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Africa must benefit from its mineral resources

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7 October 2013
Africa must benefit from its mineral resources

Africa’s political economy is deeply ingrained with its history of the exploitation and (mis)management of its mineral and natural resources. More than 500 years after commercial exploitation of Africa’s resources, Africa continues to host many of the large and unexploited deposits of minerals globally. For example, Africa accounts for three-quarters of the world’s platinum supply, and half of its diamonds and chromium. It has up to one-fifth of gold and uranium supplies and it is increasingly home to oil and gas production with over thirty countries now in this category.

Yet, with minor exceptions, Africa does not consume or add significant value to these and other mineral products which it has in abundance.  Rather, we are net exporters of raw materials that fuel prosperity and development in other regions. Africa is largely seen as a price taker rather than a price-maker, with a marginal role in international trade.

The question that arises therefore is why the continent continues to struggle with limited economic transformation, low or no resource rents and scarce employment. In the last ten years commodity prices have hit a super-cycle, yet Africa’s share of windfall earnings have been miniscule, compared to what mining companies have realized. Average net profits for the top 40 mining companies grew by 156% in 2010 whereas the take for governments grew by only 60%, most of which was accounted for by Australia and Canada, two countries that graciously want to share their experience with Africa. Indeed, most African countries got much less than this due to generous tax holidays given to mining companies! 

Looking at the issue from another dimension, the profit made by the same set of mining companies in 2010 was $110 billion which was equivalent to the merchandise exports of all African LDCs in the same year.  It is fair to say therefore that the resource-to-development model puts raw materials suppliers at a significant disadvantage. The conclusion that can then be drawn from this situation is that the current resource-for-development model is not working to bring about equity or boost development.   

The African Mining Vision, jointly developed by the AU, ECA, ADB and other UN agencies was adopted by the African Union Heads of States in 2009. The Vision advocates for “transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development”.

At the core of the African Mining Vision is the realization that Africa’s mineral resources can be better utilized to address the continents social and economic needs; the focus on environmental and social sustainability, the advantages of regional and international integration with attendance hard and soft infrastructure challenges, the emphasis of building of backward, forward and sideward linkages from the core mining sector and equitable principles of fairness in benefit sharing and use of resource revenues.

To achieve the high aspirations of this vision, Africa needs to get back to the fundamentals and rectify some of the initial problems that have continued to plague the management of the continent’s natural resources.

At the fore of this endeavor is the capacity of governments to get the best deals for their countries during contract negotiations. Capacity deficits have also been identified in critical areas of auditing, monitoring, regulation and improving resource exploitation regimes. In DRC, a government committee reviewed 61 mining deals over a decade up to 2006 and found none acceptable. It recommended renegotiating 39 and canceling 22.

Zambia, in the wake of increased international Copper prices and after years of subsidizing large multi national companies working in its copper belt, successfully raised taxes for mining companies from 25 to 30% and introduced a windfall tax for exceptional profits. This earned it an extra $415 million in supplementary revenues. Other African countries have initiated similar cancellation or review of resource contract such as Guinea, Zambia, Tanzania, Liberia and Nigeria in order to increase their resource revenue base. This trend will continue to grow as civil society organizations and states increasingly realize the loss of revenue from their resources.

International processes such as the Kimberly Process for diamonds and the Extractive Industries Transparency Initiatives (EITI) for other minerals, though with their won weaknesses, have contributed to improving transparency and accountability in contract negotiation processes from the production side whilst the Dodd-Frank Wall Street Reform and Consumer Protection Act and other similar acts have also created avenues for fair play within the international circles.

On the other hand, the reducing policy space available for Africa within international trade negotiation processes must also be checked. Unfair trade treaties and rules set out by international bodies that penalize Africa’s value addition process to its primary commodities need to be reviewed in light of the increased demand and competition for Africa’s minerals from the rising south especially China and the Far East.

Secondly, in geological terms, Africa is still the ‘unknown continent’ with vastly unexplored quantities of extractive potential. Geological mapping and mineral inventory has not covered the entire continent thus masking the true geological potential of the continent. African governments do not have the capacity to take stock of their mineral resources relying on trans-national companies to access commercial capacities of newly found discoveries especially oil and gas. This lack of verified data severely compromises negotiation capacity and the continents bargaining power. New technologies abound that will make it easy for Africa to have a better appreciation of its natural resource base but this is held back by a lack of sustained and well-financial commitments with exploration largely left in the hands of the private sector.

A third and important structural measure is a better integration of Africa’s development policies. Africa needs to embed long term development objectives firmly into the processes for extracting natural resources. For mining to benefit Africa’s people, strong backward and forward linkages in the local economy should allow local entrepreneurs and industrialists to take advantage of service provision and technology transfer opportunities as a result of proximity to the mining industry. This means investment in infrastructure, research and human capital development, through conditionality for local content.   This is what other regions have done; this is what Africa needs to do.

Within this paradigm of development-led mining, the potential of small-scale mining should also be harnessed and improved to improve rural livelihoods and integration into the rural and national economy. Other factors such as the building of human and institutional capacities towards a knowledge economy that supports innovation, research and development and the promotion of good governance of the mineral sector in which communities and citizens participate in decision making and in mineral assets, and in which there is equity in the distribution of benefits are also necessary pre requisites.

In conclusion, Africa’s natural resource is a blessing and not a curse and can and will be used as a precursor for the continent’s continuous rise and in the face of the insatiable appetite for natural resources on the world stage. To make this possible, frameworks such as the AMV must be implemented and used as a template at country and regional level.