- Africa is not getting its act together as supplier of natural resources to the world

- China has become the number one industrial contractor to Africa

- It is possible that China will slow down more in order to avoid more mayhem across the globe

By Gavin Wendt, Founding Director & Senior Resource Analyst MineLife Pty Ltd

I had the opportunity to attend the annual Indaba mining conference in Cape Town, which was an incredible gathering of around 5,000 delegates from more than 180 countries. I’ve tried to capture as many of the themes of the conference as possible, as they are particularly relevant in light of what’s happening on the world political scene right now.

Firstly, offsetting optimism over commodity prices at the gathering was a background of some despondency surrounding the state of play in the conference host country, South Africa. The nation is going through major teething problems over mining rights and the broadening of black ownership. This is despite South Africa potentially being a resource treasure trove, boasting an abundance of mineral resources.

And it’s not just South Africa. The entire continent came under the spotlight at the conference, with non-executive director of Russian gold miner Petropavlovsk, Graham Birch, commenting that although there are vast opportunities in terms of mining investment in Africa, the continent needs to rid itself of investment risks and get its act together.

He said greed from governments and companies had held back the development of African mineral deposits, pointing to the fact that Africa has around 30% of the world’s mineral resources, yet produces just 10% of the world’s minerals.

China’s interest in Africa is no secret, but it was examined further at the conference. China-based, South African-born Kobus Van Der Wath, group manager for Beijing Axis, said China was the real deal and that Africa was a major focus. He said that the Chinese, although not new in terms of resources, are becoming a far more intensive player and far more assertive in their global aspirations.

Interestingly, he also said that China was the number one industrial contractor to Africa, with Chinese contractors outpacing Western rivals for construction jobs in Africa. He also predicts that the growth rate in China will moderate somewhat, but become more stable.

We’ve said on many occasions that copper is the key commodity in terms of being a barometer for the world’s economic health. The conference had a series of commodity price overviews, all of them positive, but the most interesting from my perspective was copper. The price is currently hovering around all-time highs of US$10,000/t and the news in terms of outlook is all good.

Walter DeWet, a commodity strategist director for one of South Africa’s big-four banks, Standard Bank, commented that the copper market would be in deficit over the next few years. He believes there is real incentive from a production perspective for copper plays to increase production after projects were put on the back-burner during the height of the global financial crisis.

Probably the biggest issue was the problem of growing systemic debt across the world. Keynote Speaker Niall Ferguson gave a most interesting talk on the evils of escalating debt amongst nations in the modern world. Currently world debt is around US$41 trillion, of which the US and Japan are the biggest culprits. In the US, federal debt as a proportion of GDP is on course for 80% in the next year or so, then 100% within the next decade, levels not seen since the end of WWII.

The problem is that the nations of the world that have been running big deficits and racking up huge debt so quickly that they will find it very hard to stabilize things, let alone stop the rising level of debt. It’s a problem that’s now so big, that it’s impossible to resolve through normal budgetary measures, i.e. cutting spending and raising taxes.

Countries with abundant mineral wealth will be better off in the future, but this is only part of the picture. Being able to develop and exploit it is the key. This is best demonstrated by the situation in South Africa within its gold industry, where resources are large, but production has been declining drastically.

And the world is rapidly consuming what are of course finite resources. It took Britain 75 years to increase its GDP fourfold, but China has achieved a tenfold increase in GDP in just 25 years. And the average wealth of an American citizen compared to a Chinese citizen has shrunk from a ratio of 30:1 to 5:1 over the past three decades.

Population levels are soaring in Africa and Asia, with the world’s population set to grow by 2.2 billion between now and 2050. 43% of this increase will come from Africa and 48% from Asia. But it’s unclear whether Africa can generate the jobs and growth to feed this growing young population, hence the scenes we’re seeing now in Egypt, Tunisia, Libya etc.

The youthful populations of many African and Middle Eastern countries are rising up. It’s not just the prices of raw materials like minerals and oil that have been growing. There have been increases in the price of wheat, corn and rice – the staple foods of the majority of the world’s population. In fact global food and beverage prices have doubled over the past decade.

Rising food prices are probably the key factor in terms of growing civil unrest in places like Africa, fanned by unemployment and a lack of proper democracy. Governments in Africa will come under increasing pressure from their populations to raise living standards and fight corruption.

China is also worried about developments in North Africa and the Middle East. There is the potential for rising food prices and inflation to heighten social unrest within China. There is a feeling that as a result, China might attempt to cool its economy more harshly in order to avoid civil unrest. There remains a huge disparity between rich and poor in China.

All views expressed are the author's, not FNArena's (see our disclaimer).

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