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Resource-based African Development Strategy

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  1. 1. Resources Value Addition<br />Towards a <br />Resource-based African Industrialisation Strategy (RAIS)<br />Dr Paul Jourdan<br />OM<br />
  2. 2. Presentation Structure<br />Africa’s Natural Resources<br />Commodity Prices- Where to?<br />Resource-based industrialisation<br />Resource s Linkages: Fiscal, Spatial, Backward, Forward, Knowledge<br />Conclusion<br />Way Forward<br />OM<br />
  3. 3. Africa’s Natural Resources<br />Africa’s natural (static) comparative advantages lie in its natural resources endowment & potential, particularly:<br />Agriculture & Animal husbandry;<br />Water;<br />Minerals;<br />Energy;<br />Forestry & Biomass;<br />Fisheries & Aquaculture; and<br />Tourism (natural endowment-based).<br />This static advantage MUST be transformed into a dynamic advantage<br />OM<br />
  4. 4. Postulation:<br />Africa’s unique natural resource base could provide it with an important lever to achieve its industrialisation objectives through realising the resource linkages opportunities (backward & forward). <br />Alternatively, <br />These assets could be squandered under “free entry” resource regimes (such as the “free mining”FIFA mineral regimes) and a continued “free market” (non-interventionist) scenario, which is likely to leave the Africa with little more than ghost-towns (like Kabwe & Stilfontein)with holes in the ground, desertification & exhausted soils anddepleted natural fisheries & forests.<br />OM<br />
  5. 5. Africa’s Natural Resources<br />Agricultural resources : Due to its high variety of climatic zones, geology/soils and topography (plateaus), Africa has almost all the biomes necessary for the production of the bulk of agricultural products. <br />Water resources: Africa is well watered between the Tropics, but above & below them water is scarce. Overall Africa uses 4% of its water. <br />Minerals resources are spectacular: aluminium, iron ore, copper, PGMs, gold, phosphates, nickel, chromium, vanadium, manganese, etc, giving virtual mineral resources integrity.<br />Energy resources are exceptional comprising: huge coal reserves, massive hydro-power (HEP) potential, hydrocarbons, nuclear (U resources) and potential solar & geothermal energy.<br />Fisheries: Natural harvesting of sea fisheries has peaked, but Africa’s coastline, with several oceanic systems, could give it a relative mariculture advantage and aquaculture is still nascent. <br />Forestry resources: Natural harvesting of forests is in decline, but there is enormous potential for plantation forestry in the Tropics.<br />Tourism resources: Major potential due to world’s greatest diversity: genetic, culture, flora, fauna, geomorphology, etc.) <br />
  6. 6. Africa has significantAgro-potential(especially between the Tropics)<br />OM<br />
  7. 7. And water potential…(except for North Africa)<br />Africa uses less than 4% of its water<br />OM<br />
  8. 8. Major River Basins<br />Major River Basins<br /><ul><li> >60 trans-boundary river basins dominate the African landscape, but weak regional cooperation has limited the benefits.
  9. 9. The level of water resource exploitation low with only 3% to 5% of the total amount used under managed conditions
  10. 10. Per capita water storage capacity in Africa is 100 times lower than in Europe and North America
  11. 11. An average investment of US$ 20 billion/an is required to attain the MDG and African Water Vision targets</li></ul>Africa is the world’s highest continent- most of central, southern & eastern Africa is >500m<br />
  12. 12. And has abundant known fertiliser minerals for agriculture!<br />Agri-mineral deposits (ex- gas/coal & K)<br />Nitrogen sources (oil/gas & coal) & <br />K resources<br />But, generally undeveloped for the African market, mainly due to severe logistics constraints.<br />OM<br />
  13. 13. Africa is well-endowed with mineral resources<br />OM<br />
  14. 14. African Geology & Mineral Resources<br />OM<br />
  15. 15. Areas covered with recent overburden (unknown underlying geology)<br />African Geology<br />OM<br />
  16. 16. Africa has diverse energy resources:<br />fossil fuels, solar, HEP & geothermal potential<br />Goethermal Potential: Great African Rift Valley<br />Solar Potential: Deserts<br />And Africa has huge HEP (Congo R: 200GW)<br />OM<br />
  17. 17. Africa also has huge biomass potential.<br />Giving it large bio-fuels production potential:<br />(mainly between the Tropics)<br />OM<br />
  18. 18. Commodity (resources) PricesBeyond the US Toxic Assets Crisis? <br />OM<br />Source: IMF: www.imf.org/external/np/res/commod/chart1.pdf<br />
  19. 19. Commodity (resources) PricesBeyond the US Toxic Assets Crisis? <br />OM<br />Source: IMF: www.imf.org/external/np/res/commod/chart1.pdf<br />
  20. 20. Commodity (resources) PricesBeyond the US Toxic Assets Crisis? <br />OM<br />Source: IMF: www.imf.org/external/np/res/commod/chart1.pdf<br />
  21. 21. Asian Boom:New “scramble for resources”?<br />High intensity, Africa’s new opportunity?<br />High intensity, sellers market: Colonial system<br />Low intensity, buyers market: stagnation & instability<br />OM<br />Steel- good proxy for most minerals<br />
  22. 22. How long will boom last?<br />2025?<br />Steel Intensity<br />(all metals proxy)<br />PRC<br />China + India > 2X pop’n of First World!<br />India<br />Africa<br />~$16k/capita<br />Data Source: BHPB 2006<br />However, prices will fall with increasing supply over the medium-long term, but at a higher level (lower grades)<br />OM<br />
  23. 23. Resource-based Industrialisation?Maximise the 5 VA resource linkages<br />5. FORWARD<br />Value-addition: (beneficiation)<br />Export of resource-based articles<br />1. FISCAL: Capture & invest of resource rents (RRT) in long-term economic physical & human infra (inter-generational)<br />Use depleting assets<br />to underpin growth in <br />sustainable sectors<br />4. KNOWLEDGE Linkages:<br />“Nursery” for new tech clusters, adaptable to other sectors<br />2. SPATIAL<br />Puts in critical infra-structure (transport, energy) to realise other economic potential & intra-regional trade<br />3. BACKWARD<br />Inputs: Capital goods, consumables, services, (also export)<br />HRD, R&D<br />If the linkages cannot be made, the people’s resources would be best left unexploited- Need to maximise the developmental & inter-generational impact whilst still extant! <br />PJ<br />
  24. 24. African Mining Vision<br />“Transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development”<br />Promotion of Linkages<br />Fiscal linkages (reinvest of rents)<br />Downstream beneficiation & manufacturing<br />Upstream into capital goods, consumables and services<br />Spatial linkages (infrastructure, logistics, ICT)<br />Knowledge linkages (skills, HRD & R&D)<br />PJ<br />
  25. 25. Resources provide opportunities for<br />backward & forward linkages <br />mining capital goods<br /><ul><li> drilling
  26. 26. cutting
  27. 27. hauling
  28. 28. hoisting, etc.</li></ul>processing cap. goods<br /><ul><li> crushers/mills
  29. 29. hydromet plant
  30. 30. materials handling
  31. 31. furnaces, etc. </li></ul>Fabrication Cap.goods<br /><ul><li>Rolling
  32. 32. Moulding
  33. 33. Machining
  34. 34. assembling</li></ul>Mining<br />Mineral<br />Processing<br />Smelting &<br />Refining<br />Fabrication<br />Exploration<br />mining services<br /><ul><li>mine planning
  35. 35. consumables/spares
  36. 36. sub-contracting
  37. 37. financing
  38. 38. analytical, etc</li></ul>processing services<br /><ul><li>comminution
  39. 39. grinding media
  40. 40. chem/reagects
  41. 41. process control
  42. 42. analytical, etc</li></ul>exploration services<br /><ul><li>GIS
  43. 43. analytical
  44. 44. data processing
  45. 45. financing
  46. 46. etc</li></ul>Refining services<br /><ul><li>Reductants
  47. 47. Chemicals
  48. 48. Assaying
  49. 49. Gas & elec supply</li></ul>Value adding services<br /><ul><li>Design
  50. 50. Marketing
  51. 51. Distribution
  52. 52. Services</li></ul>Refining Cap. Goods<br /><ul><li>Smelters
  53. 53. Furnaces
  54. 54. Electro winning cells
  55. 55. Casters</li></ul>expl. capital goods<br /><ul><li> geophysical
  56. 56. drilling
  57. 57. survey
  58. 58. etc.</li></ul>Resources inputs sector (up-stream) has a comparative advantage in:<br />Relatively large local market <br />Development of techs for local conditions<br />National assets: permits for concessioning with linkages conditionality<br />PJ<br />
  59. 59. The resource curse can be avoided!<br />“Deepening” the resource sector linkages: development of the resource inputs & outputs industries is critical , but requires the development of a resources tech capacity!<br />Finland: 1970 on primary commodities (pc- mining & forestry) inverted U-curve, but shifts to 1998 manufacturing curve (mf- resources inputs & outputs/beneficiation). <br />Chile: 1970 on manufacturing U-curve (ISI), but shifts to 1998 primary commodities (mining & agriculture) curve, after opening up its economy (coup) in the 70’s.<br />Finland: e.g. Forestry- grew capital goods (machinery) & value-added exports (wood manufactures, pulp/paper)<br />Thru’ investment in R&D!<br />Finland managed to shift from a 1970 resources (pc) trajectory to a 1998 manufactures (mf) trajectory, through the development of its resources inputs (machinery) and outputs (value-addition) sectors (source Palma, G. 2004)<br />PJ<br />
  60. 60. Using a natural comparative advantage <br />to develop a competitive advantage<br />Finland: The mature forestry industrial cluster 1997a<br />NATURAL COMPARATIVE ADVANTAGE<br />Abundant forestry reserves and plantations <br />(400-600m3 per capita)b<br />FORWARD LINKAGES<br />Roundwood<br />Sawnwood<br /> Plywood (40% of the world market)<br />Wood products<br />Furniture<br /> For construction<br />Wood pulp<br />Paper and cardboard<br />Newsprint<br /> Art paper (25% of the world market)<br /> Toilet paper<br /> Packaging<br /> Special products<br />BACKWARD LINKAGES<br />Specialized inputs<br />Chemical and biological inputs (for production of fibres, fillers, bleaches)<br />Machinery and equipment<br />For harvesting (cutting, stripping, haulage)<br /> For processing (for production of chips, sawmills, pulverization)<br /> For paper manufacture (30% of the world market)<br />Specialized services<br />Consultancy services on forest management<br /> Research institutes on biogenetics, chemistry and silviculture<br />SIDE LINKAGES<br />Related activities<br />Electricity generation<br />Process automation<br />Marketing<br />Logistics<br />Environment industries (paper)<br />Mining (sulphuric acid)<br />Source: Ramos 1998 p111 <br />(CEPAL Review, #68, 12/1998); <br />a: Generates 25% of Finland’s exports; <br />b: Compared with 25-30m3 per capita in the rest of the world.<br />PJ<br />
  61. 61. Oil & Gas Development Strategy: (Norway: OG21 tech strategy)<br />Prolong the life of the resources, migrate to exports of resource techs and value-added products: survive beyond resource depletion!<br />>Tech exports<br />>Gas VA<br />R&D<br />HRD<br />Extraction ex-linkages<br />>resources<br />>recovery<br />PJ<br />
  62. 62. The foreign resource capital “trade-off” <br />In order to rapidly acquire the requisite capital and skills, African states have opted to realise their resource endowments through attracting foreign resource companies (TNCs & JRCs), rather than mainly relying on domestic capital. <br />This foreign investment (DFI) “trade-off” could comprimise resources linkages<br />TNCs usually have global purchasing strategies which are less likely to develop local suppliers (backward linkages), impose local content milestones<br />TNCs tend to optimise their global processing (beneficiation) facilities which can deny local VA opportunities (forward linkages); Impose local VA targets<br />TNCs locate their tech development (R&D) in OECD countries, thereby denying Africa the development of these critical knowledge linkages; Local tech development conditions<br />TNCs also tend to locate their high level HRD in OECD countries (often linked to their R&D university partners), which could deny African states the development of these seminal knowledge linkages; Local HRD conditions<br />In the longer term there are clearly political downsides to a resource sector dominated by foreign capital; Facilitate indigenous resource companies<br />Finally there is the TNC “core competence” (dirt-digging = no linkages) conundrum. Competitive auctions against linkages realisation<br />Nevertheless, all of these threats can be overcome or ameliorated through appropriate state actions, policies and interventions!<br />PJ<br />
  63. 63. The foreign resource capital “trade-off” Resources TNC (DFI) distortions<br />PJ<br />
  64. 64. e.g: Inappropriate Mineral RegimesAfrica is not capturing mineral rents & linkages!<br />High Prices: WB “free mining” regimes- NEED REVISION!<br />High prices:<br />colonial mineral regimes: Pro- colonisers/TNCs<br />Low prices: WB revisions:<br />Overly pro-TNC! minimal linkages!<br />High prices:<br />Post-colonial regimes: Strongly national<br />Steel- good proxy for most minerals<br />
  65. 65. “Free Mining” Colonial Mineral Regimes<br />Almost all African Mining Regimes are based on the principle of free mining, or “free entry”. Free mining includes:<br />“a right of free access to lands in which the minerals are in public ownership, <br />a right to take possession of them and acquire title by one’s own act of staking a claim, and <br />a right to proceed to develop and mine the minerals discovered.”*<br />The Africa minerals regimes broadly fit into the World Bank’s revision of African mineral regimes from the 80’s till current. <br />“..certain elements of the free mining doctrine that animated the nineteenth-century formulation of mining regimes in the American and British spheres have also guided the liberalisation process of African mining regimes over the 1980s and 1990s. One of the ways this came about was through the retrenchment of state authority, which in turn contributed to the institutionalisation of asym-metrical relations of power and influence that had important consequences for local political processes, local participation, and community welfare.”*<br />Free mining originated in small enclaves in Medieval Europe but was formalised in California and other European colonies in the 19th century, as a vehicle to promote dispossession & colonisation.<br />But is the wholesale application of this doctrine in the interests of the Africa’s people?<br />PJ<br />*Sources: Barton 1993 & Campbell 2010<br />
  66. 66. Extracting Greater Benefits?Beyond “free mining” regimes?<br />Mineral Terrains<br />Unknown <br />assets<br />Known<br />assets<br />Partially<br />Known<br />Delineation<br />Terrain<br />Exploration<br />Terrain<br />Geo-Reserve<br />Terrain<br />Auction on:<br />Exploration License<br />Automaticity<br /><ul><li>Further geo-survey: CGS
  67. 67. Rent share (RRT)
  68. 68. Infra development
  69. 69. Upstream- local VA
  70. 70. Downstream VA
  71. 71. HRD & R&D, tech transfer
  72. 72. Community development</li></ul>RoR*/RRT tax<br /><ul><li>Risk exploration for future step-in rights.</li></ul>“Mining Charter “<br />type conditions<br />Mining Concession/Licence<br />OM<br />*RoR: Rate-of-Return<br />
  73. 73. Extracting Greater Benefits?Beyond “free mining” regimes?<br />1st come 1st served (“free mining”) to add NEW state mineral assets<br />Transparent & competitive concession: to maximise development impact<br />Mineral Terrains<br />Unknown <br />assets<br />Known<br />assets<br />Partially<br />Known<br />Delineation<br />Terrain<br />Exploration<br />Terrain<br />Geo-Reserve<br />Terrain<br />Auction on:<br />Exploration License<br />Automaticity<br /><ul><li>Further geo-survey: CGS
  74. 74. Rent share (RRT)
  75. 75. Infra development
  76. 76. Upstream- local VA
  77. 77. Downstream VA
  78. 78. HRD & R&D, tech transfer
  79. 79. Community development</li></ul>RoR*/RRT tax<br /><ul><li>Risk exploration for future step-in rights.</li></ul>“Mining Charter “<br />type conditions<br />Mining Concession/Licence<br />OM<br />*RoR: Rate-of-Return<br />
  80. 80. Forward linkages: Critical Industrial Feedstocks<br />Manufacturing<br />Steel<br />Polymers<br />Base metals<br />Agriculture<br />Fertilisers (NPK)<br />Infrastructure<br />Cement<br />Steel (rebar)<br />Copper<br />(precious metals mainly only offer fiscal linkages!)<br />OM<br />
  81. 81. Key Challenges to VA linkages<br />Requisite Infrastructure<br />Transport (road/rail/ports)<br />Energy <br />Water <br />Investment environment<br />Knowledge: HEIs- Skills development<br />OECD et al bi/multilateral accords<br />EU EPAs & REACH curtail value addition<br />Kyoto? Doha?<br />Technology development<br />Well functioning R&D required to drive linkages. Regional approach through:<br />Networking of R&D Institutions, universities<br />Joint research & funding – pooling resources<br />OM<br />
  82. 82. Steel is the most important material into manufacturing By value, steel is the 2nd largest global commodity:<br />Steel<br />PJ<br />
  83. 83. Steel Demand (uses)<br />PJ<br />
  84. 84. Steel is followed by Polymers... (2nd most important feedstock into manufacturing)<br />PJ<br />
  85. 85. Uses of POLYMERS<br />PJ<br />
  86. 86. Regional African Steel & Energy Strategies- 1st step?<br />Regional integration started in EU with steel & coal (energy)- ECSA;<br />Need to be close to raw materials for steel (iron ore & coal/gas) and polymer (hydrocarbons) production;<br />High economies-of-scale for steel, petrochems and energy;<br />Africa should assess regional steel & energy integration – “customs unions” with compensatory mechs – as a 1st step to full economic integration<br />PJ<br />
  87. 87. Fiscal Linkages: Capturing resource rents<br />Resource rents or differential rents are those returns above the “expected” rate of return.<br />Resources often embody huge differential rents due to their quality, amenability, location, etc.<br />Africa should impose a resource rent tax (RRT) on ALL resource concessions that would trigger in once the expected rate of return is achieved;<br />The RRTs should be kept offshore in Regional Development Funds and reinvested in long-term physical and human (HRD/R&D) infrastructure=><br /><ul><li>Avoid: Dutch Disease (currency appreciation)
  88. 88. Avoid: Industrial Polarisation (bambazonke)
  89. 89. Enhance: Equitable regional growth & development</li></ul>Resource Rent Tax (RRT)<br />Sovereign Wealth Fund<br />Regional Dev Funds<br />Regional Infrastructure<br />Intra-regional trade & invest<br />PJ<br />
  90. 90. Spatial (infrastructure) Linkages<br />Proving Adam Smith Wrong 240y later?<br />“There are in Africa none of those great inlets, such as the Baltic and Adriatic seas in Europe, the Mediterranean and Euxine seas in both Europe and Asia, and the gulphs of Arabia, Persia, India, Bengal, and Siam in Asia, to carry maritime commerce into the interior parts of that great continent: and the great rivers of Africa are at too great a distance from one another to give occasion to any considerable inland navigation.”<br />Smith, Adam, 1776, An Inquiry into the Nature and Causes of the Wealth of Nations. <br />Africa has extremely high logistics costs due to NTBs and bad transport infrastructure!<br />Resources could finance the infrastructure intra-continental trade & development!<br />PJ<br />
  91. 91. e.g: Sn African SDIs under development or consideration<br />Use high rent resources to catalyse sustainable high-impact sectors, esp. agriculture & agro-processing<br />PJ<br />
  92. 92. Catalyse other Sectors & Areas (agri, tourism, etc.)<br />Infrastructure: transport, energy, skills, R&D<br />Manufacturing (e.g. cap goods)<br />Processing<br />Intermediates<br />(feedstocks)<br />Resources<br />Exploitation<br />Feedstocks & Tech. (bene.)<br />Recap:<br />Exploitation<br /> capital goods:<br />e.g.plant, equipment, <br />after-market, etc.<br />Processing<br /> capital goods<br />Intermediates<br />capital goods<br />.<br />BEYOND COMMODITIES?<br />Use Asian resource demand to kick-start a<br />Resource-based African Industrialisation Strategy<br />“RAIS”<br />Exploitation <br />services:<br />e.g. financial, technical, <br />consumables, logistics, <br />energy, skills, etc.<br />Processing <br />services<br />Intermediates<br />services<br />Resource Linkages: key to growth & development <br />OM<br />
  93. 93. Resource Beneficiation (value-addition)<br />Resource Exploitation<br />Densification Infrastructure<br />Resource Infrastructure<br />Skill intensity (HRD)<br />Unskilled resource labour<br />Rents from Resource diversification industries<br /> Diverse tax base<br />Resource rents (tax)<br />Resource Inputs production & Lateral migration<br /> (diversification)<br />Import of Resource Inputs <br />From AMV: Schematic RAIS Phasing (relative economic importance)<br />Resource R&D. high level skills and tech development<br />Phase 1<br />Phase 2<br />Phase 3<br />Phase 4<br />Import of Resource Technologies<br />I<br />II<br />III<br />IV<br />V<br />VI<br />VII<br />Complex regulation, M&E, arbitration, governance<br />Local judicial system<br />Contract/license resource & infra (PPP) governance <br />Most African states in Ph I-2<br />Resource Consumables & HRD phase<br />Resource R&D, capital goods & services phase<br />Lateral migration & diversification phase<br />Resource Exploitation & infrastructure phase<br />OM<br />
  94. 94. Conclusions<br /><ul><li>The Asian boom and concomitant strong demand for Africa’s natural resources could provide a window of opportunity for a resource-based African industrialisation strategy (RAIS)
  95. 95. Such a RAIS must optimise the developmental impact of resources by ensuring that the resource economic linkages are made (fiscal, spatial, knowledge, backward and forward)
  96. 96. African resource regimes (particularly mineral regimes) need to be overhauled to allow for the competitive concessioning of the region’s resource endowments (land, minerals, water, fisheries, state rights, etc.), to maximise price discovery and developmental objectives (linkages)
  97. 97. VA economies-of-scale and competition would be greatly enhanced by a common Africa markets (customs unions) which could start with regional steel & energy groupings.</li></ul>PJ<br />
  98. 98. Way Forward<br />Align with the AU minerals strategy:<br />Develop an “AFRICA INDUSTRIALISATION VISION”<br />Unpack the VISION into a coherent African value addition Industrialisation Strategy (in sync with the AU minerals & other strategies), using regional validation workshops;<br />Concretise the AU Industrialisation Strategy with templates, toolkits, model resources concession agreements, model legislation/regulation, sub-sector strategies and other useable tools/aids<br />Establish ongoing continental & regional peer learning fora to develop African “best practice” strategies for VA<br />Establish regional African Steel and Energy economic groupings (RECs)<br />Impose a Resource Rent Tax, on all excess profits above the expected return, on all resource exploitation concessions. Should be kept offshore (<DD) to capitalise regional development funds to finance long-term regional physical and knowledge (HRD & R&D) infrastructure for more equitable regional economic integration (<IP, bambazonke)<br />PJ<br />
  99. 99. Thank YouMerciShukranObrigadopaulj1952@gmail.com<br />
  100. 100.
  101. 101. Catalyse other Sectors & areas (agri, tourism, etc.)<br />Infrastructure: transport, energy, skills (SDP)<br />Manufacturing (e.g. cap goods)<br />Processing<br />Intermediates<br />(feedstocks)<br />Resources<br />Exploitation<br />Feedstocks & Tech. (bene.)<br />RADS Recap:<br />Exploitation<br /> capital goods:<br />e.g.plant, equipment, <br />after-market, etc.<br />Processing<br /> capital goods<br />Intermediates<br />capital goods<br />.<br />BEYOND COMMODITIES?<br />Use Asian resource demand to kick-start an integrated Resource-based Development Strategy “M4D”<br />Exploitation <br />services:<br />e.g. financial, technical, <br />consumables, logistics, <br />energy, skills, etc.<br />Processing <br />services<br />Intermediates<br />services<br />Resource-inputs key to diversification (e.g. Nordics)<br />