Africa Metals & Minerals Outlook 2015-2016: China's Shakedown Could Hit Commodity Trade

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Written by Richard Finlayson, Senior International Editor for Industrial Info Resources (Sugar Land, Texas)--At a time when China's dramatic stock falls are sending shock waves around the world's exchanges, it is easier to summarize the 2015-2016 possible "outlook" for Sub Saharan metals and minerals than it is to make specific "forecasts." The outlook is uncertain, with stocks in the sector falling about 5% on average globally, and China's consumption and import of mined commodities being squeezed downward. The devaluations of the Chinese yuan are constraining trade figures. Investors, who have piled up funds, are looking at new and current projects with great caution and due diligence, taking market conditions into account.

To stay grounded in this atmosphere, in which a daily watch is being kept for signs of a recovery and a rebound in prices, African mine managers are talking of project downsizing, productivity efficiencies and mechanization. Some medium-term forward perspective can be gained by reviewing the forecasts that were made for the sector in 2015, prior to China's "Black Monday."

Traditionally, the U.S. has been the largest foreign investor in Africa over all sectors, accounting for more than 80% of the foreign direct investment (FDI) projects from the Americas region. Since 2007, U.S. companies have launched 700 FDI projects across the continent, investing $52.8 billion and creating nearly 98,000 jobs, according to EY's (Ernst & Young Global Limited) (London, England) "Africa 2015 attractiveness survey--Making Choices."

After a slight dip in 2013, the U.S. reclaimed its position from the U.K. as the top investor in Africa. Launching 101 FDI projects in 2014, up by 29.5%, U.S. investors accounted for 13.8% of the total FDI projects in Africa, an increase from 9.8% in 2013. The number of U.S. projects was almost double from the next-largest groups of investors from South Africa and the U.K., who both came in second. Companies from North America and the Caribbean together invested in 855 FDI projects worth $91.9 billion in Africa between 2007 and 2014.

Polled on the sectors that would offer the highest growth potential for Africa in the next two years, investors from North America highlighted the importance of agriculture (26%), which ranked only marginally behind mining and metals (27%). Oil and gas also (18%) secured an increase in votes, rising 4% from 2014. For 2007 through 2014, South Africa was the top destination for FDI projects with 29.4%, representing 16.4% in value, with Nigeria as the destination for 6.9% of the projects, but representing 17.7% in value.

It remains to be seen (a safe phrase at this time of China's shakedown) whether China's intention to raise its direct investment in Africa to $100 billion by 2020 and achieve $400 billion in trade volumes with the continent will reach those targets, which were set in 2014. Latest reports say the country should maintain a growth rate of 7%, based on the development of the domestic market, but current indications are that African commodity exports and the metals and mining sector could be hard hit.

Trade between China and the continent totaled $220 billion in 2014, three times the trade volume between the U.S. and Africa, reports Lucy Kuo of the news blog Quartz Africa. The bulk of the trade is in raw materials like copper, iron ore, crude oil and other commodities that China needed to fuel its growth. But countries like South Africa, Mauritius and Ethiopia also are exporting finished goods, like wine and apparel.

In 2013, China's top trading partners in Africa were:

• South Africa--$65.15 billion
• Angola--$35.91 billion
• Nigeria--$13.59 billion
• Egypt--$10.21 billion
• Algeria--$8.15 billion
• Congo--$6.49 billion
• Libya--$4.84 billion
• Ghana--$4.7 billion
• Sudan--$4.57 billion
• Zambia--$3.84 billion
• Morocco--$3.8 billion
• DR Congo--$3.71 billion
• Tanzania--$3.7 billion
• Kenya--$3.28 billion
• Benin--$3.2 billion
• Equatorial Guinea--$2.83 billion
• Togo--$2.56 billion
• South Sudan--$2.53 billion
• Liberia--$2.5 billion
• Mauritania--$2.35 billion

The World Trade Organization statistics show that China imported $123 billion worth of goods from the U.S. in 2013, $194 billion from Japan, and $211 billion from the Eurozone. China contributed 38% to global growth in 2014.

Following the 2008 global financial crisis, Industrial Info observed that mega-hydrocarbon-based projects in the Middle East were being postponed or rescaled in terms of available funding, but plans were not being destroyed. Project developers were still looking to the future. There are parallels for the African resources sector, although the circumstances are different, there remains a positive impetus for the future.

Taking a two-year period to mid-2017, investors should see African projects going forward, backed by local sources and traditional international backers, including China. There will be a shakeout as China's "real" economy (non-banking) will become better defined as a population of 1.4 billion continues to pursue an increased quality of life.

Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, five offices in North America and 10 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle™, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities.