“It’s Time to En­gage with Africa”

Solitaire - - SPOTLIGHT - By De­ba­jit Saha

The re­cently con­cluded Dubai Pre­cious Metals Con­fer­ence cen­tred around the theme: “It’s time to en­gage with Africa”. Africa is a min­eral-rich con­ti­nent hav­ing enough op­por­tu­ni­ties to ex­plore through in­vest­ment and par­tic­i­pa­tion. Pre­cious metal min­ing in the con­ti­nent was pre­vi­ously con­fined mainly to South Africa. But in the last decade or so, many African coun­tries with an im­proved po­lit­i­cal and reg­u­la­tory en­vi­ron­ment have emerged as po­ten­tial sources, thus, herald­ing a big op­por­tu­nity for ex­plo­ration. Fur­ther­more, Africa’s ge­o­graph­i­cal prox­im­ity to the de­vel­oped and de­vel­op­ing mar­kets of­fers enor­mous ben­e­fits. Africa has emerged as the “con­ti­nent of hope” or even, “fu­ture of the world”. Africa has reg­is­tered an aver­age an­nual growth rate of 4.9% in the pre­vi­ous 10 years, emerg­ing as the sec­ond fastest grow­ing re­gion in the world. The con­ti­nent’s Gross Na­tional In­come (GNI) is ex­pected to touch $3 tril­lion by 2018. The pur­suit of ex­port-led growth ap­pears to have yielded re­sults. Ex­ports have risen from $292 bil­lion in 2002 to $1.3 tril­lion in 2012, en­abling bal­ance of trade. Africa has shown that it can with­stand eco­nomic shocks bet­ter than the Western world. Macroe­co­nomic sta­bil­ity, too, im­proved dur­ing the last decade thanks to pru­dent poli­cies and struc­tural re­form. Aver­age in­fla­tion fell from 24% in 19902000 to 8.5% in 2001-2011. In­ter­est spread de­clined from 11.5% to about 9.5%, mainly due to in­creased com­pe­ti­tion and bank­ing re­forms. Ex­ter­nal debt /GNI de­clined from 69% in 1990-2000 to 37% dur­ing 2001-2011. Share of trade with de­vel­op­ing coun­tries, which was less than 10%, in­creased to 43%. For­eign di­rect in­vest­ment (FDI) in Africa has im­proved at 18.4% an­nu­ally dur­ing 2001-2011, the high­est for any re­gion in the world. (FDI in Asia and Latin Amer­ica dur­ing the same pe­riod was 13.8% and 12% re­spec­tively).

Mov­ing east­wards

The con­fer­ence also touched upon topics such as con­sump­tion de­mand mov­ing East, adapt­ing to changes in In­dian reg­u­la­tions, global ‘loco’ mar­kets, fo­cus on white metals and fi­nally, price out­look. Rep­re­sen­ta­tives of global sup­pli­ers re­vealed that 1,000+ tonnes of gold were con­sumed in 2013 in South East Asia and East Asia. In­dia’s newly im­posed 80/20 rule was the sub­ject of much dis­cus­sion and gen­er­ated a lively de­bate. Some opined that the govern­ment had im­ple­mented ret­ro­grade steps to counter the widen­ing cur­rent ac­count deficit (CAD), while oth­ers said that the tar­iff bar­rier in the form of in­creas­ing cus­toms duty was not ef­fec­tive in cur­tail­ing im­ports; how­ever, quan­ti­ta­tive re­stric­tions have worked. From an over­seas sup­plier’s point of view, the big­gest is­sue is cus­toms. More than 30 lo­ca­tions in In­dia im­port gold. Aware­ness and in­ter­pre­ta­tion of the 80/20 rule varies across these lo­ca­tions. It af­fects con­sign­ers as well as im­porters. Also, small ex­porters can­not buy gold di­rectly from over­seas sup­pli­ers due to smallticke­t trans­ac­tions. Plat­inum and pal­la­dium may face sup­ply con­straints in the near fu­ture as Rus­sian stock­piles have dwin­dled to near ex­haus­tion, while con­tin­u­ous strikes in South African mines have im­pacted pro­duc­tion of the two metals. Unan­i­mously, the house re­mained scep­ti­cal about gold and sil­ver prices this year. Gold prices were es­ti­mated to reach an up­per limit of $1350/oz, while sil­ver would not cross $25/oz. Plat­inum and pal­la­dium are bullish bets at this point.

ABOUT THE AU­THOR

De­ba­jit Saha is the con­tent edi­tor of Bul­lion Bul­letin, pro­moted by Foretell Busi­ness So­lu­tions Pvt. Ltd. He joined Foretell six years ago as a com­mod­ity an­a­lyst for metals and en­ergy. He can be con­tacted at de­ba­[email protected]­lion­bul­letin.in

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