Sub-Saharan Africa economy: Strategic rise ViewsWire

Sub-Saharan Africa economy: Strategic rise
FROM THE ECONOMIST INTELLIGENCE UNIT
July 13th 2010

Rising global competition for commodities is giving a new strategic importance to resource-rich Sub-Saharan Africa. China and other emerging industrialised countries are vying with the subcontinent's former colonial powers to acquire long-term stakes in mines, oilfields and other commodity assets. With unprecedented volumes of investment on offer, the stakes are high not only for resource companies seeking to expand in Africa but also for the region itself. The challenge for African governments will be to manage their commodities better to avoid a repeat of the boom-and-bust years of the 1970s-90s.

Natural resources are hardly a new story for Sub-Saharan Africa. For decades the region has depended on exports of commoditiesóoil, hard minerals and cash cropsóto fund economic growth, though often with disappointing results. The collapse in commodity prices in the late 1970s and the mismanagement of revenue inflows resulted in weak growth and rising poverty, cementing the belief that Africa's dependence on commodities retarded its economic development. However, soaring emerging-market demand for commodities in recent years, coupled with the increasing scarcity of hydrocarbons and hard minerals, has changed the picture. Sub-Saharan Africa has become a prime target for adventurous foreign investorsówith Chinese companies playing a particularly prominent roleówith the result that the subcontinent once again has the opportunity to benefit from its natural wealth.

Sub-Saharan Africa is one of the most commodity-rich regions of the planet. The subcontinent contains the majority of known reserves of many key minerals, including 90% of the world's platinum-group metals, 90% of the world's chromium, two-thirds of the world's manganese, and 60% of its diamonds. It contains 60% of the world's phosphates, 50% of the world's vanadium, and 40-50% of the world's gold. Sub-Saharan Africa also boasts one-third of the planet's uranium reserves, one-third of its bauxite, and 10% of all oil reserves (the bulk of which are concentrated in the Gulf of Guinea in West Africa).

Most of these resources are underexploited. Uneven development has resulted in a handful of countries dominating commodity exports. The most important by far, both in terms of the diversity of its commodity base and the volume of its exports, is South Africa. The subcontinent's other commodity giant is the Democratic Republic of Congo, which sits on over half of the world's cobalt reserves and 25% of its diamonds, as well as having large quantities of rare metals such as coltan (used in mobile phones). Nigeria and Angola dominate oil production. However, other countries are starting to develop their commodity resources, and several are set to become major producers in the near future. They include Guinea and Angola (iron ore), Ghana (hydrocarbons), and Guinea-Bissau (bauxite and phosphates).

Sub-Saharan Africa also boasts a large agricultural sector. Much of this focused on the production of cash crops for export to the West during the colonial period and in the first years after independence. Since the late 1970s Africa has lost global importance as an exporter of many cash crops. The main exceptions have been coffee, cocoa and tea, for which CÙte d'Ivoire, Ghana, Uganda and Kenya remain key global producers, and more specialised crops like cashew nuts (Guinea-Bissau) and vanilla (Madagascar). However, increased competition from Asian and Latin American producers, coupled with a decline in Africa's terms of trade, has eroded profitability. Africa also continues to export large quantities of timber, particularly to China, but poor forestry management is threatening the sector's sustainability.

A scramble for access

Major emerging markets are playing a key role in the development of the region's commodities sector. Since the early 2000s China has invested heavily in African commodities, reflecting the two-pronged strategy of China's state-owned oil and mining companies: first, acquiring access to reserves through long-term contracts; and second, purchasing stakes in local ventures whenever possible. According to the Chinese government, by end-2008 total Chinese investment in Sub-Saharan Africa amounted to US$26bn, including stakes in oil and gas concessions in Sudan and the Gulf of Guinea, copper mines in Zambia, iron concessions in Gabon, and ferrochrome and platinum mines in South Africa.

China is not the only player around. Chinese interest is increasingly being matched by investment from Indian or Indian-linked firms, notably the steel manufacturing giants Tata Steel and ArcelorMittal, which are acquiring stakes in large coal concessions in Mozambique. Brazil is also stepping up its investment. Given the expertise of Brazilian companies in construction, engineering and the oil sector, it is likely that these firms will provide stiff competition for contracts in the next phase of Africa's infrastructure expansion.

Competition looks set to be particularly intense in the Gulf of Guinea, which continues to grow in strategic importance thanks to the steady increase in its proven oil reserves (a result of better deep-water drilling technology). The region is already the focus of military co-operation programmes between African governments and the US, EU and China. Tensions between these powers could increase as each seeks to establish a foothold in the region. Such a situation could prove advantageous to countries in the Gulf of Guinea if they are able to play off competing powers against each other. However, past experience indicates that such competition and strategic alliances can be used to prop up unsavoury regimes. This also poses potential difficulties for foreign investors. China is learning the hard way that its resource grabs can expose it to reputational risks over human-rights and environmental abuses.

Reaping the benefits?

There are plenty of other challenges. The region exports a lot of its commodities in unprocessed form, thus missing the chance to add value to them. For example, Guinea-Bissau exports its entire cashew crop (over 90% of the country's exports) to India for processing. The creation of low-tech processing operations could capture more of the value of the crop, as well as creating significant numbers of jobs. However, efforts to develop processing industries in Africa have proved disappointing owing to the constraints of the business environment, poor management and competition from processors in India and China.

Broader challenges include managing capital inflows better and maximising the economic benefits of foreign investments. Progress is occurring, with improved local-content provisions in mining contracts, the imposition of tighter environmental standards and greater transparency over commodity revenues. However, greater efforts are needed. African governments must ensure that infrastructure development does not just support the exploitation and export of minerals but also facilitates trade and the movement of people and goods. Local workforces must be trained in new skills and not just used for manual labour. A large proportion of oil and mineral revenues need to be held outside the countries in question in order to prevent currency appreciation that could render other industries uncompetitive.

If African governments can realise these aims, there is a good chance that the subcontinent's natural-resource endowment could provide major benefits to the population. Otherwise, the next wave of commodity development will merely entrench poor governance and corruption and further stifle economic development.

The Economist Intelligence Unit

Source: Global Forecasting Service

© 2010 The Economist Intelligence Unit Limited. An Economist Group business. All rights reserved.

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Global consumption of uranium to quadruple over next 30 years

Global consumption of uranium to quadruple over next 30 years

By: Jonathan Faurie Published: 26th March 2010

A leading academic predicts that global demand for mined uranium will rise at least fourfold over the next 30 years, driven by rising electricity demand and scaling back on fossil fuel dependence. Addressing the first day of the Paydirt 2010 Australian Uranium Conference, Professor Barry Brook, who holds the Sir Hubert Wilkins Chair of Climate Change at the University of Adelaide, said that, should the contributing factors be as acute as predicted, the con- tinuing surge in demand for uranium would be extended by a further 20 years. “Despite rapid advances in more-efficient Generation 4 reactors that can consume all the waste and depleted uranium from thermal reactors, the continuing growth in these thermal reactors would ensure a steady demand for mined uranium that would continue for many decades.” He added that thermal reactors currently contributed about 380 GW of global electricity supplies, or 15% of total electricity production, which was due to grow by at least four times to about 1,5 TW by 2040. In line with this growth scenario, global ura- nium consumption would rise from 69 000 t/y at present to about 285 000 t/y by 2040. Brooke pointed out that nuclear power was rapidly approaching “a renaissance, even if it has not yet quite arrived”. “While China is still building more coal-fired power stations, its recognition of the environmental damage they cause has already guaranteed that nuclear power will be a central platform of China’s energy future. “There are at least 20 of the Generation 3 thermal reactors being built in China right now, and which will begin to come on line in the next two or three years,” said Brooke He added that China’s electricity production, a key driver of Australia’s uranium indus- try, was scheduled to reach between 2 TW and 3 TW by 2050, with global needs in the region of 10 TW. “Considering that total world electricity production currently stands at about 2 TW, you can see just how big a market we are talking about. “The need for nuclear is going to be driven not only by environmental concerns and the inevitable decline of fossil fuels, but by the rising contribution of electricity for transport and the growth of electricity-consumptive technologies, such as desalination,” said Brooke. Meanwhile, ASX-listed Resource Star has signed a joint venture agreement with Globe Metals & Mining to start exploration at the Livingstonia uranium project, in Malawi. Resource Star will sole-fund the exploration, up to feasibility study, and, in turn, will earn staged equity through achieving defined exploration and assessment hurdles. During phase one, Resource Star could earn a 20% interest in the project by completing a resource estimate and 1 000 m of drilling, while the company could earn 51% interest during phase two by spending $3,25-million on exploration.

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Global consumption of uranium to quadruple over next 30 years

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Climate Emails Stoke Debate

• 

• U.S. NEWS
• NOVEMBER 23, 2009

Climate Emails Stoke Debate

Scientists' Leaked Correspondence Illustrates Bitter Feud over Global Warming

By KEITH JOHNSON

The scientific community is buzzing over thousands of emails and documents -- posted on the Internet last week after being hacked from a prominent climate-change research center -- that some say raise ethical questions about a group of scientists who contend humans are responsible for global warming.

The correspondence between dozens of climate-change researchers, including many in the U.S., illustrates bitter feelings among those who believe human activities cause global warming toward rivals who argue that the link between humans and climate change remains uncertain.

Some emails also refer to efforts by scientists who believe man is causing global warming to exclude contrary views from important scientific publications.

"This is horrible," said Pat Michaels, a climate scientist at the Cato Institute in Washington who is mentioned negatively in the emails. "This is what everyone feared. Over the years, it has become increasingly difficult for anyone who does not view global warming as an end-of-the-world issue to publish papers. This isn't questionable practice, this is unethical."

In all, more than 1,000 emails and more than 2,000 other documents were stolen Thursday from the Climate Research Unit at East Anglia University in the U.K. The identity of the hackers isn't certain, but the files were posted on a Russian file-sharing server late Thursday, and university officials confirmed over the weekend that their computer had been attacked and said the documents appeared to be genuine.

"The selective publication of some stolen emails and other papers taken out of context is mischievous and cannot be considered a genuine attempt to engage with this issue in a responsible way," the university said.

Most climate scientists today argue that the earth's temperature is rising, and nearly all of those agree that human activity is likely to be a prime or at least significant cause. But a vocal minority dispute one or both of those views.

A partial review of the hacked material suggests there was an effort at East Anglia, which houses an important center of global climate research, to shut out dissenters and their points of view.

In the emails, which date to 1996, researchers in the U.S. and the U.K. repeatedly take issue with climate research at odds with their own findings. In some cases, they discuss ways to rebut what they call "disinformation" using new articles in scientific journals or popular Web sites.

The emails include discussions of apparent efforts to make sure that reports from the Intergovernmental Panel on Climate Change, a United Nations group that monitors climate science, include their own views and exclude others. In addition, emails show that climate scientists declined to make their data available to scientists whose views they disagreed with.

The IPCC couldn't be reached for comment Sunday.

In one email, Benjamin Santer from the Lawrence Livermore National Laboratory in Livermore, Calif., wrote to the director of the climate-study center that he was "tempted to beat" up Mr. Michaels. Mr. Santer couldn't be reached for comment Sunday.

In another, Phil Jones, the director of the East Anglia climate center, suggested to climate scientist Michael Mann of Penn State University that skeptics' research was unwelcome: We "will keep them out somehow -- even if we have to redefine what the peer-review literature is!" Neither man could be reached for comment Sunday.

The emails were published less than a month before the opening of a major climate-change summit in Copenhagen.

Representatives of the American Association for the Advancement of Science, a large professional organization, expressed concern that the hacked emails would weaken global resolve to curb greenhouse-gas emissions. The association believes "that climate change is real, it is related to human activities, and the need to counteract its impacts is now urgent," said Ginger Pinholster, an association spokeswoman. She added that the association's journal, Science, evaluates papers solely on scientific merit.

John Christy, a scientist at the University of Alabama at Huntsville attacked in the emails for asking that an IPCC report include dissenting viewpoints, said, "It's disconcerting to realize that legislative actions this nation is preparing to take, and which will cost trillions of dollars, are based upon a view of climate that has not been completely scientifically tested."

Mojib Latif, a climate researcher at Germany's Leibniz Institute of Marine Sciences, said he found it hard to believe that climate scientists were trying to squelch dissent. Mr. Latif, who believes in man-made global warming but who has co-authored a paper ascribing current cooling to temporary natural trends, said, "I simply can't believe that there is a kind of mafia that is trying to inhibit critical papers from being published."

Associated Press

—Jeffrey Ball contributed to this article.

Write to Keith Johnson atkeith.johnson@wsj.com

Printed in The Wall Street Journal, page A3

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