Advertisement

When the gold stops glittering

Friday June 23 2017
mining

Mineral resource-rich African countries have often attracted envy, but the collapse of commodity prices in recent years have exposed the dangers of dependence on one sector. PHOTO FILE | NATION

By NJIRAINI MUCHIRA

Mineral resource-rich African countries have often attracted envy, but the collapse of commodity prices in recent years have exposed the dangers of dependence on one sector.

Across Africa, countries such as Nigeria, Angola, Zambia, South Africa, Libya and Algeria have built booming economies on the foundation of mineral resources such as oil, gold and copper.

Other African countries have turned focus on the minerals and oil and gas sectors by pumping resources into exploration activities with the hope of joining the league of producers and exporters.

While in many nations the exploration activities have not yielded positive results, in some like Kenya, Uganda, Tanzania and Mozambique they have translated to discoveries of minerals like oil and natural gas.

READ: Is Tanzania getting a raw deal for its mineral wealth?

Already, the plan by Kenya to start exporting oil albeit in a small scale under the Early Oil Production Scheme (EOPS) at a time when crude prices at the international market are still depressed is generating criticism.

Advertisement

“In the absence of a significant increase in either oil price or export volumes, the EOPS is a money losing venture,” says a report by Kenya Civil Society Platform on Oil and Gas.

READ: Kenya to export crude three times in a year

According to analysts, although minerals can play a big role in economic growth, exposing the economy significantly to the sector is a catalyst for doom.

“When a country depends so much on minerals it must be prepared for a beating because commodities are priced in dollar, meaning that resource producing countries have no control on price movements,” said Churchill Ogutu, research analyst at Genghis Capital.

READ: Uganda, Russia sign nuclear power pact

The collapse of prices on the global market has precipitated economic havoc in commodity-dependent nations, with Nigeria recording a growth of 1.5 per cent in the past year from a high of 7.8 per cent in 2010.

South Africa has also seen its growth plunge from a high of 3.3 per cent in 2011 to a low of 0.5 per cent last year, while Zambia has declined from 10.3 per cent in 2010 to three per cent in 2016.

READ: For South Africans, economic pain hit long before recession

According to Mr Ogutu, the collapse in commodity prices has been a lesson in building the case for value addition.

Many resource producing countries in Africa export raw minerals and import finished products, in the process end up incurring more costs.

READ: CHUMA: Africa needs value addition, new jobs skill sets and infrastructure

Advertisement