A Conceptual Overview to Understand Commodities, Linkages and Industrial Development in Africa

Sub-Sahara African commodity exporting economies have benefitted greatly from the commodities boom of the past decade. The conventional wisdom argues that resource extraction is corrosive of industrial development due to a combination of the macroeconomic consequences of resource exploitation and the assumed enclave nature of mineral and energy extraction. The paper challenges this pessimistic ‘resource curse’ argument, arguing that there are unexploited opportunities for promoting industrial development through the development of linkages from the commodities sector. In particular, these opportunities may be greater for backward than for forward linkages, particularly in the minerals and energy sectors. In making this case, this Discussion Paper draws on the experience of high-income countries which have resource-intensive economic structures, the geographical specificity of many resources and the growing interest of large resourceextracting firms in outsourcing the production of inputs which are outside of their core competences, It sets out a general model of linkages between industry and services and the commodities sector which distinguishes between win-win and win-lose outcomes. The paper concludes with a brief review of the reasons why Governments might wish to intervene to support linkages between the commodities and the industrial and service sectors. * This paper is based on research work undertaken for the Making the Most of Commodities Project (MMCP). It is derived from MMCP Discussion Paper 12. See the Making the Most of Commodities Project Discussion Papers for detailed empirical exploration of the conceptual ideas contained herein (www.commodities.open.ac.uk/discusssionpapers or www.cssr.uct.ac.za/prism/publications). The authors are grateful for considerable assistance provided by Masuma Farooki and Judith Fessehaie.