Natural Resources are an illusion. Human Capital is the onlyResource

All this talk about Africa being extremely blessed with natural resources and that we are suffering amid plenty, quite frankly, I am sick and tired of it. Not only that, I am sick and tired of being sick and tired, so I decided to write. A lot of the things we call natural resources have little intrinsic value in themselves, unlike air and water. Human ingenuity is the uses that human imagination can find for a thing that makes them valuable or renders them useless.

Let’s start with the ultimate natural resource. That’s right, black gold…petroleum. Petroleum is formed from the decomposition of organic material over thousands if not millions of years. Now do you think that people who lived in many centuries past would have considered it a critical natural resource like we do today…unlikely. Though petroleum had been used in its unrefined state for thousands of years [1], it only became critical to the world economy in the 20th century as a result of the invention of the Internal Combustion Engine (ICE) in the late 19^th century [2]. The breakthroughs with ICE (this is the engine in your car) came as a result of research into the science of thermodynamics. For the uninitiated, thermodynamics is the study of the relations between heat, work, temperature and energy. It is a core branch of physics, chemical and mechanical engineering. So to put it bluntly, thermodynamics (essentially human imagination) turned petroleum into a money spinner.

Unfortunately, with human imagination, things can go in the other direction. There was a time, hundreds, maybe thousands of years ago when salt was considered white gold, even playing a more critical role than petroleum does today. Wars have been fought over salt, just like oil. During the times of the Roman Empire, Germanic (Germanic would include the modern-day English, Dutch, Scandinavian and of course, German people), tribes fought over salt sources [3]. It was even used as currency, it is so valuable. Roman soldiers would often be paid with salt instead of money. The word “salary” derives from the Latin word for “salt money” [4]. I know this sounds hard to relate to given salt’s almost worthless status today. So what happened…the refrigerator did. Salt’s status as a strategic commodity came about from its role as a preservative. Once the refrigerator came along, salt was rendered unnecessary for this purpose. It just so happens that the refrigerator, like the ICE, was invented in the 19^th century and it also was an application of…you guessed it, thermodynamics. The 19^th century was a golden age for thermodynamics when much of its scientific principles were being laid down, eventually resulting in applications that would profoundly impact modern life and society. I started this post by mentioning how human imagination can make a thing valuable, turning it into a ‘resource’ or rendering it useless. The history of thermodynamics is a very stark portrayal of this. On the one hand, it was gloriously creating an industry (petroleum), while on the other hand and at roughly the same time it was willfully destroying another (salt) and the economies dependent on it. Celebrated Austro-Hungarian economist, Joseph Schumpeter would have no doubt considered this an excellent case of creative destruction.

Perhaps one more example should settle things. You don’t typically think of sand as a natural resource but sand happens to be the physical basis of a $400-$500 billion industry. I am talking about the semiconductor industry. Semi-conductors are materials that are halfway between conductors and insulators. They allow an electric current to pass through them much more easily in one direction than they do in another direction. This and other properties make them suitable for building transistors. Transistors are devices used to amplify or switch electronic signals and electrical power. They are what microprocessors consist of, which are the hearts (or brains, take your pick) of computers (Your smartphone included). Transistors are made from silicon dioxide, more commonly known as silica, which can practically be found in all rocks, clays, soils, and sand. Of course, to get transistors, it is not enough to have just sand, you need a solid education in solid-state physics (pun intended), to get there. Without that, sand is just…. sand.

Let’s assume you feel that everything I have said so far is arrant nonsense, that natural resources are still natural resources. Well, in a collection of essays by notable economists on the subject of industrial policy and economic transformation in Africa, Cambridge economist Ha-Joon Chang, noted that a critical look reveals that Africa doesn’t particularly stand out based on natural endowment [5]. My research reveals that sub-Saharan Africa wasn’t particularly blessed with salt when salt was the world’s most important commodity [6]. There was a scarcity of it in some parts. Ha-Joon Chang goes on to state that Africa’s natural endowment stands out mainly because of the relative lack of man-made resources like machines, infrastructure and skilled labour [7]. He also points out of the 3 countries generally regarded as being best endowed with natural resources, none is in Africa. The countries are the United States, Canada and Australia, and none of these countries became wealthy based on their natural endowment alone. They all had to industrialize for that. For more on industrialization, check out my book, Why Africa is not rich like America and Europe. Furthermore, he points out that given that the generality of African countries is less naturally blessed than these 3 countries, they will have to industrialize more compared to those three countries to achieve the same standard of living [8].

I would love to do an independent study to confirm the veracity of Ha Joon Chang’s claim but I do not have the time now. I have, however, accidentally explored one area where the claim is verified. I have been researching the paper products industry in Nigeria and the process stumbled on figures for the distribution of forest cover around the world. While I have found discrepancies depending on the source and when the data was collected, what has been consistent is that Africa never came out the best.

Here is data from the Food and Agricultural Organization (FAO) in 2020:

Source: FAO Global Forest Resources Assessment 2020

In addition to Europe being the continent with the most forest cover, research by the European Mail Industry in 2005 reported that excluding Russia, Europe has increased the size of its forest cover by the size of 1.5 million football pitches every year since 1990 [9].  

I hope I have been able to convince you that Africa needs to take industrialization seriously. For those of you intimidated by this, you need to take heart. It is not like we will be starting from scratch. In Nigeria for instance, roughly one-third of the companies listed on the Nigerian Stock Exchange ply their trade in the industrial sector. So it is not like the sector doesn’t exist, it is just that it is seriously underperforming as a result of a host of constraints it has to contend with, from power issues to lack of skilled manpower, to inefficient port services and other trade facilitation issues, to difficulties accessing forex for importing critical inputs, to generally uninformed industrial policies with not much political will behind them. These are problems that are not going to be solved overnight but one area where we can score relatively quick gains is on the issue of formulating aggressive industrial policy with a determined follow-through as the relatively recent experience in Ethiopia has shown [10][11]. No country has industrialized without an aggressive industrial policy, not the U.S, not the U.K, not Japan, not China, nobody. In 2012, the World Bank released a report suggesting that Africa had a reasonable opportunity to lift many Africans out of poverty by pursuing opportunities in light manufacturing [12]. We would do well to formulate the industrial policies that exploit these opportunities.

In light of what I have said above, I think the paper products industry is a nice place to start because it strikes me as a low-hanging fruit. So low-hanging that back in the 1970s and 80s, Nigeria used to export paper to the likes of the U.S, Canada, Ghana, Sierra Leone and other countries [13]. Now we import virtually all our paper needs from western countries. A 2018 estimate by the Director General of the Raw Materials Research and Development Council (RMRDC) of how much Nigeria loses yearly to paper importation put the figure at 800 billion nairas [14]. You only have to think of how pervasive the use of paper is in our lives to realize that this figure isn’t farfetched. Think of the use of paper at all levels of education all over the country, nursery, primary, secondary, and tertiary. Think of all the documents and reports produced by the private sector, public sector, NGOs etc. Think of newspapers, toilet rolls, paper napkins and serviettes, complimentary cards, birthday/Christmas cards, wrapping paper, cartons etc. The money being made from all of this is mostly captured by foreigners. Something we were making 40-50 years ago. I can’t begin to go into details here about the travails of the Nigerian paper industry but you can learn more for yourself from the references. One thing I will point out is that for those concerned that a vibrant paper industry could lead to deforestation, agricultural waste is a replacement for wood in the paper-making process [15]. In fairness, there has been interesting at the senate level in reviving the paper industry [16]. But just showing interest is a long long way from having an aggressive policy that has passed all the necessary senate readings, signed into law and musters the political will into decisive action. That is where we need to be to enable the paper sector to make an appreciable contribution to combating our chronic economic malaise.   

References

1. Petroleum article on Wikipedia https://en.wikipedia.org/wiki/Petroleum
2. Internal Combustion Engine and Petroleum https://golden.com/wiki/Internal-combustion_engine_and_petroleum-EK999MR
3. McKenzie, Hamish. 2018 Insane Mode: How Elon Musk’s Tesla Sparked an Electric Revolution to End the Age of Oil. New York: Dutton.
4. Ibid
5. Akbar Noman, Joseph Stiglitz et al 2015 Industrial Policy and Economic Transformation in Africa Columbia University Press
6. McKenzie, Hamish. 2018 Insane Mode: How Elon Musk’s Tesla Sparked an Electric Revolution to End the Age of Oil. New York: Dutton.
7. Akbar Noman, Joseph Stiglitz et al 2015 Industrial Policy and the Economic Transformation in Africa Columbia University Press
8. Ibid
9. European Mail Industry Platform ‘The facts of our Value Chain’
10.        Akbar Noman, Joseph Stiglitz et al 2015 Industrial Policy and the Economic Transformation in Africa Columbia University Press
11. Arkebe Oqubay 2015 ‘Introduction to Industrial Policy in Ethiopia’ Oxford Scholarship Online
12. Hinh T. Dinh et al 2012 Light Manufacturing in Africa The World Bank
13.  Alfred Olufemi ‘Nigeria’s paper mills moribund yet options for reviving them abound’, premiumtimesng.com   https://www.premiumtimesng.com/investigationspecial-reports/432583-special-report-nigerias-paper-mills-moribund-yet-options-for-reviving-them-abound.html
14. Ibid    
15. Ogunwusi, A.An ‘Agricultural Waste Pulping in Nigeria: Prospects and Challenges’ iiste.org https://www.iiste.org/Journals/index.php/CER/article/view/16406
16. Alfred Olufemi ‘Nigeria’s paper mills moribund yet options for reviving them abound’, premiumtimesng.com  https://www.premiumtimesng.com/investigationspecial-reports/432583-special-report-nigerias-paper-mills-moribund-yet-options-for-reviving-them-abound.html