Governance for Development in Africa: Mineral Resources Governance

1. Governance for Development in Africa: Mineral Resources Governance Presentation by Yao Graham Third World Network-Africa at SOAS-CDD Ghana Workshop Alisa Hotel, Accra 7th May 2013

2. Structure of Presentation • Key concepts – “Development Governance” and “Natural Resources”, “Mineral Resources”, “Resource Curse”, “Winner’s Curse” • Natural resources and material life • Minerals in African Economies – retrospect and current • Governance issues - From FDI Attraction to Africa Mining Vision (AMV) • Principles and consequences on mining policy since 1980s • Resource Curse • New Policy Directions – National to AMV • Drivers of Change • AMV Implementation Challenges • Imperative of Democratic Developmental State • Alliance for Change

3. Natural Resources = Minerals • “Natural Resources” variously used: • oil, minerals, forest resources, and agricultural crops; abundance of land or the size of the primary sector; • Term used here to mean: • non-hydrocarbon mineral resources;

4. Usages- Governance Development governance is governance that is oriented to solve common national development problems, create new national development opportunities and achieve common national development goals. This is not simply a matter of designing appropriate institutions but also of policies and the processes through which they are formulated and implemented. Which institutions matter is inseparable from what policies are adopted. Development governance is thus about the processes, policies and institutions that are associated with purposefully promoting national development and ensuring a socially legitimate and inclusive distribution of its costs and benefits. LDCs Report 2009- The State and Development Governance

6. Minerals in Africa’s Economies- retrospect • Finite non-renewal resources • Since end of colonial period publicly owned resource (vested in State for all) • Key driver of colonization and centre-piece of colonial economy, foreign investment and foreign trade • Choice of exploited mineral driven by interests of colonial power and not local needs • Post colonial legacy • economic structure of dominant export enclave with weak local links • Foreign ownership of strategic sector • raw material commodity export dependence • economic vulnerability due to international price volatility

7. Minerals in Africa’s Economies- retrospect • Post colonial attempts at regaining control and reform • Nationalization in 1960s and 1970s • International commodity agreements; • UN resolutions on right to development, permanent sovereignty and calls for NIEO • Low global prices and crisis 1970s and 80s, • SAPs and mining sector reforms • FDI led growth strategy and new governance

10. Minerals in African Economies - current • Mineral prices have driven African economic growth since 2000 • Between 2003-2010 average revenue • increase is 23%. • Between 2002-2007 average prices of minerals and metals rose by 260%. • Ghana gold export values: • 2000 - $755m • 2012 - $5.643 bn

11. Minerals in African Economies - current • In SADC the mining sector plays an important role to a varying degree in the different economies; contributing 22percent (US$ 92 billion) towards the total regional output and 13percent (3.2 million jobs) towards regional employment. • Main export earner for a number of countries in West Africa (Ghana, Sierra Leone, Guinea, Mali, Liberia

14. Growth of Chinese metals consumption 2000-2007 (% share of global) 2000 2007 • Aluminium 13.0 32.5 • Copper 11.8 26.2 • Lead 10.1 30.6 • Nickel 6.0 24.9 • Tin 18.6 39.9 • Iron ore imports 15.6 48.2 (Sea borne) Source: Ericsson (2009)

15. Enduring Governance issues • Define and manage terms of access for direct producers (large and small) • Prevent/ minimise negative social and environmental impacts • Rights and livelihoods of communities • Workers income, health and safety in large mines • Health and safety of ASM • Protection of ecology, water bodies • Minimise conflicts • Post mine closure issues • Distribute direct benefits equitably • Local livelihoods • Corporate returns • State fiscal benefits • National development benefits • Transform into sustainable and greater value • Develop linkages and diversification • Develops local economic capabilities and enterprise ownership

16. The mining critics want • Exploit in manner which: • Involves participation and sensitive to local concerns • Minimizes negative social and environmental impacts • Enhances local livelihoods and respects human rights • Distributes benefits equitably • Transforms minerals into sustainable and greater value through promoting linkages and diversification • Develops local economic capabilities and enterprise ownership • Fundamentally enhances local economy • Within transparent and accountable processes

17. Evolution of Governance Focus since 1980s: From FDI Attraction and Managing Resource Curse to Africa Mining Vision • Creating enabling environment for FDI • Managing the Resource Curse • Winner’s Curse, Popular Resistance and Resource Nationalism • The Africa Mining Vision –minerals for transformation

18. Principles of Mineral Policy since the 1980s “Overall, the main objective of donor intervention in African mining - whether through technical assistance or investment financing - should be to facilitate private investment and help reduce the country and project-related risk for the private investor.” World Bank, Strategy for African Mining, 1992

19. Principles of Mineral Policy since 1980s “The recovery of the mining sector in Africa will require a shift in government objectives towards a primary objective of maximizing tax revenues from mining over the long term, rather than pursuing other economic or political objectives such as control of resources or enhancement of employment. This objective will be best achieved by a new policy emphasis whereby governments focus on industry regulation and promotion and private companies take the lead in operating, managing and owning mineral enterprises.” Strategy for African Mining – World Bank, 1992

20. Mineral Development Strategy since mid 1980s • State withdrawal from production and privatization of mining SOEs • Emphasis on attracting foreign investment into sector • Creating enabling environment for FDI • Passage of laws, Creation of institutions and processes deemed necessary for development of FDI based export led mineral development strategy • Overgenerous incentives regime (e.g. tax exemptions and low rates, forex retention) • Focus on developing minerals with export value • Revenue stream main planned benefit of mining • Ghana Mining Law of 1986 pioneer

21. Consequences of Strategy- 1 • Promotion of institutions that promote and service FDI • Huge inflow of foreign capital into high demand export mineral sector –gold • Expansion in mineral production and exports • Revival and growth of mining revenues • Reinvigoration of colonial style mining enclave with weak linkages to rest of economy • Weak development of regulatory institutions and enforcement and policy incoherence • Massive lay offs of workers (40,000 ZCCM) • Conflicts in mining areas –due to negative impacts and rights violations

22. Consequences of Strategy-2 • No or weak policy framework for minerals and economic development including: • Upstream and downstream linkages • attention to local enterprise promotion and support, e.g. ASM • No local content policy -- best endeavour in employment and procurement • Industrialisation involving exploitation of industrial minerals fell off the agenda • CSR as rural development • Casualisation of work in mines – job insecurity low income, health and safety (Marikana)

23. Consequences of Strategy-3 • Mutually damaging race to the bottom among African countries in contest for FDI • e.g. changes in Ghana’s 2006 Mining Act “some observers have described the incentive competition as a “winner’s curse” for host countries, whereby investment competition among host countries can trigger a “a race to the bottom” not only in the more static sense of forgone fiscal earnings but also in terms of giving up policy options necessary to organize a more dynamic long term growth path” (UNCTAD,2005)

24. Notion of a resource curse • Natural resource wealth leads to bad development outcomes and have focused on trying to explain why this is the case, either in general or in respect of particular regions or countries. • Concept amalgam of various perspectives • Evidence inconclusive

25. Andrew Rosser 2006 • economistic perspectives that emphasise economic mechanisms; • behaviouralist perspectives that emphasise emotional or irrational behavior on the part of political actors; • rational actor perspectives that emphasise self-interested behaviour on the part of political actors; • state-centred perspectives that emphasise the nature of the state; • social capital perspectives that emphasise the degree of social cohesion in countries; • structuralist perspectives that emphasise the role of social groups or socio-economic structure; and • radical perspectives that emphasise the role of foreign actors and structures of power at the global level.

26. Resource Curse focus • Influence from outside • Voluntary, international, corporate, unilateral • Revenue transparency and anti-corruption • (EITI, PWYP, OECD guidelines) • Impacts –Conflicts, less HR and social and environmental • Kimberley process, Dodd-Frank Act • Guidelines on lending (IFC, Equator, AfDB) • CSR (slew of voluntary frameworks and principles) • More recently • China bashing

27. New Policy directions • National policies to increase benefits • ECOWAS • Draft Mineral Development Policy 2011 • 2009 Directive on the Harmonisation of Guiding Principles and Policies in the Mining Sector • ACP • Africa Mining Vision 2009 and subsequent documents • World Bank on local content 2011

28. National policy reforms, tax hikes and renegotiation of mining contracts • South Africa debate about nationalisation, talk of windfall taxes, and capital gains tax • Zambia raised royalties to 6%, new retention law • Ghana tax hikes and re-negotiations, mining policy • Guinea new code, bigger shareholding • Zimbabwe – indigenization at least 51% • DR Congo contract review • Sierra Leone – contract review • Namibia – new national exploration and mining company

29. The African Mining Vision and related policy processes • Conclusions of UN-ECA/AFDB February 2007 policy Big Table on “managing Africa’s natural resources for growth and poverty reduction” • ISG set up in 2007 by UN-ECA as result of Big Table decision to review Africa’s mining regimes • October 2008 - 1st AU Ministerial on Mining adopted Africa Mining Vision • February 2009 AU Heads of State adopt AMV and charge preparation of Action Plan for its realization • December 2011 – 2nd AU Mining Ministerial adopts AMV Action Plan informed by work of ISG • December 2011 – ISG Report published • Decision to create AMDC – December 2011

30. Essentials of African Mining Vision • A knowledge-driven African mining sector that catalyses & contributes to the broad-based growth & development of, and is fully integrated into, a single African market through: • Down-stream linkages into mineral beneficiation and manufacturing; • Up-stream linkages into mining capital goods, consumables & services industries; • Side-stream linkages into infrastructure (power, logistics; communications, water) and skills & technology development (HRD and R&D); • Mutually beneficial partnerships between the state, the private sector, civil society, local communities and other stakeholders;

31. Essentials of AMV -2 • A mining sector that has become a key component of a diversified, vibrant and globally competitive industrialising African economy; • A mining sector that has helped establish a competitive African infrastructure platform, through the maximisation of its propulsive local & regional economic linkages; • A mining sector that optimises and husbands Africa’s finite mineral resource endowments and that is diversified, incorporating both high value metals and lower value industrial minerals at both commercial and small-scale levels;

32. Essentials of AMV -3 • A sustainable and well-governed mining sector that effectively garners and deploys resource rents and • A sector that is safe, healthy, gender & ethnically inclusive, environmentally friendly, socially responsible and appreciated by surrounding communities; • A mining sector that harnesses the potential of artisanal and small-scale mining to stimulate local/national entrepreneurship, improve livelihoods and advance integrated rural social and economic development; and • A mining sector that is a major player in vibrant and competitive national, continental and international capital and commodity markets.

33. Key elements of new framework • Action plan clusters • Mining Revenues and Mineral rents management • Geological and mining information systems • Building human and institutional capacities • Artisanal and small scale mining • Mineral sector governance • Research and development • Environment and social issues • Linkages and diversification • Mobilizing mining and infrastructure investment • Resourcing the Action Plan and the AMV • Levels – national, regional and continental • Actors – States, private sector, CSOs and IFIs

34. Key elements of AMV framework-2 Work clusters of the AMDC • Policy and Licensing • Geological and mining information systems • Governance and participation • Artisanal and small-scale mining (ASM) • Linkages, investment and diversification • Building human and institutional capacities • Communication and advocacy

35. Key Points of Change • Covers most important issues in debate and contestation • Taxation review of regimes (stabilisation clauses, transfer pricing, incentives framework) • Main focus of most countries • Community issues (FPIC, HR instruments, participation, improved revenue sharing) • Step back on CSR

36. Key Points of Change • Puts industrialization back on agenda (ref LAP1980) • value addition and use of industrial minerals • Industrial policy • Strong role for the state • Local enterprise development • Cross sectoral – national/regional development planning implications

37. Key Points of Change • Policy harmonisation and coherence • Institutional and HR development • Domesticate transparency processes (EITI to APRM) and strengthen overall governance (role CSOs, legislature) • ASM and rural livelihoods and employment • Estimated 5m

38. AMVNational Action for viable and sustainable ASM sector that contributes to growth and development • Regularise and mainstream ASM into broad stream socio-economic activities; • Develop policies laws, regulations, standards and codes to promote a viable and sustainable ASM sector • Develop programmes to upgrade knowledge, skills and technologies in the ASM sector; including: • Promoting local service providers in the sub-sector; • models for partnership with government and large-scale mines to facilitate access to technology, skills, knowledge and markets; • financing and marketing programmes appropriate to the ASM sector • Improved health, safety, environment and gender in ASM

39. National actions for Promoting ASM • Determine and designate geologically suitable areas for ASM • Promote youth employment and engagement in the ASM sector • Develop methodologies or templates for distinguishing potentially viable ASM operations for targeted support • Develop and strengthen ASM associations. • Implement international and Regional instruments relevant to the ASM sector • Develop programmes for promoting value-addition in ASM • Develop institutional linkages from national through to local levels for effective management of ASM

40. Regional actions for ASM • RECs to harmonize ASM policies, laws, regulations, standards and codes; • Coordinate and facilitate technology development and transfer at sub regional level • Develop and promote implementation of a regional tool kit for engagement between LSM and ASM including requiring LSM to develop the capacity of ASM • RECs to lead initiatives to formalize and upgrade skills, knowledge and practices in the artisanal and small-scale mining sector; • Promote and coordinate standard measures for training examination and certification for the ASM sector • AUC/NCPA to lead efforts to develop continental policies, laws, regulations, standards and codes to promote sustainable ASM; • Adopt and strengthen measures to address illicit trade in minerals

41. Drivers of Change from below • Community struggles against and CSOs exposure of negative HR, social (loss of livelihoods) and environmental impacts and brutal policing • NGOs and acedemic research, Reports on taxation, investment agreements, mining codes across Africa • AIMES (1999); NCOM (2001), SARW, Benchmarks • Growing fundamental societal questioning of overall cost-benefits of mining boom and operative frameworks and organisations for change; pan-African reaching out • Workers protests over casualisation - unionisation, working conditions (health and safety, wages) – ILO convention 176

42. Drivers of change from above – Winner’s Curse • Response to pressures from society • Zambia • Failure of model to deliver on expectations • Eye-opener of aggravation of unequal benefit sharing with onset of demand boom and price surge from 2002 • Impact of global crisis on prices and revenue

43. Unmet expectations-Development [It is] enigmatic is that poverty in Africa is chronic and rising … despite significant improvements in the growth of African GDP in recent years. The implication: poverty has been unresponsive to economic growth. Underlying this trend is the fact that the majority of people have no jobs or secure sources of income. •  Various reasons have been given for Africa’s lack of response of poverty to economic growth. • Growth has been concentrated in the traditionally capital-intensive extractive sector • Inequality in the distribution of opportunities created by economic growth. UN-ECA 2005 Economic Report on Africa) Commodity dependence intensified over past decade

44. Unmet expectations- Revenue Between 2002 and 2006 average net profits of biggest mining firms increased by more than 1,400%, going up by 64% between 2005 and 2006 alone. (PWC,2007) 2003-2011 profits grew average 20% a year In 2010, the financial results for the Top 40 were spectacular: • Revenues increased 32% – breaking $400 billion for the first time • Net profit was up 156% to $110 billion • Operating cash flows grew 59%, leaving more than $100 billion cash on hand at year end • Total assets approached $1 trillion

45. Net profit & net profit margin top 40 mining firms Source: PWC –Mine 2012

46. Loopholes in benefit sharing • Windfall gains for developing countries “have been partly offset by increased profit remittances by transnational corporations” • “Cross country studies have shown that many mining taxation regimes are regressive with governments’ share of mining revenue of falling as the profitability of operations rise” UNCTAD 2009

47. Terms of Trade changes versus actual benefits of price increases (UNCTAD, 2008)

48. From Bryan Land (World Bank) presentation “Taxing the Minerals Industry in Turbulent Times”, 2009

49. Causes? e.g.Tax avoidance

50. Switzerland’s copper imports from Zambia