Dubai: Africa is on the rise, and its mostly untapped resources are awakening the covetous desire of the world's superpowers to exploit them.
A lot of African countries possess commodities that are highly in demand worldwide, such as oil, gold, diamonds, copper, uranium or coltan, a rare metallic ore used in countless consumer electronics products, namely mobile phones.
The problem is that many African states do not exploit these resources adequately on their own, as they are either involved in military conflicts or are passing through a transition period after times of civil war or similar atrocities. More stable countries, on the other hand, suffer from governmental inefficiencies, corruption and dilapidated infrastructure, which, in return, scares off and discourages investors.
However, companies from Europe, America, Asia and the Middle East have been actively executing strategies to benefit from the growth opportunities in Africa, says Baldwin Berges, managing director of London-based investment house Silk Invest, which specialises on frontier markets. Some countries have come into the focus of risk-aware investors, such as Nigeria, Kenya and Ghana in Sub-Saharan Africa, he said.
The stock index at the Kenyan exchange rose more than 30 per cent this year, Nigeria's increased by more than 21 per cent and Ghana's by some 12 per cent, Berges noted in an analysis on African equities at the end of last month.
The dominant commodity of Nigeria is oil, and is has plenty of it. Kenya is rich in agricultural products, and Ghana is known for cocoa, timber, bauxite and diamonds. These facts have triggered the world's superpowers to explore their opportunities on the continent.
The highest activity in tapping Africa's natural resources currently shows China. In recent years, China has become the most aggressive investor on the continent, especially in Sub-Saharan Africa.
New infrastructure
According to reports, more than one million Chinese are already living and working in Africa. In Nigeria, there are more of them than there were British residents in colonial times. China's primary interest is oil, as it is already the second largest consumer behind the US.
But not only the energy demand has compelled China to push into new markets, it is also looking for new markets to sell its goods. China is mainly present in Sudan, Republic of Congo, Equatorial Guinea, Angola, Chad, Nigeria, Algeria or Gabon. Its bilateral trade with Africa has reached more than $80 billion in 2009, according to the World Bank.
In exchange to precious exploitation contracts from African governments China commits to build new infrastructure in the respective countries. The Chinese are building railroads, schools, roads, bridges, hospitals, training centres and offices, even telecommunications networks. Beijing does not distinguish between African countries which are perceived in the West as rogue states such as Sudan, they simply offer a comprehensive investment package without political entanglements.
The Chinese approach is officially termed "noninterference in domestic affairs." Chinese leaders say human rights are relative, and each country should be allowed their own definition of them and timetable for reaching them. As a result, bilateral trade is thriving. Sudan, for example, already exports more than 60 per cent of its oil output to China.
It is of interest to mention that China is also a major arms supplier to Africa. In the period between 2000 and 2006, more than 15 per cent of all conventional arms transfers to the continent originated from China, according to the US-based Council on Foreign Relations.
However, what benefits the African governments, does not necessarily benefit their people. While politicians receive Chinese investors with open arms, the reactions among the populations are mixed, says Henning Melber, expert for African studies at the Nordic Africa Institute in Sweden and former head of the Namibian Economic Policy Research Unit in Windhoek. Melber says the problem is that China's companies do not only transfer capital and know-how to Africa, but also scores of unskilled labourers, which are seen as a threat for local businesses by many.
African small traders cannot compete with low-cost Chinese products and see their modest income basis shrinking further, while the Chinese are building up completely new trading structures.
Local textile industries in Africa are unable to keep up with cheap Chinese products and risk bankruptcy, and the construction industry faces price dumping by Chinese firms which do not abide by local laws of minimum wages and labour rules and thus are easily able to oust local enterprises.
However, without foreign investments the African continent will not be able to tap into the global value chains, says World Bank economist Harry G. Broadman. But he also mentions that the African governments must enact a series of reforms of basic institutions, regulations, infrastructure and tariffs, to realize the benefits.
Baldwin Berges of Silk Invest does not rule out that some African nations can tackle this challenge. For example, he compares Nigeria to Brazil, as it has "a similar amount of people, abundant resources, an increasingly functional democracy and a well regulated financial system." Brazil, which was a dysfunctional country well into the 1990s has made a total turnaround, he reckons: "A true example of how perception lags reality!"
Investors in Africa
>>US
The most important political allies of the US in Africa are Uganda, Rwanda and Ethiopia. It economical interests are currently concentrated on Western and Eastern Africa, namely Kenya, Tanzania and Liberia. In Gabon and Equatorial Guinea the US is exploiting oil resources, mostly offshore.
>> European Union
The EU has launched a bilateral partnership with Africa in 2007, but nothing much has happened since then. The Union has trade relations to countries like Angola, Sierra Leone, Senegal, Nigeria, Ethiopia and Madagascar as well as Northern African states. In particular, the influence of France is still strong in Africa, namely in their former colonies in Northern and Western Africa, in the Sahara as well as in Gabon and Cameroon.
>> China
The Chinese have established trade ties to a number of countries, among them Sudan, Nigeria, Republic of Congo, Gabon, Equatorial Guinea, Sierra Leone, Zimbabwe, Kenya, Tanzania, Algeria, Libya and Egypt.
>> India
For India, Africa is becoming increasingly important as a source for oil and as a market for its own products such as machinery and textiles. Most of the oil sold to India originates from Nigeria. In South Africa lives a large Indian expatriate community. Agricultural firms from India have bought huge areas of farmland in Kenya, Ethiopia, Madagascar and Mozambique.
>> Brazil
The South American country is the newest competitor in the race for Africa's natural resources. It has established ties with former Portuguese colonies such as Angola and Mozambique. Brazilian oil and mining companies are investing in Nigeria, South Africa and Congo.
>> Russia
The former Soviet Union lost its influence in Africa after its collapse in the 1991, but since then Russia as a successor state tried to rebuild partnerships to certain states. Russian Prime Minister Dmitry Medvedev travelled last year to Egypt, Nigeria, Namibia and Angola, targeting new commercial deals on oil, gas, diamonds, and uranium. With Egypt Russia signed a new ten-year cooperation pact. State-owned energy giant RosAtom will also build a nuclear power plant in the country. In Angola, a former close ally, Russia is targeting oil exploration, and in Namibia, uranium mines. In Nigeria, Russia's Gazprom is building a new gas pipeline.
>> GCC/UAE /UAE
The GCC countries have maintained close economic ties to African countries over the last years. The UAE, in particular, already has some investments Eastern, Southern and Northern African countries and is planning to expand its reach. According to Shaikha Lubna Al Qasimi, UAE Minister of Foreign Trade, the UAE seeks to cooperate with African countries on tourism, infrastructure, oil, gas, mining, energy, transport, logistics, ports services and the IT and mobile phones sector. One major investor is Dubai World with some 30 investment projects, among them marine terminals in Djibouti, Algeria, Dakar (Senegal) and Maputo (Mozambique) and wildlife reserves in Rwanda and South Africa as well as a hotel project on the Comoros Islands. Etisalat has stakes in several African telecom companies covering Sudan, Zanzibar (Tanzania), Benin, Burkina Faso, Togo, Niger, Central African Republic, Gabon and Ivory Coast. Dubai Investments holds a stake in Tunisie Telecom. Other target countries are Zambia, Lesotho, Zimbabwe and Malawi and the Maghreb countries. Trade relations are supported by The Africa - Arab Business Investment Forum that brings together business leaders and government institutions from Africa, GCC countries and International Institutions to discuss and explore investment opportunities.
Do you think Africa is an emerging continent in the global economic environment? Would foreign investment encourage African states to harness their land’s resources? Or would it have the opposite effect?
