Extent of African Economies’ Dependence on Commodities ‘Frightening’ – Mining

Amid hopes that the mining industry has finally reached the bottom of its steady decline since 2008, Africa’s primary-industry-focused economies may find some respite; however, the focus on natural resources is still a challenge many countries on the continent need to contend with.

Speaking at the WorleyParsons Supplier Grow conference, in Johannesburg, last month, advisory firm Deloitte Africa energy and resource leader, Andrew Lane pointed out that mining’s contribution to South Africa’s gross domestic product (GDP) growth continued to decline, despite making significant contributions to its foreign exchange earnings.

He said that production growth in South Africa’s minerals industry had been devastated over the years and highlighted that, in 1970, the sector contributed 21% to GDP but achieved only 7% last year.

Meanwhile, Lane pointed out that Nigeria was increasingly looking at unlocking the potential of its largely dormant minerals and metals sector to reduce its dependence on fluctuating oil prices. He noted that the West African nation’s mining sector contributed about 5% to its GDP in the 1970s and now contributed only about 0.3% to the economy.

“It is quite frightening the level to which the continent is dependent on commodities,” said Lane.

He noted that, with the exception of Mauritius, all Africa’s currencies had devalued and that the lack of national liquidity had resulted in many African governments getting rid of State-owned assets and privatising significant portions of the economy.

While Africa was not the first choice for foreign direct investments (FDIs), Lane pointed out that the continent’s mining and electricity sectors were the biggest attractors of FDI, particularly from European investors.

He added that, while China had provided significant investments into Africa, the continent’s FDI remained “very Eurocentric”.

Meanwhile, Lane noted that South Africa was in a technical recession, as it would need to get fundamentals right if it was to achieve a GDP growth rate of over 5% by 2030, as expressed in the National Development Plan.

In 2016, primary and secondary sector performance dropped, which improved slightly in the first quarter of this year with “some help from currency and commodity prices”; however, Lane asserted that the engine of the economy was going the wrong way.

He noted that, by 1980, mining and manufacturing were South Africa’s largest contributors to GDP growth, with the significant drop in the performance of the sectors in recent times particularly worrying for Lane, as the two subsectors were the largest employers in the country.

Tertiary industries, namely government and financial sectors, were the star performers in South Africa’s 2016 economic performance; however, Lane questioned whether these sectors would be able to “generate the kind of developmental and competitive outcomes that we need in our country”.

“What makes the mining industry difficult is the conflicting agendas of the different constituents. It is fraught with perception and dialogue that is not particularly productive, but if you just think about what the different parties to this ecosystem are trying to achieve, it [will be] very difficult to get that balance,” he concluded.





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