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LAST year’s slowdown in China sent waves through the global economy – and none quite as dramatic as in the commodity markets.
The prices of all but three of the twenty major commodities in this data from the African Development Bank (AfDB) have declined over the past five years. The most dramatic decline has been in rubber (-68%), iron ore (-67%), cotton (-53%), coal (-53%) and crude oil (-51%).
For nineteen African countries, one of these five commodities is the leading export earner.
Liberia is probably in the worst straits – iron ore is its biggest export and rubber is in third place; the prices of both have contracted by at least two thirds. Sierra Leone is also badly exposed to the iron ore collapse, as the commodity accounts for 76% of exports.
The two countries are still picking up the pieces after the Ebola outbreak of 2014-15; the commodity crash has shrunk public revenues. Still, donor support may cover the shortfalls.[advanced_iframe securitykey=”68f51ed951ec4f22230bb7eb91315944cb08a912″ src=”//datawrapper.dwcdn.net/FqVI6/3/” frameborder=”0″ transparency=”true” allowfullscreen=”true” width=”100%” height=”400″]
The story of iron ore is particularly illustrative of the dominance of China in the global economy.
Since 1995, China’s steel industry has added one billion tonnes of capacity, which is twice as much as the entire capacity of the global steel industry at the time, seven times the size of Japan’s then world champion steel industry, and ten times the size of the US industry at the time.
By 2014, China’s steelmaking capacity exceeded that of the United States, European Union, Japan, and Russia combined, according to US trade statistics.
This growth is actually far beyond what Chinese domestic and international demand requires, resulting in 400 million tons of excess capacity. This was obviously unsustainable, and when China pulled back production last year, global iron ore prices went crashing.
That leaves Africa’s three leading iron ore exporters in a bad place. Apart from Liberia and Sierra Leone, Mauritania too is hurting badly. Because of high extraction costs, Mauritania needs an iron ore price of at least $100 a tonne for its mining to be profitable, but the average in 2015 was just $55 a tonne, sometimes dipping as low as $40.
The prolonged loss of mining revenues has potentially destabilising consequences for Mauritania’s weak and fractious political system. Mauritania’s president Mohamed Ould Abdelaziz came to power in a coup in 2008, and his authority rests heavily on his ability to control the political elite, military and civil service through patronage.
But with revenues drying up, the president has less flexibility to co-opt potential rivals within the military, increasing the risk of civil unrest.