The End of the Commodities Boom and the Challenges it Poses for Africa: Need For New Thinking
AUTHOR: JOSEPH ONELE
Legal Practitioner at Olaniwun Ajayi LP, The Adunola, Plot L2, 401 Close, Banana Island, Ikoyi, Lagos, Nigeria.
The economic trajectory of post-colonial Africa indeed leaves much to be desired. A continent once calculated to possess huge potentials not only struggles today to outwit the fall in oil prices which threatens her economic growth but has also become a scar on the conscience of the world. With an ever growing population already over a billion and recent stunted growth in most African countries, concerns have arisen as to the implications of the end of the commodities boom for the fledgling continent.
Starting with a brief background of what commodities boom entails, this article succinctly examines the end of commodities boom and more importantly, the challenges that the end of commodities boom poses for Africa. It proceeds to provide pragmatic solutions on how the challenges of the end of the commodities boom can be properly managed (by African leaders). It should be noted, however, that the recommendations contained in this article are not exhaustive.
ECONOMIC BOOM: MUCH ADO ABOUT NOTHING?
Whilst there is no universal definition of ‘economic boom,’ it is imperative to provide a working definition for a better understanding of this discussion. The Business Dictionary defines the expression as a period of significant output within a population…marked by productivity increases, sales increases, wage increases and rising demand…accompanied by a period of inflation. Some basic features of economic boom have been identified as: rapid economic expansion resulting in higher GDP, lower unemployment rate, increased living standards, rising asset prices, increased production levels and introduction of new technologies. The catch though is that it is often followed by a bust – economic recession as seen recently in the case of Nigeria.
END OF COMMODITIES BOOM IN AFRICA
The African economy rises and falls like tidal waves; it swings back and forth like a pendulum. A number of African countries have had considerable economic growth for well over a decade until recently. Unarguably, much of the advancement in economic growth seen in the years preceding economic recession in Africa is commodities export driven. The end of African commodities boom can be traced essentially to three primary causes: oversupply, large inventories and slowing growth of China, Sub-Saharan Africa’s major trading partner. Discouragingly, Africa has, from 2014 to the present moment, struggled to adjust to the falling commodity prices. The price of commodities like oil, gas, metals and minerals were sharply lowered and commodities-export-driven African countries were not spared the negative effects on their trade balances.
CHALLENGES AND RECOMMENDATIONS
As the decade-long commodities boom hits a wall, African leaders have become conscious albeit rather belatedly of its damning consequences. Indeed, there is no doubt that the end of commodities boom poses great challenges for Africa. These challenges include: the dearth of industrialisation; increasing inflation as seen in Uganda, Zimbabwe and South Africa; ‘dollarisation’ of the economy as seen in Nigeria and Egypt; violability of the exchange rate as seen in Nigeria and Zimbabwe; depreciation of currencies as seen in Zimbabwe, South Africa, Zambia, Ghana, Mozambique and Angola; the inability of African countries to manage their fiscal (external) debt due to fall in commodity price as seen in the case of Ghana amongst others; ‘impoverished’ manufacturing sector; increasing unemployment; paucity of investment opportunities; armed conflicts and economic recession as seen in the case of Nigeria and a host of others.
In addressing the challenges brought by the end of commodities boom in Africa, it is pertinent to note that no economy can truly develop without industrialisation. Hence, African countries need to ensure that the end of commodity boom does not mark the end of industrialisation in Africa. Adoption of policies that encourage increased manufacturing activities and protect local industries, while ensuring sustainable foreign exchange mechanisms, will go a long way in resolving the dearth of industrialisation. Africa needs to move away from relying too heavily on the sale of raw materials in place of manufactured goods as the former makes countries vulnerable to the external shocks that emanate from the fall in prices of such commodities.
Economic recession is another challenge begotten by the end of commodity boom. Recession can be combated if African countries can place less reliance on imports and promote the consumption of ‘Made in Africa goods.’ The depreciation of most African currencies and weak exchange rates are some other consequences of the global fall in prices of commodities that African countries have to contend with. Most imported goods become unaffordable as economic depression becomes inevitable. Hence, there is no better time for African countries to look inward and patronise more ‘locally’ ‘Made in Africa’ goods than now.
In further addressing the challenges associated with the end of commodities boom in Africa, there is a pressing need for African countries to support technological innovations, invest in infrastructural development projects through public-private partnership and leverage on aids or loan facilities that can be accessed from the World Bank, developmental finance institutions and even capital markets across the globe.
Though the second largest continent, Africa remains but a tiny dot on the world map of industrialization. However, the end of the boom may be a blessing in disguise. With relevant policies, the end of commodities boom could mark the beginning of Africa’s Industrial Revolution. There is no better time for Africa to boost its agricultural productivity than now, increase affordable and reliable energy, foster the development of human capital, whilst adapting to climate change and building climate resistance.
African countries need to be more aggressive in adopting developmental strategic initiatives that will allow them utilize mineral and commodities wealth to accelerate the expansion of other productive sectors, to wit, manufacturing, knowledge-based industries, health, education, tourism, amongst others. There is equally need for more transparency and accountability in investments, management of resources and developmental projects, for the benefit of all.
African governments need to stop ‘eating with their full hands’ and learn to save during the dry season for the rainy days by not only creating but also sustaining sovereign wealth fund (SWF) like Norway. It is on this note that the author commends the Nigerian government for the establishment of the Nigeria Sovereign Investment Authority (NSIA) – the body established pursuant to an Act of the National Assembly of the Federal Republic of Nigeria in 2011 to receive, manage and invest in a diversified portfolio of medium and long-term revenue of the Federal Government, State Government, Federal Capital Territory, Local Government and Area Councils to prepare for the eventual depletion of Nigeria’s hydrocarbon resources for the development of critical infrastructure in Nigeria that will attract and support foreign investment, economic diversification, growth and job creation in Nigeria. However, no matter how good and laudable the ideals as well as the legal framework for any SWF are, ‘good’ is hardly good enough. What is more important is how well these policies, regulations and laws are given effect to and used for the betterment of all. In other words, it becomes imperative that the relevant governmental institution, bodies or persons saddled with the responsibility of making good these lofty ideals discharge their duty, in accordance with not only the letters of the law but its spirit.
No doubt, the road is bumpy and the times are rough. It is true that the bulk of Africans have been going through hellish conditions even while the boom lasted, as a result of corruption and bad governance. However, greater doom looms if Africa does not do away with the complacency and commodities curse which accompanied the boom. The former United Nations’ Secretary General, Ban Ki-Moon, could not be more right when he asserted that Africa needs to invest in training and education for women and youth to industrialise, grow the private sector and achieve sustainable development. There is also a need for African countries to strive to reach a “sustainable” level of foreign borrowing; for it is always advisable for one to cut one’s cloth, not necessarily according to one’s size but according to the size of one’s cloth.
Note: This publication represents only the personal views of the author and is provided to highlight issues as well as for general information purposes only; it does not constitute legal advice. Whilst reasonable steps were taken to ensure the accuracy of information contained in this publication, the author does not accept any responsibility for any loss or damage that may arise from reliance on information contained in this publication.
Joseph Onele, LL.B (First Class Honours, University of Ibadan, Nigeria) Barrister and Solicitor of the Supreme Court of Nigeria; Legal Practitioner at Olaniwun Ajayi LP, The Adunola, Plot L2, 401 Close, Banana Island, Ikoyi, Lagos, Nigeria.
The author is immensely grateful to Messrs Kunle Adebajo, Peter-Cole Onele, Afam Ikeakanam, and Sadiq Oluwagbenga for their invaluable contributions to this article.