Africa’s 2008 Growth Needs Good Weather, Good Governance

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Researched by Industrial Info Resources (Sugar Land, Texas)--There are four entry points for forecasting investment and industrial conditions, including metals and mining, in Africa for 2008. One is what can be called the hard on-site economic indicators that are concerned with oil and mineral resource projects with strong return potential. The second is an assessment of infrastructure already on the ground to support the development of projects and the supply chain to market. The third is the political system and the stability of social structures where projects are proposed. The fourth, which not long ago would have been classified as a soft or secondary factor, is the weather and how it affects various regions and the other three entry points in Africa.

In September and October 2007, incessant storms cut a swathe through the northern and central regions where the balance of social peace in many of the countries could be thrown off if the weather alters the availability of the basic elements of survival: shelter, water and health. The changing weights between the four entry points is causing some reappraisal of forecasts for 2008, just as much as financial dysfunctions globally are causing forecasters to keep an eye on fall-back positions.

The World Bank has forecast an overall growth in GDP of 5.8% for sub-Saharan Africa holding the same rate as 2007. This sees South Africa running at 5.2%, Nigeria 6.6% and Kenya 5.2%. The forecast also relies on the continued progress of good governance among the main economies of the continent and the continuing resolution of crises, such as the interruption of oil production by insurgents in Nigeria’s Delta region. In May 2007, the African Development Bank (ADB) and the Organization for Economic Cooperation and Development (OECD) forecast African GDP growth at 5.7% in 2008, based on a stable oil price at $60 a barrel and “constant global expansion.” Under present conditions, the latter condition is 25% out of kilter.

The tough truth for the continent is that even if global times become harder, the developed and fastest-developing countries in the world will strike harder bargains for their investment in return for favored treatment in exploiting resource-rich projects. The oil price could put a severe crimp in local African economies. Chinese and Russian companies are now vigorous players in the mining and resources project field. The Chinese are exploiting a long history of providing soft loans for transport and other infrastructure projects, which can only help the success of their project investments in the medium and longer term.

North American and Australian mining majors and minors are very active in projects in central and southern Africa, including South Africa where local miners have experienced some inhibiting factors in the government’s formulation of mining regulations, which could cause risk aversion among local companies. Miners operate in a country where there is still a treasure trove of minerals, metals, precious stones, coal, uranium, iron ore, rare earths and has the infrastructure to handle finance and the interconnections of global trading. The mining outlook could change for the better as the need to maintain economic growth and build capacity mounts.

In Nigeria, which has a population of 135 million compared with South Africa’s 44 million, an increase in public investment in infrastructure is expected, and the GDP growth rate of 7% could fall back to 6%. The ADB and OECD estimate that total investment in the country increased to 23.9% of GDP in 2006 and projected that overall investment will increase “impressively” in 2007 and 2008. In 2005, the oil sector contributed 61.2% of GDP. The contribution of the non-oil sector has increased since then, but the manufacturing sector still accounted for less than 5% of GDP in 2006.

The concept of good governance being linked to economic progress is understood in Africa; however, there are still too many oligarchs and “big men” who fly to New York for a dental appointment, London for a tailor’s fitting and Paris for a good meal (or Johannesburg and Cape Town for all three), and, as a matter of principle, prevent the resource-based wealth from trickling down into the general economy. With potential for good growth coupled with an inflation rate forecast at 12.7% in 2008 (hitting the poorest countries hardest) Africa needs good weather and governance at the same time.

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