ABUJA, Nigeria- A recent article in the Financial Times has highlighted an ongoing debate about the stark realities of development in Africa. Written by Javier Blas, the article, entitled “Commodities: Destination Africa” argues Africa is slowly transitioning from an “origination” business model to a new “destination” business model. In other words, the continent is changing from being a commodities exporter to a commodities importer.
According to Blas, Africa’s shift from declining economic activity to accelerated economic growth—driven by political stability, population booms and higher commodities prices—has made Africa the perfect new market to exploit.
Blas is not alone in this assessment. Many business leaders concur that in less than a decade, Africa will be comprised of a majority of young, urban middle-class citizens who will demand food, energy and consumer goods. According to Ivan Glasenberg, CEO of the world’s biggest commodities trader, Glencore Xstrata, “Africa’s potential is huge.” Moreover, the International Monetary Fund’s forecast for sub-Saharan Africa sees it as the second fastest growing region in the world by 2014.
Naturally, the big trading houses overseas and in Africa are ready and willing to supply African consumers with the goods they want and need. Glencore is not alone its desire to commodify African consumers. Other large commodities traders, including Trafigura and Vitol, have been investing billions of dollars into Africa for half a decade now.
The world’s largest agricultural commodities trader Cargill is exploring investments in Nigeria to assess the feasibility of farming cassava locally for the production of starches and sweeteners destined for domestic markets.
This expanding growth is often compared to that of China. But as Blas reminds readers, the comparison to China is misleading. Africa is still behind in some aspects of commodity demand. For instance, minerals, metals and alloys are not in high demand. However, traders of precious metals and minerals argue that demand will only increase as Africa begins to build railroads, public buildings and power stations.
But why should a predominantly agricultural continent import food stuffs? Until the early 1970s, Nigeria was self-sufficient in grain; today, it is the second largest importer of rice behind China. The second largest producer of crude oil in Africa, Nigeria buys 80 percent of its refined oil products from trading houses because its own infrastructural capacity to refine is oil is weak.
Nigeria prefers to use its petrodollars on buying rice and refined oil products rather than investing that money into building their own refineries or becoming agriculturally self-sufficient. Using a rapidly dwindling resource like oil to buy food and consumer products is not a sustainable model for economic growth. Once the oil runs out so do the food and products.
Nigeria highlights a problem that is endemic to African economies—the selling of natural resources for short term gains without any investment in a sustainable future. While short term gains are laudable and necessary, there needs to be a concerted effort to create opportunities for future economic growth as well.
This is where large foreign investors, like commodities traders, come into play. If they give back to the markets from which they draw their wealth, they can be active contributors to Africa’s future—ultimately securing the futures of the markets they are tapping.
Sources: Financial Times, Pulitzer Center, Financial Times, Food and Agriculture Organization of the United Nations
Photo: Reuters