Statement of K. Y. Amoako, UN Under-Secretary General and Executive Secretary, ECA
21-22 November 1997, Durban, South Africa

Mr. Chairman

Your Excellency, Mr. Thabo Mbeki, Deputy President of the Republic of South Africa

Honorable Ministers

Your Excellencies, and Distinguished Delegates

Ladies and Gentlemen

It is indeed a great honor and a privilege for me to welcome you to this Second Session of the Regional Conference of African Ministers Responsible for the Development and Utilization of Mineral and Energy Resources in Africa. Let me first of all express my sincere gratitude, and that of the Economic Commission for Africa, to the Government and people of South Africa, for offering to host the conference, and for the warm welcome we have been accorded since our arrival in this unique African nation.

I would also like to thank Deputy President Thabo Mbeki for his inspiring address this morning and for so eloquently putting the issues facing this conference in the historical and political perspective. I wish to pay tribute to Hon. Maduna, Minister for Minerals and Energy Affairs, for his commitment and untiring efforts to ensure the success of this important Conference. Mr Minister, we thank you and your team, and ask that you extend our profound gratitude to President Nelson Mandela and the people of South Africa for providing us with such excellent facilities. Mr. Chairman, I would also like to recognize your role as Minister of Mines and Energy of the Republic of Ghana, and that of your predecessor in so ably chairing the Conference since your country's valuable and substantive contribution to the first session held in Accra in 1995.

Let me begin by casting a critical and forward-looking eye over the mining and energy industries in Africa, their role in realizing the continent's potential, and their possible contribution to addressing some of Africa's key development challenges, which can be summarized as: reducing poverty, fostering equitable distribution of growth and income, strengthening exports, improving government fiscal position, promoting good governance and peace, attracting private capital and protecting the environment.

The first of these is the formidable challenge of reducing poverty. Most economists, and I can fairly say African policy-makers as well, have agreed that poverty reduction strategies with the best chance of success are those that target broad-based accelerated growth and rising per capita income. What do recent output and income trends show and what is the role of mining and energy in those trends?

Economic growth in Africa, which begun to pick up in 1994, has been sustained. Since 1995, more than half of the nations of Africa enjoyed real GDP growth in excess of their population growth. At least a third of these countries recorded growth rates of 6 per cent and above, and only three countries experienced negative growth, compared to fourteen countries the year before. Output growth in 1996, estimated at 3.9 per cent, more than double the performance in 1991-95. Most forecasts predict growth rates of about 4 per cent per annum for the next eight years, giving Africa the best chance since the era of independence to tackle the poverty problem in earnest.

Mining and energy sector operations have always been an important factor in Africa's development prospects, more so in some countries than in others. And their importance is certain to grow in the future.

The downward trend in Africa's mineral production was reversed in 1995 due to peace in Angola and legal and regulatory reforms that encouraged private investment in several countries. In the energy sector, the return of peace in Angola led to the highest growth in production among African countries. For Africa as a whole, crude oil production increased from 335 million tons in 1994 to 340 and 350 million tones in 1995 and 1996 respectively. Exploitation of the recently discovered large oil and gas reserves in Algeria and prospects in other countries that are implementing sector policy reforms make the energy sectors significant contributors to the recent turnaround and prospective income growth.

In the power sector, performance has been mixed, but output has been increasing rapidly in many countries -- for example in Ghana, Mauritius, Togo -- With continued sector policy and operational reforms, particularly privatization, and reduction of system losses, the contribution of the sub-sector to growth of the region's economies will improve.

That said, growth alone is not a sufficient condition for poverty eradication. If wealth is created by - ad remains among -- a small elite, poverty, and its social indicators, will endure. As such, the broad distribution of wealth is a necessary component of any poverty reduction strategy. The mining ad energy sectors can contribute to spreading the benefits of growth through small scale artisanal mining and rural electrification programs to stimulate rural development. Since 90% of Africans live outside cities, we must renew our commitment to rural energy connectivity. Policies should be developed on the basis of the needs of rural populations, and not necessarily in the replication of the urban electricity paradigm. Where lack of finance and poor infrastructure inhibits rural electrification, strategies involving renewable and other forms of nontraditional energy should be evolved afresh.

Mining should not just be the preserve of big corporations. In Africa, small-scale, or artisanal mining provides employment for nearly 1 million miners and their families in more than 30 countries. Yet the industry remains highly concentrated, with few countries and actors dominating the mining landscape.

Some 16 enterprises, account for close to 80% of sub-Saharan African mineral exports. This domination of the sector by a few players contrasts with other regions with big mining industries, where a large proportion of the production is done by small and medium-scale enterprises.

What is also clear is that there must be a strong export sector to strengthen the foreign exchange position of African countries. The figures are compelling evidence of the importance of the mining sector. In 19 countries, mining accounts for more than 50% of exports. In the top 6 oil and gas producing countries, mining accounts for a staggering 80% of exports.

Coupled with this is the need for buoyant fiscal revenues, without which the state - already constrained to its very limits - will be impotent when called upon to play its strategic developmental role. In 19 countries, mining contributes in excess of 30% of fiscal revenue, and in the 6 oil and gas producing countries, no less than 70% of fiscal revenue is derived from mining.

Your Excellencies, Distinguished Delegates, Ladies and Gentlemen,

Achieving peace and ensuring economic and social stability are also important targets African countries need to meet. Apart from devastating the lives of people in some African countries the rush of internal conflicts that plague us add to the continent's negative image, and by degrees cement the idea that we are not ready for business. Hand in hand peace and good governance must no longer be low on the list of priorities. Along with strengthening economic and social infrastructure, we must also build those institutions that will fiercely protect peace and promote good governance. This requires targeted public expenditure programs which the substantial fiscal revenues from mining in particular sector could support.

In turn, these conditions can help African countries attract foreign capital, especially capital from the private sector. In mining and energy, as with Africa's nascent industries in general, the challenge is to create the conditions that will bring resources over a long-term span that can be put at the service of development.

Given the major role the private sector already plays in mining, it is pleasing to note that in 1996, Africa's share of direct private investment in mining rose to $418 million, up from $100 million in 1995. Between 1995 and 1996, five out of the top ten countries to attract new investment in mining were from Africa.

We are witnessing a flurry of activities in mining exploration in Africa, and we know the mineral deposit base to be strong. Africa contains more than one-third of workable uranium reserves and vast reserves of exploitable coal deposits. Given the improvement in performance, it is no surprise that the continent's share of global private direct investment in mining is projected, at present rates, to rise from the current 12% to 20% by the year 2000.

Africa's mining success is evident in the excellent performance of the Syama gold mine in Mali and the Hartley platinum mine in Zimbabwe, as well as the international capital markets flotation of Ashanti Goldfields. The purchase by Ashanti Goldfields of Cluff Resources and the International Gold Resources Corporation (January 1996) and the Golden Shamrock Mines (October 1996) - an unprecedented acquisition by an African company of companies both within and outside the continent - also testifies to this upturn.

This is all very encouraging news indeed, and we would be to a large extent justified in celebration a renaissance in African mining. Celebrations would however be premature, because sustainability cannot be taken for granted, and for the projected expansion to materialize, we must develop responses to a number of key challenges:

The first challenge is brought about by globalization of the world economy. In this context, fierce competition and the emergence of regional economic groupings -- such as the European Union, North American Free Trade Area and Mercosur in Latin America -- can and does directly affect Africa's capacity to attract investors.

There is a need for a coordinated and strategic response from Africa, without which the tremendous potential of the mineral and energy sectors to yield a "developmental dividend" will disappear as the continent is banished to the very margins of world economic activity. In this context, governments should work closely with each other, using fora such as the subregional economic groupings to forge a common position. Regional cooperation, therefore, can mitigate against the negative impact of globalization and carve out a clear niche for Africa in mineral and energy production.

For the mining sector in particular, the problem of mineral deposits straddling international borders poses serious multi-country risks for investment decision except in the framework of a sub-regional project. Optimal size power plants are also likely to require regional markets.

The move towards regionalism in mining is already evident in the dynamic role South African corporations are playing in the rest of sub-Saharan Africa. This is one of the reasons why South Africa is an ideal setting for this conference. In mining and energy, it demonstrates an excellent array of the advance requirements that drive global competition, and which can be of immense benefit to Africa.

It is also encouraging that the various subregional groupings in the continent (SADC, COMESA, UEMOA, EAC, ECOWAS, UMA) have adopted protocols in the energy sector for cooperation in policy and planning, in the building of capacity, in electricity grid

interconnections, and in rural electrification and, new and renewable energy sources.

The second challenge is privatization. As I mentioned earlier, all evidence points to the private sector as the engine of production and therefore growth in the sectors. In mining, the role of the private sector is much more clearly defined and has a longer history than in energy, where private sector participation is only now beginning to become a realty as state energy parastatals forge partnerships.

But privatization in Africa is hampered by concern over about the small sizes of markets, affordability and payment risks, as well as political and economic stability.

In developing countries, the share of private owned power sector assets is increasing as a result of two movements: the divesture of existing assets by government, mostly in Latin America, and emergence of independent power producers (IPPs), mostly in Asia. In Africa, the latter is happening and it is happening only in a few countries.

The issues of asset valuation, fair price, labor redundancy, statutes, and perceived need for government control often lie at the heart of the privatization difficulties in Africa. In addition, assets privatization in the energy sector raises specific problems such as the discomfort of having a private monopoly when regulatory capacity is known to be weak, and the transfer price of national resources such as hydropower and natural gas, which can generate a rent for its producers. All these issues can in principle be solved - through the setting of royalties and strong regulation - but their practical solution continue to be controversial and protracted.

Mr. Chairman, Distinguished Delegates, ladies and Gentlemen,

I have talked about privatization and attracting foreign investment as two parts of a larger whole. Neither of these can take place unless there is the political will. IN addition, there has to be urgent reform of outdated and inadequate legal and regulatory frameworks, which is the third challenge.

A number of our countries have revised and updated their mining codes, but most are far from conducive to private investment. Existing codes -- many formulated without the specific needs of the mining sector in mind -- do not provide the kind of rights and obligations that will attract investors. They fall

short on issues such as accounting standards, foreign exchange controls, labor practices import and export licenses, business licensing and registration, and foreign investment. In addition, existing policies tend to differentiate between access for different classes of mining investor. State mining entities are usually given preferential treatment over privately--owned ones, local companies over foreign, small over large.

In short, the majority of African countries still have a lot of work to do on their legal and regulatory frameworks. The ideal environment is one which is fair and balance, and which guarantees the security of the investor and protects the interests of the country in question.

Your Excellencies, Distinguished Delegates, Ladies and Gentlemen,

The fourth and final challenge is for governments to play a significant role in promoting flows of local private capital into both the energy and mineral sectors. The development of Africa's capital markets would increase the number of local investors prepared to invest in these sectors. As an example on the Vancouver and Toronto stock exchanges, Exploration Funds were successfully floated for mining projects in latin America. Again, we can learn from this Latin America phenomenon, and in this context, the steady growth of local capital markets in Africa holds out the prospect of increased local investment. I am pleased to note that progress is encouraging in developing Africa's capital markets; in 1996, thirteen countries had stock exchanges with capitalization over $200 million, and programs and promotional institutions are being put in place by ECA and its partners to build on this progress.

Finally, Mr. Chairman, let me turn more generally to the role that ECA can play in this configuration of aspirations and challenges.

ECA, through a set of reforms, has repositioned itself to meet the challenge and assist Africa to realize her expectations. In a year-long assessments from mid-1995 to mid-1996, we mapped a strategy for organizational, systems, management, programs ad operational reforms that would enhance the Commission's assistance to member States in refining and implementing their development agendas. In the new order, Focus, Selectivity and Leveraging are central to ECA's strategy, enabling concentration of resources on critical issues and activities that are central to the program of assistance to member States. Implementation of this approach, in the framework of networking and strategic partnership, taking into account its comparative advantage, is well underway at ECA and defines the environment in which mining and energy sector activities will be carried out.

As part of the intergovernmental machinery, ECA is a major stakeholder and partner in strengthening cooperation and integration of our economies. In the area of energy, ECA, in collaboration with the World Bank, has for the last four years organized workshops on energy sector planning and assisted member States with the identification of integrative energy projects; ECA, along with the OAU, ADB and the World Energy Council, has been participating in the implementation process of establishing the African Energy Commission; we have also undertaken studies on electricity interconnectivity in three subregional economic groupings including ECOWAS, CEPGL and the Kagera Basin Organization (KBO);

In the area of renewable energy sources, ECA has been conducting a pilot project in Benin for rural electrification using a photo voltaic solar system. Similarly, in mineral resources, we have conducted thematic studies. These include a joint study with UNIDO on the prospects for the Increased production of and Intra-African Trade in Copper Metal-Based Products. A similar study has also been conducted for aluminum; a technical study on Privatization in the minerals and energy industries in Africa; an Expert Group Meeting was convened in 1996 to discuss guidelines for natural resources and energy development in Africa with emphasis on privatization and deregulation; in-depth studies on the gemstone subsector and sill distributions in the mineral industry of Eastern and Southern Africa have also been undertaken. The latter study was the subject of the joint meeting with SADC and stakeholders in 1996.

Mr. Chairman, Honourable Ministers, Distinguished delegates,

These examples illustrate and do not, in any way, exhaust ECA's commitment and participation in the agenda to develop Africa's mineral and energy resources. We hope to deploy our intellectual resources by advocating for and disseminating best practices to guide the process of cooperation and integration of the mining and energy sectors.

In concluding, I hope this conference will provide a forum for constructive and action-oriented dialogue between policy makers, mining and energy development operators and investors, mineral-based product industrialists, minerals and energy consumer associations, chambers of mines, research institutes, African inter-governmental organizations and Regional Economic Communities, international institutions and concerned UN organizations.

We at Economic Commission for Africa have a clear role to place in building such partnerships. Partnerships between Governments and the private sector -- facilitated by the inter-governmental machinery and multilateral agencies -- is key to the development of the minerals and energy industries, and therefore key to Africa's socio-economic development.

I wish you all a fruitful conference, and thank you for your kind attention.