Just when Europe’s economic future has deteriorated Africa’s is looking more promising than for many decades. That promise is underpinned by global commodity prices, high despite the world recession, and by years of gradual reforms. The revenues from resource extraction are going to increase massively. This is because Africa is the last frontier for resource discovery.
In The Plundered Planet, I note that beneath the average square kilometre of the OECD there are some €100,000 of known sub-soil assets. In contrast, despite the current heavy reliance of Africa on exports of natural resources, beneath the average square kilometre of Africa there are currently only around €20,000 of known sub-soil assets. This massive difference is not due to fundamental differences in geology: most likely Africa has more, not less, beneath its land since the OECD has been extracting its resources for two centuries. The lack of discoveries is explained by the lack of international investment in prospecting after African Independence. Over the next decade global prospecting will therefore concentrate on Africa: the current ‘Scramble for Africa’ is merely the inception of this process. If African discoveries approach OECD levels, the volume of resource extraction can increase around five-fold. Africa’s export earnings can thus rise massively even without further increases in global prices. Africa will have the best opportunity in its history for decisive transformation from poverty to prosperity.
However, as the radically different trajectories of Botswana and Sierra Leone illustrate, growth based on resource exports is critically dependent upon the quality of public choices. A long chain of decisions has to be got right, not just once but repeatedly for a generation. The upstream part of the decision chain involves reconciling strong incentives for prospecting with capturing as much as possible of the resource rents for society. This requires overcoming acute problems of agency, of time-inconsistency, and of asymmetric information. As the Niger Delta and the Gulf of Mexico demonstrate, it also requires the effective restraint of environmental damage. The downstream part of the decision chain is about harnessing revenues for sustainable growth. Resource revenues need to be treated distinctively: they come from the depletion of a natural asset and should be substantially offset by the accumulation of other assets. The only European model of prudent use of resource revenues is Norway, but the Norwegian model is inapplicable for Africa. Norway has more invested capital per member of the labour force than anywhere else on earth, whereas Africa has less. Hence, whereas it is appropriate for Norway to accumulate foreign financial assets, Africa needs to invest domestically. Africa’s poor record of investment suggests that typically its societies have not yet built the capacity to invest productively on a large scale. Indeed, for many years the International Monetary Fund has emphasised this constraint on ‘absorptive capacity’. Building this capacity, which I term ‘investing-in-investing’, is the most important and distinctive implication of Africa’s new and probably unrepeatable opportunity.
Africa’s opportunity has important implications for Europe. In its trade and political relations with Africa, Europe still has the advantage of proximity and familiarity, whereas the historic baggage of colonialism is fading. Resource extraction and the construction booms on which revenues are likely to be spent are huge opportunities for European companies. But the challenging nature of Africa’s opportunity also has implications for how Europe can best assist Africa to catch up. Historically, both the resource extraction sector and the construction sector have been corrupt. If Africa is to seize this opportunity, it is essential that European companies do not continue in this pattern, and that our banks do not serve as havens for the fruits of corruption. Corruption money has financed the patronage politics that have undermined African governance. Europe must set the global standards, which Africa needs in its business partners.
As resource revenues rise, Africa will gradually become less in need of our money. This is fortunate since between budget cuts and currency depreciations all of Europe’s aid budgets are likely to decline substantially. Yet, Africa will become more in need of precisely the skills in which Europe has excelled. Europe has a long history of large and effective public investment, both economic and social. It has a long history of building an informed society to which governments are accountable: something that Africa needs for the decision chain it now faces. It has a long history of the regional integration, which Africa, given its acute political fragmentation, needs more than any other region.
Europe will need Africa’s new dynamism. Africa will need the best of Europe.
Paul Collier is author of ‘The Plundered Planet, how to reconcile prosperity with nature’, which was recently published by Penguin.