William Pesek

June 25, 2006
 Business Report, South Africa

More than being scooped, journalists hate being wrong. Examining where we erred and why can be an invaluable learning experience.

My reports from Africa six years ago are a case in point. After spending some time in Cape Verde, Mozambique, Nigeria, South Africa and Tanzania in 2000, I wrote that Africa was about to boom. Leaders seemed to be getting serious about reducing debt and corruption, and increased trade with the US promised to boost living standards. For the most part, I was wrong.

After decades of false starts and shattered promises, African economies being left behind may have finally found a way out of despair. It's not international aid or debt relief. It's China.

In fact, it's not just China that holds the potential to boost Africa, but India too. "China and India shouldn't be viewed as competitors or clients, but as contributors to Africa's development," says Tanzanian President Jakaya Kikwete.

China and India offer models for globalising economies as a means of reducing poverty. While both still have far to go, their journeys could offer a road map for African nations struggling to get on investors' radar screens. More importantly, demand for resources from Asia's second-largest and fourth-largest economies could be quite a boon for Africa.

"The hunger of China and India for commodities is an opportunity for Africa to create significant wealth and global champions in that sector," says James Goodnight, the chief executive of US software company SAS Institute.

Of course, a sudden windfall can do the opposite - it can make Africa even more complacent.

"The risk is that African countries … benefiting from the demand will not invest current profits in long-term priorities [such as] education, healthcare and infrastructure," says Goodnight.

The global commodity boom could lead to a dynamic akin to the "oil curse" that lulls nations rich in energy, gold, diamonds or other underground treasures. With so much money rushing in, there's little incentive to create industries.

China pursues a policy of non-interference in other nations' domestic affairs. That approach could come at a cost if corruption worsens.

Another risk is that Africa becomes vulnerable to Asian business cycles. The spectre of developing economies relying almost solely on other developing ones for growth may not sit well with investors.

Even so, rising commodities demand offers Africa a rare opportunity to repair government coffers, reduce debt and improve education, healthcare, roads, bridges and power systems. Thanks partly to Asia, African nations on average are experiencing their fastest growth in 30 years. The Organisation for Economic Co-operation and Development predicts that African growth will average 5.8 percent this year.

The continent is still trying to get out from under Bob Geldof's shadow. In 1984, Geldof's Band Aid project produced an album to raise money for famine relief, anchored by the title song "Do They Know It's Christmas?" Africa has its success stories such as Botswana and Ghana. Looking ahead, economies with rich oil reserves have a great advantage.

"China will remain hungry for commodities over the coming 15 years," says Tamara Trinh, an economist at Deutsche Bank Research.

Asians will be buying more and more iron ore from South Africa; manganese from Ghana; cotton from Benin; Mali and Burkina Faso; coffee from Kenya and Malawi; copper from Zambia; diamonds from Botswana; fish and shrimp from Namibia; gold and platinum from Tanzania and Zimbabwe; cocoa and gas from Ivory Coast; tea from Uganda; sugar from Mauritius; and chemicals from Senegal.

Asia's rise will also boost a number of Latin American economies, says Trinh. China and India may buy increasing amounts of iron ore from Brazil; copper from Chile and Peru; soybeans from Argentina and Paraguay; meat from Uruguay; foodstuff for animals from Peru; oil and petrol from Colombia, Ecuador and Venezuela; and nickel from the Dominican Republic.

Africa is benefiting from Chinese investment too. Chinese companies are bidding aggressively for projects to build hydroelectric dams and pipelines, pave roads, upgrade ports and lay railroad tracks. Asia's rise won't ensure a vibrant future for Africa; it's had way too many false dawns for that. Yet Asia is offering the continent a rare opportunity to add steam to its economies. It's a chance for Africa to get things right this time. - Bloomberg