Africa: The new source of coal

Africa a continent abundant with natural resources, maybe expanding its resource appeal.  Turns out Africa has got a lot of coal, and lots of the best kinds, in locations that are relatively cheap to mine.

Since the workers from Vale, Brazil’s giant mining company, started to drink at his bar, fortune has favoured Mario Sálimo. With business growing week by week, the 47-year-old has opened extra rooms, added a restaurant and installed a dance floor.

At weekends Mario’s Bar, near the clogged and dusty centre of Tete, is open until five or six o’clock in the morning. And the bar is not the only thing booming in this remote Mozambican town, which grew up as a trading post on the Zambezi river.

Tete sits directly above one of the world’s largest reserves of high-quality coal, and investment is pouring in, with Brazilian, Australian, Indian and other interests committing hundreds of millions of dollars to mining projects. As with Angolan, Nigerian or Sudanese oil, the industrial growth of China and India is driving demand.

No coal has yet been mined at the huge open pits that are planned, but foreign technicians, engineers and geologists, along with migrant workers from neighbouring rural provinces, have begun to make their homes in Tete. The town’s population has almost trebled to about 300,000 in a decade or so.

Property prices are rising, with rents more than doubling in the past year. “It’s like a snowball,” says Mr Sálimo. “It was a city without expectations. Now everyone wants to come here.” And each week small businesses – accountants, information technicians and hairdressers – are springing up.

The coal reserves are the reason for everything. Specialists say they are the most valuable to be discovered anywhere in the world since production began at the Bowen Basin in Queensland, Australia, in the 1960s.

Tete has billions of tons of both thermal coal – used in power plants – and harder, more expensive coking coal, which is mixed with iron ore to make steel. The coal is just below the surface, runs to depths of 30 metres and is relatively cheap to mine.

“You have heard of the scramble for Africa. This is the scramble for coal,” says Felix Fischer, the representative of the International Monetary Fund in Maputo, Mozambique’s capital. He says big investments in titanium, aluminium, gas and other resources are steadily transforming the country’s prospects. The growth rates achieved during the past 17 years are comparable to those of the east Asian economies in the 1970s and early 1980s.

Why not done up to now?  Coal is fairly dispersed globally, so until emerging economies start running through their own instead of exporting to the advanced West, apparently the economic impetus just wasn’t there.  Pl7s the lack of infastructure in place.

The big difficulty is how to get the product to market. A railway that runs from the port of Beira to Moatize, 30 miles north of Tete, was brought back into operation this year by Indian operators. But its capacity – and that of the port – is limited.

Vale wants to develop another railway through Malawi to the coast at Nacala, where it plans to build a port. Riversdale is looking at shipping coal on barges down the Zambezi to Beira, where port facilities are planned.

Some observers are sceptical. “I was amazed how companies were putting so many millions into coal development without knowing how they would get it to the market,” says Mr Fischer at the IMF.

But Mr Mallyon says: “Once you have the resource, it justifies the spending on infrastructure going forward.” He adds that Tete’s existing infrastructure is better than that found in the remote reaches of Australia in the 1960s when mining companies began to exploit the Bowen Basin. “There was no airport, no telecommunications and no water for half the year,” he says.

So as part of the everybody-is-coming-to-Africa meme, coal is a rising quotient of activity.  This comes on top of all of the other minerals and gas and oil.

This is why, “The growth rates achieved during the past 17 years are comparable to those of the east Asian economies in the 1970s and early 1980s.”

Story focuses a lot on Tete in Mozambique, where everybody in the emerging economy universe is there with cash in hand for one of the biggest and best coal deposits in the world.

The opening up of trade was only possible after the end of the cold war. In 1989, US trade with Africa was about 13% of the continent’s total trade, and what China, India, Brazil, Korea and Malaysia managed  in total was maybe 5%.  Now China’s total (closer to 12%) is more than America’s (just over 10%) and the other four are closing in—cumulatively—on another 10%.

So African trade with the quintet goes from about 5% in 1989 to more almost one-quarter of the continent’s total trade, while America’s share holds steady.

More generally, Eurozone trade decreases from about one-third of Africa’s total to more like one-quarter, while emerging economies’s share goes from basically nowhere to close to half over the two-decade period since Cold War’s end.

That’s a big infusion of new demand and new investment, with hundreds of thousands of entrepreneurs arriving as part of that slipstream—mainly from China.

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