Abundance of extractive resources drives Africa's economic growth: World Bank
IMF Managing Director Christine Lagarde (L) greets Somalia's Bank Governor Abdusalam Omer (R) during a meeting with members of MENA, April 21, 2013 at the IMF Headquarters in Washington, DC.
A recent World Bank report says most African countries' impressive economic growth over the last decade has largely been a result of the abundance of extractive resources and high prices on international markets.
The Bretton Woods institution noted that discovery of oil, natural gas, copper and other strategic minerals coupled with better economic conditions drove solid growth in most African economies endowed with the resources.
Looking forward, the World Bank said in its Africa's Pulse report that by 2020, only four or five countries in the African region will not be involved in mineral exploitation of some kind. Such is Africa's abundance of natural resources.
The World Bank's outgoing chief economist for Africa, Shanta Deverajan, believes most mineral rich African economies will continue to grow strongly, largely backed by high international commodity prices, until at least 2020. Among the resource-rich African nations is Zimbabwe, which boasts of over 40 mineral occurrences spread across the length and breadth of the country.
These include platinum, of which Zimbabwe has the second biggest known deposits in the world, gold, diamond, iron ore, chrome, tin, methane gas, tantalite, asbestos, coal, emeralds, phosphate and nickel.
And Zimbabwe's potential for economic growth reflected in its 7,3 average recovery growth since 2009 after enduring almost a decade of economic instability. This growth has largely been a result of massive growth in mining.
The mining sector accounts for about 65 percent of exports, up from 50 percent in 2009 and accounts for a third of imports. With exports projected at US$1,2 billion in 2010 and a nominal GDP estimate of US$6 billion, it is implied that mining accounts for about 20 percent of nominal GDP.
While many argue that the country is yet to enter into real growth mode there is no denying that the recovery, which peaked at 9,3 percent in 2010, can easily be sustained if not surpassed, if a number of economic constraints are cleared.
Mining exports are once again expected to steer solid economic growth of about 5 percent, according to Finance Minister Tendai Biti, from 4,5 percent last year. The mining sector is projected to grow by 17 percent this year.
Many economists agree the figure of 5 percent GDP growth is only conservative due to the effect of the many challenges the Zimbabwean economy faces.
Firstly, most local firms face critical financial constraints to fund recapitalisation let alone expansion after almost a decade of economic haemorrhage.
According to the Chamber of Mines of Zimbabwe the mining industry requires between US$5 billion and US$7 billion to recapitalise in the next five years.
But attracting this amount of foreign investment, since the domestic economy is illiquid, has been difficulty largely as a result of the attacks Zimbabwe has received from Western countries unhappy over its land reforms.
And following dollarisation in 2009 and the sudden decline of inflation a number of businesses resumed operations, but following the currency changeover to multi-currency most have found their coffers more than just empty.
Since only three mining firms exported, most of which are foreign owned, the local economy and banking sector had little deposits to meet demand for liquidity.
The little hard currency banks and some individuals had, while inadequate, were extended at prohibitively high interest rates accompanied by stringent repayment terms that many failed to meet.
This forced many to either borrow at such extortionate rates and yet run into serious challenges or refrain completely from seeking credit thereby stifling recovery.
Then there is the issue of erratic supply of power due to overwhelming demand exceeding generation capacity, which has had debilitating effect on industry; either by affecting production or investment in expensive alternatives.
Zimbabwe requires about 2 200MW but is only able to generate around 1 200MW despite installed generation capacity of almost
1 900MW, which the country can no longer afford because of old and inefficient infrastructure.
Water has also been an issue for industry both in terms of consistency of supply and price and this has added to the high cost burden companies carry.
Because companies had only restarted operations, salaries were low, which not only affected consumer demand, but put pressure on wage demands while companies sought to re-establish, adding another heavy cost to operations.
In the middle of all these debilitating economic and business challenges Zimbabwe has managed to register modest economic growth, albeit also held back by cheaper imported imports largely from South Africa and China.
While the myriad of challenges that Zimbabwe faces have hugely affected contribution of other sectors, mainly manufacturing, and also agriculture and tourism, the economy still got massive steam from mining to keep hurtling.
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