Monday, May 24, 2010

Meanwhile, back at the African ranch...

While we can't take our eyes off China, except maybe to glance at India, something is happening in Africa.  Something very good, I think.


The cause is anybody's guess, but China's hunt for commodities (especially metals/minerals) is a top candidate. I think we need to keep in mind that growing demand for commodities does not guarantee that demand will show up here alone, or even mostly.
 Obviously the question becomes how sustainable this boom is. Traditionally the problem for countries that are commodity-exporting their way to prosperity is two-fold. One is that your commodity exports drive up the price of your currency, which reduces the competitiveness of your industries in other tradable sectors. You become a country that sells copper (say) abroad to finance imports of all other kinds of things. Second is that while in the initial phase rising commodity prices make your country more prosperous and in the second phase continued price growth drives investment that further drives prosperity, sooner-or-later the increase in investment tends to drive the price of the commodity back down to earth and then where are you? So what you’ve normally seen is countries riding a commodity price boom-bust whipsaw and never achieving any kind of sustainable development. Will we see that again, or will China manage to keep moving up the value chain to the extent that eventually Africa and other poor places start to take its place as low-cost manufacturing hubs and so forth? [More]
Still, because we grow commodities that flow like water through the markets, demand anywhere is a good thing. And what this chart suggests is Africa could begin contributing mightily to that demand as GDP soars.

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