why it’s time for Africa’s mineral wealth to benefit the continent

In this file 18 June 2009 file photo taken in Chudja, Ituri Province in the east of the Democratic Republic of the Congo (DRC) a Congolese artisan mine worker carries gold-rich earth out of a pit for water processing. EPA/MARC HOFER

Africa is a mining continent. Minerals represent over 60% of the continent’s exports. There is a persistent outcry within the continent that African people are being dispossessed of their resources. It is a fact that the current model characterised by the externalisation of mining (for most countries concepts/philosophy on mineral governance are conceptualised and designed by outsiders; rent-seeking approach and export of minerals that benefit outside players more) is not working for the continent.

In 2009, the Africa Union (AU) adopted the Africa Mining Vision (AMV) as its developmental approach to help secure optimal benefits from mineral resources. The goal of the AMV is to ensure Transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development. The AMV is fast becoming Africa’s reference policy for the transformation of the mining sector. Its ultimate objective is to create wealth for Africans. Wealth creation will contribute to resolving the triple challenges of poverty, inequality and unemployment. In the process of creating wealth, the AMV puts people at the centre by ensuring that the process protects people, especially mining communities, from the harmful impacts of mining activities.

It is not the first time that Africa has come up with an ambitious plan. Previous plans like the Abuja treaty and the Legos Plan of Action did not get traction. The implementation of the AMV will require us to identify, understand and adapt to factors that perpetuate the resource curse and return to equilibrium. There are imperatives that need to be in place for a successful implementation of the AMV. There is need to fix the African state and position it as the driver of resource management. Fixing the state is about constructing the foundations of the very (government) edifice within which mineral resources governance ought to operate. Africa needs to develop “world-class” mining administration. Without the construction of this edifice, governance interventions cannot have an impact. Strong government institutions are needed to negotiate contracts, to collect and manage mineral rents, and enforce regulations and sanction companies that do not respect laws and regulations. Perhaps an important imperative that is not often discussed is that we need to reduce the interference of politics in resource management.

There is a direct relation between political power and the under-performance or mismanagement of the mining sector. There are various political and social forces that mediate the relationship between mineral resources and development outcomes. In Africa, political power is the dominant factor that determines how resources are negotiated, extracted, commercialised and how revenues are used. We know that political power on the continent is corrupt and selfish. If resources are not contributing, as they should, to the eradication of poverty, creation of jobs and reducing inequality it is in big part because of the way political power is projected. In most African countries, political leaders give to themselves the right of ownership of their countries’ resources by dint of being in leadership. In addition, mining companies are often too happy to enter into deals that protect them from paying taxes, for human rights abuses and environmental destruction, if only they can pay kickbacks to political leaders. This is a norm on the continent — corruption in the sector is organised by the highest office in the land.

There is no doubt, in order to reduce corruption, there is a need to promote transparency and accountability. The process by which anyone comes to own an asset which produces resources should be open to scrutiny. People of any country are entitled to know how private investors come to own the mines located in their country, how much they are producing, how much they are paying to the state and how the state is using these revenues. This is why civil society on the continent is engaged in advocacy to have all contracts published.

An imperative that is now at the centre of the debate is the need for African mineral producers to start adding value to the minerals locally and stop exporting them raw. Africa remains a net exporter of raw materials and importer of manufactured good. The AMV wants to break this colonial model. This will not happen automatically. Africa will need to promote self-reliance by investing in science, technology and innovation. The continent will need to improve in these three areas to be able to create mineral linkages. There are two ways of acquiring technology. We can produce indigenous technology (this take too long) or promote technology transfer. Unfortunately, most African governments do not understand the importance of a knowledge-based economy. Experience teaches us that countries that achieve a knowledge-based economy are those that take a decision for inward-looking policy.

We cannot also run from the fact that currently the African mineral sector is dependent on foreign investment. To continue attracting foreign investment we need to have in place predictable legislations and policies. This is called “the permanence of policies over time”. Policies must be based on two principles—transparency and predictability. The process of designing mining policies must be transparent. It must happen in consultation with key stakeholders — mining companies, labour, civil society and communities. Mining policies and regulations also need to be predictable. The lack of policy certainty does not encourage both local and foreign investment. The biggest weakness with Africa’s mining policies and regulations is the fact that they change with every new minister of mines or new government. This has been detrimental to investment and economic growth. Mineral policies must reflect the interests of the country and not those of individuals or political parties.

There is also need to renegotiate unfair contracts. We still have on the continent mining contracts that undermine host countries’ development because they were badly negotiated. Most mining contracts have a life span of between 20 to 50 years. A critical area in contracts that need to be renegotiated is the fiscal regime. A fiscal regime is key for many African countries to be able draw benefits from the trade in minerals. Most mining contract clauses prevent revision of the fiscal regime for at least 15 to 20 years.

Because investments can be deducted from taxable profit on an annual basis, there is only limited tax paid to African governments in that period. The optimisation of revenue accruing from mineral resource extraction will not occur with current fiscal regimes which encourage tax evasion and avoidance. Another area of concern is the “over-incentivisation” to attract foreign direct investment. The exemptions lead to deteriorating profit for African governments. Renegotiation is a corrective measure. Before it can take place, the laws themselves must be reviewed. While contracts can be ring-fenced to avoid renegotiation of the fiscal aspects, there are moral and right-based arguments that African governments can use to renegotiate them.

One critical imperative Africans need to consider is to increase their ownership of the mines. Whoever controls the resource has substantial power to control revenue sharing. Countries that sell mineral rights to domestic interests have greater bargaining power than those that sell them to foreign investors. The issue of ownership of companies involved in mining/extracting of mineral commodities is key to favour development of African countries. Ownership of the companies that extract the minerals is key to allow for reinvestment of increased revenues in the country. There are different ownership models that countries could look at. Most African governments are in a joint venture with multinational mining companies. They have shareholding in these companies but they are passive shareholders. This must change. The approach that government has cannot run business is not true: “Governments have business in business”. However, one area that we must consider and deliberately facilitate is local entrepreneurial development.

The above imperatives will not produce expected outcomes if we do not invest in key infrastructures to facilitate mining. African countries often lack the necessary infrastructures (roads and rail transport networks, energy, water, communication etc) at national and regional levels to fully and sustainably exploit mineral resources and increase competitiveness on the international market. Infrastructure bottlenecks and inefficient energy supply are causing extraordinary frustration to mining companies. Companies are using these challenges to cut into the taxes they are supposed to pay to governments. Furthermore, the lack of appropriate infrastructure is a constraint to attracting investments. If Africa is going to add value to its minerals and ensure minerals are the basis for the continent’s industrialisation then we need to invest in those critical infrastructures.

We also need to consider the quality of our human resources. Nothing will move unless we have a well-trained and equipped labour force. The continent needs to invest in relevant skills and R&D to achieve the transformation envisaged in the AMV. Africa needs a knowledge-driven minerals sector to create a diversified, vibrant and globally competitive industrialised African economy.

Perhaps the most important imperative is geo-science capabilities. Africa cannot draw maximum benefits from its minerals if we do not know what we have. Geological and Mineral Information System become the most important imperative. Without correct and comprehensive knowledge of our mineral endowments, we will not be able to create broad-based development using our minerals. We must relentlessly invest in improving and strengthening our geological and mineral information systems to underpin investment, exploration and mine development.

In conclusion, what we are saying is that Africa needs to promote direct mineral linkages – up and downstream value addition (mineral beneficiation), knowledge linkages – science, technology, engineering, and mathematics (STEM), skills and research development and innovation (RDI) – and spatial linkages by optimising the use of mineral resource-based infrastructure to promote broader development. This is the central pillar of the AMV.

Source:dailymaverick

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