Originally published on our South African company blog in August 2010, and updated here in March 2011
One of my personal passions is trying to work out how developing countries, especially in my home continent of Africa, can help their people out of debilitating poverty. I believe it is possible. It is certainly desirable at all sorts of levels.
One of the possibilities that presents a huge opportunity to help African countries take a quantum leap forward in wealth development is the fact that the majority of their commodity and resource wealth is most likely yet to be discovered. Put another way: “There’s gold in them hills”.
Here’s a pop quiz to prove my point. Imagine an average square mile of the earth’s surface. How much sub surface value is there in the earth below it? I’m talking about the sub soil resources, minerals, etc that can be extracted and commodotised. In the typical OECD country (and OECD countries account for a quarter of the earth’s surface), each square mile has about $ 300,000 of sub soil assets below it.
In Africa, what do you think that number is? Is it less or more?
Answer: Africa also accounts for about a quarter of the earth’s surface. But the value of subsoil assets below each quarter mile in Africa is actually $ 60,000.
Why? Does God hate Africa? That’s unlikely. It’s also, if you think about it, unlikely that there is such a differential. The figures I’ve quoted are actually for KNOWN sub soil assets. So, in developing countries it’s likely there are many more subsoil assets than are currently known. And what’s more, the OECD countries have been digging the stuff out for 200 years. So, we should expect to find significant resources in developing countries in the next decades.
With America, China and India all rushing to find new resources, there will be money and effort thrown at finding the resources. For example, Afghanistan just discovered about $ 2 trillion in new sub soil assets (as if they didn’t have enough problems already – or maybe, just maybe, the coalition forces knew about these assets before finding an excuse to invade and settle in the country?).
This is a massive new frontier in wealth development and commodities management in developing countries over the next decades. This has the potential to dwarf everything else in developing countries in terms of wealth creation.
If this does happen, it provides an unprecedented – and once off – opportunity to kick start the development of these countries. The opportunities exist in countries like Angola and Ghana, for example, that have recently discovered significant oil deposits. There are huge dangers, though, if corruption, greed, crony capitalism and big corporates come in and plunder the resources. This requires wise leaders, active communities and new thinking from aid and development agencies. And ethical use of the resources that are discovered.
But there’s even more to this story than just natural resources. Sub Saharan Africa is going to be the next growth area in world development. “Sub Saharan Africa” technically refers to about 40 of Africa’s 53 nations. In reality, I am referring to about 25 nations that will most likely combine economic forces (but not political) in the next decade, probably under the banner of an existing alliance known as SADC (Southern African Development Community).
The hot news for the past decade or more has been India and China. Many hours are spent in board rooms around the world working out how to respond to the threats and opportunities posed by these two behemoths. Throw in Brazil and Russia to complete the BRIC set, and there’s a lot of work to be done in understanding and responding. But in all of this analysis and operation, Africa is a an often forgotten continent. That’s a mistake.
This region of the world accounts for about as many people than India and China. Many of these countries have double digit growth rates, and have not been in recession. Their populations are experiencing significant advances in technology usage, education, empowerment of women, and most significantly, health. While still far behind on many global indices, they’re moving very fast in the right directions.
China has been quick to notice this. There are already over one million Chinese labourers working in Africa, and China is pouring money into building Africa’s infrastructure.
This will very likely be the biggest economic story of the next two decades. Watch this space.
Click here to listen to a 45 minute recording from the London School of Economics lecture series on policy questions in developing countries – the lecture that inspired my thinking on this topic. The lecturer was Prof Paul Collier, director of the Centre for the Study of African Economies (Oxford), and author of The Plundered Planet.