African countries set to reform their mining sector

African ministers of mineral resources resolved, in a conference in Addis Ababa last December, to move into action to reform the sector to the benefit of the people. The action plan they approved includes amendments to the fiscal framework in order to optimize those benefits. “The days when mining in Africa was seen as rent-seeking activity are drawing to a close with the call by most of the countries to make mining a broad-based growth and development activity that is a key component of a diversified, vibrant and industrializing economy,” explains African Agenda, Third World Network-Africa’s bi-monthly magazine, in the editorial of its last edition.

“In the pre-independence era, mineral rich African countries as colonized entities had no say in the exploration of their minerals by such colonizers as Britain in the case of Ghana, Zambia and Zimbabwe, and Belgium in the case of the Democratic Republic of Congo,” adds the editorial. “Indeed, the minerals of these countries were looted by their colonial masters without much regard for using them to develop these countries. Immediately after independence, most African countries in reaction to the centuries of 'rape' by the colonial masters decided to nationalize the mining operations.”

“Unfortunately, given that they lack the know-how, the technology, the capital among others to keep the mines in operation as well as machinations by the colonial masters, they could not sustain the operations of these mines. By the 1980s most of the mines had collapsed and this coincided with the economic difficulties that most African countries found themselves in at that time,” according to African Agenda.

But mining is still a good business. Stephen Karingi, of the United Nations Economic Commission for Africa (UNECA), cited figures that show how much the mining companies are making in Africa: “In 2010 alone, net profits for the top 40 mining companies grew by 156% to $110 billion and the net asset base of these companies now exceeds $1 trillion.”

Mining has come to dominate the export earnings of many African countries, said Mark Jeffery, officer of the United Nations Economic Commission for Africa (UNECA) and the African Union. In 2005 minerals accounted for more than 80% of exports in Botswana, Congo, DRC, Guinea, and Sierra Leone and more than 50% in Mali, Mauritania, Mozambique, Namibia and Zambia. By 2008 sustained demand from a burgeoning Chinese economy had seen prices for minerals reach new heights, Jeffery said to Emmanuel K. Dogbevi, editor of the online newspaper GhanaBusinessNews.com.

“Despite this wealth, it is known that Africa is poor, while the companies mostly foreign that exploit these minerals on the continent are very rich,” added Dogbevi.

Moreover, Africa consumes very little of its own mineral resources and exports most of it as raw materials, “with little or no local value addition and beneficiation,” evaluated Jean Noel Francois, acting director of the Department of Trade and Industry at the African Union (AU) Commission. Even though Africa's mineral resources are fuelling growth and development of the many industrialized and emerging economies of the world, Africa still remains poor, under-developed and dependent on donor assistance for national budget support, he added.

A huge richness

According to studies quoted by African Agenda, the continent produces more than 60 metal and mineral products and is a major producer of several of the world's most important minerals and metals including gold, PGE's, diamonds, uranium, manganese, chromium, nickel, bauxite and cobalt. Platinum, coal, and phosphates are also mined on the continent. Some of the largest, and richest, mineral deposits in the world have been found in Africa.

The ministerial conference in Addis Ababa set a brand new vision apparent in its action plan that includes these six points:

■ Member States should reform the fiscal framework in order to optimize benefits from the mineral sector;

■ Member States should explore the possibility of renegotiating existing contracts to secure a fair share of the rent;

■ Member States should align their development strategies to their long term national development goals;

■ Member States should ensure transparency in the collection and use of mining revenues;

■ Governments could explore the use of equity participation in mineral ventures to capture a greater share of benefits;

■ Governments in collaboration with partners should build capacity of oversight bodies.

Along with the action plan, the Ministers reasserted the African Mining Vision (AMV) approved by the February 2009 African Union Summit.

What sets the AMV apart, Mark Jeffery writes, is that it extends policy beyond a narrow focus on mining itself. For the AMV there is more to it than to managing the extraction of resources and then finding optimal ways to collect and apportion the revenue. Central to the AMV approach is to put development outcomes at the heart of mineral regimes. The rationale is that this would stimulate the local economy and help prevent mines operating as enclave enterprises.

The experts present at the conference including civil society representatives urged African governments to strengthen transparency, accountability and access to information, improve public participation and provide capacity building programmes for local communities.

Meanwhile, an International Study Group created by UNECA has affirmed the need for Africa to transform its mining sector from an enclave of raw material supplies to an integrated industry with great prospects for the continent's socio-economic development.  The continent can make great strides in its development if just like the Nordic countries in their resource-based industrialization, it take steps to redress “the mining sector's isolation from mainstream social and economic activities,” according to the Study Group.

In their forward to the report titled, Minerals and Africa's Development, Abdoulie Janneh (Executive Secretary, UNECA) and Jean Ping (Chairperson of the African Union Commission) noted that Africa's continuous supply of raw minerals to the global market without linking 'mineral extraction to infrastructure development and manufacture of products' would not meet Africa's development needs.

The report takes a comprehensive look at Africa's mining record over the years from the pre-colonial, colonial, post-independence, and the 1980s till current attempts to turn round the situation through such initiatives as the African Mining Vision, adopted by the African Union Commission in 2009. These historical deficiencies inherent in Africa's mining industry, made the industry, 'a supplier of strategic minerals to industrialized countries' with 'inadequate returns to the continent' and an 'enclave' industry with no direct linkages to Africa's economy.

African Agenda’s editorial note observes that “booms in mineral prices rather profited the companies more with no difference in returns for African countries,” but “this is what has prompted countries like Zambia to introduce windfall taxes, Tanzania to increase royalty rates, Guinea to review its mining code and the abrogation of some mining contracts by the government of the Democratic Republic of Congo. The government of Ghana in its 2012 budget has also indicated increases in royalties and a windfall tax among other measures to rake in some more revenue from the mining sector. These efforts at redressing the balance in terms of returns from the mining sector have rankled the mining companies who have not hidden the fact that they would not accept these measures without a fight,” but “the good news is that African countries have since 2007 recognised the need to turn the tables as far as Mining Codes in use in Africa are concerned.”

Source

African Agenda: http://bit.ly/GU36KU