For many African nations, the year 2016 is presenting some difficult challenges. For the second time since 1960, the commodity exports that bring in most of Africa’s revenue have suffered severe world price declines.
Between 1960 and 1980, high world prices for African commodity exports, especially crude oil, minerals such as copper, iron ore, manganese, and cobalt, brought African governments considerable revenue. Unfortunately, that revenue was not used to finance economic diversity, especially in agro-industry, manufacturing, transportation and intra-African trade. As a result, when world commodity prices dropped heavily between 1975 and 1980, many African countries found themselves heavily in debt and unable to service those debts. Too much of the earlier wealth was squandered on the financing of white elephants, the disastrous nationalization of private companies, and sadly, extensive corruption.
Fortunately, the World Bank and the International Monetary Fund were able to rescue the heavily indebted African countries in return for their accepting strong macroeconomic reforms. As a result, between 1980 and the year 2000, the majority of African countries were able to resume growth at the modest level of between three and five percent per annum. This growth was far from adequate for sustainable development, but the African nations were at least keeping their heads above water.
The beginning of the new century in the year 2000 was marked by a vast increase in commodity imports by China and India. Everything that Africa could export found a market in China and India. In addition to making large purchases in Africa, and driving up prices, China engaged in large scale infrastructure programs in many African countries in return for privileged access to those commodities. This was especially true for major exporters of crude oil, such as Nigeria, Angola, Equatorial Guinea, and Gabon.
African use of the new revenue from the second commodities’ boom has been better than during the first commodities’ boom, but unfortunately has been woefully insufficient. In Nigeria, some investments have been made in agro-industry, especially in Cassava, a major food staple for both people and livestock. In Benin and Togo, major advances have been made in the production of cashew. In Kenya and Ethiopia, horticultural production and flower exports have been expanding exponentially. In Ethiopia, we are beginning to see investments in apparel manufacturing as well as footwear.
Despite these few improvements, the depression of world commodity prices, is causing major problems in Africa as we speak. Nigeria is suffering severe budgetary problems caused by a drop of the price of oil from $120 per barrel to $35 within a single year. The same holds true for the other oil producers, and the mineral producers. For example, the price of copper exported by the Democratic Republic of the Congo and the Republic of Zambia has decreased from five dollars per pound to $1.60. These two countries export over one million tons of copper per annum.
So, Africa has now witnessed the end of a second commodities’ boom without having financed diversification of their economies. Sure, the recent second boom created a new middle class of about 200 million people who have become consumers. This has attracted new investments by companies like Ford Motors in Kenya, Mars candy in Côte d’Ivoire, and Walmart stores in ten southern African countries. Also, Côte d’Ivoire and Ghana, as the world’s leading producers and exporters of Cocoa, are enjoying continued high prices of this commodity, and are using the revenue to improve and expand infrastructure, and to create the enabling conditions for agro-industry.
In general, Africa is facing hard economic times in 2016. What should they be doing about it? In my view, all available resources should be focused on essentials for future growth: rural infrastructure so that farmers can reach markets and have irrigated water; electric power without which manufacturing cannot happen; and last but not least, the creation of a friendly environment that will allow African entrepreneurs to invest in small and medium businesses without having to worry about government harassment and without having to worry about the enforcement of their contracts.
The Obama Administration’s policy toward Africa fits right in with my recommendation. His “Feed the Future” project is designed to bring modern agricultural methods, technologies, and seeds to African farmers. This is a high priority because Africa spends most of its revenue on importing foods. Secondly, the administration has a project called “Power Africa” that is encouraging the private sector to invest in the expansion of electric power generation in Africa. In African countries where the private sector is investing in power generation for profit, consumers are enjoying electricity that they never have had before, and the price of electricity for consumers who have already had power has been reduced. In addition, with the price of solar panels greatly reduced since the Chinese have engaged in mass production, more and more African rural villages are enjoying this renewable form of power to keep lights on and their TVs working.
The economic sector is of paramount concern in Africa as we look ahead. But there are also some serious concerns about security. Right now, there are three frightening nodes of Islamic terrorism wreaking havoc in three sub-regions of Africa.
In the Sahel nations of Mauritania, Senegal, Mali, Niger, and Burkina Faso, sporadic attacks by terrorists operating under the name of al-Qaeda in the Maghreb are causing major tensions that are inhibiting investments and undermining democracy.
In the Lake Chad basin, an Islamic terrorist group operating under the name Boko Haram, is engaged in wanton killing of Moslem villagers living in Cameroon, Nigeria and Niger.
In Somalia, the al-Shebab terrorist group continues to attack government, military and economic targets at will despite the presence of several thousand African peace-keeping troops.
So far, the United States has been providing technical assistance, materiel, and training to African forces. The prognosis is that these terrorist groups will eventually be subdued, but it will be a long and difficult effort. The United States is now trying to stop external financing for these groups. The big question is will the United States start putting pressure on some of our friends in the Middle East who are then principal sources of such financing.
In addition to the United States, the major external support for Africa’s fight against Islamic terrorism is France. It is important for Africa watchers to pay tribute to France’s President François Hollande who has sent combat troops to the Sahel region and who has remained faithful to the francophone nations of West Africa.
While the economic outlook for Africa in 2016 is gloomy, it is clear that the international community will continue to support Africa in its efforts to set the stage for an eventual recovery.
(Image: Angela Sevin)