Download The Africa Mining Vision

Exploring the Promise of the Africa
Mining Vision: A Perspective
by Antonio M. A. Pedro
Director, 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 mineralsdriven 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 resourceprocessing 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 (nonresource) 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 longterm 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
Fig 1: Schematic Resource-based African Industrialisation Phasing
(relative economic importance)
Phase 1
Phase 2
Phase 3
Phase 4
Resource Beneficiation (value-addition, market access)
Resource Exploitation
I
Densification/generic (SDP) Infrastructure
II
Resource Infrastructure
III
Increasing skills intensity (HRD) & capacity building
Unskilled resource labour
Rents from Resource diversification industries
Diverse tax base
IV
Resource rents (tax)
V
Resource Inputs production & Lateral migration
(diversification)
Import of Resource Inputs
Resource R&D. high level skills and tech development
VI
VII
Import of Resource Tecnologies
Policy space, Complex regulation, M&E, governance
Contract Law
Contract/license resource & infra (PPP) governance
Resource Exploitation
& infrastructure phase
Resource Consumables &
HRD phase
Resource clusters, R&D, cap. Lateral migration &
goods & services phase
diversification phase
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
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!