The economic colonization of Africa
For all of us that have studied history, it is rampant with stories of how world powers throughout the millennia have colonized nations for its own economic gain.
Surplus value belongs to Apple, with that wealth transfer going to where Apple is incorporated. Labor market externalities land in Asia. And Africa benefits least. (Issouf Sangou/AFP)
Colonization can come in two forms. The first, is when a more powerful country militarily occupies another nation and plunders its economic resources for the gain of the colonizing state. The second form of colonization, which takes on different forms in the modern era, is when a more powerful nation, or nations, asserts their economic power over a weaker state. This is done to gain access to natural resources from the weaker nation to create wealth, and employment, for the economies and citizens of the stronger state.
The colonization of old, for which Great Britain and other nations are well remembered, was brutal. It was military occupation, subjugation, the purposeful altering of languages and culture, with the intent of fleecing the weaker nation’s natural resources. The UK’s colonization of India and Egypt are robust examples of this, with Indian tea, silk and spices, and Egyptian long staple cotton, being the drivers for long term colonization and natural resource extraction. Recent economic analysis shows that when the UK occupied India from 1765 to 1938, Britain drained a total of nearly $45 trillion from its coffers. Similarly, when the UK occupied Egypt from 1882 to 1952, they drained trillions of dollars from the Egyptian economy and treasury (see my previous blog on this topic). The UK also redefined Egyptian agriculture during the period of colonization as they needed long staple cotton for their home textile industry. It was during this time that Egypt stopped growing wheat in abundance and became a net importer of grain losing its food self sufficiency for good.
While global military colonization is long gone and now a fixture of history, the legacy of economic colonization remains. This is most obvious in a continent like Africa. During the colonial era, Western industry became dependent on Africa’s natural resources. In the modern era, Asia has this same addiction with Africa as well. Let me explain.
Let’s start with gold. Africa possesses approximately 40% of the global gold reserve. Gold is an excellent conductor of heat and electricity. Gold is used extensively in manufacturing in the electronics industries of items such as micro chips, circuitry, and in transistors. The circuitry of computers, televisions, cell phones, calculators and fire detectors are often plated with gold. Forty percent of this gold comes from Africa as raw materials for the manufacturing of these products. But, virtually none of the industry that makes these electronics are based in Africa.
Why is this important? This is important because of value addition. Value-added, or value addition, is the difference between the price of a good and the cost of producing it.
For example, Apple sells its iPhone 14 Pro for between $999 and $1,200, but it only costs them $500 to make. To make an iPhone you need gold, but that iPhone isn’t made in Africa where almost half of the world’s gold comes from. Africa, accordingly, doesn’t see the value addition from cell phone manufacturing. That value addition belongs to Apple with that wealth transfer going to where Apple is incorporated, and the employment generation from manufacturing benefiting mostly Asian states.
The same applies to diamonds. Africa represents 33% of the world’s diamond reserve. On average, the retail price for a one carat diamond can be anywhere from $2,000 to $16,000, and between $8,000 to $72,000 for two carat diamonds. One and two carat diamonds from African mines sell for less than one third of these retail prices and are rarely processed and mounted as gemstones on the continent. Diamonds are cut and polished primarily in Surat, India and Chinese cities of Guangzhou and Shenzhen. India in recent years has held between 19–31% of the world market in polished diamonds and China has held 17% of the world market share as of 2020. Other important diamond centers are New York City and Amsterdam. This is where the value addition is going, where the majority of wealth creation is happening, not in the African countries where the diamonds are mined.
The loss of value addition, and wealth, can be found everywhere in Africa. Africa holds approximately 80% of the world’s Coltan mineral reserve, which is used mostly for the manufacture of electronics and telephones, but the Democratic Republic of Congo where this mineral is mostly mined has none of the manufacturing. With no manufacturing almost 80 percent of value addition is lost to DRC. The same applies to Cobalt (see my previous blog), where again DRC comes out on the short end of the stick. Africa has 60% of the world’s cobalt reserves, and DRC about 40 percent of that total. Cobalt is critical for the manufacture of electric vehicle batteries, but production and value addition isn’t on the African continent, let alone in DRC, or enriching its citizens as it could.
This loss of value addition, this narrative, repeats itself for other raw materials such as coffee, cocoa, manganese, iron, and wood. West Africa grows over 30 percent of the world’s annual supply of coffee and cocoa, but hosts almost none of its related manufacturing. The value addition of this manufacturing, the wealth creation, and the jobs that come with it, are almost exclusively in Europe and Asia.
The estimated annual loss to Africa from not gaining value addition is close to $2 trillion a year. If you want to understand why Africa is so poor, this would be a simple study of resource extraction with minimal value addition. This tragic paradigm was created during the era of Africa’s military colonization which is long over. The era of economic colonization continues.