Africans warned of mineral project "derailment"

Africa's heavy toll

Globalization was supposed to be the answer to the continent's woes. But after years of progress, that very integration has spawned the worst slump in decades.

By Brian Milner

Toronto Globe and Mail

11th June 2009

Wealthy donor countries have long preached the joys of globalization to struggling African economies. Now, after years of steady growth and rising living standards, Africa is reaping the unfortunate consequences of being better integrated into a world economy suffering through the worst slump since the Depression.

African countries heavily dependent on foreign capital, export trade, development aid and remittances from overseas workers have watched all of these vital sources of revenue shrink. And they now face a long, slow climb back to the ground they occupied before the global earthquake hit.

"Africa is going to pay a heavier price now [than in previous international crises], because it's more integrated with the global economy," said Roy Culpeper, president of the North-South Institute in Ottawa. "It's the tail being wagged by the dog in the industrial countries."

A competitiveness report released Wednesday at the annual conference on Africa held by the World Economic Forum in Cape Town, South Africa, showed the continent has made little progress because of problems on a number of fronts.

The report cited weak infrastructure, poor productivity, a lack of access to local finance and continuing trade barriers between African countries.

And now the global slowdown threatens to derail the gains made in the past decade, as costly mineral and other projects are scaled back or shelved in the face of weak demand and low prices for a raft of commodities.

"There has been very little fresh money going into Africa during this crisis," said Mark Schroeder, director of sub-Saharan analysis with Stratfor, a global intelligence firm. "Some countries are still projecting reduced positive growth. Maybe those few are being a little bit optimistic."

Between 2001 and last year, Africa tallied overall economic growth of an average 5.9 per cent annually, which helped attract significant foreign investment, mainly to producers of such strategically important commodities as oil, copper, diamonds and key agricultural crops.

But "the recent global economic turmoil has raised questions as to how sustainable this growth will be over the medium to longer run," said the report.

Indeed, the prognosis is for a long-lasting downturn in the region, one that will be exacerbated by the deferral or abandonment of badly needed social and physical infrastructure projects, Mr. Culpeper said from London on Wednesday.

Most African governments have relied on the inflows of foreign capital to finance such projects. Last year, 450 investment commitments for infrastructure were cancelled.

Mr. Culpeper had just attended a conference in Geneva focused on the impact of the world financial crisis on low-income countries. "The consensus is that the crisis is impacting Africa in a slower but deeper way than it has the industrial countries."

The latest IMF forecast calls for Africa to grow no more than 2 per cent this year - the lowest level in nearly 20 years - and 3.9 per cent in 2010.

But several countries are mired in worsening recessions, including South Africa, which boasts by far the biggest and most diversified of Africa's economies. Its economy shrank by 6.4 per cent on an annual basis in the first quarter, its worst showing in 25 years.

The Organization for Economic Co-operation and Development forecast last month that Africa's growth rate would be cut in half this year in response to the global slump, weaker commodity prices and cutbacks by aid donors and foreign investors. But the OECD also concluded that the region is better positioned to cope with the consequences than it was during the currency crisis of a decade ago.

Another report released in Cape Town Wednesday, from the Africa Progress Panel - which is chaired by former UN secretary-general Kofi Annan - concludes optimistically that the continent's "middle to long-term prospects are better now than at any time since independence" thanks to abundant resources, a vast increase in foreign investment and steadily growing aid, remittances and income from trade and other economic activity.

But the report cautions that the crisis "could arrest and even reverse steady, and in some cases dramatic, gains that have been made over the last decade."

One oft-cited problem that plagued African agricultural producers long before the current slump was trade-distorting subsidies provided to growers in the developed world. Now the massive government bailouts in the United States and other developed countries can be added to the list of protectionist roadblocks, South African President Jacob Zuma told the Cape Town conference.

"We all do understand that all economies become inward-looking during difficult economic times. However we can avoid shutting out other markets."