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State intervention risking return of 70s-type resource sterilisation
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14th March 2013
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JOHANNESBURG ( – Current African policies intended to capture a greater share of the resource rent through increased State intervention run the risk of bringing back the resource sterilisation of the 1970s, mining risk analysis company Eunomix warns.

The resource sterilisation risk, says the company, which specialises in de-risking resources and commodities projects in Africa – a destination of ever greater global strategic value – is already becoming evident in many countries facing mining disinvestment.

Headed by MD Claude Baissac, Eunomix has just completed a major study on African economic advancement through resource development.

Based on World Bank data, the study analyses the role of mining and oil and gas in Africa’s economic growth between 1970 and 2010 and tracks the relationship between economic growth, resource rent and commodity prices.

It says that Africa’s post-2000 “boom” was rooted in the private sector-friendly policies implemented in the 1990s and that, as in the era of 1970s sterilisation, the current rent-seeking State intervention is arriving post-super-cycle, and is as likely to produce the opposite of its intended effects.

Given this, governments' priority should urgently shift to minimising the negative impact of greater market volatility and uncertainty.

Governments should seek to protect rent-generation first, because a dwindling rent hurts government revenues, decreases employment and slows growth.

He urges African governments to deploy measures that ensure that the rent is more fairly and transparently allocated throughout society.

“Critically, governments should urgently undertake policies that effect economic diversification toward balanced and sustainable economic growth and opportunity for all. Failing to do this is likely to undermine the great achievements of the past decade,” Baissac warns.

Africa is currently regarded as the fastest-growing continent, where gross domestic product (GDP) growth is expected to rise by an average 6% a year, thanks to foreign direct investment.

“The key challenge facing the region is whether it can sustain sufficient growth over the current decade and beyond,” Baissac says in his study entitled, 'Is Africa’s Great Boom Sustainable?'

He calculates that the key to Africa’s future success is the need to sustain its economic growth rate at 4%-plus a year over the long term.

His study finds Africa to be more dependent on natural resources now than at any point in the past 40 years.

“The continent needs policies that effect economic diversification towards balanced and sustainable economic growth and opportunity for all,” he reiterates.

At one stage dubbed the 'lost continent', Africa's attractiveness has been raised as a result of its economy outperforming most global regions in the past decade; but now the resiliency of Africa’s economic achievements is seen to need urgent attention.

“Africa cannot afford the growth collapses and the economic misfortune of pre-2000 decades,” Baissac warns, against the background of Africa having been dragged out of the hard decades of low aggregate growth by the now-disappearing commodities super cycle.

In 2010, the combined GDP of the 17 African countries that qualified as being resource-rich, totalled $230-billion, and represented 42% of Africa’s total GDP of $550-billion

The Eunomix study finds that African governments need to deploy their share of the resource rent towards effective diversification in the medium-to-long term and need to prioritise investment climate reform, nonmineral sectoral developments and cost-competitiveness.

It finds that Africa’s growth pattern is unlike that of the fast-growing countries of Asia and Latin America, where manufacturing played a crucial role.

The continent’s growth model favours resources and services, which is unlikely to resolve its chronic under-employment and continuing poverty and instability.

Baissac’s view of South Africa is that it should move away from its developmental-State obsession and embrace the private sector.

South Africa, in his view, does not have the fiscal capacity to be the kind of developmental State that can advance society and achieve the required economic growth.

While some in the ruling African National Congress acknowledge that the government’s lack of trust of the private sector is the main impediment to economic growth, until the relationship with the private sector is fixed, South Africa will be burdened by lower growth, lower investment and lower business confidence, “and that’s going to lead to a perpetuation of poverty, unemployment and inequality”, Baissac believes.

He is convinced that correct government policies will restore the South African mining industry to being the country’s main engine of economic growth.

He sees no point in more taxes going to a State that is dysfunctional and incapable of using the money to develop cost-competitive infrastructure.

Baissac sees no point in developing uncompetitive infrastructure that creates private-sector losses.

“If we can learn from 40 years of mistakes in Africa and 40 years of successes in Africa, we can really turn mining around,” is his viewpoint.

Edited by: Creamer Media Reporter


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Claude Baissac
Picture by: Duane Daws
Claude Baissac