Tag Archives: african commodities

Resource Dependence in Africa (with some thoughts on Mozambique)

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Source: The World Bank

Source: The World Bank. Click on image to enlarge  

This map shows resource rents as a share of GDP for the period 2009-2013. Note that the colouring on the map is about to change, with the Indian Ocean east coast getting some of the hydrocarbon action that has hitherto been a preserve of the Atlantic coast and a couple of landlocked states like Chad, Sudan and South Sudan (The biggest change in West Africa will most likely be in Guinea once the mining of its high grade iron ore in the Simandou Mountains gets going. A few contractual and logistical hurdles still stand in the way of the mega mining project).

The eastern African states of Kenya, Uganda, Tanzania and Mozambique are about to get a shade or more redder. Kenya and Uganda will start producing oil between 2016-17. Tanzania and Mozambique have massive amounts of natural gas, with Mozambique having recently climbed to top four in the world with a capacity to meet total global demand for more than two years.

As you may have guessed Mozambique is by far the country to watch out for as far as the ongoing eastern African resource bonanza is concerned. The country will continue to see a rapid rise in coal production, ultimately producing an estimated 42 million tons in 2017. Mozambique’s Gold production is also expected to more than triple by 2017 relative to its 2011 level. Estimates suggest that based on the full capacity exploitation of coal and gas alone the Mozambican economy could rise to become SSA’s third or fourth largest (after Nigeria, South Africa and (or ahead of) Angola). Going by the 2012 GDP figures from the Bank, that would be a change from US$14 billion to about $114 billion.

Have you enrolled in Portuguese classes yet?

As Mozambique gets wealthier in the next five years at a vertiginous pace, it will be interesting to see if it will go the Angola way. Both are former Portuguese colonies that had drawn out civil wars. Both tried to have democratic elections but then the ruling parties managed to completely vanquish the opposition. And both continue to be ruled by overwhelmingly dominant parties that appear to have consolidated power.

My hunch is that Mozambique is different, as FRELIMO is less of a one man show than is the MPLA. Indeed FRELIMO just selected a successor to Guebuza, the Defense Minister Filipe Nyusi (Nyusi’s background in engineering and the railway sector should prove useful for the development of the country’s coal industry).

The Tanzanian model of dominant/hegemonic party with term limits appears to have spread south. And that is a good thing. The other African country that appears to be embracing this model is Ethiopia (I think I can now say that the Zenawi succession was smooth and that Desalegn, also an engineer, is credibly term limtied).

Kampala, Kigali and Yaounde should borrow a leaf from these guys (that is, as a second best strategy given that their respective leaders do not seem to be into the idea of competitive politics).

For more on the politics and management of natural resources in Africa see here, here and here.

The 2013 Resource Governance Index

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The 2013 Resource Governance Index (published by the Revenue Watch Institute) is out. The top performing African countries include Ghana, Liberia?, Zambia and South Africa, with partial fulfillment. The bottom performing countries are Equatorial Guinea, Zimbabwe, South Sudan, the Democratic Republic of Congo and Mozambique.

The 58 nations included in the report “produce 85 percent of the world’s petroleum, 90 percent of diamonds and 80 percent of copper.” Ghana, where we are doing some evaluation  work on extractive sector transparency initiatives, is the best performing African country on the list. Image

More here. 

And in related news, The Africa Progress Report was released last week. The report details the massive loss of revenue by African governments through mismanagement – either by commission and/or omission – of extractive resources. For instance:

The report details five deals between 2010 and 2012, which cost the Democratic Republic of the Congo over US$1.3 billion in revenues through the undervaluation of assets and sale to foreign investors. This sum represents twice the annual health and education budgets of a country with one of the worst child mortality rates in the world and seven million pupils out of school.

The DRC alone is estimated to have 24 trillion dollars worth of untapped mineral resources.

The most bizarre case of resource management in Africa is Equatorial Guinea, a coutnry that is ranked 43rd on the global per capital GNI index but ranks 136th on the Human Development Index (2011).

Below is a map showing flows related to Africa’s vast resources:

RESOURCE-MAP

Energy in East Africa

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Still on my ongoing project on commodities in Africa, I came across an interesting piece on prospecting for oil in East Africa in which an industry expert had this to say:

The success rate in this region is outstanding. To provide some context, oil and gas exploration typically has a success rate just 10-20%. That’s terrible when you think about. It can cost $50 million to sink an offshore well, and the chance of making a financial return could be as low as one in ten.

But East Coast African energy exploration stands out from the crowd because in all but a few cases they hit oil or gas. To be exact — the success rate has been 87%. A strike rate of close to 9 out of 10 is almost unheard of.

Kenya, South Sudan and Uganda have commercially viable oil reserves. Tanzania has gas and, together with Kenya, has stepped up offshore prospecting in the Indian ocean.

And it is not just foreign MNCs that are in on the game. Locals, in collaboration with foreign investors, are also getting a piece of the energy bonanza in East Africa. Business Daily, a Kenyan paper, recently profiled one George Kariithi, a businessman who started off as a marketing executive and has since built multiple companies in the wider region. His latest investment is in Kenya’s emerging coal sector.

Kleptocracy and Debt: Vulture Funds to the Rescue?

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I am currently working on a project on commodities in SSA and have been amazed both by the region’s mineral wealth and how much of it gets stolen by local elites in cahoots with large MNCs. It is one thing to read about corruption from 30,000 feet. Getting an up-close view is another matter. The examples of the two Congos are instructive…

Congo-Brazzaville is one of the top oil producers in Africa. It is also a dirt poor country, with over 70% of its people living below the poverty line. Like in Equatorial Guinea (and other petro-states in the region), the ruling cabal in Brazzaville has turned the country’s oil wealth into private property – the symbol of which is the president’s son’s extravagant expenditures in European capitals (For more details see below).

[youtube.com/watch?v=VpGU1hsuSpU&feature=player_embedded]

These details of the sleaze around oil revenues in Congo were unearthed, by among others, Elliot Associates, a “vulture fund.”

Across the river in the other Congo (Congo-Kinshasa aka DRC) another vulture fund is trying to get Kinshasa to pay up. The vulture fund, FG Hemisphere, paid $3.3m for the debt to a Bosnian state-owned company, and then went ahead and sued for $100m in the courts of Jersey to recover the debt. Recently the Privy Council in the UK, the final appeals court, ruled in favor of Kinshasa. For more on this see the Guardian (here, here and here), which has been following this particularly case closely.

The Democratic Republic of Congo has a mineral wealth estimated to be around $24 trillion. It is also one of the least and poorest governed places on the planet. A recent report indicated that as much as 5 billion dollars in revenue from minerals has disappeared from the state coffers in the recent past.

Should Brazzaville and Kinshasa be forced to pay up?

Opinion over the utility of venture funds is divided. There are those that blame them for going after the poorest countries, asking for taxpayers to pay for their rulers’ (sometimes dead and gone, like Mobutu) largesse. But there area also those who contend that the best way of making rulers less willing to steal is by forcing them to pay up their debts – especially considering that debt forgiveness alone cannot end corruption.

Eric Joyce, writing in the Guardian puts it thus:

Campaigners have always maintained that if FGH is unable to collect the debt then the money will go instead to public works in the DRC. This is simply not true. The doctrine of “sovereign immunity” applies across the world and it is therefore not possible for any creditor, “vulture” or otherwise, to access funds that have a sovereign purpose – that is, public expenditure. Creditors can only target cash being used to trade.

With this in mind, perhaps the do-gooders campaigning for debt cancellation and recovery of stolen monies could team up with vulture funds. The latter have both the expertise and financial incentive to go after monies hidden in foreign bank accounts and shell companies registered in tax havens. Just a thought.