Africa's industrialization and global commodity markets: the need for a paradigm shift
Are the relationships between global commodity markets and the developing economies that export them being properly analyzed? After more than half a century of economic research on this issue, the answer, paradoxically, remains uncertain. While the well-known "natural resource curse" tells us that the exploitation of a nation's geological endowment often leads to the implementation of inappropriate economic policies, corruption and rent-seeking strategies, or even to conflicts and civil wars, "Dutch disease" suggests that the economic development of extractive sectors can lead to a deterioration in national price competitiveness and, as a result, to macroeconomic vulnerability. The so-called Prebisch-Singer hypothesis, formulated in 1950, shows, for its part, that the terms of trade for commodity exporting countries deteriorate over time. While these different approaches have been the subject of the most serious empirical tests, the implicit assumption on which they are based still surprises, namely that of being able to apprehend raw materials as a homogeneous whole. They are anything but the latter.
The aim here is not, of course, to remind the reader that there are physical differences between agricultural and energy products, ores or metals, or even to suggest that empirical studies on this subject do not take this diversity. The purpose is rather to question the relevance of an economic classification based on what might appear to be an obvious endpoint. In reality, three variables are key to assessing the economic benefits that can be derived from producing a given commodity, whatever its physical reality: the level of valorization, short-term and long-term price variabilities, and the economic distance that separates the commodities from the bottom end of the supply chain. While the first two are largely understandable, the last variable calls for clarification: it reflects the extent of the technological, industrial, logistical, commercial and financing constraints that separate a given material from its processed versions further down the line. This distance is, consequently, not unique and depends, among other criteria, on the country planning to cover it. With a price fluctuating between 50 and 150 dollars per ton, iron ore is characterized, for example, by low valuation, high price volatility - linked as much to the existence of related financial derivatives as to aggressive pricing practices - and by a significant degree of distance from the bottom end of the chain, be it crude steel or even complex steel. Accepting these three dimensions also means understanding that steel has maybe much more to do with plastic materials or even wood products than with aluminum or any other base metals.
The question of commodity valorization needs no introduction and lies at the very heart of local natural resource processing policies, widely supported by developing countries. These strategies are both understandable and politically legitimate. They also respond to a twofold economic logic: (1) to capture a greater fraction of the added value located down-line while (2) enhancing the skills and knowledge of workers involved in this particular industrialization. Economic growth, which is known to be partly dependent on human capital, and development could, as a result, be strengthened. Local processing strategies seek per se a greater level of resource valorization but they differ from one country to the next with regard these criteria of distance and variability. Two variables ultimately explain not only the relevance of targeted ambitions, but also their likelihood of success. Overlooking them means running the risk of an industrial impasse with potentially grave macroeconomic consequences.
Often cited as an example of a country that has eschewed the natural resource curse, Botswana mines and commercializes a commodity that bears little comparison with others: diamonds certainly benefit from high valuation, low price volatility and a short relative value chain. By strengthening its position in the complex phosphate fertilizer segment, Morocco has also made a success of its "raw materials strategy". Are these successes transferable to other countries? There is no certain answer, especially when the ambition is, as with many African countries, to process mineral resources. For example, producing primary aluminum requires being in possession of alumina. Its availability through bauxite processing is certainly an advantage, but one of the keys to global market penetration lies with the ability to produce electrolysis with the highest energy efficiency and at the lowest cost. The economic distance between bauxite and aluminum is considerable in this respect. Is this prohibitive? Certainly not, but it should be noted that this distance links low-price and low-volatility bauxite with aluminum that benefits from a much higher price but suffers from a high degree of instability. This kind of processing, that countries such as Guinea are calling for, could, in this respect, represent no more than a switch from one commodity to another, the main consequence of which would be to generate an unstable processing margin, as seen with refining activities. If so, the benefits in terms of economic growth and development would be limited, and even negative. In this regard, implementing an economic strategy is often like a yacht race: saving a boat from being becalmed does not mean having to brave the storm, rather a need to find favorable and steady winds. Processing natural resources should not necessarily be seen, in this perspective, as the safest route, and its political legitimacy should not cloud the fact that the comparative advantages of producer countries do not depend solely on their natural resources endowment, far from it.