No longer a curse?

African lead­ers take ac­tion that could trans­form the min­ing sec­tor

Africa Renewal - - Contents - By Kings­ley Igho­bor

The Hol­ly­wood block­buster movie, Blood Di­a­mond, tells a grip­ping story of how di­a­monds fu­elled Sierra Leone’s 11-year civil war, which erupted in 1991. It de­picts kid­nap­pings, use of child sol­diers, am­pu­ta­tions, rape, killings and de­struc­tion of bridges and hos­pi­tals, among other atroc­i­ties.

The movie, star­ring Amer­i­can ac­tors Leonardo Di Caprio, Jen­nifer Con­nelly and Dji­mon Houn­sou, brought world at­ten­tion to the cam­paign against “blood di­a­monds,” de­scribed as di­a­monds used to fi­nance con­flicts. Sadly, West and Cen­tral Africa have been fer­tile grounds for blood di­a­monds, notes the World Di­a­mond Coun­cil, a body that rep­re­sents the di­a­mond traders.

One of­ten hears that min­eral re­sources are a curse rather than a bless­ing. That may be an ex­ag­ger­a­tion, but for the peo­ple of the Cen­tral African Repub­lic, cur­rently caught up in a war fu­elled by di­a­mond mer­ce­nar­ies (see page 11), the state­ment rings true. Con­flicts in the Demo­cratic Repub­lic of the Congo ( DRC), Su­dan and South Su­dan have also been linked to the fight over con­trol of min­eral re­sources.

East Africa bureau chief of the New York Times Jef­frey Get­tle­man high­lights the curse/ bless­ing di­chotomy. The DRC, he points out, has an “em­bar­rass­ment of di­a­monds, gold, cobalt, cop­per, tin … tril­lions’ worth of nat­u­ral re­sources” in­clud­ing de­posits of tan­ta­lum, an el­e­ment used in com­puter mi­crochips. “But be­cause of never-end­ing war, it is one of the poor­est and most trau­ma­tized na­tions in the world.”

Other min­eral-rich coun­tries like Zam­bia, Mozam­bique, Mau­ri­ta­nia and Guinea, while not at war, present an un­nerv­ing para­dox of poverty amid plenty. Guinea has “some of the planet’s most cov­eted min­eral stocks,” writes the Fi­nan­cial Times, in­clud­ing 40 bil­lion tonnes of baux­ite, the world’s largest re­serve, over 20 bil­lion tonnes of iron ore, di­a­monds, gold and un­de­ter­mined quan­ti­ties of ura­nium. But 55% of Guinea’s 11 mil­lion peo­ple live on less than $1.25 per day, states the African Devel­op­ment Bank (AfDB), while it ranks 178 out of 187 coun­tries on the 2013 UNDP Hu­man Devel­op­ment In­dex, which mea­sures a coun­try’s liv­ing stan­dards.

A min­ing vi­sion

Guinea’s min­eral wealth and its so­cioe­co­nomic sit­u­a­tion mir­ror that of the con­ti­nent. UN Eco­nomic Com­mis­sion for Africa ( ECA) data show that the con­ti­nent has 54% of the world’s plat­inum, 78% of its di­a­monds, 40% of its chromium, 28% man­ganese, among others. “Nine­teen out of 46 coun­tries in sub-Sa­ha­ran Africa have im­por­tant re­serves of hy­dro­car­bons, oil, gas, coal or min­er­als and 13 coun­tries are in the process of ex­plor­ing ad­di­tional re­serves,” notes UNDP. Yet the World Bank says Africa is the world’s poor­est con­ti­nent.

Car­los Lopes, ECA ex­ec­u­tive sec­re­tary, in­sists in a blog post that “Africa’s nat­u­ral re­source is a bless­ing and not a curse,” but won­ders why “the con­ti­nent con­tin­ues to strug­gle with lim­ited eco­nomic trans­for­ma­tion, low or no re­source rent and scarce em­ploy­ment.” It should be a bless­ing, says AfDB— a rather po­lite way of say­ing the bless­ing has been slow in com­ing.

In 2009, African Union (AU) lead­ers adopted the African Min­ing Vi­sion (AMV), a frame­work for de­vel­op­ing min­eral re­sources. The AMV makes a num­ber of rec­om­men­da­tions, in­clud­ing bet­ter ne­go­ti­a­tions of min­ing deals, more at­ten­tion to the en­vi­ron­ment, value ad­di­tion to nat­u­ral re­sources and ca­pac­ity train­ing for Africans. Its goal is to en­sure coun­tries earn more from min­eral re­sources to stim­u­late so­cioe­co­nomic growth. Min­ing earn­ings should be in­vested in roads, rails, ports, en­ergy, water and tele­coms and there should be more re­source-pro­cess­ing lo­cal in­dus­tries, a knowl­edge econ­omy and an ac­tive ser­vice sec­tor. The AMV en­vis­ages in­sti­tu­tions strong enough to stem il­licit fi­nan­cial flows.

Rene­go­ti­at­ing min­ing deals

African lead­ers ap­proved the AMV’s ac­tion plan in 2011. Last De­cem­ber, the con­ti­nent’s min­is­ters of min­eral re­sources,

civil so­ci­ety and other ex­perts gath­ered in Ma­puto, Mozam­bique, to launch the African Min­er­als Devel­op­ment Cen­tre (AMDC) to help im­ple­ment the AMV plans.

Par­tic­i­pants at the Ma­puto con­fer­ence spoke with un­usual can­dour. An­to­nio Pe­dro, direc­tor of the ECA sub-re­gional of­fice for Eastern Africa, told the min­is­ters: “The con­ti­nent is im­pa­tient, ex­pec­ta­tions are high and ben­e­fits are not equally felt.” The buzz­word was “re­form,” which is a word elas­tic enough to mean rene­go­ti­at­ing, if need be, ex­ist­ing min­ing deals or in­creas­ing min­ing taxes. Fa­tima Den­ton, of ECA’s Spe­cial Ini­tia­tives Divi­sion, un­der­scored that con­tract ne­go­ti­a­tions must “re­flect the true worth of our re­sources,” in­fer­ring that this hasn’t been the case. She is prob­a­bly right be­cause an ex­pert com­mit­tee that re­viewed 61 min­ing deals in the DRC an­nounced in 2009 that they were all bad deals. It rec­om­mended can­celling 22 of those deals and rene­go­ti­at­ing 39.

Rene­go­ti­at­ing deals can be prob­lem­atic even if rea­son­able be­cause com­pa­nies want a gen­er­ous re­turn on their in­vest­ments. Mr. Lopes ar­gues that the “av­er­age net prof­its for the top 40 min­ing com­pa­nies [in the world] grew by 156% in 2010,” while earn­ings for gov­ern­ments “grew by 60%, most of which was ac­counted for by Aus­tralia and Canada.”

Zam­bia’s ex­am­ple

Zam­bia, the world’s sev­enth largest cop­per pro­ducer, un­til re­cently had been mak­ing half-hearted at­tempts to amend min­ing deals. Fac­ing pres­sure of le­gal threats from for­eign in­vestors for breach­ing agree­ments, for­mer Pres­i­dent Ru­piah Banda de­cided against a re­view of ex­ist­ing con­tracts, to the dis­ap­point­ment of Zam­bians. In 2009, he re­moved a 25% wind­fall tax that had been in­tro­duced by his pre­de­ces­sor, Levy Mwanawasa, in 2008.

Cur­rent Pres­i­dent Michael Sata ap­pears to be tak­ing a dif­fer­ent ap­proach. Since 2011, his govern­ment has been charg­ing a 30% cor­po­rate tax on min­ing com­pa­nies, up from 20%. This had the ef­fect of dou­bling Zam­bia’s min­ing re­ceipts to $1.36 bil­lion in 2011 com­pared with 2010, al­though strong de­mand for cop­per from China and an uptick in prices have also been re­spon­si­ble for the higher earn­ings.

In the case of Mali, by con­trast, re­forms have been slow and ten­ta­tive. The govern­ment in­tro­duced a min­ing code after the 2012 elec­tions that ad­dressed mainly en­vi­ron­men­tal is­sues. Guinea’s 2011 min­ing code is even more ro­bust than Mali’s, man­dat­ing min­ing com­pa­nies to sign a code of con­duct against cor­rupt prac­tices and to pro­vide train­ing for lo­cal em­ploy­ees. It also sets a 35% govern­ment own­er­ship thresh­old for min­ing projects. “The code gives a cor­rec­tion to the old one for Guinea’s in­ter­est,” says Guinea’s mines min­is­ter, Lamine Fo­fana.

Some ex­perts ad­vise against chang­ing the terms of ex­ist­ing agree­ments mid­stream. Ghana’s na­tional cham­ber of mines is fiercely pres­sur­ing govern­ment to aban­don the in­crease in cor­po­rate tax from 25% to 35% and a 10% wind­fall tax. How­ever, the cham­ber is at log­ger­heads with the Na­tional Coali­tion on Min­ing, a civil so­ci­ety group, which sup­ports the tax hikes. The African Agenda, a Ghana­ian pub­li­ca­tion, writes: “The min­ing com­pa­nies [in Ghana] are now the only stake­hold­ers … who main­tain that the sta­tus quo be main­tained to en­sure they con­tinue to reap su­per-nor­mal prof­its.” The pub­li­ca­tion urged Pres­i­dent John Ma­hama to hold the line against low­er­ing of taxes. “Be resolute… we will be with you ev­ery step of the way.”

Like Zam­bia, Ghana’s min­ing re­ceipts rose sharply, from $210 mil­lion in 2010 to $500 mil­lion by 2011, ac­cord­ing to the Ex­trac­tive In­dus­tries Trans­parency Ini­ti­a­tion ( EITI), a coali­tion of gov­ern­ments and civil so­ci­ety work­ing to im­prove trans­parency in the man­age­ment of nat­u­ral re­sources.

Help­ing hand from abroad

Due to spe­cial ex­ten­u­at­ing cir­cum­stances in in­di­vid­ual coun­tries, the Ghana­ian and Zam­bian ex­am­ples may not widely ap­ply. Nev­er­the­less, Africa is re­ceiv­ing help from Canada, Aus­tralia and Chile— coun­tries that have achieved suc­cess in min­eral re­sources man­age­ment. Canada re­cently es­tab­lished the Cana­dian In­ter­na­tional In­sti­tute for Ex­trac­tive In­dus­tries and Devel­op­ment at the Univer­sity of Bri­tish Columbia to as­sist de­vel­op­ing coun­tries “to meet their re­spec­tive needs for govern­ing and man­ag­ing the ex­trac­tive in­dus­try sec­tor.” It plans to of­fer fel­low­ships and schol­ar­ships for govern­ment per­son­nel, aca­demics and grad­u­ate stu­dents.

The Aus­tralian govern­ment also sup­ports com­pa­nies op­er­at­ing in Africa and pro­vides ca­pac­ity build­ing and so­cial in­fra­struc­ture aid in Africa. China is as­sist­ing with rail, hos­pi­tals, road and ports in min­eral-rich coun­tries such as An­gola, Zam­bia, Sierra Leone and Mali.

The AMV wants “trans­parency in the col­lec­tion and use of min­ing rev­enues.” Al­though com­mod­ity prices have dipped lately fol­low­ing a slow­down in the Chi­nese econ­omy, ac­cord­ing to the Fi­nan­cial Times, this could be cush­ioned by steady de­mand from In­dia and Brazil. In ad­di­tion, the Euro­pean Union is ready for what it terms “raw ma­te­ri­als diplomacy” to se­cure fu­ture sup­plies through an ar­range­ment with the AU. The US Na­tional Re­search Coun­cil, a think tank, has ad­vised its govern­ment to “un­der­stand the non-fuel min­er­als that are im­por­tant to the na­tion’s econ­omy and func­tions.”

Last year, Nor­way agreed to pro­vide the AfDB $4.9 mil­lion to as­sist the bank’s Le­gal Sup­port Fa­cil­ity ne­go­ti­ate bet­ter oil, gas and min­ing deals on be­half of African gov­ern­ments. Heikki Eidsvoll, Nor­way’s min­is­ter of in­ter­na­tional devel­op­ment, says his coun­try wants to “help turn Africa’s ‘re­source curse’ into a ‘re­source bless­ing.’” And the World Bank, the IMF, the EITI and African civil so­ci­ety are on board the AMV band­wagon.

With 22 African coun­tries (out of 32 world­wide) adopt­ing EITI stan­dards, which re­quire all in­for­ma­tion on min­ing to be made avail­able to the pub­lic, an­a­lysts be­lieve there is more trans­parency in the sec­tor than be­fore. In Gabon, armed with nec­es­sary in­for­ma­tion, civil so­ci­ety or­ga­ni­za­tions now vig­or­ously de­bate rev­enue man­age­ment, which never used to hap­pen. In Nige­ria, there is an im­prove­ment in the “mon­i­tor­ing and man­age­ment ca­pac­ity of the rel­e­vant govern­ment agen­cies,” says an EITI state­ment, adding that Cameroo­nian govern­ment of­fi­cials and NGOs now un­der­stand tax­a­tion, ac­count­ing and au­dit.

Nkosazana Dlamini-Zuma, the AU Chair­per­son, says that Africa’s fu­ture “will be de­ter­mined by the man­ner in which we utilize our nat­u­ral re­sources.” Such mes­sages should spur African lead­ers and the min­ing com­pa­nies to turn Africa’s min­eral re­sources into a bless­ing.

Panos/ Sven Torfinn

Cop­per min­ing in Kitwe, Zam­bia.

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