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The Next Economic Frontier: Africa or Arctic?

30 April 2012 | Feature Article

Where will the next gold rush be? Which region will be the next economic frontier? Some say it will be Africa, others maintain it will be the Arctic Ocean. The answer could well change the course of global prosperity and human history forever.

The Arctic region is being viewed as the next global hot spot. Many respected scientists and analysts believe that the Arctic holds huge reserves of oil, gas and other resources worth billions, possibly trillions of dollars that could fundamentally change the fortunes of a nation like Russia, similar to what happened to oil-rich Norway and Saudi Arabia.

Due to global warming, Arctic sea passages in Northern Russia and Canada remain ice-free for increasingly longer periods. According to a report by RIA Novosti, the Russian news agency, year-round navigation would shorten merchant-marine traffic routes from China to Germany or the US East Coast by 6000-7000 km in one direction. If global warming intensifies and the dire predictions of the likes of celebrity environmentalists such as Al Gore become a reality, the Arctic region could become a game changer.

Today, many Arctic 'interest nations' including Russia, Iceland, Canada, Norway, Sweden, the United States, the UK, Germany, the Netherlands, Poland, Spain, Italy, South Korea and China are preparing for the Arctic 'big harvest'. In the Arctic game, as in most geostrategic contests, military conflicts are very likely. Of all the Arctic resource hunters, the most aggressive and militant is Russia. Arguing that it's undersea mountain range extends from within Russia itself into the Arctic, Russia is laying claim to a vast chunk of the Arctic land mass. Already, the Russian Security Council has published a document which claims the Arctic as it strategic resource territory for the next 25 years.

Recently, a Russian submarine icebreaker planted the Russian flag on the Arctic seabed. Russian TU-95 Bear and TU-160 Blackjack strategic bombers and nuclear-powered submarines regularly patrol the Arctic region. Russia is also said to be forming an Arctic Army to be trained, armed and ready to fight in the super cold Arctic. Other nations like the US, Canada and Denmark are preparing to challenge the Russians in every way.

The geostrategic importance of the Arctic hits global headlines almost every week. According to a USA Today Report on April 18, 2012, ExxonMobil and Rosneft, the U.S. and Russian oil giants, would invest more than $500 billion in a joint venture that would explore for and produce oil in the Arctic and the Black Sea. The two companies agreed in August to team up to develop oil and natural gas fields in Russia and North America. Their chief executives signed the deal at Russian Prime Minister Vladimir Putin's suburban residence. Under the Exxon-Rosneft deal, the Texas-based company will have access to some of the world's richest sources of crude oil and other hydrocarbons in the Russian Arctic and Black Sea. In turn, Rosneft subsidiaries will take minority stakes in two Exxon projects in the U.S. and Canada and will have an option to take a stake in a project in the Gulf of Mexico. In a presentation in New York, Rosneft said recoverable hydrocarbon reserves at the three key Arctic fields are estimated at 85 billion barrels of oil equivalent but final investment decision is expected between 2016 and 2017.

Another report by the Associated Press on April 16, 2012 warned that a new kind of Cold War is brewing in the Arctic, anticipating that rising temperatures there will open up a treasure trove of resources, long-dreamed-of sea lanes and a slew of potential conflicts. Last month, Norway wrapped up one of the largest Arctic maneuvers ever — Exercise Cold Response — with 16,300 troops from 14 countries training on the ice for everything from high intensity warfare to terror threats. The U.S., Canada and Denmark held major exercises two months ago, and in an unprecedented move, the military chiefs of the eight main Arctic powers — Canada, the U.S., Russia, Iceland, Denmark, Sweden, Norway and Finland — gathered at a Canadian military base last week to specifically discuss regional security issues.

Again on April 18, 2012, reports emerged that the Virginia-class nuclear powered submarine USS New Hampshire and the Seawolf-class nuclear powered submarine USS Connecticut both from the U.S Navy participated in Ice Exercise 2011 in the Arctic Ocean in March 2011.

Even though the Arctic region is being seen as a potential natural resource game changer, the only difference is that a possible Arctic boom will pale in comparison to Africa's coming mega boom. The magnitude and variety of Arctic resources cannot match Africa's resources in terms of geostrategic importance because of the following reasons;

1. Africa's booming population of 2.5 billion projected by 2050 with the youth making up over 60 percent will present a consumer market paradise that no other continent on earth can match.

2. The variety and quality of Africa's proven oil, gas and other precious resources like uranium, bauxite, copper, iron ore, gold, diamond and titanium cannot be matched by Arctic resources, which are largely unproven.

3. Take a good look at the world map and you will see that the strategic geographic location of Africa is almost unbeatable. Africa is in the very center of the world. Trade with Africa, either in natural resources or consumer products can be easily transacted by air or sea faster in real time and all year round, making it faster, easier, cost-effective and therefore more profitable than with the Arctic region.

4. The Arctic region is a virtual terra incognito. It still remains largely unknown and unproven. All the much trumpeted natural resource deposits may turn out to be a shadow of itself, at best. On the other hand, Africa's resources are proven and time tested. Even if it were true, the needed infrastructure does not exist so resource extraction in the Arctic will be extremely difficult. In Africa on the other hand, infrastructure is relatively available and ready to be used.

And there is more writing on the wall. If there is one unmistakable signal that Africa is gaining momentum as a geostrategic hotspot and that the region is about to boom, it is the creation of the United States Africa Command, popularly called AFRICOM. In the aftermath of its global war on terror, the then US President George Bush and Defense Secretary Robert Gates announced the creation of Africom on February 6, 2007. Besides the United States Northern Command which was established in 2002 after the September 11, 2001 attacks, European Command, Pacific Command, Central Command and Southern Command were all established decades ago. So why Africom? And why now? There must be a strategic reason behind it all. Africom is now under the command of a fully-fledged four star general, William E.Ward.

Among possible reasons, China's Sub-Saharan trade increased ten-fold to $107 billion in 2009, narrowly eclipsing the United States. For example, according to reports, China's Zonghui Mining Group signed a $3.6 billion copper agreement with Zambia in July 2009. Again, ICBC Bank China is also working on up to 60 deals with Africa's biggest bank by assets, Standard Bank, in which it bought a 20 percent stake for $5.6 billion in 2008. Across all spectrums, China is gunning for the top dog status in Africa, the next frontier. Africom is a key strategy to keep a close eye on the Chinese in Africa.

Also, due to recent geopolitical developments in the Middle East and Latin America which appear increasingly unfavorable to Washington's interests, the US views Africa, especially the Gulf of Guinea or West Africa area as a “soft target”, an easy game to win. It is from here that the US intends to strategically diversify and obtain 25 percent of its oil supply.

There is another reason why Africa is the next strategic hotspot the Super Powers will fight over. There is no doubt that by 2025, Africa will offer the most superior demographics and markets anywhere in the world. This is a fact that most experts from the UN to the World Bank agree on. Probably, the most beautiful picture of Africa's first class demographic and market edge is the one brilliantly painted by the U.S National Intelligence Council in its Global Trends 2025 report. According to the report, demographers project that Asia will account for most of the population growth out to 2025 while less than 3 percent of the growth will occur in the “West” – Europe, Japan, the US, Canada, Australia, and New Zealand. In 2025, roughly 16 percent of humanity will live in the West, down from 18 percent in 2009 and 24 percent in 1980. India's population is projected to climb by around 240 million by 2025, reaching approximately 1.45 billion people. China is projected to add more than 100 million to its current population of over 1.3 billion. In aggregate, the countries of Sub-Saharan Africa are projected to add about 350 million people during the same period. This could bring total Africa population to nearly 2.5 billion by 2050 due to exceptionally high fertility rates among African women, one of the highest in the world, according to the UN.

By 2025, the already diverse array of national population age structures promises to be more varied than ever, and the gap between the youngest and oldest profiles will continue to widen. The “oldest” countries – those in which people under age 30 form less than one-third of the population – will mark a band across the northern edge of the world map. In contrast, the “youngest” countries, where the under-30 group represents 60 percent of the population or more, will nearly all be located in Sub-Saharan Africa. This is clearly the ultimate marketer's paradise. Imagine an Africa in which 1.5 billion young people or 60 percent of the population are working and starting families and demanding food, healthcare, housing, education, consumer electronics, banking, investments, clothing, cars and many many more. According to a recent Time Magazine analysis, there are between 50 million and 150 million economic elites in Africa with similar spending to middle classes in the West. Most importantly, there are 350 million to 500 million people in the African aspirational classes – from households with stable jobs- that resemble counterparts in China and India being courted by Western firms. These African aspirants drink Coca-Cola, want mobile phones and yearn to own a car or motor cycle.

With Africa's population growth booming to about a quarter of the world's population around the year 2050, the Time Magazine analysis is just the tip of the iceberg. As I have said before, this could well be a classic repeat of today's China and India boom, combined.

There are similarities between Africa's coming economic boom and the Asian economic miracle. According to available reports, in 1969, Asia's share of global GDP was only about 15 percent. Today, after decades of phenomenal growth, Asia's combined share of global GDP is almost equal to that of the EU and the US. In 2009, Asia's share of global GDP rocketed to about 26 percent, thanks to double-digit growth from China and other major Asian exporters like Japan, South Korea and India. Between 1969 and 2009, described as the Asian boom years, global GDP growth also exploded. World GDP (Real) doubled between 1969 and 1990, and has increased by another 60 percent since then, so that world output is more than three times greater than in 1969. Thus, the tripling of the global GDP in that period can be partly attributed to Asia's phenomenal growth. The stronger the Asians came, the bigger global GDP became.

In the same way, we can make informed generalizations about the likely effects of the coming Africa boom. As Super Powers race to control sources of natural resources especially oil, as the China effect sweeps Africa along, it will have a historic cascading effect on Africa, ushering the continent into an era of double-digit or at least near double-digit growth. Imagine a booming market of over 2.5 billion people, with nearly 1.5 billion youths, or 29 percent of the world's total, starting families, buying consumer products, cars, getting housing and education, and many more. It could well be like a double whammy of today's Chinese boom. And the world will be way better for it. As the coming Africa boom lifts up Africa and ushers in an era of unprecedented boom, it would no doubt have a multiplier effect on global GDP growth. In fact, global GDP will increase exponentially. Calculating from the Asian boom years of 1969 to 2009 in which Global GDP tripled, it can be projected that, Africa's mega boom could help triple global GDP.

It is now clear that Asia's rise is causing unprecedented dislocation of global resources, a disequilibrium that is shifting the global center of gravity from West to East. Collateral damages from this economic tsunami are clear for all to see: the global financial crisis, high unemployment in the US due to outsourcing, China surpassing Germany as the world's largest exporter, the emergence of uncompetitive, debt-ridden and potentially defaulting nations in the EU, the hollowing out of the US manufacturing base and many more. If this trend continues, and it is just beginning as respected economists like Robert Fogel projects, over 700 million Chinese are still living in rural areas and with India's exploding demographics coupled with high poverty levels, the potential for further Asian miraculous growth is still huge. In this scenario, there could be more serious economic dislocations that may make the Great Recession look like a picnic. Not that other regions will be eating grass or feeding off dead horses but if Asia led by China continues to solidify its growing global power, it will engender envy, wariness and sheer bitterness which if not controlled could spark large scale conflicts. Human history is full of examples like that. Most wars are triggered by economic issues.

To preserve a meaningful and acceptable economic and political equilibrium, and to preserve world peace, new sources of natural resources, markets and other growth drivers must be found. In our lifetime, it will not be the Arctic to the rescue. It will be Africa to the rescue. It will be Africa that helps to create a new global platform for massive wealth creation. With over 2.5 billion in estimated population by 2040, Africa will provide a welcome relief to the world. As a consumer paradise with hundreds of millions of able hands to work and hungry mouths to feed, plus abundant natural resources and fertile lands, the world would have no choice but to turn to Africa.

So after China and Asia's boom runs its full cycle, Africa's economic boom will be the next logical step in geopolitical evolution. It will sweep the world, bring great transformation and prosperity to the people of Africa and dramatically increase global prosperity. Truly, Africa's best days are coming. The massive light of transformation and prosperity that shines on the world and bring along more civilization, industrialization, technology and massive movement of people into the middle class is on its way to Africa. And the world will be better for it.

By Moses Asare, African Leader Media Group, New York City.

Disclaimer: "The views/contents expressed in this article are the sole responsibility of the author(s) and do not neccessarily reflect those of Modern Ghana. Modern Ghana will not be responsible or liable for any inaccurate or incorrect statements contained in this article." © Moses Asare

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