Exploring the Promise of the Africa Mining Vision: A Perspective

by Antonio M. A. PedroDirector, SRO-EA- Kigali, Rwanda

Objectives

• Raise awareness about the Africa Mining Vision (AMV)

• Offer insights into its construct

• Discuss factors that can ensure its realisation

• Identify linkages with international processes and initiatives

• Mobilise support for the implementation of the AMV

Profiling the Sector

Disputed accounts on mining

• Mining is bad camp: Enclave, capital intensive, Dutch disease, lower growth, corruption, conflict, rent-seeking; etc

• Mining is not bad camp: Nothing intrinsic with mining, non-conclusive statistics, mixed performance, important natural capital

The “mining is not bad” camp

• Mining generates positive macroeconomic impacts and fosters growth through:

-Fiscal flows (Royalties, taxes and other levies)

-Foreign exchange generation

-Associated economic and tertiary development

-Opportunities for SME development

-Upstream and downstream opportunities (minerals cluster development)

-Job creation

-Technology acquisition and skills creation

-Infrastructure creation

Harnessing the Potential of Natural Resources: A Daunting Challenge

for Policy Makers

The Challenges

• The irreversibility challenge

• The creation challenge

• The investment challenge

• The distribution challenge

• The governance and macro-economic challenge

• The capacity challenge

The irreversibility challenge

• Given the non-renewable nature of the resource, how to balance the relative costs of access and the choices/preferences of the present relative to the future?

• Which policies can ensure sustainable exploitation of mineral resources and inter-generational equity?

• How to manage resource stress?

The creation challenge

• How to create and sustain mineral wealth that is consistent with social preferences for environmental quality and social and cultural considerations?

• How to ensure an efficient, equitable and predictable legal, regulatory and fiscal regime that encourages mineral creation?

• How to be a competitive mining destination, but avoid a race to the bottom?

The investment challenge

• Once you create mineral wealth, which is transient, how to transform it into permanent wealth?

• How to create a stream of wealth that outlasts finite mineral resources?

• How much ought to be saved and how much should be invested?

• Who should invest?

• In what?

• Where?

The distribution challenge

• How to share benefits from mining equitably (e.g. local vs national)?

• What is fair?

• What form should the allocation take?

• What are the eligibility criteria? Who has the highest priority?

• How to reconcile conflicting interests?

The macro-economic and governance challenge

• How to address externalities such as declining and unstable commodity prices?

• How to address the Dutch Disease?

• How to enhance the public interest in wealth conservatism?

• How to avoid rent seeking and corruption?

• What social compact to pursue (APRM NPoAs)?

The macro-economic and governance challenge (2)

• How to manage revenue out of mining?

• How to enshrine and operationalise the right to access to information and ensure that decisions are taken with participation of affected stakeholders (The Aarhus Convention)?

• How that ensure accountability (Oversight committees, parliamentary watch dogs)?

• How to ensure that right institutions are in place to monitor compliance of obligations?

The capacity challenge

• How to balance aspirational goals and the reality?

• What set of policies, laws, standards, guidelines should countries formulate which are congruent with their capacity to enforce them?

• How to bridge capacity gaps and asymmetries between host countries and TNCs [ contract negotiations; transfer pricing

• How to address capacity gaps at sub-national level (decentralisation)?

What should inform policy responses?

The development paradigms: They shift

• Nationalizations in the 1970’s

• Reforms in the late 1980’s and 90’s: The Washington Consensus

• 21st Century: The search for a new social contract for mining

• From “market/institutions fundamentalism” to more policy space for experimentation and the rebirth of the development state: Goodbye Washington Consensus, Hello Washington Confusion (Dani Rodrik, 2006)?

Stage of the development in a minerals cycle

• Nascent mineral economy: Requires mineral investment flow

• Youthful mineral economy: Rapid mineral expansion, Dutch Disease

• Early-Mature: Slowdown of mineral output, promote sectoral diversification

• Late-mature: Decline in mineral output, boost skills acquisition

Policy responses to a minerals-driven cycle (Richard Auty)

Stage Character Macro effects Policy response

Nascent Mineral investment flow Exchange rate pressure Create rent tax, build capital funds, establish revenue stabilization funds, grant Central Bank independence

Youthful Rapid mineral expansion Exchange rate appreciation, Dutch Disease effects

Sterilize windfall rents, expand domestic absorptive capacity

Early-Mature Slowdown of output mineral Growing tax and foreign exchange constraints

Substitute new tax sources, encourage domestic savings, promote sectoral diversification

Late-Mature Decline in mineral output Persisting tax and foreign exchange shortages, rising unemployment

Depreciate real exchange rates, boost skills acquisition

Local context

• Culture and mining history

• Capacity to administer the sector, and manage and restructure the economy

• Strength of private sector, CSOs, CBOs

• The learning curve process followed by a country

• Local politics and power game, expectations and social bargains (Bomani Commission in Tanzania)

• The country’s bargaining power

• In short: There is no universal recipe!

Looking ahead: Can The AMV Deliver for Africa?

Is it a wish list?

The Africa Mining Vision :“Transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable

growth and socio-economic development”

 

The process

• Task Force: AUC, ECA, AMP, AfDB, UNCTAD, and UNIDO and UEMOA

• Draft informed by outcomes of several meetings and initiatives: JPoI, Yaounde Vision on ASM, AMP SD Charter and Mining Policy Framework, 2007 Big Table, ISG, SADC + UEMOA harmonization efforts

• Discussed at the First African Union Conference of Ministers of Mines in October 2008

• Endorsed by AU Summit in Feb 2009

The tenets

• Recognition of important role of MR to Africa’s economies

• Transform finite NR capital and transient wealth into lasting forms of capital beyond the currency of mining

• Broader understanding of “benefits”

• From comparative to competitive advantage: A developmental, transformative, knowledge-driven and integrated mining sector with downstream, upstream and sidestream linkages

The tenets (2)

• A sustainable and well governed sector: resource rents are well managed; distributed and smartly invested; intergenerational equity, environmental and material stewardship and CSR respected; safe, healthy and advanced; and stakeholders empowered

• Mining as a key component of a diversified and globally competitive economy

• Unbundle the “minerals complex” (from exploration to fabrication, markets and mine closure) to bundle: Entry points for localization identified

Tenets (3)

• A sector that anchors the development of a competitive infrastructure base through local and regional economic linkages

• Optimal exploitation of finite resources at all levels (large and small-scale) and of all types (high and low value)

• A sector that puts Africa geo-politically and strategically at its right place in the global international capital and commodity markets

Why the AMV ?

• Need to have an African common voice• Resource endowment: Comparative advantage to harness• Top producer, but most minerals exported as raw materials:

Potential for mineral beneficiation is great• More favourable political economy:“Failure” of the

Washington consensus opens room for more policy space • Merely regulatory role for the state being questioned:

Return of the “developmental state”

Why the AMV (2)?

• Although RBIs are not a new mantra in Africa (Lagos Plan of Action), in general, mining has not delivered broad-based development: We can learn from successful RBIs (e.g. Nordic countries)

• Despite swings in commodity prices, resource intensity theory (resource use flattening at US$16,000/GDP) suggests that demand for minerals might continue to be strong if China and India (and other emerging economies) continue to grow: This and other factors might support prices (Gold is up!)

Why the AMV (3)?

• Other sectors don’t have the same rents: Better resource rents in the mining sector can catalyze growth of other less competitive sectors

• China and India: Reshaping the ball game ( more competition for Africa’s acreage strengthens the continent’s bargaining power)

• Resource nationalism and assertive governments: Pendulum can swing to host countries, but don’t kill the goose that lays the golden eggs

• Governance gains: Growth of non-state actors (CSOs) democracy, APRM, less monopoly of the policy space

Why the AMV (4)?

• Tri-sector partnerships and public participation: Being mainstreamed

• New age miners: Embracing developmental and transformative approaches; triple bottom line (financial success, contribution to social and economic development, and environmental and material stewardship)

• We can learn from good practices: Nordic clusters• Scholars are championing for a better mining sector

Why the AMV (5)?

• China’s environmental concerns: Cannot continue to be the only world’s factory; this offers opportunities for relocation of downstream and upstream activities to Africa

• Strategic stockpiles: A fashionable concept again (New European non-energy raw materials strategy). Can Africa’s bargaining power be strengthened?

• Tacit endorsement of the “Angola” model (???): (Zoellick “The end of the Third World? Modernising Multilateralism for a Multipolar World”) can validate and mainstream the SDP approach

• Despite disputed accounts, there is a better profiling of mining: Was not there for the last 20yrs

• Overall: Africa has more chances now to bargain for better deals than in the days of the Lagos Plan of Action and the AMV can be realised!

Entry points

• Resource rents: Invested to improve physical, human and social infrastructure

• Expanded physical infrastructure: to open up other resource potential (agriculture, forestry, tourism) and access zones with lower economic potential (densification, SDP)

• Downstream value-addition: To establish resource-processing industries that could provide the feedstock for manufacturing and industrialization

Entry points (2)

• Upstream value-addition: To develop resource supply/inputs sector (capital goods, consumables, services)

• Technology/product development: To incubate niche technological competencies in the resource inputs sector that can migrate laterally to other sectors to produce new products for other (non-resource) markets (e.g. Atlas Copco)

The strategies

• Improve the level/quality of Africa’s resource potential data (gm and mineral inventory): It strengthens the continents’ bargaining power

• Fight for more fiscal space: Robust, but flexible tax regimes that are responsive to economic circumstances; beware of stabilization clauses, BITs/IIAs (Institute for Policy Studies)

• Innovate licensing schemes to boost competition: Go beyond “First come and first served” and explore auctioning through differentiation of terrains

The strategies (2)

• Boost Africa’s capacity to negotiate contracts and extract better deals (ALSF, UNDP, EI-TAF)

• Enhance the capacity to administer [auditing, illicit financial flows (Global Financial Integrity) monitoring, regulating, fomenting linkages] the sector and build robust institutions

• Audit, review and renegotiate (if required) existing mining agreements:

The strategies (3)

• Manage mineral wealth better (APRM, oversight committees, stabilization funds, prudent spending)

• Develop junior resource companies• Unbundle the “minerals complex” (from exploration to

fabrication, markets and mine closure) to bundle• Address infrastructure constraints (Resources for

infrastructure deals, SDP, DCs)• Promote mineral clusters and support SMEs to enter the

supply chain

• Yaounde Vision: the right framework for ASM

Implementation

• Shared vision, but phased (Short, medium and long-term actions) and context specific action (There is no “one size fits all”)

• Phases are not mutually exclusive: Implementation can be fastened depending on internal and external factors (Auty)

• Political will and proactive government action: Key• Improving natural resources governance: Critical• Collective and concerted action/The African voice:

Indispensable

Implementation (2)

• Capacity building, R&D: Fundamental

• Partnerships and buy in: Essential (Talking with ICMM)

• Policy space and ownership of the development process: The cornerstone!

• Coordinated action between public, private and community stakeholders

• M&E (AUC): Indicators of achievement and scorecards need to be developed

Implementation (3)

• The “minerals complex” (from mining/extractive industry to a minerals industry): New institutional mindset, break silos and departmental rivalry

• Deepen work of the ISG :Phase II (Auctions, institutions, trade agenda, industrial policy)

• Regional integration and common voice: EU Raw Materials Initiative, ACP, AU-EU Mining Initiative

• The game changes fast (“Super cycle”, gone….?)

Threats

• Failure to trigger the “movement”: Nation states can’t deliver alone

• Tunnel vision as opposed to the big picture

• Failure to connect the dots

• Silos as opposed to defragmented govts

• Poor understanding of the new world

• Facile certitudes about sovereignty

Resource Exploitation & infrastructure phase

Resource Consumables & HRD phase

Resource clusters, R&D, cap. goods & services phase

Lateral migration & diversification phase

Resource Exploitation

Resource Beneficiation (value-addition, market access)

Resource Infrastructure

Densification/generic (SDP) Infrastructure

Unskilled resource labour

Rents from Resource diversification industriesDiverse tax baseResource rents (tax)

Fig 1: Schematic Resource-based African Industrialisation Phasing (relative economic importance)

Resource Inputs production & Lateral migration(diversification)

Increasing skills intensity (HRD) & capacity building

Import of Resource Inputs

Phase 1 Phase 2 Phase 3 Phase 4

Resource R&D. high level skills and tech development

Import of Resource Tecnologies

Policy space, Complex regulation, M&E, governanceContract Law

Contract/license resource & infra (PPP) governance

I

II

III

IV

V

VI

VII

In Conclusion

The AMV is a credible instrument

• It provides a good rallying point

• It was endorsed at the highest possible level in Africa

• It has some buy in internationally: CSD 18, EU

• The moment is right: There is policy space and willingness to partner, good economic fundamentals and market opportunities

• Social compacts to govern are becoming a norm: APRM

• Interventions of the different actors need to be coordinated to maximize impact

So• Transformation in business and financial

organization, education, research and knowledge development, human capital accumulation, and infrastructure expansion were key to harnessing the potential of natural resources endowments in Canada and Australia (Power, 2002): This is what Africa needs to do to equally harness the potential of its natural resources endowments. The AMV offers a framework to achieve it.

Thank You!