Competition for Resources:
Its Time for Africa?
Parthapratim Pal
Increased demand for resources
• Recent and significant revival of commodity prices has led to
renewed interest in the exploration and exploitation of natural
resources
• Energy security is increasingly becoming important for many
countries.
• The world is growing at different speeds and this is leading to a
structural shift of the global demand.
• Manufacturing activity has been largely relocated to China and
other fast growing Asian economies
• High growth of manufacturing activities in these countries is
creating a massive demand for all primary resources.
1992M01
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International Commodity Prices, IMF Index
300
250
200
150
100
50
0
Food and beverage index
Metal index
Energy index
Commodity Prices and Mineral Rich Developing countries
• The boom in mineral prices has brought development issues related
to the extraction of natural resources back into focus.
• The appropriate use of revenues from their exports could enable a
number of mineral-rich developing countries to accelerate their
development process
• But most mineral abundant developing countries tend to suffer from
something called the ‘natural resource curse’.
• It has been noted that the largest percentage of African conflicts is
concentrated in regions that have the most abundant natural
resources and yet the poorest people. This paradox of wealth in
natural resources combined with high incidence of poverty is known
as the natural resource curse
Competition for Resources and Africa
•
The African continent
possesses a generous
endowment in natural
resources, namely
hydrocarbons, minerals
and timber, which
remain mostly
untapped due to
decades of political
instability, poor
infrastructure and lack
of investment.
•
Arica is considered to
be the last frontier of
natural resource
exploration. In the
years to come it is
expected that Africa
will attract attention of
investors from all
across the world for its
natural resources.
Competition for Resources and Africa
• However, entry of developing
countries in Africa is challenging the
dominance of established interests,
primarily from the US, France and the
United Kingdom (UK), all of which
produced a pattern of investment that
replicated the colonial era
• Among the most prominent
newcomers are Asian states (China,
India, Malaysia and Singapore) and
Middle Eastern countries (Israel, Saudi
Arabia and Kuwait).
• This scenario prepares the ground for
growing competition for economic
and political influence over the
continent in the coming decades
Africa and China:
Wrong model, right
continent
“China knows what it wants
from Africa and will
probably get it. The
converse isn't true”
The Economist, October 26,
2006
Increasing Economic Cooperation
between China and Africa
Increasing Economic Cooperation
between China and Africa
Increasing Economic Cooperation between China and Africa:
Less Obvious Linkages
Chinese Economic Assistance to Africa
(in billion US$)
45
40
35
30
25
20
15
10
5
0
2002
2003
2004
Chinese Economic Assistance to Africa
Lum et.al. (2009)
2005
2006
US Foreign Operations Budget
2007
Growing tension between China and developed Countries
over Africa
• Developed countries accuses China of giving economic assistance
with ‘no strings’ undermines their initiative to improve
governance in Africa.
– China’s development assistance to Africa is not conditioned by
improvements in governance, economic reform, or human rights
conditions.
– But China’s African Policy explicitly conditions official relations with African
governments on adherence to China’s “One China” principle regarding the
status of Taiwan
• Both China and -to a lesser extent- India have been accused of
replicating the colonial pattern of exploitation on Africa. Analysis
show that export sophistication of resource rich African countries
have not improved.
Export Sophistication of Goods over time
China-Africa Trade Pattern 2008
What is there for Africa?
• It is important to appreciate that North America, Australia, and
Europe have their own interests to protect in Africa and Latin
America, and much of the anti-Chinese/Indian sentiment is driven
by these factors.
• To date, China and India also have played only a small, albeit
growing, role in terms of capital investment in Africa.
– Each accounts for less than 5 percent of the total inbound foreign direct
investment (FDI) stock in Africa, a tiny fraction of that from Europe and the
U.S.
• Increased competition among investors may allow Africa to get a
better deal.
• But it will be important for Africa to move away from exports on
only primary commodities and improve domestic value added
Possible Spillover effect
New Regionalism based on Resources?
• The world is seeing increased protectionism. Along with it,
countries are also embracing regionalism in a big way. The
new trend is formation of mega trade blocks.
• As some major developed countries are embracing
regionalism in a big way, it is possible that new mega blocks
may be formed where the resource-endowed countries may
be part of such trade blocks.
• For example, USA has made trade deals with Mexico, Canada
and Australia
Economic, environmental and social impacts
• Increased presence of big capital in extractive industries is
becoming a major policy challenge.
• It may displace and impoverish indigenous population
which may lead to increased social tensions.
• It is also quite likely to affect biodiversity of the concerned
region
• These problems are aggravated when Trans-national
Corporations are involved in such activities. Developing
countries often find problems disciplining these firms.
• The story opens in 2154, when Earth’s natural
resources have been depleted. Jake Sully goes to
Pandora, a moon with a lush, Earthlike environment 4.4
light years away.
• Humans, led by the ‘Resources Development
Administration’ and backed with military force, have
colonized it for three decades and are mining a rare
mineral (called unobtainium), needed for energy
generation on Earth.
• A measure of sophistication of a country’s export
basket, suggested by Rodrik (2005), assigns an
“income” coefficient to each product based on
the weighted average of the incomes of the
countries exporting the product. These “income”
coefficients of the various products are averaged
using the export shares in a particular country’s
export basket as weights to arrive at the income
level “embedded” in the exports. The Figure plots
the log of this measure of export sophistication