In the end of 2008, while reviewing the situation evolving in the DRC due to the insurgency unleashed by Laurent Nkunda, Rough&Polished suggested a quick escalation of armed violence in Africa - as a consequence of rapidly increasing conflicts between competitive interests pursued by Western and Chinese mining companies operating in this continent (see “Democratic Republic of Congo: War for Contracts”). The ensued Arab Spring, as well as reports about an unprecedented scale of liquidity "pumping" undertaken by the U.S. Federal Reserve in an attempt to cope with the financial crisis strengthened our assumption about the inevitable immersion of the Black Continent in the chaos of bad civil strife, the main objectives of which will be de-escalation of Chinese presence as well as a total limitation put on production of commodities due to the need to bring stock prices into sync with the "anti-recessionary" dollar emission in 2008-2010 (see “Africa on guard of U.S. dollar and diamonds”).
During the six months elapsed since the formulation of this hypothesis, a number of African countries demonstrated sure-fire progress toward civil war. Currently, full-scale military action is going on in Mali, and according to the International Crisis Group, there is a real threat of destabilization in Niger, Chad, Burkina Faso, Algeria, Mauritania, the Central African Republic, the DRC and Sudan. Nigeria and Congo (Brazzaville) appear to be within the zone of obvious political turbulence. The "Libyan scenario" is creeping down to the south - closer to the borders of the countries, which have a large share in the balance of the world diamond market. Of course, this process was appropriately dressed for the eyes of the public – in late February, UN Secretary General Ban Ki-moon said that "as West Africa remains a transit point for drug traffickers between South America and Europe, the potential for instability will continue to grow. This is horrendous for the people of the ECOWAS region. It also presents a serious challenge to the peace operations in the region authorized by this Council.” Of course, drug dealers in West Africa are no less dangerous than Saddam Hussein's weapons of mass destruction and human rights violations by the Gaddafi regime. This is why the exit of Leviev Group from Angola appears to be very timely.
In the near future, the revolutionary tsunami rolling down from the north of Africa may collide head-on with a backward wave. In South Africa, the leader of black nationalists, charismatic Julius Malema was expelled from the ANC in early March. Last November, the ANC disciplinary committee decided to suspend the membership of Malema in the party for 5 years, but now it was decided to increase the punishment for the offender of the party discipline. Malema is the undisputed leader of the youth wing of the ANC and in the opinion of experts monitoring political developments in South Africa, his expulsion will almost certainly bring about a split in the ruling party and sharp destabilization in this country. The program set forth by Malema is more than radical: it advocates for nationalization of the mining industry in South Africa and total expulsion of white farmers, for union with ideological followers in Zimbabwe and Namibia and elimination of the "pro-imperialist regime" in Botswana. These warlike theses are formulated by no means an outcast: Malema is the owner of a large fortune and maintains close working contacts with senior officials in South Africa (Tokyo Sexwale), high-ranking officials in the mining business (Bridgette Radebe) and major functionaries in the ruling party (Mathews Phosa), who are also professing the principles of "black consciousness." It is noteworthy that the current South African President, Jacob Zuma took the helm of the ANC in 2009 supported by Malema and his organization (ANCYL) and since then the influence of Malema only increased, especially among black youth, while Zuma steeped in corruption and was rapidly losing organizational acumen. If we take into account - in addition to the actions taken by Malema’s adherents - the intensified activities of the Pan Africanist Congress in South Africa in recent months with its straightforward motto "One white - one bullet," it must be admitted that the ground for a "color revolution" in South Africa today is very fertile.
The situation in Zimbabwe is even simpler: there is Robert Mugabe, the dictator cursed by all the progressive humanity (a sort of black Qaddafi) and there is Prime Minister Morgan Tsvangirai, the apologist of democratic values. Each of these leaders has many supporters in law enforcement agencies, government bureaucracy and business. Zimbabwe is going to have elections this year and the 88-year-old Robert Mugabe has declared his readiness to run. Mugabe is clearly aligned to China. Just last fall, Zimbabwe received about $700 million worth of Chinese investments, mainly in the diamond industry, while Chinese companies and joint ventures with Chinese participation in Zimbabwe obtain exclusive preferences, which cannot be said of Western companies permanently threatened to be nationalized by Mugabe. China reciprocated going as far as using its veto in the UN Security Council to block resolutions against the Mugabe regime. Morgan Tsvangirai takes a no less clear pro-American stance. The 2008 elections nearly plunged the country into a civil war, and there is a high probability that this outcome will be successfully achieved during the elections in 2012. A special piquancy to the situation is added by the fact that in 2012 the United States assumed chairmanship in the Kimberley Process (KP), the international organization aimed at preventing trafficking diamonds mined in conflict zones. In the United States, there are strict sanctions against the Zimbabwean mining companies and against Robert Mugabe, his family and a number of officials personally. At the same time, the KP has authorized the trade and export of diamonds from Marange, the flow of which has already produced a major downward impact on prices in the segment of the so-called "Indian goods," arousing certain concern among major diamond miners and dealers. This paradox, unprecedented for the diamond market since the KP chairing country is expected to act contrary to the requirements of its own laws, should be resolved as soon as possible, and the political situation in Zimbabwe today provides a radical possibility for this end.
The civil conflicts, which in varying degrees captured Libya, Sudan, Mali, Nigeria and will soon threaten Angola, the DRC, Zimbabwe, South Africa, as well as the neighboring countries, are fraught with a real decline in exports of minerals (across the entire range - from hydrocarbons to metals, rare earth elements and diamonds) to world markets and also bear a virtual threat of such a decline, which will inevitably impact stock market quotes. Even if real opportunities for mining companies in conflict countries will not diminish, it is always possible to use the mechanism of sanctions and supra-national industry organizations, such as the KP, to block exports. Most likely, it is exactly Africa that will serve (and already serves) as the primary mechanism to fill the huge "anti-recessionary" emission by the Fed and the ECB with actual content bringing the mass of liquidity "injected" into the economy and commodity prices into accord. But there is a safety mechanism associated with yet another world's largest exporter of mineral resources - with Russia.
Shortly before the triumphal victory of Vladimir Putin in the presidential elections in Russia, the nation started a heated debate on the privatization of government-owned companies generating revenue for the state budget. The liberal wing of the Russian establishment, which is usually associated with Dmitry Medvedev, the country’s incumbent President, advocated a complete withdrawal of the State from the capital of the largest mining corporations, while the conservative wing represented by Vice Premier Igor Sechin insisted on the need to preserve government-owned blocking stakes in such companies. Although Putin, in his usual manner, took the position of arbiter in this delicate matter and so far was not very elaborate on his own views, Bloomberg said citing a London-based businessman on March 5, that the “win is an endorsement of Putin’s pledge during the campaign to continue with a plan to privatize state companies.” Of course, to some extent, the latest round of games involving the Russian privatization reflects "the eternal debate of the Slavs (quite conventional, though) between themselves" and in terms of macroeconomics it is essentially of no importance who personally will get this or that piece of the Russian state property. But a series of events - among which we should point out the successful and rapid promotion of people clearly and closely associated with the leaders of Russian liberalism to become "independent directors" on the supervisory boards of companies slated for impending privatization - shows that this process can go far beyond the boundaries of purely Russian problems. "Liberalization" of supervisory boards may mean a quick kick-start for modernization of Russian mining companies viewed as developing mineral resources, upgrading production facilities and creating modern infrastructure. That is what privatization is meant for. This is certainly a positive process, especially given the fact that for a long time Russian state-owned mining companies operated based on the reserves left from the Soviet Union, so modernization is really necessary. But it is also clear that a profound modernization, especially in capital-intensive areas such as mining, will inevitably reduce the export potential of these companies over the next 2-5 years. This will be the contribution that Russia can make to fight the crisis.
There are different estimates of the "anti-recessionary emission" undertaken in 2008-2011 by the Fed to rescue the global financial system. Leaving discussion aside, we should note, however, that in any case it is many trillions of dollars. Meanwhile, prices for commodities have reached only pre-crisis levels. There is only one way to decant the "printed" liquidity in the real sector or, which is the same thing, to make investors put their money into commodities and into mining or mining-affiliated stocks (in other words, into the upstream end of all production chains) and it can only be done by a drastic cut in supplies of raw materials to the market. From Africa – due to local conflicts, from Russia - due to modernization of mining companies. And for the Russian state budget it should not be a serious blow, since the fall of exports will be offset by a proportional increase in commodity prices. This is the anti-recessionary solution, the outlines of which are turning more discernible with every passing day.
Sergei Goryainov, Rough&Polished
