Submerging Sahara

12 November 2015 By Rob Cox

On Oct. 18, Zambian President Edgar Lungu called off soccer games and closed bars and restaurants for a day of national prayer. “I personally believe that since we humbled ourselves and cried out to God, the Lord has heard our cry,” Lungu told the 15 million people of the landlocked African nation. Sadly for Zambians, God heard things differently.

Lungu implored his people to pray for the national currency, the kwacha. Having dropped by nearly half since he took over in January – almost perfectly tracking the sliding price of his country’s chief export, copper – Zambia needed some divine intervention. Since imploring his people to genuflect, the kwacha has fallen another 14 percent.

Zambia is a cautionary reminder of how quickly the prospects for growth and prosperity can shift, especially in sub-Saharan Africa. A year ago, Zambia was expected to lead its neighbors in boosting economic output. In June of last year, the World Bank forecast Zambia’s gross domestic product would be nearly 7 percent greater by the end of 2015. The country even warranted a shout-out in our Breakingviews Predictions book.

As it stands, the country will be lucky to expand by more than 5 percent by the end of the year. While that’s certainly better than, say, Italy, it needs to grow far faster to pull Zambians out of poverty. Gross domestic product per capita in Zambia is below $2,000, or just an eighteenth of Italy’s. It’s a similar story from Accra to Zululand.

While the World Bank calculates that sub-Saharan Africa’s GDP growth has been faster than the developing world’s average, excluding China, since the 2008 financial crisis, progress is threatened on too many fronts. Just a few of them are of domestic manufacture. While bad economic thinking and corruption are still rampant in much of Africa, Mother Nature, alongside myriad problems in the rest of the world, are set to take an unusually high toll.

Zambia and its neighbors Botswana and South Africa account for about a quarter of sub-Saharan Africa’s GDP. The oil spigot that is Nigeria comes in for about a third. The nations on the southern tip carry considerable weight in determining the region’s growth picture. So a potentially devastating water shortage there comes at a terrible moment.

Water is needed to grow food for people and animals. It’s also critical to the mining industry – not simply as a raw material used in the process of extraction, but to generate energy. Zambia gets nearly all of its electricity from three major dams, including one at the usually glorious, now dry, Victoria Falls. As a result, copper production has slowed just as the metal’s price has dropped. Many mining operations are only managing to stay open by using generators powered by expensive, imported diesel fuel.

All of this comes as the mining and energy business globally is reeling from the crash of the commodities super-cycle. Mines are closing and jobs are being cut across the industry. South African platinum producer Lonmin, which traces its roots back to British imperialist Cecil Rhodes, just detailed a bankruptcy-avoidance plan that sees it shedding some 6,000 jobs.

Meantime, the effect of sparse rainfall is leading to rising food prices. The National Agricultural Marketing Council of South Africa reported a 4.1 percent increase in basic food prices in the year to July. “This could have a negative impact on household food security in South Africa, affecting the affordability of selected staple foods (bread) as well as various food items making a contribution to dietary diversity,” the council warned.

This sort of inflation is particularly worrying in poor nations where the percentage of wages dedicated to sustenance can be higher than 40 percent of household income. The rising cost of putting food on the table threatens to further erode social stability in South Africa. Recent protests, some of which have turned violent, over university tuition would pale in comparison to riots by the poor in the cities and the townships fueled by empty stomachs.

As if Planet Earth weren’t dealing parts of Africa a bad enough hand, the Federal Reserve’s prospective tightening of interest rates is sucking capital away from riskier nations, and an actual increase is likely to continue the trend. The financial pressure has manifested itself starkly in currencies like the South African rand, which is down 22 percent this year, along with Zambia’s kwacha. Cheaper currencies add to the cost of importing food.

Some African own-goals make matters worse. As foreign direct investment is already drying up, Nigeria recently meted out a whopping $5.2 billion fine on the South African mobile phone operator for failing to deactivate 5.2 million unregistered phones. By almost any measure, the punishment was disproportionate to the crime, and is double what MTN is expected to earn this year. Moves like this, and South African President Jacob Zuma’s lackluster economic stewardship, make it harder to attract foreign capital to the region.

Rising food and energy costs may be a function of climate, or God. Sliding commodity prices and currencies owe more to the slowdown in China and the monetary policy of foreign central banks. Throw them together with Africa’s perennial corruption and mismanagement, and it’s hard to see a particularly bright spot on the Dark Continent in the coming year.

This view is a Breakingviews prediction for 2016. Click here to see more predictions.

 

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