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July 27, 2008

The race for Africa's natural resources

Knoweldge@Wharton has an article on how African countries like South Africa, Botswana and Congo are coping with the race for natural resources.

Mining is (South Africa's) biggest employer: a half-million people are employed directly by mines and another 400,000 indirectly through associated services like shipping. South African mines produce nearly 90% of the world's platinum, 80% of manganese, 73% of chrome and -- despite its recent slip in position -- 43% of the world's gold. Mining overall contributed 7% to South Africa's GDP in 2006. When adjusted for associated services and additional industry output, such as electricity production, the total rises to 18.4%.

...there is no doubt that global competition is changing the rules -- and the stakes -- in Africa's mining industry. Huckle noted the increasing presence of Chinese mining companies in Africa and their tendency to conduct business differently than companies from democratic countries. "When the Chinese make an investment, they bring in a large amount of their own resources to exploit that asset effectively." He added that, unlike Western companies, the goal is not a return on investment, but to fill a strategic gap. "They are willing to pay more ... to fuel that growth engine."

Considerably more, in fact: Teeling noted that China has offered the (Congo) $17 billion for the first right of refusal on particular mining sources. "How can companies compete with that?"

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.