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The Africa Mining Vision: Towards Shared Benefits and Economic Transformation

July 2012

Pedro, A.M.A. 2012. The Africa Mining Vision: Towards Shared Benefits and Economic Transformation. GREAT Insights, Volume 1, Issue 5. July 2012. Maastricht: ECDPM.

Africa’s abundance of mineral resources contrasts with the pervasive poverty of its people. The continent harbours the world’s largest reserves of several minerals and it is a global leader in the production of many others. However, most of Africa’s minerals are exported as ores or concentrates, with little value addition. In many jurisdictions, the mining industry constitutes an enclave with insignificant linkages with the local economy.
 
Following a long period of decline, mineral commodity prices have surged since 2002, driven by demand from large developing economies, particularly China. This has ushered in a sellers market and strong competition for access and supply of resources. It has also created a unique window of opportunity for African countries to capitalise on the value of their natural resource endowments with a view to catalysing broad socio-economic growth and development as well as structural transformation. It has been recognised that these developmental strategies have to be supported by a more favourable political climate, governance gains, policy and fiscal space. It was against this background that the Africa Mining Vision (the Vision) was conceived.
 
The Africa Mining Vision’s Key Tenets
 
The Vision was endorsed by the 1st Ordinary Session of the African Union (AU) Conference of Ministers Responsible for Mineral Resources Development in October 2008 and later approved by the AU Summit of Heads of State and Government held in February 2009 in Addis Ababa, Ethiopia.
 
The Vision advocates for “transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development”. It aspires for a sustainable and well-governed mining sector that effectively garners and deploys resource rents and that is safe, healthy, gender and ethnically inclusive, environmentally friendly, socially responsible and appreciated by surrounding communities. It seeks to set Africa on an industrialisation path, based on its natural capital, to enable the continent take its place in the global economy. This can occur if the continent succeeds in transforming transient mineral wealth into other forms of lasting capital, which outlive the currency of mining and ensure intergenerational equity.
 
The principal opportunities to realize the Vision are:
  • To optimise the capture, management, sharing and use of resource rents to improve physical, social and human capital and infrastructure. If well harnessed, this will deliver benefits for all. Necessary conditions include good governance, increased transparency and accountability, more equitable fiscal regimes, increased participation of all stakeholders in decision making, environmental and material stewardship and social responsibility.
  • The collateral use of the high-rent resource infrastructure to open-up other resource potential in areas such as agriculture, forestry and tourism and to provide access to zones of economic potential with lower returns, but that cannot afford their own infrastructure.
  • To promote downstream value addition, through the use of the locational advantage of producing crude resources, with a view to establishing resource-processing industries (beneficiation) that could then provide the feedstock for manufacturing and industrialisation.
  • To promote upstream value-addition, through the use of the relatively large resources sector market to develop the resource supply and inputs sector, such as capital goods, consumables, and services. 
  • To promote upstream value-addition, through the use of the relatively large resources sector market to develop the resource supply and inputs sector, such as capital goods, consumables, and services. 

The Vision recognises the centrality of mineral revenues. It therefore calls for more fiscal space and responsive taxation to allow host countries to better capture windfall gains and to encourage the use of revenues for value addition and linkages. The Vision also underscores that other equally important benefits can be derived, notably through employment generation, local procurement of goods and services, entrepreneurial development, skills and knowledge creation, technology transfer, infrastructure expansion and above all linkages. Regarding mineral licensing, it suggests that innovative licensing schemes, particularly auctioning systems, could be used where relevant, in order to realise better value for mineral terrains. 

 
What Would Make the Vision Tip?
 
In moving forward, there are at least four crucial intervention points, which are critical for the realisation of the Africa Mining Vision.
 
The first concerns the improvement of the level and quality of the resource potential data. Africa is one of the least explored continents. Geological mapping and mineral inventory work so far has not covered the entire continent. On the one hand, this could mask the true geological potential of the continent. On the other, the less is known about the potential value of a resource, the greater the share of the rents a potential investor will understandably demand, due to the high risk of discovering or dimensioning the resource. To start with, it is imperative to improve knowledge of Africa’s resource potential. This will strengthen the continent’s bargaining power during contract negotiations vis-à-vis well informed partners.
 
The second intervention point targets capacity building and institutional strengthening. In general, African states negotiate with international mining companies on unequal terms. Negotiations are asymmetrical and in most cases, mining companies are better resourced and skilled. Given Africa’s capacity dearth, efforts need to be deployed to build a critical mass of capable African negotiators across the continent. Capacity deficits have also been identified in the critical areas of auditing, monitoring, regulating and improving resource exploitation regimes and developing the resource sector linkages into the domestic economy. To harness the linkages potential, research and development platforms for innovation need to be established and human capital formation in knowledge intensive areas should be accelerated.
 
A third critical area is Africa’s infrastructure constraints. A resource-based development strategy is generally severely constrained in many African states by the lack of the requisite infrastructure, especially in transport and energy. This is particularly true for land-locked countries. The Vision suggests that the provision of trunk infrastructure for mining should be synchronised with other users through strategic spatial development. Driven by the high rents that mining generates, this would strengthen the business rationale and provide economic rigour for infrastructure investments, thus achieving an effective investment prioritisation of infrastructure projects.
 
Finally, the coupling of mineral policy with industrial policy, investment, and trade is an imperative for the success of the Africa Mining Vision. An holistic and sector-wide approaches to development, new institutional arrangements reflecting this approach, and cluster development are essential. This should help build synergy and break departmental silos and rivalry across sectors, foster greater interaction between such institutions and industries and mobilise investments along the mineral value chain. The realisation of the Vision implies therefore a cross or multi sectoral approach to mineral development policy. As a matter of priority, it is vital to develop the capacity to integrate mineral sectoral policy with industrial and trade policies.
 
International trade and investment treaties and agreements signed by African countries require a special focus because they have a direct bearing on the future of Africa’s mineral sector. In the past, several countries have successfully used tariff protection, subsidies, export restrictions, scorecards and other performance requirements as instruments to foster economic transformation and rapid industrialisation. This policy space is currently shrinking and could adversely affect Africa’s prospects to promote local content and resource-based industrialisation. It is therefore important for African countries to maintain a consistent eye on the full implications of the specific provisions of treaties into which they are invited to enter and ensure that these agreements are development oriented.
 
Conclusions and Policy Implications
 
The Africa Mining Vision (AMV) is an ambitious continental framework. To become a reality, it needs to be domesticated into national policies, laws and regulations. However, the inclusion of AMV provisions in national policy and legal frameworks, alone, will not unleash mineral-driven structural transformation of the continent. This needs to be backed by strong political will and commitment, entrenched belief in the power of indigenous ideas, a capacitated developmental state, visionary leadership, and a good understanding of Africa’s advantages and the dynamics of mineral commodities. As illustrated in the Nordic countries, the state has a critical role to play in spearheading this transformation. However, policy space should not be monopolised and a new governance dispensation with strong participation of both state and non-state actors, including the private sector, civil society and community-based organisations is required.
 
Nation states cannot deliver the Vision alone. African states need to rally together to secure the policy space required for the Vision. Regional cooperation and integration are essential to reduce transaction costs, establish intra-regional synergies, enhance the continent’s competitiveness and realise economies of scale that would catalyse minerals cluster development. However, for goods, services, capital and other factors to freely flow in regional spaces, there is need to expedite intra-regional alignment of laws, regulations and fiscal regimes, among other critical factors.
 
Financing the change would be a serious challenge. Without racing to the bottom, Africa needs to continue to be an attractive investment destination by establishing an adequate enabling environment for private sector participation, both domestic and foreign.
 
In establishing a timeframe to implement the Vision, it is important to take into consideration the long gestation period of mining projects, the local state of governance and political context as well as the stage of development of the mineral economy. Thus, trajectories to achieving the Vision at country and sub-regional levels will be different and phased. The African Mineral Development Centre (AMDC) being established by the African Union Commission, the United Nations Economic Commission for Africa and the African Development Bank will play a key coordinating role in accelerating this process across the continent.
 
Antonio M.A. Pedro is the Director for the Sub-regional Office for Eastern Africa, United Nations Economic Commission for Africa.
This article was published in GREAT Insights Volume 1, Issue 5 (July 2012).

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Economic Transformation and TradeExtractive SectorsNatural resourcesRaw materialsAfrica

External authors

Antonio M.A. Pedro