Africa should remember the tale of the goose that laid the golden egg

Africa enters the new year in better shape than it has been in for decades, but it risks being tripped up by trying to squeeze too much out of investors.

Ethiopia, with hardly any mineral resources to speak of, and once the poster-child for famine, has become the world's 10th-largest agricultural exporters. Reuters

Africa enters the new year in better shape than it has been in for decades, but it risks being tripped up by trying to squeeze too much out of the investors that have driven much of its growth.

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As much of the world struggles with rising debt and falling consumer spending, many of the continent's 54 sovereign nations are enjoying record growth. The IMF believes sub-Saharan Africa will advance 6 per cent this year versus last year's 5 per cent.

So bright does the future seem that economists are routinely tossing about the term "African lions", an oblique reference to the hugely successful "Asian tiger" economies.

"Africa could be on the brink of an economic take-off, much like China was 30 years ago and India 20 years ago," the World Bank said recently.

Much of this is the result of commodities such as gold, copper and particularly oil. But not entirely so. Ethiopia, with hardly any mineral resources to speak of, and once the poster-child for famine, has become the worlds 10th-largest agricultural exporter, pushing its growth to 7.5 per cent, says the World Bank.

And as the continent grows richer, so its middle class will continue to expand. The African Development Bank (AfDB) says the middle class grew to 313 million in 2010 - a third of the overall African population.

Shopping malls are springing up where once only shacks stood.

Mobile phone sales are reaching dizzying new levels and consumers are expected to stock up on household goods.

All this good news does present African governments with a problem, though. The World Bank notes that half of Africa's 1 billion people still get by on $1 a day, the international poverty yardstick.

So the have-nots still outnumber the haves by a wide margin. If anything, the growth of the middle class only serves to breed resentment among those not so fortunate.

With the Arab Spring still unfolding north of the Sahara, many governments are trying to squeeze greater returns from resource investors, so much so that analysts are beginning to warn that the goose that laid the golden egg could end up being cooked.

A number of countries are reviewing taxes and royalties, with hikes looming this year.

"They seem to be trying to make up for lost time by reviewing old codes in the mining industry to allow for higher taxes and royalties and a more significant statutory share of mines," says Dianna Games, the chief executive of Africa At Work, a business advisory in Johannesburg.

Africa's largest copper producer, Zambia, plans to double royalties in this years' budget, which it says it needs for social spending and farming subsidies. In response, mining companies have warned they could scale back existing projects and may put new diggings on hold.

The World Bank says that if copper prices were to fall, the 6 per cent royalty contemplated in Zambia would make many of the country's mines nonviable.

Ghana, which derives 40 per cent of its budget from gold mining revenue, has recently raised its tax on mining companies from 25 per cent to 35 per cent. It is also planning a royalty to be announced this year.

The South African company Gold Fields, the world's fourth-largest gold producer, says US$1 billion (Dh3.67bn) of planned projects are threatened by the changes.

Investors are not only being squeezed for more in royalties and taxes, but governments are also pushing companies to procure more goods in Africa, hire more locals and even list on local stock exchanges.

In principle, most investors would be happy to do this. After all, expatriates and imported materials push up costs substantially. But a chronic shortage of everything from local talent to working telephones makes this difficult.

More than anything, turning up the heat on investors creates uncertainty. If governments change the terms they initially used to lure investors each time commodities reach a new peak, they will eventually price themselves out of the market.

Mining companies in particular require planning years in advance. Many of today's gold mines would not exist if the price of bullion were to return to levels of previous years.

For now, the dance between governments, their people and the investors is at a critical stage. With an unfolding economic crisis in the West and warnings that China too could be hit, Africa's newfound prosperity could quickly dissipate.

Decisions made this year by investors and governments could have consequences beyond the next decade.

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