Move over China, India may be Africa’s new mining frontier

China, once every exporter’s favourite piñata as a huge consumer of minerals, has undergone an economic downturn that has sparked off a plunge in commodities prices — which may still deteriorate further. 

Beijing’s rebalancing to a more consumer-driven and services-heavy economy has seen it ease up on its previously voracious uptake of exports, leaving many African exporters in the lurch.

 Chinese officials at the Investing in African Mining Indaba gave away little about the country’s perceived central role in the current market turmoil, choosing instead to forecast an upturn in mining fortunes. This, they said, would come on the back of developed economies re-industrialising and pushing up expenditure on capital projects, and emerging economies accelerating their drive to industrialise.

Since 2011, at the start of China’s now expiring five-year growth plan, some $53-billion has been invested in mining, and total trade volume around the industry has reached more than $152-billion said Zhao Caisheng, a division director at China’s national land and resources ministry, at the influential industry meeting.

China’s super-cycle saw over $100-billion flow into African mining by the end of 2014, a momentum that contributed to the more than $200-billion in two-way trade achieved with the continent last year. 

To project a business-as-usual approach following the price crashes, it stumped up a record $60-billion at the Forum on China-African Cooperation in South Africa in December. It also pledged more African linkages to come, such the One Belt-One Road initiative that will see billions of dollars invested in new infrastructure.

Caisheng also said that Beijing would support the continent’s holy grail of industrialisation and integration, but while no country has benefited more from integrated markets recently than it, the continuing unease over China’s economy is sparking talks of new markets.

A few candidates have been touted. Japan could be an option: for decades a manufacturing-based economy, it now imports nearly 100% of both its base and minor metals. And it has deep interests in Africa: volatility on the continent could see its much-prized assembly lines grind to a halt, harming an already struggling economy. But the reality is that Japan imports mainly from Asian and American markets, with its biggest imports from the continent being South Africa’s platinum, according to the Observatory of Economic Complexity.

A more likely candidate could be one hidden in plain view and which generated quite a buzz in Cape Town: step forward India, which has historical links with Africa.

“India could be the next frontier for African commodities,” said Anglo America chief executive Mark Cutifani.

Consider the following. As one of the world’s largest oil consumers, India’s economy is expected to be ahead of most of the pack in 2016.

In its Global Economic Prospects, Spillovers amid Weak Growth report, the World Bank forecasts a perfect storm this year as a slowdown in the largest emerging markets— Brics — collides with lower commodity prices, cutting growth in international trade and financial markets.

This would pose the risk of spillover effects for the rest of the world economy, including Africa, the development lender said. China is already growing at its slowest pace in 20 years, while South Africa’s growth forecasts this year have been steadily pared back to less than 1%. Brazil is also in a deep recession. 

Only once before in the last 25 years — during the recession of 2009 — have all the countries in this much-observed bloc slowed down simultaneously.

The current exception is India: its economy is booming on the back of policy reforms that have reduced its vulnerability to changes in the global economy and attracted numerous investors.

Since his election in 2014, Indian Prime Minister Narendra Modi has been bold about his plans to ramp up his country’s poor infrastructure — roads, housing, and transportation — all which require commodities such as steel, presently in plentiful supply on global markets. 

These could open a window of demand for African commodities.

Global investment, banking and financial services firm Macquarie expects India to drive the consumption of commodities for the next 10 years. It is the only country expected to record growth in the steel industry in the next five years, propelling it to become the second-largest producer of the metal.

In a November interview with Mail & Guardian Africa, Carlos Lopes, executive secretary of the UN Economic Commission for Africa, argued that India, and not China, was actually of more foreign direct investment  value to Africa. 

“We have to confront the public with new narratives. We have to also use them for our negotiations and dialogue with our friends. It is important for people to know that all the sound and buzz about China’s investments in Africa actually is very, very misleading,” he said. 

And India was certainly revelling in its role, as it played up its strengths in Cape Town.

New Delhi forecasts at least 5% growth, and now wields at least $350-billion in foreign reserves to defend its economy. By contrast the foreign reserves of Nigeria, Africa’s largest economy, stand at less than $30-billion. 

Now the world’s fourth-largest mining exporter, minerals account for 2.5% of India’s gross domestic product, according to Balwinder Kumar, secretary at the Ministry of Mines, with this rising to 5% by 2020. 

This fast-paced economic growth will need more minerals, which will provide hope to African exporters looking for new markets and who have so far largely overlooked India.

“Indian companies are willing to invest in Africa for mining and exploration,” said Kumar. 

But despite this seemingly new opportunity, it is unlikely that India will “replace” China’s super-consumption in the short term.

Close observers may discern that although there are significant incentives offered to attract investors into its own market, its marketing pitch is still distinctly inward-looking. 

A lag is therefore foreseen before India develops an insatiable China-like appetite for the continent’s resources. Some experts also think the country of 1.25 billion people is still a bit too chaotic.

A research note from Old Mutual Wealth argues that while India may be the next growth frontier, it will take a while for it to reach the levels of Chinese consumption during its boom.

“While we are in agreement on India’s position as the new growth engine, we are unlikely to see it happening in the short to medium term, which is certainly not what iron ore producers are hoping for,” said the note. But with prices of key imports at record lows, this could rapidly change. India’s challenge in its pursuit of China would thus appear to be with itself — to fix its domestic deficiencies first.

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Lee Mwiti
Lee Mwiti joined Africa Check on 1 September 2016 as deputy editor. Previously he was the deputy editor at Mail and Guardian Africa, the pan-African arm of the South Africa-based Mail & Guardian. He has also been senior writer at the Africa Review, the continental unit of the Nation Media Group, in Kenya. He holds a Masters in International Studies from the University of Nairobi, a BSc. in Biomedical Sciences and a certificate in journalism. He has also been a Diageo business reporting awards UK finalist with wide experience in reporting on the continent’s geo-political economy. He is a recovering pedant.

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