Digging For Victory

Why is it that despite the fact that Africa is the richest continent in terms of natural resources, it still remains the poorest continent in the world? How can the continent’s extraordinary mineral wealth be utilised to generate development and growth? These critical questions were vigorously discussed during the eighth African Development Forum (ADF) in Addis Ababa.

There is no doubting Africa’s extraordinary mineral endowment; two thirds of the globe’s platinum, 20% of its gold and uranium, half of all the diamonds and chromium, most of its bauxite, not to mention vast quantities of oil and gas.

Even more remarkable is the fact that the mineral wealth that is known about is the product of less than complete knowledge: the process of detailed mineral exploration across the continent is in its infancy. As a result, it is entirely likely that the scale of mineral wealth on the continent may be considerably greater – five times greater if it were to match the OECD average, for instance.

At the eighth ADF in Addis Ababa, these facts were to the fore as 1,000 delegates gathered, including heads of state, government, AU members, UN agencies, NGOs, development partners and other organisations and individuals. The Executive Secretary of the United Nations Economic Commission on Africa (UNECA), Dr Carlos Lopes, pointed out that despite the continent’s potential, as well as historically high mineral prices in recent years, the opportunity to use this wealth to achieve development goals has been squandered.

“Rather, we are net exporters of raw materials that fuel prosperity and development in other regions,” said Dr Lopes.

The theme of the conference, Governing and harnessing natural resources for Africa’s development, is nothing new. The AUC’s Lagos Plan of Action in 1980, the SADC Mineral Sector Programme, the Mining Chapter of NEPAD, and the African Mining Partnership in 2004 were all efforts to this end that essentially fizzled out. But a new effort to address the matter came with the adoption by the AU of the African Mining Vision (AMV) in February 2009. Its ambitious mission is the “transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development”.

In 2007 an International Study Group (ISG) was established by the AU, the AfDB and the UNECA to examine Africa’s mineral regimes. Their lengthy and detailed report was completed in time to be presented, along with an Action Plan for implementation of the AMV, to the AU’s Mining Ministers in December 2011.

Head of Infrastructure and Natural Resources Development at the Regional Integration, Infrastructure and Trade Division of UNECA, Dr Wilfred Lombe, told African Business, “Mining has the potential, where you have large deposits in particular, to carry other economic activities at marginal cost.”

For instance, mining infrastructure such as railways and power generation can be used to link up and open up areas for development and generate surplus power for other users with considerable less additional spending than would be required to build these facilities from scratch.

In essence, Dr Lombe explained, “Policymakers need to maximise the beneficial spillover effects of infrastructure triggered by mining through resource corridors.” Hence among the goals of the AMV is the acquisition of a detailed understanding of the value chain and improve its transparency in order to tackle the infrastructure deficit, enabling the efficient exploitation of minerals. To do this it focuses on 17 spacial development initiatives through development corridors.

“Exporting raw materials is equal to exporting your jobs because processing those raw materials on the continent would offer jobs to citizens and add value to exports,” noted Professor Emmanuel Nnadozie, the Director of Economic Development and NEPAD Division of UNECA.

The AMV looks into establishing sovereign wealth funds, creating these development corridors that can piggyback on mining infrastructure routes so as to promote sideways linkages to the services industry, in concert with greater industrialisation.

Tackling skills shortages

The purpose of the ADF, hosted by UNECA in cooperation with the AU and the AfDB, is to discuss and plan the implemention of the principles and goals of the AMV in the light of the subsequent ISG report.

The launch of the African Mineral Skills Initiative (AMSI) is a useful supplement to these ends. One of the biggest problems the mining sector faces is the shortage of skilled workers. The AMSI is supported by Africa’s leading home-grown mining company – AngloGold Ashanti – in conjunction with the Australian AID and UNECA.

Its purpose is not only to ensure more skilled mining jobs in the industry going to Africans rather than immigrants but also to try to better equip governments with skilled staff who can assist with negotiations with industry. Governments struggle to retain talented staff, due to the higher salaries that are often available in the private sector. Even factors like the ability to speak Chinese can be invaluable in getting the best deal possible and being able to monitor dealings effectively.

“The mining sector in Africa is booming and it needs skills,” said Richard Duffy, executive vice- president for Africa at AngloGold. “But the continent’s educational institutions are not currently in a position to meet this growing demand for a broad range of skills.”

“To meet the needs of governments which need to regulate the mining sector, civil society which needs to offer an independent view of the sector and the private sector which needs to grow and improve – a drastic increase in the number of Africans with skills in the mining sector is needed,” he added.

The initiative involves building training capacity at eight centres across the continent.

The AMSI is to be lauded for its recognition that the skills required are not simply those of geologists and mining engineers but also of environmentalists, planners, lawyers and economists. It is also wisely trying not only to equip industry with the staff it needs but also governments too. It is to be hoped that this is just the first of many such much-needed public-private initiatives.

Concrete proposals

Implementation is, of course, all. Whilst there is, broadly speaking, consensus about both the nature of the challenge and the kinds of actions that are required, rigorous timetables and action plans to meet these ends are key.

One need only consider the numerous earlier schemes, with similarly admirable aims, which nevertheless failed. “A vision that is development-oriented has a greater chance of success than earlier schemes,” said Dr Lombe in response to this point. His team have moved rapidly in the last year to create an action plan. “There is now a Policy Support Unit in place to support the Vision, working on a five-year business plan, which we expect to finish in the first quarter of next year, working with the private sector.”

Although those at the AMV are not yet formally working with African governments, Dr Lombe explains that “currently we are at a stage where we are creating a programme of activities, further to the action plan, taking it to the member-state level, developing a policy framework”.

Dr Hudson Mtegha, senior lecturer in the school of mining engineering at the University of Witwatersrand, one of the team that worked on the AMV and that wrote the ISG action plan, believes its hour has come: “I believe that this is probably the right time. You have the various stakeholders willing to talk to each other, essentially because of the resource nationalism sentiments that are sweeping across the continent. In other words, the populations want to gain more from their mineral resources. Companies are acknowledging that people need to talk to each other, otherwise sentiments may boil over and governments are listening to their people too and recognise the need to deliver.”

This fact identifies perhaps an omission in the approach of ADF hitherto – the lack of private sector engagement. Despite the mantra of involving all stakeholders in resolving the issues addressed, there is as yet insufficient private sector involvement.

Questioned about private sector involvement in the AMV, Dr Lombe explained that it has been discussed extensively with all stakeholders in the course of numerous meetings. Policymakers have met the mining industry and the chambers of mines, with local community and international representation, as well as with partners such as the AfDB and, of course, the major miners. A lot of work has been undertaken on improving the social compact. “The future of mining in Africa and elsewhere is one of a partnership of between communities and stakeholders,” he says.

Dr Mtegha shares this quiet optimism, “I do not see any cause of concern for the moment in terms of delivery. The private sector is very worried about unilateral decisions in terms of changing legislative provision. They are more than willing to discuss, in my opinion, and that is a very good starting point. Secondly, the fact is that the cooperating partners, the donor community, foreign organisations and so on are willing to provide support with the implementation of the AMV. This is good since the cooperating partners are often based in the same nations as a number of companies that operate in Africa. We probably have a wider scope for discussion than before.”

Certainly, the ADF provided an excellent forum for stakeholders to engage in these necessary discussions.

Forests and fisheries

Mining resources are not the only significant assets that must be employed wisely. Africa accounts for 60% of the world’s uncultivated arable land and it is vital that this is protected against any negative consequences of speculation.

In an open letter to Forum participants, Oxfam, in a letter to ADF participants, pointed out that around 50m hectares had been acquired in 700 transactions in recent years. Policy makers must guarantee transparency, equity and sustainability in the handling of these resources too. There must be a focus on strengthening policy, access, property rights, and investment in large-scale agriculture in line with the existing Comprehensive Africa Agriculture Development Programme (CAADP). Africa’s forests cover some 675m hectares (17% of global forests) and it is vital for the region and the world that they are managed and exploited in a sustainable fashion. The Congo Basin, the world’s second-largest forest, is an area of particular concern. Fisheries resources too are vulnerable, with around 1m tonnes (worth some $629m) lost to illegal fishing around the continent each year. Namibian representatives at the ADF were able to report on the significant progress that country has made in improving both monitoring and governance.

Capital flight

“We have to reverse irrevocably the idea that resources are curse,” said Ethiopian Prime Minister Hailemariam Desalegn to the ADF delegates. One of the reasons why resources have been seen as a curse is because of the difficulty in holding on to the revenues they generate due to capital flight. The scale of mismanagement by government and disreputable practices by industry that are undermining progress are underscored by a recent UN report – Illicit Financial Flows from Africa: Scale and Developmental Challenges, which was much discussed at the ADF. The report criticised multinational corporations for the illicit transfer of most of the $1.5 trillion earned in Africa each year back to the developed countries, draining hard currency reserves from the continent, stimulating inflation, reducing tax collection and deepening income gaps. These outflows, that could be aiding development, actually eclipse the sum of all aid capital inflows to the continent.

The figures are remarkable. According to estimates by Global Financial Integrity (GFI), these outflows are in the region of $854bn and $1.8 trillion over the period 1970–2008. In order to tackle this problem, the use of offshore centres to hide transactions related to transfer pricing, bribes, tax evasion, theft, smuggling and mismanagement must be curtailed. Since the shadow banking sector is coming under criticism in the wake of the financial crisis, there may be a once-in-a-generation opportunity for international legislation to address current regulatory findings. According to the WTO, some 60% of world trade is internal to multinationals. As a result, issues like trade mispricing, which can be used to manipulate tax liabilities, are a major barrier to the equitable, efficient and transparent functioning of markets.

The eighth ADF has played a useful role in addressing these diverse concerns. It is to be hoped that it will help generate momentum towards ensuring that these proposals translate from word to deed.

As Abdalla Hamdok, ECA Deputy Executive Secretary, pointed out, “the key challenge in going forward is creating the policy and institutional space to provide for equity in the distribution of benefits from natural resources”.