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Governing Extractive Resources for Inclusive Growth

February 2013

Kitaw, M. 2013.Governing extractive resources for inclusive growth. GREAT Insights, Volume 2, Issue 2. February-March 2013. Maastricht: ECDPM

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Africa is endowed with considerable amounts of mineral resources and ranks first or second in quantity of world reserves of bauxite, chromite, cobalt, industrial diamond, manganese, phosphate rock, platinum-group metals, soda ash, vermiculite and zirconium. The continent is also a major global producer of these minerals.

For example, in 2010, Africa’s share of diamond production was 57%; chromite was 48%; gold was 19%; and uranium was 19% (1). The continent is also becoming an important player in world production of coal, oil and gas. In 2010, Africa accounted for a total share of 12.2% of the global oil production (2). These resources play a crucial role in the economy, as they account for a significant share of exports. Indeed, mineral resource exports contribute to merchandise exports in 24 (44%) of Africa’s 54 countries (3).

The dichotomy between the wealth of nations in terms of resources and the poverty of the people in Africa has been the subject of many debates. In the scholarly literature, the paradox of countries endowed with mineral resources growing less than or similar to non resource-rich countries (4), and the fact that oil-rich countries had declining per capita income and displayed lower development outcomes (5) are well documented. Even though recent studies suggest that from 2000 to 2012, mineral resource exporting countries in sub-Saharan Africa experienced faster growth than the non-mineral exporting ones, there were no corresponding improvements in social indicators for those countries (6). Indeed, most of Africa’s resource rich countries such as the Democratic Republic of Congo (DRC), Mozambique, Liberia and Guinea have the lowest the Human Development Indicators (7).

Governance as an overarching principle

Successful harnessing of extractive resources for growth, poverty reduction, and social development depends on good governance and sound management practices. While there has been progress since the 1990s in promoting democracy, African leaders have identified the entrenchment of good governance principles and practices as preconditions for Africa’s development (8). Indeed, mineral resources can be the engine that propels Africa in the trajectory of inclusive growth if good governance practices, including transparent and participatory processes at all levels, are cemented, as articulated in the Africa Mining Vision (AMV). Capacitated and competent governments to ensure long-term scenario analysis and integrated spatial development and planning as well as strong institutions capable of regulating and administering the sector are key pre-requisites for the realization of the AMV. Participation of all relevant stakeholders to ensure a bottom-up approach for organic growth of social institutions, and for enhanced public participation in the development, management and oversight of the mineral sector is also crucial for broad-based growth. Participatory approaches, through public consultation and stakeholder engagement, have been shown to enhance quality, ownership, and sustainability; empower targeted beneficiaries; and contribute to long-term capacity building and self-sufficiency (9).

 

Figure 1: Change in Government Effectiveness Percentile Ranking, between 2002 and 2010 (10)

Source: World Bank Governance Indicators. 2012. http://info.worldbank.org/governance/wgi/index.asp.

 

Box: The Africa Mining Vision

The Africa Mining Vision (AMV), adopted in February 2009 by the African Union Heads of State and Governments, advocates for “transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development”. This includes fostering a transparent and accountable mineral sector in which resource rents are optimized and utilized to promote broad economic and social development; promoting good governance of the mineral sector in which communities and citizens participate in mineral assets and in which there is equity in the distribution of benefits; fostering sustainable development principles based on environmentally and socially responsible mining, which is safe and includes communities and all other stakeholders; among others.

For more information, please visit: http://africaminingvision.org.

 

The Africa Mining Vision: setting the framework

Africa may now have a unique opportunity to use mineral resource revenues efficiently as the political economy is more favorable to developmental policies; the policy space to promote resource-based industrialization is expanding; commodity prices are high; and the quality of stakeholders’ engagement and multi-stakeholders consultations is getting better. Further, African countries themselves have renewed efforts to ensure that the minerals sector contributes to sustainable socio-economic development. The African Development Forum (ADFVIII) on Governing and Harnessing Natural Resources for Africa’s Development has put mineral resources exploitation at the center of development policy and practice on the continent, as reflected in the debates across the continent on economic and social structural transformation, on the post-2015 development agenda, and on Africa’s moment and Afro-enthusiasm (11).

The AMV has informed the choice of the building blocks for an effective governance of the mineral resources sector on the continent. These are, amongst others, peace, security and political stability; clear, transparent, predictable and efficient legal and regulatory frameworks to ensure mineral wealth creation; fair and equitable fiscal regimes to facilitate equity in the distribution of benefits; credible public participation to enhance ownership and shape shared development outcomes; transformational leadership and followership to harness mineral wealth with a view to building resilient, diversified and competitive economies; strong institutions to ensure effective management of the sector; adequate infrastructure including an advanced human development to remain competitive; and building a sustainable future beyond mining.

There are several initiatives and mechanisms to strengthen governance in the extractive industry sector. The most well known ones are the Extractive Industries Transparency Initiative (EITI), the Kimberley Process Certification Scheme, the Dodd-Frank Act and the OECD Due Diligence Guidance. In general, these instruments have contributed to a useful body of knowledge and practice to strengthening governance in the extractive industry in Africa. However, several studies (12) have shown that in many countries, these instruments are stand-alone and parallel structures, which are not sufficiently embedded in national policy and decision-making processes. Moving forward, therefore, it is imperative to domesticate these instruments into national processes.

Strengthening governance systems and creating platforms with the view to facilitating the alignment of stakeholders’ understanding on mineral benefits and managing expectations better is also fundamental. In this regard, the African Peer Review Mechanism (APRM) can play a leading role to advance governance in the extractive sector on the continent. The APRM, as a home-grown and African-owned mechanism, offers a great opportunity to improve Africa’s governance standards in the extractive sector and the management of Africa’s mineral resources. As an indigenous process, it encourages public discussion with all stakeholders through an inclusive, participative and consultative process that has the potential of assuring domestic accountability and of creating a real social compact. In adding a specific chapter on extractive industry governance to its country review questionnaire, the APRM has made a significant step towards deepening the ownership of the governance agenda in this important sector on the continent. A further step forward was also made when the 17th Summit of the Committee of Heads of State and Government participating in the APR Forum approved the revised APRM Self-Assessment Questionnaire, which includes detailed questions and indicators for the management of extractive industries. The quality and depth of the consultations that the APRM provides for, as well as the efforts to link its National Plans of Action with budget frameworks offer an opportunity to move discussions on governance beyond rhetoric to results and action-oriented compacts that can promote change.

With African ownership as a core principle, inspired by the AMV, the establishment of the African Minerals Development Center (AMDC) in 2013 as a continent-wide one-stop facility to operationalize the aspirational goals for the African mineral sector in a holistic and integrated manner, is an exciting development for Africa and an opportunity to seize the Africa moment, to catapult Africa towards the path of sustainable inclusive growth.

Marit Kitaw is Governance and Public Administration Officer at UNECA SRO-EA.

Footnotes
1. U.S.Geological Survey Minerals Yearbook. 2010 http://minerals.usgs.gov/minerals/pubs/country/2010/myb3-sum-2010-africa.pdf accessed on 11-10-2012
2. African Development Bank and African Union: ‘Oil and Gas in Africa’, Supplement to the African Development Report, 29 July 2009. 
3. IMF. 2012. Sub-Saharan Africa: Sustaining Growth amid Global Uncertainty, Regional Economic Outlook and U.S.Geological Survey Minerals Yearbook. 2010 for data on North Africa.
4. Sachs, J.D. and Warner, A.M. 1995. Natural Resource Abundance and Economic Growth. Development Discussion Paper N. 517a. Cambridge: Harvard Institute for International Development; Karl, T. L. 1997. The Paradox of Plenty: Oil Booms and Petro-States, Berkeley and Los Angeles: University of California Press.
5. Ross, M.L. 1999. The Political Economy of the Resource Curse. World Politics, Vol.51, No.2, pp. 297-322. 
6. IMF. 2012. Sub-Saharan Africa: Sustaining Growth amid Global Uncertainty, Regional Economic Outlook.
7. UNDP. 2011. Human Development Reports. http://hdr.undp.org/en/reports/global/hdr2011/
8. UNECA and AUC. 2012. Unleashing Africa’s Potential as a Pole for Global Growth. Economic Report on Africa. Addis Ababa, Ethiopiahttp://new.uneca.org/era/era2012.aspx
9. UNECA. 2009. African Governance Report II. Oxford University Press. http://new.uneca.org/agr/agr2.aspx 
10. Government effectiveness reflects the ability of the public sector in providing public services, and in doing so effectively. It also reflects on institutional quality. Effective government can create an overall environment to better manage the mineral sector. Evaluation of this governance indicator in mineral-dependent States in Africa, between 2002 and 2010, indicates that Niger, Ghana, Sierra Leone, Liberia, Angola and Zambia, among others, demonstrated significant improvement in their government effectiveness (see Figure 1). However, some mineral-dependent countries such as Mauritania (-38), Gabon (-20), Chad (-13), Tanzania (-6), Botswana (-5), Nigeria (-2) and Namibia (-1) demonstrated a significant decline in their government effectiveness, between 2002 and 2010. 
11. See ADFVIII Consensus statement. http://new.uneca.org/adfviii/home_adf8.aspx
12. Studies include: Aaronson S., 2008, ‘Can Transparency in Extractive Industries Break the Resource Curse?’ VoxEU.org http://voxeu.org/index.php?q=node/1395; Olcer, D., 2009, ‘Extracting the Maximum from the EITI’, OECD Development Centre, Working Paper no. 276 http://www.oecd.org/dataoecd/56/60/42342311.pdf.; and Shaxson, N., 2009, ‘Nigeria’s Extractive Industries Transparency Initiative: Just a Glorious Audit?’ Chatham House http://eiti.org/document/shaxson-neiti-glorious-audit.

This article was published in Great Insights Volume 2, Issue 2 (February-March 2013)

Economic Transformation and TradeExtractive SectorsAfrica

External authors

Marit Kitaw