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Out of Africa and back to discover fresh economic journey

05 February, 2008

Africa was once a no-go zone in terms of trade and investment. Source: Tim Harcourt, Austrade.

Commentators often talked about ‘the forgotten continent’ and just over a decade ago, world leaders such as Nelson Mandela, Bill Clinton, Tony Blair and Gordon Brown constantly called for the world not to ‘forget’ Africa.

The horrific events of Rwanda in 1994 on the back of persistent famine and civil war forged a stronger effort by the world on engagement with Africa and the rise of an Africa Kofi Annan, a native of Ghana, to the United Nations (UN) top job in 1997 in some ways demonstrated the willingness of many to pay more attention to Africa a decade ago.

Whilst there is still plenty of political strife, there are some signs economically that Africa is partially on the mend and that Australia’s taking an increasing part in Africa’s resurgence.

In fact, Australia’s trade
with Africa has grown by more than 10 per cent per year over the last five years, which is faster than Australia's trade with any other continent (albeit from a relatively low base). Australia is also investing more in Africa due to the world-wide resources boom and Africa’s willingness to open its doors to foreign investment. Africa is now back on the radar of Australian exporters.

So why is there renewed economic interest in Africa from Australia?

Firstly, it’s the South Africa connection. Australia’s economic links with post-apartheid South Africa have prospered after years of boycotts in both sport and commerce during the long years of isolation for the Republic under apartheid.

Australia’s trade with South Africa leads the way in Africa with two-way trade worth over $4.2 billion and Australia goods exports growing at almost 17 per cent per year on average since the end of apartheid. South Africa’s pre-eminence in terms of Australian trade is also borne out by new research from Austrade, which showed that there were 2226 Australian companies exporting to South Africa in 2006-07, well ahead of other African destinations such as Mauritius, Ghana, Kenya, Tanzania, Mozambique and Uganda.

Secondly, Africa’s environment for resources exploration and investment has improved. This is a result of improvement in Africa’s fundamentals in terms of fiscal policy, foreign debt and inflation under the structural reform policies led by some of stronger African economies.  

Thirdly, as a result of this improvement in Africa’s fortunes there’s been an influx in capital from all corners of the world to take advantage of the continent’s revival in resources. And you’ve got to be quick. According to Harry Broadman, the World Bank’s guru on Africa, China and India have been making rapid inroads into Africa so Australia ought to be part of the action too.

According to Broadman, exports from Africa to Asia tripled in the last five years, making Asia Africa’s third largest trading partner (27 percent) after the European Union (32 percent) and the United States (29 percent). And Indian and Chinese foreign direct investment also grew, with China’s amounting to $US1.18 billion ($A1.34 billion) by mid-2006.

“With the resources booms in China, India, Russia and South America well underway, Africa has untapped potential for new expansion and investment with Australia well placed to provide capital, technology and expertise,” he explained.

To help the Australia mining sector connect with Africa, Australia has orchestrated a major presence Mining Indaba 2008 one of the world’s largest mining conferences to showcase Australian mining capability. Australia’s Senior Trade Commissioner to South Africa, Johannesburg-based Greg Hull said:  “Australian mining expertise is making a substantial contribution to the development of Africa’s resource sector, a sector vital for Africa’s future”. Hull expects over 400 Australian delegates at Indaba representing mining companies, as well as mining services and supply companies.

But how influential is Australia in the African mining sector?  Whilst it has traditionally been focussed in the southern half of the continent in South Africa and Mozambique, there are now major Australian mining projects are underway in countries as diverse as Burkina Faso, Ghana, Senegal, Equatorial Guinea and Tanzania.

According to the Department of Foreign Affairs and Trade (DFAT) estimates Africa accounts for over $17 billion in actual and prospective projects by Australian miners and Australia is the second only to Canada in terms of exploration spending in Africa from outside the continent.

The emerging resources boom in Africa also represents significant potential for Australian exporters in mining, mining-related technology and infrastructure and skill formation in the African TAFE sector. Major players like Worley Parsons, Mincom, Monash University, Gekko systems and the University of Southern Queensland are all involved in mining education, the provision of infrastructure and mining services.

In fact, on the skill front, even the Australian Football League (AFL) is doing its bit. According to David Matthews, the AFL’s general manager for National & international development, the game has taken great strides in terms of participation in South Africa and he expects that “at current rates, there will be as many AFL footballers in South Africa as in Tasmania by 2009.”

The AFL has run a successful Auskick programme in South Africa (known as footyWILD) that has helped health and development in the townships (reducing smoking rates) and in 2006 held successful indigenous youth visit there led by Indigenous football legend Michael Long. Currently four AFL clubs are involved in South Africa - Collingwood, Carlton and the two WA Clubs, West Coast, Fremantle who are taking advantage of Perth’s Indian Ocean vantage point. Fremantle has picked up significant sponsorship and is playing Carlton in an exhibition match in Pretoria to coincide with Indaba 2008.

However, despite some good signs in Africa, there’s no doubt though, that the risks are still there and Australia exporters and investors have to tread carefully (by using the Australian government networks and using the services of the Export Finance & Insurance Corporation (EFIC)). But there are reasons to be cheerful about Africa’s potential. As Roger Donnelly, EFIC’s Chief Economist puts it: “who would have foreseen even four years ago that any of this Australian investment in Africa would have occurred?” Africa is, economically speaking, surprising us on the upside.

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