African Resource Rush

8/6/2019 African Resource Rush

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Dubai: Africa is on the rise, and its mostly untapped resources are

awakening the covetous desire of the world's superpowers to exploit

them.

A lot of African countries possess commodities that are highly in

demand worldwide, such as oil, gold, diamonds, copper, uranium or

coltan, a rare metallic ore used in countless consumer electronics

products, namely mobile phones.

The problem is that many African states do not exploit these

resources adequately on their own, as they are either involved in

military conflicts or are passing through a transition period after

times of civil war or similar atrocities. More stable countries, on the

other hand, suffer from governmental inefficiencies, corruption and

dilapidated infrastructure, which, in return, scares off anddiscourages investors.

However, companies from Europe, America, Asia and the Middle

East have been actively executing strategies to benefit from the

growth opportunities in Africa, says Baldwin Berges, managing

director of London-based investment house Silk Invest, which

specialises on frontier markets. Some countries have come into the

focus of risk-aware investors, such as Nigeria, Kenya and Ghana in

Sub-Saharan Africa, he said.The stock index at the Kenyan exchange rose more than 30 per cent

this year, Nigeria's increased by more than 21 per cent and Ghana's

by some 12 per cent, Berges noted in an analysis on African equities

at the end of last month.

The dominant commodity of Nigeria is oil, and is has plenty of it.

Kenya is rich in agricultural products, and Ghana is known for cocoa,

timber, bauxite and diamonds. These facts have triggered the

world's superpowers to explore their opportunities on the continent.

The highest activity in tapping Africa's natural resources currently

shows China. In recent years, China has become the most

aggressive investor on the continent, especially in Sub-Saharan

Africa.

New infrastructure

According to reports, more than one million Chinese are already

living and working in Africa. In Nigeria, there are more of them than

there were British residents in colonial times. China's primary

interest is oil, as it is already the second largest consumer behind


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the US.

But not only the energy demand has compelled China to push into

new markets, it is also looking for new markets to sell its goods.

China is mainly present in Sudan, Republic of Congo, Equatorial

Guinea, Angola, Chad, Nigeria, Algeria or Gabon. Its bilateral trade

with Africa has reached more than $80 billion in 2009, according to

the World Bank.

In exchange to precious exploitation contracts from African

governments China commits to build new infrastructure in the

respective countries. The Chinese are building railroads, schools,

roads, bridges, hospitals, training centres and offices, even

telecommunications networks. Beijing does not distinguish between

African countries which are perceived in the West as rogue statessuch as Sudan, they simply offer a comprehensive investment

package without political entanglements.

The Chinese approach is officially termed "noninterference in

domestic affairs." Chinese leaders say human rights are relative,

and each country should be allowed their own definition of them and

timetable for reaching them. As a result, bilateral trade is thriving.

Sudan, for example, already exports more than 60 per cent of its oil

output to China.It is of interest to mention that China is also a major arms supplier to

Africa. In the period between 2000 and 2006, more than 15 per cent

of all conventional arms transfers to the continent originated from

China, according to the US-based Council on Foreign Relations.

However, what benefits the African governments, does not

necessarily benefit their people. While politicians receive Chinese

investors with open arms, the reactions among the populations are

mixed, says Henning Melber, expert for African studies at the Nordic

Africa Institute in Sweden and former head of the Namibian

Economic Policy Research Unit in Windhoek. Melber says the

problem is that China's companies do not only transfer capital and

know-how to Africa, but also scores of unskilled labourers, which are

seen as a threat for local businesses by many.

African small traders cannot compete with low-cost Chinese

products and see their modest income basis shrinking further, while

the Chinese are building up completely new trading structures.

Local textile industries in Africa are unable to keep up with cheap


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Chinese products and risk bankruptcy, and the construction industry

faces price dumping by Chinese firms which do not abide by local

laws of minimum wages and labour rules and thus are easily able to

oust local enterprises.

However, without foreign investments the African continent will not

be able to tap into the global value chains, says World Bank

economist Harry G. Broadman. But he also mentions that the African

governments must enact a series of reforms of basic institutions,

regulations, infrastructure and tariffs, to realize the benefits.

Baldwin Berges of Silk Invest does not rule out that some African

nations can tackle this challenge. For example, he compares Nigeria

to Brazil, as it has "a similar amount of people, abundant resources,

an increasingly functional democracy and a well regulated financialsystem." Brazil, which was a dysfunctional country well into the

1990s has made a total turnaround, he reckons: "A true example of

how perception lags reality!"Investors in Africa

>>US

The most important political allies of the US in Africa are Uganda,

Rwanda and Ethiopia. It economical interests are currently

concentrated on Western and Eastern Africa, namely Kenya,

Tanzania and Liberia. In Gabon and Equatorial Guinea the US isexploiting oil resources, mostly offshore.

>> European Union

The EU has launched a bilateral partnership with Africa in 2007, but

nothing much has happened since then. The Union has trade

relations to countries like Angola, Sierra Leone, Senegal, Nigeria,

Ethiopia and Madagascar as well as Northern African states. In

particular, the influence of France is still strong in Africa, namely in

their former colonies in Northern and Western Africa, in the Sahara

as well as in Gabon and Cameroon.

>> China

The Chinese have established trade ties to a number of countries,

among them Sudan, Nigeria, Republic of Congo, Gabon, Equatorial

Guinea, Sierra Leone, Zimbabwe, Kenya, Tanzania, Algeria, Libya

and Egypt.

>> India

For India, Africa is becoming increasingly important as a source for

oil and as a market for its own products such as machinery and


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textiles. Most of the oil sold to India originates from Nigeria. In South

Africa lives a large Indian expatriate community. Agricultural firms

from India have bought huge areas of farmland in Kenya, Ethiopia,

Madagascar and Mozambique.

>> Brazil

The South American country is the newest competitor in the race for

Africa's natural resources. It has established ties with former

Portuguese colonies such as Angola and Mozambique. Brazilian oil

and mining companies are investing in Nigeria, South Africa and

Congo.

>> Russia

The former Soviet Union lost its influence in Africa after its collapse

in the 1991, but since then Russia as a successor state tried torebuild partnerships to certain states. Russian Prime Minister Dmitry

Medvedev travelled last year to Egypt, Nigeria, Namibia and Angola,

targeting new commercial deals on oil, gas, diamonds, and uranium.

With Egypt Russia signed a new ten-year cooperation pact. State-

owned energy giant RosAtom will also build a nuclear power plant in

the country. In Angola, a former close ally, Russia is targeting oil

exploration, and in Namibia, uranium mines. In Nigeria, Russia's

Gazprom is building a new gas pipeline.>> GCC/UAE /UAE

The GCC countries have maintained close economic ties to African

countries over the last years. The UAE, in particular, already has

some investments Eastern, Southern and Northern African countries

and is planning to expand its reach. According to Shaikha Lubna Al

Qasimi, UAE Minister of Foreign Trade, the UAE seeks to cooperate

with African countries on tourism, infrastructure, oil, gas, mining,

energy, transport, logistics, ports services and the IT and mobile

phones sector. One major investor is Dubai World with some 30

investment projects, among them marine terminals in Djibouti,

Algeria, Dakar (Senegal) and Maputo (Mozambique) and wildlife

reserves in Rwanda and South Africa as well as a hotel project on

the Comoros Islands. Etisalat has stakes in several African telecom

companies covering Sudan, Zanzibar (Tanzania), Benin, Burkina

Faso, Togo, Niger, Central African Republic, Gabon and Ivory Coast.

Dubai Investments holds a stake in Tunisie Telecom. Other target

countries are Zambia, Lesotho, Zimbabwe and Malawi and the


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Maghreb countries. Trade relations are supported by The Africa -

Arab Business Investment Forum that brings together business

leaders and government institutions from Africa, GCC countries and

International Institutions to discuss and explore investment

opportunities.Do you think Africa is an emerging continent in the

global economic environment? Would foreign investment encourage

African states to harness their lands resources? Or would it have

the opposite effect?

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African Resource Rush