Back to the Future for Africa?

The partition had left the European powers in control of the African continent, what followed was resource extraction in order to make the venture profitable. The industrial revolution had greatly enhanced the world’s demand for raw materials, commodities such as cotton, rubber, coal, iron ore, copper and others had increased enough in value to justify a substantial transport leg. In economic terms the European states had only vertically integrated their supply chain through the seizure of the upstream suppliers, now controlling both the midstream (manufacturing) and the downstream (consumer markets). By exercising formal control of the raw material suppliers, the need for operating through middlemen and their affiliated cost would be lowered in addition to substantially reducing the risk for investors. The lowered long term risk would thus both increase the availability and reduce the cost of capital, capital needed to construct the infrastructure required for transportation of the raw materials. The infrastructure constructed were mainly roads, telegraph cables, harbours and railways. It vastly increased the profitability of extracting low-value high-bulk commodities such as minerals or perishable goods such as agricultural produce. Before they were constructed the economy would rely on the availability of rivers or porterage, the latter being slow, expensive and not to mention highly dangerous. Maintaining the infrastructure requires a strong state apparatus with the ability to either finance its upkeep itself or attract outside investment, this again hinges on the state’s ability to keep the investor’s perception of affiliated risk low in relation to the potential reward. With the independent African nations’ dismal record of misgovernment, this type of foreign direct investment has been hard to attract, leading to a vicious circle of under-development and economic regression.

Chinese financed TAZARA railway in Tanzania

However, over the last decade a new player has appeared on the world stage, an economy that has maintained a double digit annual growth rate since the early 1980s and has now emerged as the global manufacturing hub. China now produces 47.6% of the world’s annual steel output, or 567 million tonnes (2009), this compares to 16.1% or 123 mt only ten years earlier. It’s role as the world’s supplier of manufactured goods has led to a huge jump in its demand for raw materials, commodities such as iron ore, steam coal, met coal, crude oil, and a range of metals and minerals. Despite maintaining the world’s largest reserves of coal, China prefers to meet its demand through seaborne imports from primarily Indonesia and Australia, but also South Africa is a substantial supplier. The same goes for iron ore, where an estimated 80% of steel is produced from ore imported from mainly Australia or Brazil. The reason is simple, the low transportation costs combined with the high quality (FE content for ore, carbon content for coal) of the foreign commodities makes them more cost efficient than using the domestic materials.

For Africa, Chinese commodity demand growth represents a significant economic opportunity, possessing substantial mineral and metal deposits. To make their extraction and export economically feasible would require investments into the colonial transportation infrastructure or construction of new networks. But political risk is still an element preventing such investments from taking place, contemporary China as opposed to the European 19th Century powers, cannot merely intervene military and assume sovereignty over the supplying territories, but needs to proceed through the formal political and commercial channels. Should China manage to sustain its economic growth level and still favour imports to cover commodity demand, African countries with substantial raw material factor endowments in addition to low political risk will be the continent’s economic winners over the medium to long term.

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About J.F. Gjersø

PhD in International History, LSE. http://etheses.lse.ac.uk/3202/
This entry was posted in Economic History, Imperial History and tagged , , , , , , , . Bookmark the permalink.

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