Absa Capital, the South African investment bank, predicts that several major African currencies could gain strength against the U.S. dollar next year if global commodity prices continue to rise. However, such an increase in commodity prices could end the current trend of improvement in the global economy. Consequently, Africa’s good news could be bad news for much of the rest of the world.
According to Absa, Zambia’s kwacha could appreciate 14% to the dollar, making it 4.09kwacha to US$1 provided copper prices continue to be strong. Tanzania’s shilling may gain 8.1% to the dollar if the price of gold maintains its prices level. Uganda’ shilling may see a 6% increase against the dollar, largely due to newly discovered oil deposits and an expectation of new income due to oil revenue. Nigeria’s naira is expected to be stable due to the fall in oil prices this year, but could rise if oil prices make a turnaround. Only Angola’s kwanza is expected to depreciate seriously, declining to the parallel market rate of 100 kwanza to US$1 because of the 2009 decline in oil prices.
The surge in commodity prices has been relatively broad, but is led by industrial metals such as lead, nickel, copper and zinc, all of which have risen significantly. Oil prices may be down from last year’s high, but seem to be finding a stable level somewhere around US$70 a barrel – twice last December’s low of US$35 per barrel. Agricultural commodity prices have soared, with soybeans leading the way at 50% higher and corn, wheat and cocoa rising between 10% and 20%. Yet, the prices for precious metals, especially gold, remain about the same as they were earlier in the year.
In addition to oil–rich countries such as Nigeria, Angola and Gabon, African countries such as Cote d’Ivoire (cocoa and maize), South Africa (platinum and wheat) and Ethiopia (copper and gold) are all the subject of an intensified foreign interest in their natural resources. In fact, Professor A.B.K Kasozi, Executive Director of Uganda’s National Council for Higher Education, calls the current situation “the new scramble for Africa.”
Since 2005, China’s purchase of strategic minerals and other resources from Africa have skyrocketed. African oil now accounts for 25% of China’s energy supplies. By next year, India is estimated to require 5 billion barrels of oil per day, and African countries are most definitely on India’s target list for oil. Nickel prices have risen 200% since the end of last year, zinc is up 176% since that time and copper has recorded a 109% increase in the last year. Some predict copper will reach record price levels by 2013. According to Professor Kasozi, African leaders will have to be better negotiators than their ancestors if Africa is to avoid the disastrous results experienced in the 19th and 20th centuries.
So if negotiations involving resources can be handled effectively and with an eye toward future value, African currencies may indeed see the increases in value relative to the U.S. dollar that are being predicted. Unfortunately, as I stated earlier, this situation is not in everyone’s interest. Commodity prices are rising in expectation of a global economic recovery, but higher commodity prices will have the effect of blunting that very recovery. Therefore, it is in everyone’s interest that the commodity price increases be managed such that African currencies can appreciate against major convertible currencies like the U.S. dollar and that such increases do not spur harmful levels of inflation in countries needing these resources.
If a mutually beneficial outcome is to occur, African governments will have to gather their intellectual resources and negotiate a mutually beneficial outcome in as transparent a manner as possible. Back-room deals by African leaders and officials will only sacrifice the future of their countries in the interest of a few. They’ve been through that before, and with the stakes ever rising, they don’t need a repeat of the deals that sold out Africa’s people.