Africa: waiting in the wings as a potash market (and producer)
Africa consumes only about 750,000 tonnes a year of potash. With the proper infrastructure (and efficient and less corrupt governments) as much as 6 million tonnes a year could be sold into sub-Saharan Africa. That’s the view of at least one potash industry official. And within 10 to 15 years, that could be raised to close to 10 million tonnes, which would not only be a great boost to food production in a continent that sure needs that to happen, but also to potential potash projects in Africa itself.
The Nigerian financial newspaper Business Day in 2011 took a look at the continent five years after the first ever Africa Fertilizer Summit was held in that country’s capital, Abuja. That meeting, held in June 2006, brought together heads of state, politicians, farmers, donor agencies, scientists and agricultural experts. They all talked about improving Africa’s food security. The statistics even then were frightening, as the newspaper pointed out. By 2006, more than 75% of Africa’s soil had lost most of its nutrients. Meanwhile, governments in the region were spending an average 34% of annual budgets on food imports. The countries identified as having the greatest soil degradation were Nigeria, Guinea, Democratic Republic of Congo, Angola, Rwanda, Uganda and Burundi.
The summit’s conclusion: fertilizer held the key to feeding Africa’s people. The overall theme of the report is that not to much has happened since then to improve the situation. In fact, Business Day said Nigeria’s agricultural sector was dying. But the problem is that African states rely largely on imports — in the case of Nigeria the import dependence figure is 95%, made worse by the privatisation of the national fertilizer company which led to less production rather than more.
While we might have to wait for African governments to take a lead on this, the issue is to some extent being taken out of their hands. We have been seeing much agribusiness investment flowing into Africa. As Mother Jones magazine reports this week, the Gates Foundation is backing a $8 million, four-year soy pipeline project in Mozambique and Zambia, with the end-market being seven of Zambia’s chicken wholesalers. Demand is being fuelled by the growth of fast-food outlets in Africa such as KFC.
The other big force for change is foreign investment; large sums from the Middle East, China, India, Russia and Turkey are flowing into agricultural projects; one-third of the Gambela area in western Ethiopia is being leased for the next 50 years by the Bangalore, India, company Karuturi Global. Forests are being clear-cut, swamps drained, rivers diverted and villages moved to make way for flower farms and palm-oil and rice plantations.
Last month the World Bank approved a $86 million interest-free loan to boost farming in Senegal through land, water and forest management projects.
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Last year the bank issued the report Growing Africa: Unlocking the Potential of Agribusiness which revealed that Africa’s farmers and agribusinesses could create a trillion-dollar food market by 2030 – a three-fold increase from the current $313 billion market. As the bank noted at the time, Africa has more than half of the world’s fertile yet unused land. It uses only 2% of its renewable water resources compared to the global average of 5%. Post-harvest losses run 15% to 20% for cereals and are higher for perishable products due to poor storage and other farm infrastructure.
The government in Addis Ababa says it wants more Karuturi Globals: tax breaks and cheap land leases are available.
The part of this equation is where is Africa to source its potash? Clearly, it needs to get projects going as soon as possible. All exploration companies have been hit by the falling potash prices.
One good sign is that, since the indications of Uralkali and Belarusian Potash patching up their differences, hopes have grown that the former partners will switch back from volume-over-price to price-over-volume policies that will be a floor under prices.
This has helped. Since the news broke, Allana Potash (TSX:AAA) stock has bounced about 30%, although its Friday close at C40c is a still a way from its 2011 high of C$2.58. Allana is still working on the target of first production in 2015 and so far remains the most advanced new project in sub-Saharan Africa. Its plans call for selling at least 100,000 tonnes a year into the Ethiopian domestic market (the rest being targeted for the Middle East, Pacific Rim, India and China markets, with low freight expenses to the closer ones).
Allana will be producing muriate of potash for staple crops production. Next door to its Dallol project, the Norwegian fertilizer group Yara International is 51% owner of the neighbouring project, also named Dallol, from which it plans to produce sulphate of potash for cash crop producers.
In the Republic of Congo there is London-listed (on the Alternative Investment Market) African Potash and Australia’s Elemental Minerals (ASX:ELM), the latter’s acquisition by a Chinese company being thwarted so far by regulatory hurdles at the Hong Kong Stock Exchange. Near Allana, across the border in Eritrea, South Boulder Mines (ASX:STB) has a near surface deposit but its efforts to raise the necessary finance could be made harder by the fact that the Eritrean government has a free-carried 50% stake.
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