Beneficiation is not the easy solution for Africa, says economist David Kaplan
Where the mining sector does offer opportunities, however, is in the products and services it needs
Busan — Much has been said about beneficiation in SA, but apparently being a producer of raw materials does not necessarily equate to having an advantage in moving up the value chain, according to University of Cape Town economics professor David Kaplan.
"In Africa it’s always said that we produce the iron and steel — why don’t we produce the pots and pans? We produce the gold, why do we not produce the jewellery?" Kaplan said on Thursday." The fact that you produce raw materials very often doesn’t give you any real advantage to any further activity downstream.
"I think this area has been exaggerated as an area for Africa’s production."
The possibilities for forward integration were hardly low-hanging fruit, he said.
However, where a country produces scarce resources with high levels of demand, there is room for bargaining — as Botswana did with De Beers in the sale, sorting, and cutting and polishing of diamonds.
Kaplan was speaking in Busan, Korea’s second city, where the annual meeting of the African Development Bank (AfDB)’s board of governors is taking place.
The governors are mainly finance ministers of the bank’s member states.
The theme of the week-long meeting is industrialisation in Africa, and Korea was chosen to host it, in the hope that it would provide inspiration and lessons from its own industrialisation path. In the space of a generation, Korea has become the 11th largest economy in the world, despite a lack of natural resources.
Kaplan said much of Africa had been de-industrialising, and its share of manufacturing had declined in the past 30 years.
The resources sector and supermarkets offered opportunities for the localisation of production, he said.
Examples were the Ahafo mining project in Ghana and the Mozal aluminium smelter in Mozambique.
Ahafo, one of the largest gold mines in the world, had produced a whole range of new products and services for the mining industry, from materials to the re-treading of tires.
"What’s happening is that in each of these sectors there is a need for local input and the mining houses themselves want to acquire things locally. They don’t necessarily want to ship things from Sydney or Johannesburg or somewhere else."
Kaplan emphasised the uniqueness of every situation. "All of these activities are based in knowledge. Every resource sector is different, every mine is different, every agricultural production activity is different."
Engineering skills were critical for mining and infrastructure projects, yet were in short supply, he said.
On supermarkets, Kaplan said there was now a recognition of the role they could play in the development of value chains, if they procured more of their products locally.
"We are starting to see a whole range of countries that are working with their supermarkets, saying ‘buy more locally’ and trying to enter into activities whereby supermarkets purchase more locally."
Kaplan singled out Shoprite’s relationship with the Zambian authorities and also referred to a retail charter in Namibia that "aims to raise the amount of manufactured products that supermarkets buy locally from 6% to 20%, and that seems to be working effectively".
In SA, Walmart’s arrival was approved partly on condition that it committed to sizable local procurement.