Wednesday, February 10, 2016

Changing the economy

South Africa’s mining sector faces a bleak future. Falling commodity prices have led to more than 70,000 job losses and more job cuts loom. A further 50,000 employees face the risk of losing their jobs if no urgent action is taken. This is according to a statement released by the Mining Industry Association of Southern Africa (MIASA)

South Africa’s mining sector is grappling with its toughest period in the last 20 years. Mining firms in Africa’s most industrialized economy are struggling due to weakening global commodities prices for the country’s platinum, gold, iron ore and coal exports.

Experts attending the 20th meeting of the Intergovernmental Committee of Experts (ICE) of the United Nations Economic Commission for Africa (Uneca) said yesterday that price decreases in oil and other commodities had shown many economies that they needed to diversify the economies. African countries have been advised to transform their economies through industrialisation to avoid shocks created by declines in commodity prices.

Resource rich African countries are addicts that are in need of rehabilitation now that the good days are over, according to former Zimbabwe finance minister Tendai Biti. Resource poor countries like Rwanda, Kenya and Ethiopia are experiencing growth, while resource rich countries like Nigeria and Angola are battling, Biti told the Investing in African Mining Indaba. "They [resource poor countries] have moved to fully diversify their economies," he said. "Diversification is key, but African leaders [in resource rich countries] don't learn. The boom and slumps have been with us for a long time. It [the lessons] should have been learnt a long time ago." He used the example of the Zimbabwean Marange diamond field, which has seen $2bn worth of diamond extraction per annum since being discovered in 2006. The state only got a small slice of the revenue and the community got even less. Biti said there are 76 000 women in India polishing the diamonds of Marange, an operation that should surely be done by the local community in Zimbabwe, he said. "You see poverty where the diamonds have been extracted," he said. "It is the most underdeveloped societies."

Countries rich in mineral and energy resources are infamous for catching the so-called Dutch Disease. This is an economic term that explains the negative consequences caused by an unnatural focus on a specific sector, to the detriment of all other sectors. African countries, especially ones with extractive institutions, are often prone to this dilemma.

Prof Humphrey Moshi from the University of Dar es Salaam's Economics Department said agriculture had to be given priority for the continent's meaningful industrialisation. "We need to invest in agriculture so that we produce to feed the regional markets and produce more goods for processing," he said.

As the politicians and academics try to solve Africa's economic problems, they should note that only  a change of social system will benefit actual people. 

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