Economic Lessons – Africa is looking East…

For the curious, rare earth metals are not that rare, but their extraction is difficult which reduces their supply. But most importantly, the metals are critical to our technological lives. They are used in making lots of electronics such as radars, missile defense systems, hybrid batteries, lasers, cellular phones, digital cameras and plasma TVs.

Economic laws

Such rare metals have fancy names such as lanthanum, cerium, praseodymium, neodymium, promethium, samarium, dysprosium and ytterbium among others. What grade did you make in chemistry? The reduction in supply of rare earth metals follows familiar economic laws; prices have risen and illegal trade in such metals has flourished. You could soon see the prices reflected in some of the gadgets that we buy.

A world that is so dependent on these metals has reacted; some firms have shifted their production to China to be close to the sources, creating lots of jobs there. Others have become innovative, recycling rare earth metals in what is referred to as �urban mining� since cities and towns have lots of old equipment that contain rare earth metals. The rise in prices could lead to reopening of old mines that used to produce these metals, but closed because of cheap Chinese imports. One such mine is at Mountain Pass in California.

Like the oil embargo of 1970s, which woke up the world to dependency on cheap oil, the Chinese restriction of exports of rare metals should wake us up to reliance on a single supplier of such a critical resource. This single episode could, however, be interpreted differently. Some opine China is reaping the benefits of strategic thinking. Chinese invested in mining such metals when the rest of the world was sleeping. Others suggest it is misuse of economic power and fear that as China�s political power rises, so will her leverage over the global economy. They cite the leverage China has on the US economy through Treasury securities (bonds and notes).

China holds 30 per cent of the US securities held by foreigners. She was closely followed by Japan. Treasury notes and bonds are used by governments to borrow money, and our government uses them too. Such money is critical to running of the government, but gains political significance if lent by foreigners. The Chinese currency, the Yuan or RMB is seen as another source of economic leverage. Many economists feel the Chinese currency is undervalued, which makes her exports cheaper and more competitive (particularly if quality is good). Such undervalued currency acts as a subsidy and costs jobs in the countries that trade with China.

Can Africa learn any lessons from China?

China’s rise to economic and political power in the last two decades has defied historical precedence, but it has all to do with her strategic thinking as the few observations have shown. Jim O�Neill Goldman Sachs chief economist has even suggested it will overtake US as the world’s largest economy by 2027. Strategic thinking is our soft underbelly; we are short-termists. Was Africa not under one party rule like China? What went wrong with our transition? Should we have followed the Chinese and South Korean model, make economic transition then political one?

The major outcome of transition from single party to multipartism was making politics our staple food, but that politics is rarely catalysed with bold economic ideas. We spend lots of energy on local issues. We are too insular as the rest of the world goes global. China’s success has a lot to do with seeing the world as their playground.

Bigger market

Never mind the concerted effort to show that the Chinese came to our East Coast 600 years, a big boost to Chinese ties. China, the Asians Tigers and Japan before them followed the same stream of thought. They realised that economic progress can be hastened by focusing on the world, making the world your playground. They realised that the world is a bigger market than their countries. They came up with products and services that the world demanded, their sizes no longer mattered. They moved up the value chain to reduce competition, that is why China is in the news over rare earth metals. We are in the news because of non-rare minerals like coal and iron. They also shifted their education towards science and technology, which gave them a head start in producing goods and services for the world.

Where do Africa go from here?

One is a political blue print, the other economic. To emulate China and Asian Tigers, the two projects must be implemented together.The political energies and forces should be focused on economic growth and its drivers. Africa should quickly focus on the East African region and use it as our stepping stone to Africa and the rest of the world. Look at the two leading economies in Africa, South Africa and Nigeria, their common denominator is their focus beyond the borders with some South Africa firms like SABMiller being a global brands. The Nigerian banks are around, attenuating the image of Nigeria as a stagnated nation mired in corruption. The starting point in our quest to become an economic power, a �Africa Tigers� is getting something to sell to the world, be it a product or service.

That is the path taken by all economic powers, and we cannot be an exception. Such products and services should be rare, like rare earth metals so that we can charge premiums.