The stakes for Africa in Mineral Resources Development
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The stakes for Africa in Mineral Resources Development






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The stakes for Africa in Mineral Resources Development The stakes for Africa in Mineral Resources Development Presentation Transcript

  • The Stakes for Africa in Mineral Resources Development by Antonio M. A. Pedro Director, SRO-EA- Kigali, Rwanda
  • Objectives
    • Share perspectives and views on mineral resources development in Africa
    • Review relevant mineral policy options and strategies including key African policy initiatives and processes (The ISG and the AMV)
  • The issue
    • Transformation in business and financial organization, education, research and knowledge development, human capital accumulation, and infrastructure expansion were key to harnessing the potential of natural resources endowments in Canada and Australia (Power, 2002): This is seminal to our discussion today!
    • Can Africa equally harness the potential of its NR endowments? What are the imperatives for it?
  • Profiling the Sector
  • Disputed accounts on mining
    • Mining is bad camp: Enclave, capital intensive, Dutch disease, lower growth, corruption, conflict, rent-seeking; etc
    • Mining is not bad camp: Nothing intrinsic with mining, non-conclusive statistics, mixed performance, important natural capital
  • The “mining is bad” camp
    • The sector is capital-intensive, foreign-owned and forms enclaves with little linkages with other sectors of the economy
    • Learning-by-doing potential is lower than other sectors, particularly manufacturing
    • Creates illusion of plenty, leading to “political underdevelopment (Mick Moore, 2000), weak, inefficient, or corrupt government institutions
  • The “mining is bad” camp (2)
    • Rent seeking rather than rent creation prevails
    • Financial discipline is usually low and reckless budgetary practices are common
    • Public income is squandered by political elites
    • Ill-advised and profligate social and infrastructure spending are a norm
    • Volatile short-term commodity prices lead to volatile revenues, increased uncertainty, less investment, lower economic growth
  • The “mining is not bad” camp
    • Negative outcomes of mineral economies are case-specific
    • Economic performance is mixed
    • Statistical evidence is not conclusive to allow generalisations
  • The “mining is not bad” camp (2)
    • The problem is not with the mineral resources, but with political and economic governance
    • Detractors of mining do not provide alternative strategies
    • If mining is excluded, growth rates of many countries would be even lower
  • The “mining is not bad” camp (3)
    • Mining generates positive macroeconomic impacts and fosters growth through:
    • -Fiscal flows (Royalties, taxes and other levies)
    • -Foreign exchange generation
    • -Associated economic and tertiary development
    • -Opportunities for SME development
    • -Upstream and downstream opportunities (minerals cluster development)
    • -Job creation
    • -Technology acquisition and skills creation
    • -Infrastructure creation
  • Harnessing the Potential of Natural Resources: A Daunting Challenge for Policy Makers
  • The Challenges
    • The irreversibility challenge
    • The creation challenge
    • The investment challenge
    • The distribution challenge
    • The governance and macro-economic challenge
    • The capacity challenge
  • The irreversibility challenge
    • How to balance the relative costs of access and the choices/preferences of the present relative to the future?
    • What set of policies should be put in place to ensure sustainable exploitation of mineral resources in a manner that is inter-generational equitable?
    • How to manage resource stress ( 1-Malthusians : Scarcity leads to war; the honey pot of abundant resources may be a focus for greed and elicits a scramble of gold diggers. 2 -Cornucopians : Scarcity leads to adaptation. 3-Anti-globalists : Scarcity is the consequence of the structural violence of an inequitable global system) Jeroen Warner 2004
  • The creation challenge
    • How to create and sustain mineral wealth that is consistent with social preferences for environmental quality and social and cultural considerations?
    • How to ensure an efficient, equitable and predictable legal, regulatory and fiscal regime that encourages mineral creation?
    • How to be a competitive mining destination, but avoid a race to the bottom?
  • The investment challenge
    • Once you create mineral wealth, which is transient, how to transform it into permanent wealth?
    • How to create a stream of wealth that outlasts finite mineral resources?
    • How much ought to be saved and how much should be invested?
    • Who should invest?
    • In what?
    • Where?
  • The distribution challenge
    • How to share benefits from mining equitably (e.g. local vs national)?
    • What is fair?
    • -Aristotle and Proportionality (Outcomes are allocated in proportion to each party’s contribution)
    • - Jeremy Bentham and Utilitarianism (Outcomes are distributed so that the distribution creates the greatest good for the greatest number)
    • -John Rawls and his Theory of justice (Outcomes should be such that the least well-off group in society be made as well off as possible)
  • The distribution challenge (2)
    • What form should the allocation take?
    • What are the eligibility criteria? Who has the highest priority?
    • How to reconcile conflicting interests (e.g. The 1999 Nigerian 13% Derivation Principle vs the Nigerian Supreme Court decision on ownership of offshore oil)?
  • The macro-economic and governance challenge
    • How to address externalities such as declining and unstable commodity prices?
    • How to address the Dutch Disease?
    • How to enhance the public interest in wealth conservatism?
    • How to avoid rent seeking and corruption?
    • What social compact to pursue (APRM NPoAs)?
  • The macro-economic and governance challenge (2)
    • How to manage revenue out of mining?
    • How to enshrine and operationalise the right to access to information and ensure that decisions are taken with participation of affected stakeholders (The Aarhus Convention)?
    • How that ensure accountability (Oversight committees, parliamentary watch dogs)?
    • How to ensure that right institutions are in place to monitor compliance of obligations?
  • The capacity challenge
    • How to balance aspirational goals and the reality?
    • What set of policies, laws, standards, guidelines should countries formulate which are congruent with their capacity to enforce them?
    • How to bridge capacity gaps and asymmetries between host countries and TNCs [ contract negotiations; transfer pricing
    • How to address capacity gaps at sub-national level (decentralisation)?
  • What should inform policy responses?
  • The development paradigms: They shift
    • Nationalizations in the 1970’s
    • Reforms in the late 1980’s and 90’s: The Washington Consensus
    • 21 st Century: The search for a new social contract for mining
    • From “market/institutions fundamentalism” to more policy space for experimentation and the rebirth of the development state: Goodbye Washington Consensus, Hello Washington Confusion (Dani Rodrik, 2006)?
  • Stage of the development in a minerals cycle
    • Nascent mineral economy: Requires mineral investment flow
    • Youthful mineral economy: Rapid mineral expansion, Dutch Disease
    • Early-Mature: Slowdown of mineral output, promote sectoral diversification
    • Late-mature: Decline in mineral output, boost skills acquisition
  • Policy responses to a minerals-driven cycle (Richard Auty) Stage Character Macro effects Policy response Nascent Mineral investment flow Exchange rate pressure Create rent tax, build capital funds, establish revenue stabilization funds, grant Central Bank independence Youthful Rapid mineral expansion Exchange rate appreciation, Dutch Disease effects Sterilize windfall rents, expand domestic absorptive capacity Early-Mature Slowdown of output mineral Growing tax and foreign exchange constraints Substitute new tax sources, encourage domestic savings, promote sectoral diversification Late-Mature Decline in mineral output Persisting tax and foreign exchange shortages, rising unemployment Depreciate real exchange rates, boost skills acquisition
  • Local context
    • Culture and mining history
    • Capacity to administer the sector, and manage and restructure the economy
    • Strength of private sector, CSOs, CBOs
    • The learning curve process followed by a country
    • Local politics and power game, expectations and social bargains (Bomani Commission in Tanzania)
    • The country’s bargaining power
    • In short: There is no universal recipe!
  • What characterizes the new paradigm?
  • Environment and mining
    • Environmental obligations are gaining increasing importance particularly EIAs/SEAs (Mining is not always the best land use option)
    • Growing environmental consciousness among CSOs, CBOs, etc
    • Informed environmental watchdogs (NGOs, etc)
    • Industry self regulation: ICMM leading the pack
    • Minimization of risks and hazards being addressed
  • Consultation
    • Policy formulation and making: Mostly realm of governments but multistakeholders fora are being championed
    • Public consultation for project approval common requirement
    • But, consultation still more with private sector (e.g. Chambers of Mines) and labour and less with communities
    • Growing limits to state power: The State is not always pars pro toto and its interests are not always the interest of the people
    • CSOs have a limited role in monitoring and enforcement, but there are interesting developments (e.g. Mining Ombudsman in Australia)
    • Growing pressure from lenders (Equator principles) on project promoters
  • Corporate social responsibility
    • The sensitive new age miners : A growing trend
    • From “strictly business”, “we do the best we can”, “benevolent benefactor”, “manage and measure” to “practical partnerships” and more holistic corporate development approaches
    • Success by triple bottom line i.e. financial success, contribution to social and economic development, and environmental stewardship
    • ISG: Broadening the concept of CSR and considering voluntary vs mandatory options
  • Managing revenues
    • Mostly a realm of governments
    • New schemes: Independent oversight committees (Failure in Chad ?)
    • EITI: Acceptance, but there is a call (Big Table 2007) for more (Alba’s working paper on “Extractive Industries Value Chain”)
    • Permanent Fund in Alaska: An example? (Jonas Hjort, 2006 questions the financial development and institutional capacity of developing countries to implement and operate such funds)
    • Botswana, have they succeeded?
  • Allocations of benefits from mining
    • Most centrally controlled
    • Problem areas: Capacity in local communities to make wise investment decisions; legitimacy; and magnitude of payments
    • Good examples to follow: Impact and Benefits Agreements in Canada
    • Infrastructure provision and local procurement: Broadens the concept of benefits
  • Equity and other forms of participation
    • Free carried interest for government participation: A thing of the past? State Mining companies in Mz, Tz, SA
    • Debswana: A success case of a joint-venture
    • The Royal Bafokeng Nation: An example of a community in business
    • The Broad-based socio-economic empowerment and charter and scorecard (South Africa): The future? Original provisions are being revisited
  • Integrating mining in local economies
    • Countries want to retain more wealth by having more local processing and value addition: NTBs a problem
    • Lack of local capital constraints participation of local entrepreneurs
    • Minerals clusters and Spatial Development Plans (e.g. NEPAD SDP) can spearhead more value addition
    • Artisanal and Small-scale Mining: Low entry barriers facilitate participation, but…
    • Mainstreaming mining in PRSPs: Very important!
    • 2 nd generation PRSPs: Opportunity to raise profile of mining
  • Looking ahead: Can The AMV Deliver for Africa? Is it a wish list?
  • The Africa Mining Vision : “Transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development”  
  • The process
    • Task Force: AUC, ECA, AMP, AfDB, UNCTAD, and UNIDO and UEMOA
    • Draft informed by outcomes of several meetings and initiatives: JPoI, Yaounde Vision on ASM, AMP SD Charter and Mining Policy Framework, 2007 Big Table, ISG, SADC + UEMOA harmonization efforts
    • Discussed at the First African Union Conference of Ministers of Mines in October 2008
    • Endorsed by AU Summit in Feb 2009
  • The tenets
    • Recognition of important role of MR to Africa’s economies
    • Transform finite NR capital and transient wealth into lasting forms of capital beyond the currency of mining
    • Broader understanding of “benefits”
    • From comparative to competitive advantage: A developmental, transformative, knowledge-driven and integrated mining sector with downstream, upstream and sidestream linkages
  • The tenets (2)
    • A sustainable and well governed sector: resource rents are well managed; distributed and smartly invested; intergenerational equity, environmental and material stewardship and CSR respected; safe, healthy and advanced; and stakeholders empowered
    • Mining as a key component of a diversified and globally competitive economy
    • Unbundle the “minerals complex” (from exploration to fabrication, markets and mine closure) to bundle: Entry points for localization identified
  • Tenets (3)
    • A sector that anchors the development of a competitive infrastructure base through local and regional economic linkages
    • Optimal exploitation of finite resources at all levels (large and small-scale) and of all types (high and low value)
    • A sector that puts Africa geo-politically and strategically at its right place in the global international capital and commodity markets
  • Why the AMV ?
    • Need to have an African common voice
    • Resource endowment: Comparative advantage to harness
    • Top producer, but most minerals exported as raw materials: Potential for mineral beneficiation is great
    • More favourable political economy:“Failure” of the Washington consensus opens room for more policy space
    • Merely regulatory role for the state being questioned: Return of the “developmental state”
  • Why the AMV (2)?
    • Although RBIs are not a new mantra in Africa (Lagos Plan of Action), in general, mining has not delivered broad-based development: We can learn from successful RBIs (e.g. Nordic countries)
    • Despite swings in commodity prices, resource intensity theory (resource use flattening at US$16,000/GDP) suggests that demand for minerals might continue to be strong if China and India (and other emerging economies) continue to grow: This and other factors might support prices (Gold is up!)
  • Why the AMV (3)?
    • Other sectors don’t have the same rents: Better resource rents in the mining sector can catalyze growth of other less competitive sectors
    • China and India: Reshaping the ball game ( more competition for Africa’s acreage strengthens the continent’s bargaining power)
    • Resource nationalism and assertive governments: Pendulum can swing to host countries, but don’t kill the goose that lays the golden eggs
    • Governance gains: Growth of non-state actors (CSOs) democracy, APRM, less monopoly of the policy space
  • Why the AMV (4)?
    • Tri-sector partnerships and public participation: Being mainstreamed
    • New age miners: Embracing developmental and transformative approaches; triple bottom line (financial success, contribution to social and economic development, and environmental and material stewardship)
    • Scholars are championing for a better mining sector (e.g. Paul Collier’s Natural Resources Charter)
  • Why the AMV (5)?
    • China’s environmental concerns: Cannot continue to be the only world’s factory; this offers opportunities for relocation of downstream and upstream activities to Africa
    • Strategic stockpiles: A fashionable concept again (New European non-energy raw materials strategy). Can Africa’s bargaining power be strengthened?
    • Tacit endorsement of the “Angola” model (???): (Zoellick “The end of the Third World? Modernising Multilateralism for a Multipolar World”) can validate and mainstream the SDP approach
    • Despite disputed accounts, there is a better profiling of mining: Was not there for the last 20yrs
    • Overall: Africa has more chances now to bargain for better deals than in the days of the Lagos Plan of Action and the AMV can be realised!
  • Entry points
    • Resource rents: Invested to improve physical, human and social infrastructure
    • Expanded physical infrastructure: to open up other resource potential (agriculture, forestry, tourism) and access zones with lower economic potential (densification, SDP)
    • Downstream value-addition: To establish resource-processing industries that could provide the feedstock for manufacturing and industrialization
  • Entry points (2)
    • Upstream value-addition: To develop resource supply/inputs sector (capital goods, consumables, services)
    • Technology/product development: To incubate niche technological competencies in the resource inputs sector that can migrate laterally to other sectors to produce new products for other (non-resource) markets (e.g. Atlas Copco)
  • The strategies
    • Improve the level/quality of Africa’s resource potential data (gm and mineral inventory): It strengthens the continents’ bargaining power
    • Fight for more fiscal space: Robust, but flexible tax regimes that are responsive to economic circumstances; beware of stabilization clauses, BITs/IIAs (Institute for Policy Studies)
    • Innovate licensing schemes to boost competition: Go beyond “First come and first served” and explore auctioning through differentiation of terrains
  • The strategies (2)
    • Boost Africa’s capacity to negotiate contracts and extract better deals (ALSF, UNDP, GTDF Crans Montana)
    • Enhance the capacity to administer [auditing, illicit financial flows (Global Financial Integrity) monitoring, regulating, fomenting linkages] the sector and build robust institutions
    • Audit, review and renegotiate (if required) existing mining agreements: GTDF Crans Montana Action Plan
    • States and businesses embrace value chains as a result of altered trade flows (Borrowed from Jan Klawitter): Alba’s paper
  • The strategies (3)
    • Manage mineral wealth better (APRM, oversight committees, stabilization funds, prudent spending)
    • Develop junior resource companies
    • Unbundle the “minerals complex” (from exploration to fabrication, markets and mine closure) to bundle
    • Address infrastructure constraints (Resources forinfrastructure deals, SDP, DCs)
    • Promote mineral clusters and support SMEs to enter the supply chain
    • Yaounde Vision: the right framework for ASM
  • Implementation
    • Shared vision, but phased (Short, medium and long-term actions) and context specific action (There is no “one size fits all”)
    • Phases are not mutually exclusive: Implementation can be fastened depending on internal and external factors (Auty)
    • Political will and proactive government action: Key
    • Improving natural resources governance: Critical
    • Collective and concerted action/The African voice: Indispensable
  • Implementation (2)
    • Capacity building, R&D: Fundamental
    • Partnerships and buy in: Essential (Talking with ICMM)
    • Policy space and ownership of the development process: The cornerstone!
    • Coordinated action between public, private and community stakeholders
    • M&E (AUC):Indicators of achievement and scorecards need to be developed
  • Implementation (3)
    • The “minerals complex” (from mining/extractive industry to a minerals industry): New institutional mindset, break silos and departmental rivalry
    • Deepen work of the ISG :Phase II (Auctions, institutions, trade agenda, industrial policy,etc)
    • Regional integration and common voice: EU Raw Materials Initiative, ACP, AU-EU Mining Initiative
    • The game changes fast (“Super cycle”, gone….?)
  • In Conclusion
  • There is nothing wrong with mineral resources
    • Mineral resources are part of the stock of natural capital that can spur Africa’s development
    • Mineral economies are diverse (geographically, per capita income, growth, life expectancy, adult literacy)
    • Some nations have high growth rates, others have negative growth. Some nations are the poorest in the world, others are the richest
    • There is nothing inherent in mineral resource abundance that condemns countries to either growth or unsustainable development
  • To mine or not to mine?: Wrong question!
    • The appropriate public policy question is not whether to mine or not to mine, but where should we mine and how to ensure that mining contributes as much as possible to growth and development
    • Poor performance is not inevitable. Mineral resources are finite, hence should be invested to generate new wealth and used to create forms of renewable capital such as human, social and physical capital, beyond the currency of mining
    • This requires improvements in governance, strengthening of institutional capacities and competencies, prudent management, trilateral partnerships, and smart investments
  • The AMV is a credible instrument
    • It provides a good rallying point
    • It was endorsed at the highest possible level in Africa
    • It has some buy in internationally: CSD 18
    • The moment is right: There is policy space and willingness to partner, good economic fundamentals and market opportunities
    • Social compacts to govern are becoming a norm: APRM
    • Interventions of the different actors need to be coordinated to maximize impact
  • But, there is no easy panacea and universal recipe. However, for sure, without sound governance the wealth generated by mining is unlikely to be deployed effectively. The devil (if any) will be always in the detail!
  • Thank You!