Developing Africa - The Economics

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Digging Deeper....Africa – Developing a Mineral-Rich Continent

Allan Trench is a Professor  at the Centre for Exploration Targeting, University of Western Australia and at Curtin University Graduate School of Business - and the Perth representative for CRU Strategies, a division of independent metals & mining advisory CRU Group.

Widespread minerals-led activity is the clear pathway forward through which Africa’s developing nations can achieve sustainable economic growth. 

Oxford University economist Professor Paul Collier* suggests that the first step in accelerating this process is to maximise the discovery potential of Africa’s many under-explored areas.  How is that done exactly?  The provision of new regional geophysical and geological datasets at the ‘pre-competitive’ stage of exploration is one key element in the equation.   The economic returns from such datasets are not yet well understood even following a track record of their implementation in well-developed jurisdictions such as Australia– but are suggested to be of the order of 30:1.  That is, for every million dollars spent on the acquisition of new airborne geophysical datasets for example, a further $30 million is then attracted to a region in terms of follow-up exploration activity and mineral investment.  That’s even before the advent of a sizeable mineral discovery.

So are there significant new mineral deposits waiting to be found in Africa?  Any exploration geologist or mining executive would answer strongly in the affirmative:  But mineral economists would answer in the affirmative too – without any requirement for a detailed geological understanding of each country’s geology across the length and breadth of Africa.  

How is that?  To explain you need to ask yourself this simple question: What is the average OECD country mineral endowment value per square kilometre?  No idea? Well how about asking yourself whether the OECD average number is higher or lower than the equivalent mineral value per square kilometre in Africa?  Those readers who believe that Africa has more minerals than the OECD on this metric would be wrong.  On a square kilometre basis, Africa’s average value comes in at only around US$23,000 – whereas the OECD average endowment is over five times that number at around US$125,000. So the economic numbers – even without the prospective geology – suggests that Africa’s riches still lie largely undiscovered beneath the ground.  Therein sits the great opportunity for economic development across the continent.

So how should African countries create and share in that latent wealth?  Establishing a clear, consistent, stable mineral policy is the answer here.  Africa’s economies will create the opportunity to grow faster if the politicians of developing states can resist the easy temptation for creeping resource nationalism.  That’s is difficult to achieve of course – but at least in the likes of Botswana there is a poster child of what success might look like.

Sharing out the revenues from mineral developments to the broader community is another key step in the economic development process – in the process building buy-in and infrastructure for future mine development.  Examples of the powerful few stealing from the deprived many are unfortunately well known across the developing world, in Africa and elsewhere.   The economic leverage comes from the reinvestment of minerals revenues by African states in the domestic economy - with investments selected to benefit not only today’s population but future generations.

 

 

Governments need not tread this path alone: Empirical analysis of the returns on private investment in Africa reveal that such ventures can deliver impressive returns, even when accounting for the increased business risks of developing countries.  Public-private partnerships such as better roads (public investment) with better trucks (private investment) for example can kick-start other business activity.

The economic opportunity for both Africa’s public and private sectors is very clear therefore. No doubt all the exploration companies gathering at Cape Town’s Indaba conference this year can help accelerate Africa’s economic development by finding the ‘missing’ US$100,000 per square kilometre of African mineral endowment compared to the OECD countries.  As yet in exploration terms, we have only just scratched the surface of Africa. 

Watch that space. 

*Paul Collier 2011.  The Plundered Planet – How to Reconcile Prosperity with Nature.  Penguin Books, London, 271pp.