Business
Africa’s fast growth transforming commodity flows
“LPG will be a growing requirement because it fills the wealthier consumer market that needs alternative fuel as biomass becomes unsustainable in most urban settings,” said Chris Bake, director of origination and investments at Vitol. One way that Africa could seek to supply local markets with commodities is by using mineral resources as bargaining chips to persuade investors to set up processing and manufacturing plants, according to Carlos Lopes, executive secretary of the U.N. Economic Commission for Africa.
He cited data showing the continent had 12 percent of the world’s oil reserves, 40 percent of its gold, 80 to 90 percent of its chromium and platinum, 70 percent of coltan, 60 percent of its unused arable land, 17 percent of the world’s forests, and 53 percent of the world’s cocoa. “Resources such as these should be leveraged,” Lopes told African finance ministers in Abuja on March 29. Furthermore, he said, “We have to find our own recipe, our miracle recipe, if we want to become one of the factory floors of the world.”
New routes
Hasnen Varawalla, managing director of Investment Banking at Barclays Capital, said that he has an Indian client interested in shipping coal to a new power plant in West Africa from South Africa. “This is not about taking resources out of Africa to the rest of the world, they are seeing the opportunities within the continent and developing them,” he said.
But while such trade is feasible between two African ports – and could partially redraw export routes now dominated by flows to Asia and Europe – poor land infrastructure is a factor limiting the internal trade in commodities across the continent. However, A U.N. study last year found that intra-Africa trade represents just 11 percent of the total, compared with around 70 percent within Europe, partly due to insufficient infrastructure.
Investors also say that an important factor limiting their ability to process locally is power supply, as many African countries struggle to increase generation capacity in pace with demand. South Africa-based miner Exxaro said that Africa should consider trying to sell more commodities within the continent and process them there, as Chinese demand begins to slow.
“What would be fascinating for Exxaro would be if we supplied the iron ore from the Republic of Congo to steel mills within the Republic of Congo or in that region,” said Mzilane Mthenjane, executive head of strategy and corporate affairs, referring to its new 10 million tonne-a-year iron ore project.
But he said that currently power prices meant production costs were more expensive than China and that this would limit Africa’s potential to process raw materials locally. He added, “For the continent to really make that huge step forward and step up in terms of development, electricity supply is one or two of the basic infrastructure that needs to be in place.”
