Possibly the least appreciated star of the commodities world, iron ore is an extremely crucial ingredient in the making of steel and hence a staple of the construction industry amongst others. After oil, it is the second most traded commodity, however, there is only one African country in the top ten iron ore producers – South Africa.

This is not because Africa has a dearth of deposits, but is hobbled by scant infrastructure. Whereas a train can easily take cargo (measured in metric tonnes) from the large deposits in Kogi to Port Harcourt (central to southern Nigeria), the lack of sufficient rail routes necessitates loads of trucks navigating treacherous roads, or slow barges crawling along shallow inland rivers. This is quite inefficient, particularly for a high volume low margin business, and illuminates another aspect irresponsible governance restricts economic growth.

The importance of iron ore to the construction industry – or the general economy cannot be overstated, as despite China being the number one producer (mining more than the next two countries – Australia and Brazil combined), still accounted for 59% of global imports in 2010. With thermal coal and coking coal – all crucial in the construction industry, iron ore will account for more than half of miners’ earnings before tax and interests for the next three years.

Despite other base metals [i.e. not precious metals like gold, silver, etc], having fallen 20.5 percent through this year in price, iron ore has only dropped 0.7 percent, showing its resilience and necessity. This is accounted for by the fact that it best reflects the underlying supply and demand of the industry. For example, the weak economy in Europe has depleted demand, but this is complemented by India, the fourth largest producer clamping down on illegal mining and reducing production by 35% from 117m tonnes in 2009 to 75 m tonnes.

The cost of iron ore is currently about $170 per metric tonne (although this is dependent on certain things like iron content with 65% being optimal, and other such impurities like aluminium and silicon dioxide). However as recently as 2008, the price had stayed at the $10-$50 a tonne range since 1980. In addition to the macroeconomic supply and demand issues, iron ore follows a journey that affects the price including cost of concentrate (including and determined by amount of impurities), freight cost, cost of logistics (transportation), and cost to suppliers, whether selling at departure (FOB) port or destination (CFR) port.

The more than tripling in price over the last three years begs the obvious question of what is being done with the excess cash. Often traders are berated for buying and selling commodities, but we often forget that they belong to the country of origin, and it is these governments that should be queried about the non-existent rails and lack of proper investments.

Firstly, I must apologize to readers for the long hiatus. The travails of a Masters’ program were tough but have been duly conquered… and hopefully with aplomb. Assuredly, the time off has broadened my horizons and added to my bank of knowledge, which should result in a better and more informed read.

The headlines still carry their messages of woe and doom, but recently a new [and I believe little understood] agent has been taking a lot of the dissension. This new scapegoat is of course the lifeblood of most African nations – commodities – making it essential that we understand the basics of it, and its necessity to everyone at large, and Africans in particular.

This will probably be the least technical of all the posts, which I hope to make a weekly series, so I will keep it as simple as possible so the basics are understood.

A definition is required before I ramble on about the exciting world of commodities. Commodities are essentially inputs in the creation of other goods; they range from the easily identifiable like oil (essential to every country’s economic development) to the more looked over items such as sugar (crucial for fuelling the unflagging energy of children). Basically, commodities are what make the world run. Today, even intangible assets such as electricity and carbon emissions fall under this broad umbrella.

Over the past decade, Africa has posted incredible growth statistics, fuelled mostly by commodity sales such as metals to China, and oil to the West. The futures trading of agricultural products are possibly the most maligned occupation currently, but if properly assessed, we realize it and other commodity trading are an integral part of gauging the health of the economy. For example, the price of gold is the inverse of consumer confidence in the economy; the price of oil is a measure of production and manufacturing capacity; and the price of agriculture in markets, when properly linked, highlight crucial things like the potential of a drought, etc. Rather than seeing these as simple exploitation of resources, we should view them as a reflection of the economy we have created.

How intricately Africa’s destiny is aligned with the global performance of commodities cannot be overstated, and time permitting I shall explore further, examining them in the following categories: Energy (oil, gas, etc); Base metals (Aluminuim, copper, etc); Precious metals (gold, platinum, etc); and Soft commodities (Cocoa, sugar, etc). For each article I will give a brief overview of the category, hone in on a particular commodity, and a possible country profile might follow.

If there are particular issues you will like discussed or clarified for this series, please feel free to post in the comments section below.

I can think of four times in the fifty year or so history of post-colonial Africa in which the continent had one voice, and the same couple of countries – Ghana and South Africa – were the instigators. First with Ghana being the first country to gain independence in Africa in the late fifties. Then the united struggle against apartheid in South Africa garnered by the inspiring grace of Mandela. Then when the same country won the bid to host the first world cup on the nation, and finally when Ghana proved the only African football team worth anything.

If it is possible, why then do we find it so difficult to unite? I believe it is arrogance bred from subjugation. Every African nation wanting to prove they emerged strongest, most unscathed, most refined… from the colonialism era grasps at what makes their fellow Africans unworthy… Kenyans are too timid, Nigerians are too aggressive, Ethiopians are too proud, Egyptians are too angry, South Africans think they are better than everyone. We love it! Everyone else has an issue. The times we have been united are when we single out one country to support. So, we are not really united just rallying behind achievement of another for a brief period of time.

Noble as that is, it is inherently limiting. The African world cup we were so excited about was restrictive to Africans due to the high cost of transportation and the fact that tickets could only be purchased by credit cards… CREDIT CARDS! I could not buy a ticket at the airport in Nigeria a few years ago with a card when fifteen-year-old boys in the west were charging cigarettes to it. Please realize that Nigeria is in the top five banking powerhouses on the continent. Now does it not make the ‘African world cup’ idea slightly laughable when Africans could not purchase tickets to attend it? We are acting on models made for one country and trying to throw it over the entire continent – erroneous and bound to fail.

I am proud of the fact that we proved ‘Africa’ could host such a competition glitch *fingers crossed* free. But in a week, maybe a month after the curtains fall, Africa united would be an abandoned phrase. South Africa might make some important development deals but it would not filter to the rest of us. Because they have let us share their moment of glory, but we have done little else to extend the benefits of such an event to the rest of the continent. We did not advertise the rest of the continent as a healthy business environment or a wonderful tourist destination. We frankly ‘kaitaed’ the opportunity to properly brand ourselves when many countries on the continent are about to celebrate their golden jubilees.

Save for Ghana, we could not even put forward serious teams to contend! Another of the bloggers on this site has also been addressing the issues of a United Africa, and I focus on this topic because we must ingrain this mindset in our way of thinking and development planning.

Two of the more standout features of the African marketplace have the distinct dual pleasure of being its greatest attractions and possible hindrances. I am referring to taxes – or lack thereof, and bargaining – or license to boycott goods control.

I was in the Masai market in Nairobi the other day and the price of a particular statue ranged from three hundred shillings if you were a native to five thousand if you were a Mzungu (white man). Now this is what I most love about my continent but the problem with flexible prices is inconsistent quality. Since only the maker knows the product’s true value, and the customers are often one-time tourists, the onus for quality is limited to the goods of the competition.

Competition should normally be sufficient to induce top quality unless inferior products are the norm. And that is exactly the problem – the average maker is not too concerned about the quality of his work on this continent. Mediocrity is fine because the customer allows it. The only way to transcend this is for the customer to demand better – which will not happen without experiencing the alternative. Or for the government to institute better quality, which they do not notice as they import everything.

The cost of business is extraordinary given insufficient infrastructure. This is why we need that wonderful enemy – taxes. The absence of taxes has seduced the populace into allowing irresponsibility on the part of the government. ‘Because the government takes nothing from us, we don’t have a right to demand anything from them’ – an erroneous assumption that fosters bad governance and a docile populace.

We must pay our taxes so we are forced to make the government accountable. Until the government provides support for businesses, few will find the need or resources to exhibit better products.

Often we get young entrepreneurs with charitable hearts eager to help Africa. Unfortunately, they often forget the basics. Such as a school without quality teachers is simply a building; a classroom without adequate textbooks is merely a room full of children.
These charities erecting buildings make it easy to forget the essential problem – unequal access to quality instruction. I commend their noble ideals but their misunderstanding of the actual problems detracts from creating substantial solutions.
Here are a few ideas to tackle these shortfalls.
1. Online syllabi – this is not a novel idea, in fact there is already an industry waiting in the shadows, hoping it becomes a viable market so they can jump in. While they wait for this major breakthrough, which will be soon giving the advances made in electronic reading devices, they should forge ahead with charity organizations. They should find a way to create curriculum that provides standard equitable education while remaining region sensitive and ensuring local content is adequately taught. I know more about Western history than my African past because the books available were tailored to that.
2. Laptops – the hundred laptops per child is commendable, but their marketing has not been. The way airlines provide the option to erase your carbon footprint at the end of each transaction is the way these guys should collaborate with major computer retailers. This way if you buy a laptop, you can simply add $100 to your transaction and one is sent to a little kid in the developing world. Equally as important, I feel the creation of notebooks is timely in ensuring compact computing units at a cheaper cost. I believe all major makers of computers should look into tailoring this technology adequately because even children in the developed world from poorer neighborhoods also face technological disadvantages.
3. T.I.A – similar to the Teach For America scheme, this Teach In Africa, will bring expatriate graduates home on teaching assignments. Not only does this bring an influx of quality personnel with novel ideas and dynamic methods, it also brings fresh ideas to local problems. Although I feel this should initially be restricted to émigrés and their home countries for the simple sake of building interest and empowerment, it can later be broadened to all those qualified and interested.
If we have all these in place, we have hit at the root of educational pitfalls. The cost of schooling will be greatly reduced as a child can be sponsored with a laptop and download textbooks at no cost. In addition, there will be improved Internet access that creates an avenue of necessary exposure in a rapidly globalizing world.

Robert Litan, director of research at Kauffman Foundation – a firm that specializes in promoting innovation in America said, “Between 1980 and 2005, virtually all net new jobs created in the U.S. were created by firms that were 5 years old or less”. “That is about 40 million jobs. That means the established firms created no new net jobs during that period.”

Due to globalization, every existing job or position has either been taken or outsourced. In these times, the necessity of start-ups cannot be overstated. In Africa, it means we need the private sector to step up. We need the creative talents that have fled the continent to return with their acquired expertise.

This does not excuse the government of its responsibilities. In a developing society, they are the premier source for generating employment. However, the reliance on them for innovation is misplaced. We saw with the GSM that all the market needs is an enabling environment; expediency and profits handle the rest. In Nigeria, the government simply granted licenses, in a couple of years, business transactions were made more efficient, and thousands of jobs were created.

Due to the continental lack of infrastructure, there is a huge avenue for government induced job creation, both in building the amenities and in maintaining them. But soon enough that number will stagnate. I am more interested in what happens next.

For every four blacks on the African continent, one is a Nigerian. This means (like it or not), the proportion of able bodied, adequately educated, aptly funded individuals possible of sustaining job-creating start-ups will favor that country. I say this because of the shenanigans pulled in Ghana last year. Due to the electricity shortages in Nigeria, Nigerian business flocked there in droves and helped spur the economy. International organizations soon followed, and suddenly Nigerian licenses were being revoked.

The difficulty faced by non-Kenyan Africans in starting and sustaining a business in Kenya is ridiculous, yet Indians own the majority of industries – land, manufacturing, and retail. I would have no problem with this but the profits are sent to India and the hired labors are imported from India – none of this is good news for our continent.

The point of these illustrations is to state that African countries need to be more business friendly towards fellow Africans. It is imperative. Mo Ibrahim, the wealthy Sudanese businessman has been often quoted as saying individually African countries cannot be competitive on their own.

War between two nations usually stems because of money, because people care about their money. We need Africans to have financial stakes in the continent so they would care about what is happening in it.

Finally, I am not a protectionist by any means, and I think Ethiopia is taking it a bit far (you can’t buy Kelloggs in the supermarket), but I really think the rest of the continent like them need to start contemplating import embargoes. We should take the China route; our markets are young and should be protected. Inter-African trade should be developed and protected. The borders should be opened for people, goods, and businesses. Little known fact, Canada is the only country that can service all their current needs without imports. Perhaps it is why they never war.

Pan-Africanism has been whispered and then shouted the world over as a solution to Africa’s ills and a refuge for blacks the world over. However, I am hesitant to join this bandwagon especially when Ghaddafi, who just called for Nigeria to be split into two, is its current champion.

There is no doubt we need a more united market, more open borders and inter-regional trade but perhaps we must be a bit more cautious in how we try to attain this. The crisis with the Euro shows the difficulty of creating a regional monetary market and currency. Too many countries have different principles and agendas to make it easily fluent.
Without a doubt, we do need united representation on the global stage. Prime Minister Meles of Ethiopia has gone some way in providing a unified front for African demands, particularly when it comes to the issue of climate change. However, it was rather disgraceful to watch the African envoy sitting in Copenhagen, hats in hand, asking for money. No concrete plans as to their intentions, no reform strategies, nothing. Frankly, they looked rather silly and very greedy.

We need to present the continent as a place of serious ambitions, and for that we need well thought-through plans and programs. So here is a policy for them. The approaching World Cup in South Africa has brought to light the difficulty of inter-Africa travel. We have always known this, but it seems the international community was rather shocked at the costs of flights. People will barely be able to make it to the bottom of the continent much less take the opportunity to explore our beautiful lands. I honestly believe a train system that runs through the continent is necessary.

All countries can chip in and it will definitely provide a useful outlet for spending climate aid. Pros and cons? Here goes.

Cons:
Being overrun by refugees (economic, social, etc) is probably the biggest fear in this situation, but it happens anyways. I feel any Nigerian who had landed in Nairobi before the recently changed ridiculous rules and saw Europeans and other whites being fast tracked while they went through all sorts of loopholes will agree with me that something must be done. There are other issues – corruption, who will run it, etc, but the Pros outweigh the Cons.

Here are some positives:

1. Since the continent is blessed with abundant sunlight, we should go for a solar assisted, energy efficient train. This promotes clean technologies research on the continent, is good for the environment, and will be cost effective in the end.

2. An open market:  It’s shameful how we continually import from non-African countries when we need markets for our own goods. I know that there are many reasons underlying this trend but publicly a lot of blame is attributed to cost of transportation.

3. Tourism among Africans. It is about time Africans started spending our excess cash on our continent. Does anyone have a clue how breathtaking Namibia is? I do not either but I have heard from a foreigner and I will appreciate if it was easier for me to confirm.

There is of course the reason that started this line of musing – cheap transportation. It should not cost 400 dollars to go from Nairobi to Addis Ababa when their countries touch!

So, this is not the alternative to pan-Africanism but I feel it is a more practical approach to stitch the continent together – something we are in dire need of.