iron, gas and oil – it would reach $312trn.
The US alone, with its vast reserves – 29% of the world’s coal, 20% of its zinc, 14% of its silver, 11% of its uranium, 10% of its indium, and 7% of its copper – is worth $31trn in terms of mineral wealth, says Ferguson.
But, and here is the surprise, SA’s mineral wealth totted up equates to $40.4trn. SA possesses 88% of the worlds reserves of platinum and rhodium; 40% of its gold, 35% of its chromium, 8% of its nickel, 5% of its copper and 9% of its uranium. “These are mind blowing numbers and it should make SA delegates [at the conference] very happy.”
About 16% of the$312trn total is located in Africa – and this is only the known reserves, says Ferguson.
“For the first time in world history Africa looks rich.”
But, before Africa can truly benefit from this wealth, and in the process exploit the opportunities created out of world’s declining resource levels as well as the shift in power from the West to the East, it has to manage a few challenges.
First you have to get the minerals out of the ground. “And SA’s mining sector is that it is not as good at getting it out of the ground as it should be,” says Ferguson.
SA’s share of global gold production has declined. China and other s have eaten into SA’s market share and at the same time, gold production in SA has turned negative. “Anyone interested in exploiting the natural wealth of Africa must be interested in the productivity, efficiency and competitiveness of its mining sector,” says Ferguson. “If these do not become top priorities then others will eat SA’s lunch and her vast underground wealth will not benefit her people.”
Ferguson goes on to list other problems with regard to capitalising on Africa’s vast mineral wealth.
Africa’s growing population must be recognised. The world population will grow by 2.2bn people between now and 2050, according to UN estimates. And 43% of this growth will come from Africa and 48% from Asia, with India in pole position.
The challenge of course will be for African agriculture to grow in similar proportions.
The riots in Egypt, Tunisia and other Arab are worthy of attention. It’s all about demographics. In North Africa the majority of the population is between 15 and 24. They are young, unemployed and rebellious. “Revolutions don’t happen in countries with different demographics – old people don’t like riots.” In sub Saharan Africa, this age group will peak in 2030. It is a point Africa’s policymakers and investors would do well to bear in mind.
Rising commodity prices add further pressure. It is not just mineral and energy prices that have gone up. All commodity prices are up – with the exception of natural gas, timber, olive oil, chicken and shrimp. In the past 12 months wheat prices rose 100%, corn 87%, soya 59% and sugar 22%.
“Food prices have profound implications for the social stability of relatively poor countries. High food prices have the potential to be socially destabilising,” Ferguson reminds his audience.
“Egypt is not a peculiarity…it is a warning
The point he is making is that in Africa there is a massive opportunity in the form of vast untapped mineral wealth and a growing labour force. Governance, economic efficiency and social justice are improving in certain regions.
But, history is on the move and won’t wait for Africa to catch up. The financial revolution that has propelled China from poverty to power in a single generation has raised the risks and opportunities for Africa, which remains one of the last and greatest frontiers in mineral exploration and extraction. African governments’ and policy makers need to be on their toes.