• Thursday, March 28, 2024
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BusinessDay

Resources, geopolitics and the coming recession: Is Africa sleeping at the wheels?

Recession

The coming recession portends dire socio-economic implications for Africa. It could prove a useful crisis or path further down the fiscal and development abyss. Will the continent be better prepared this time? Government complacency is likely to prove costly for the livelihoods of citizens. Collapse in energy and commodity prices will exacerbate existing African vulnerabilities.

When the global headwinds hit, weaker markets for oil, iron ore and copper etc. will throttle economies. The impacts may be more severe than the last African recession of 2014-2017, also triggered by commodities. States are still recovering from that slump. Today, there is the escalating US-China trade and currency war. Quantitative easing in the advanced countries after the 2008/09 recession distorts markets. The world seems to be at an inflection point.

A question of time

The Sino-American sparring over trade, technology and pretty much else that helped energise the decades-long advance of globalistion is already wreaking havoc. The Chinese currency dropped below the sensitive level of seven yuan to the US dollar last month. Stock markets have fallen, including the NASDAQ and Hong Kong’s Hang Seng.

Oil prices, too, appear jittery, wrong-footing the price benchmarks in the 2019 African budgets. Nigeria and Angola, respectively the first and third largest economies in sub-Saharan Africa, are in the crosshair. If global aggregate demands falter, expect a follow through in much lower oil prices and devaluation pressure on currencies such as the naira. Beyond energy resources, African mineral producers including South Africa, Tanzania, DRC and Zambia have also been in the throes since at least this year.

Ironically, counter-cyclical policy measures which can stabilise finances in commodity exporters seemed to have thrown out of the window. Incipient smoothening steps were gradually jettisoned by some policymakers – just when doing the opposite would have been prudent. From the first signs of return to aggregate growth in African economies around 2017, expansionary fiscal policies became mainstream; despite broadly sluggish revenue growth, stagflation in parts, and still flailing fiscal buffers. These needed disciplined repair in the aftermath of a screeching halt to the commodity super cycle in 2014.

What to do now?

It appears that leading African states may be shutting the stable door after the fiscal horse has bolted. Some respite came between 2017 and 2019 but growth has been largely tepid for the biggest players. Immediate action is needed on three complementary fronts if the worst is to be avoided next year. These should include aggressive fiscal recalibration, prioritisation of investment in areas like mineral geo-data acquisition (with ambitious licencing for new oil exploration), and a more clear-eyed geo-economic mindset in Africa. If not, we will again become passive drifters in a turbulent world order.

First, sensible fiscal precautions will require balancing expenditure to revenue, fiscal restraints to provide for a rainy day, and better debt optimisation. In all of the bigger African economies, the pressure is building. With oil prices at about $55 per barrel, Nigeria’s budget benchmarked at $60 and Ghana’s at $ 66.76 are out of kilter. Angola conservatively benchmarked at $55.

With widening gaps between revenue forecasts and export receipts in a number of countries, 2019 has seen the alarm bells ringing. Sustainable social spending and the needed infrastructure boost may suffer – when Africa should be expanding social investments to accelerate Sustainable Development Goals.

Second, the point often seems lost on many policymakers that extractives – still ironically Africa’s best bridge to a less carbon-intense future – are entering an uncharted territory. Resources will become stranded, rendered commercially unviable or impaired in value by considerations such as climate change. Emergence of alternative energy such as solar and fuel cell technology will reshape industrial raw material supplies. Increasingly minuscule amounts of palladium may substitute for Africa’s more plentiful minerals such as platinum.

Re-jigging lopsided partnerships

Better foresight on the part of leaders is therefore necessary if Africa is to capitalise on proven resource reserves and optimise revenue for inclusive national development. This will require geo-data investment and knowledge acquisition which will strengthen the hands of regulators.  They can help states secure better returns even as gyrating commodity prices pose challenges.

Finally, the growing schism between the world’s two largest economies strengthens the case for a geostrategic reawakening in Africa. Strategic resource partnerships with both east and west are possible and within reach. If only political leaders can connect the dots to boost agreements such as the Africa Continental Free Trade Area (AfCFTA). For China, there is at least a decade-old reality of advantages it enjoys over Africa in uncompetitive input costs. Erratic and exorbitant electricity hardly helps. And there is the decisive scale enjoyed by Beijing in raw materials processing. This surpasses even Japan which in the 1970s and 1980s honed that scaling approach.

The current reality precludes Africa from viably processing many minerals for value-addition. Beneficiation or minerals processing is fundamentally manufacturing for a global marketplace. Africa must therefore compete on costs. Strategic agreements must be struck with China to insert African players along its commodity and processing value chains.

Chinese outsourcing of relevant manufacturing components to Africa as part of resource supply agreements needs prioritising. In the face of unrelenting pressure from President Trump and the US Congress, Beijing has never been more vulnerable to African demands for resource and broader commercial partnerships. Well-tailored agreements will boost Africa’s industrialisation and strengthen win-win outcomes in Sino-African relations. Western powers too have over the past decades talked the language of strategic partnerships. Much of it targeted Africa’s pivotal states.

Leadership vacuum a risky blindside

The extant global shifts blow winds of opportunities for diligent players and menace laggards. Where Africa falls in this emerging divide will be crucial for the future of the continent in a de-globalising world. The emergent order threatens to re-create walled-off and mutually antagonistic politco-economic systems. Which deft manoeuvres will help us leverage US and China competition? Africa may just find itself dangerously adrift, eking out a bare existence, whilst prone to the vagaries of superpowers. Unless of course we are vigilant.

As the intensifying global rivalry heralds the next recession, Africa laudably is integrating to create scale through AfCFTA. Actions at national levels appear complacent or misdirected. Nigeria and South Africa hardly represent the continent. Yet, questionable priorities such as Abuja’s emerging milk war (within a widening imports restriction), and South Africa’s land redistribution shifts, both point to dissipation of limited policy bandwidth. Let’s not elevate desirable but hardly decisive economic ends.

African governments’ efforts at this time will be better focused on structured engagements to address existential, strategic questions. Externally, who will lead to help impel the much-needed harmonisation of African actions? How is the needed partnership reset going to enlist both the West and East irrevocably in the task of African structural economic transformation? There are urgent, though largely pending, tasks on the road to repositioning Africa. Sadly, too few of these existential tasks seem apparent in the long list of current African priorities!

 

OLA BELLO

Dr Bello is Executive Director, Good Governance Africa (GGA). He holds first class BSc Honours and MPhil and PhD degrees from University of Cambridge. Ola is a member African Union’s technical advisory group on mining