Rich in mineral deposits, Africa must benefit from its vast natural wealth

Africa’s political economy is deeply ingrained with the history of the exploitation and (mis)management of its mineral and natural resources.

More than 500 years after commercial exploitation of Africa’s resources began, Africa continues to host many of the large and unexploited deposits of minerals globally.

Africa accounts for three-quarters of the world’s platinum supply, and half of its diamonds and chromium. It has up to one-fifth of the world’s gold and uranium supplies, and it is increasingly home to oil and gas production with over 30 countries now in this category.

Yet, with minor exceptions, Africa does not consume or add significant value to these and other mineral products that it has in abundance. Rather, we are net exporters of raw materials that fuel prosperity and development in other regions. Africa is largely seen as a price-taker rather than a price-maker, with a marginal role in international trade.

The question therefore is why the continent continues to struggle with limited economic transformation, low or no resource rents and scarce employment. In the past 10 years, commodity prices have hit a super-cycle, yet Africa’s share of windfall earnings has been miniscule, compared with what mining companies have realised.

Average net profits for the top 40 mining companies grew by 156 per cent in 2010, whereas the take for governments grew by only 60 per cent, most of which was accounted for by Australia and Canada, two countries that graciously want to share their experience with Africa. Indeed, most African countries got much less than this due to generous tax holidays given to mining companies!

Looking at the issue from another angle, the profit made by the same set of mining companies in 2010 was $110 billion, which was equivalent to the merchandise exports of all African LDCs in the same year.  It is fair to say, therefore, that the resource-for-development model puts raw materials suppliers at a significant disadvantage.

The conclusion is that the current resource-for-development model is not working to bring about equity or boost development.  

The African Mining Vision, jointly developed by the AU, ECA, ADB and other UN agencies was adopted by the African Union Heads of State in 2009. The Vision advocates for “transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development.”

African governments need to get the best deals for their countries during contract negotiations. Capacity deficits have also been identified in critical areas of auditing, monitoring, regulation and improving resource exploitation regimes.

In DRC, a government committee reviewed 61 mining deals over a decade up to 2006, and found none acceptable. It recommended renegotiating 39 and cancelling 22.

Zambia, in the wake of increased international copper prices and after years of subsidising large multinational companies working in its copper belt, successfully raised taxes for mining companies from 25 to 30 per cent, and introduced a windfall tax for exceptional profits. This earned it an extra $415 million in supplementary revenues.

International processes such as the Kimberly Process for diamonds and the Extractive Industries Transparency Initiatives for other minerals, though with their own weaknesses, have contributed to improving transparency and accountability in contract negotiation processes from the production side, whilst the Dodd-Frank Wall Street Reform and Consumer Protection Act and other similar acts have also created avenues for fair play within the international circles.

First, unfair trade treaties and rules set out by international bodies that penalise Africa’s value addition process to its primary commodities need to be reviewed in light of the increased demand and competition for Africa’s minerals from the rising South, especially China and the Far East.

Second, in geological terms, Africa is still the “unknown continent” with vast unexplored quantities of extractive potential. Geological mapping and mineral inventory has not covered the entire continent thus masking the true geological potential of the continent.

African governments do not have the capacity to take stock of their mineral resources, relying on trans-national companies to assess commercial capacities of newly found discoveries especially oil and gas. This lack of verified data severely compromises negotiation capacity and the continent’s bargaining power.

A third and important structural measure is a better integration of Africa’s development policies. Africa needs to embed long term development objectives firmly into the processes for extracting natural resources.

For mining to benefit Africa’s people, strong backward and forward linkages in the local economy should allow local entrepreneurs and industrialists to take advantage of service provision and technology transfer opportunities as a result of proximity to the mining industry.

This means investment in infrastructure, research and human capital development, through conditionality for local content. This is what other regions have done; this is what Africa needs to do.

Within this paradigm of development-led mining, the potential of small-scale mining should also be harnessed and improved to better rural livelihoods and further integration into the rural and national economy.

Other factors, such as the building of human and institutional capacities towards a knowledge economy that supports innovation, research and development and the promotion of good governance of the mineral sector, in which communities and citizens participate in decision making and in mineral assets, and in which there is equity in the distribution of benefits, are also necessary prerequisites.

In conclusion, Africa’s natural resource is a blessing and not a curse and can and will be used as a precursor for the continent’s continuous rise and in the face of the insatiable appetite for natural resources on the world stage.

To make this possible, frameworks such as the AMV must be implemented and used as a template at country and regional level.

Carlos Lopes is the Executive Secretary of the UN Economic Commission for Africa