November 12, 2013 9:20 pm

Commodities imports pose problem for ‘destination’ Africa

From Mr Ejeviome Eloho Otobo.

Sir, Your article “Destination Africa” (Analysis, November 11) has added a new dimension to Africa’s growth story: namely, that African countries are moving away from the colonialist model of being an “origination” business address to a “destination” business address, meaning that foreign companies, in particular commodities trading firms, increasingly see Africa as a place where they can sell their commodities such as oil, tomatoes, rice and wheat. You boldly declare that “shipping agricultural commodities into Africa has also become a far more important business”.

I see a problem with this new storyline. It is paradoxical that a region that is still predominantly agricultural – judging by the share of agriculture in the sectoral composition of the economy – should also be a destination for the import of so many commodities. The three main problems with this new development are all well captured in your analysis.

First, the growth in demand for commodities is because many African governments subsidise basic commodities such as petrol and wheat. Second, a country such as Nigeria produces 2.5m barrels of crude oil per day, consumes 300,000b/d but imports about 80 per cent of its refined products from the commodities trading houses. Third, until the early 1970s, Nigeria was self-sufficient in rice, but it abandoned production, using petrodollars to buy rice on the international market.

Anyone who is interested in the long-term growth and development of Africa must be deeply concerned by all three problems associated with the “destination” business address model. Subsidising commodities is not sustainable in the long term. Using oil resources – a depleting natural asset, the prices of which are increasingly uncertain in an era of shale oil and gas – to buy commodities does not seem to be prudent economic management. Africa needs to build its capacity to produce many of the commodities, including oil-refining capacity, and to let foreign investors invest into those enterprises. That will produce dividends for investors and create jobs and tax revenue for Africa.

Ejeviome Eloho Otobo, Non-Resident Senior Expert in Peacebuilding and Global Economic Policy, Global Governance Institute, Brussels, Belgium

Copyright The Financial Times Limited 2015. You may share using our article tools.
Please don't cut articles from and redistribute by email or post to the web.


Sign up for email briefings to stay up to date on topics you are interested in