INTERNATIONAL POLICY CONFERENCE “COMPETITIVENESS & DIVERSIFICATION: STRATEGIC CHALLENGES IN A PETROLEUM-RICH ECONOMY

1. INTERNATIONAL POLICY CONFERENCE “COMPETITIVENESS & DIVERSIFICATION: STRATEGIC CHALLENGES IN A PETROLEUM-RICH ECONOMY” Promoting Legal Mineral Trade in Africa: New Policy Approaches Marie Lintzer 14 – 15 march 2011, Accra, Ghana

2. ‘Promoting legal mineral trade in Africa: new policy approaches’ International Policy Conference – Competitiveness and diversification: Strategic challenges in a petroleum-rich country (Ghana Ministry of Trade and Industry & UNIDO) Accra, 14-15 March 2011 Marie Lintzer www.resourceglobal.co.uk marielintzer@resourceglobal.co.uk

3. RCS Overview • RCS is a global research, advisory and evaluation consultancy. • We work with public and non-profit institutions and the private sector to better understand risks and opportunities in the natural resources and agriculture sectors. • Much of our work has looked at the relationship and interplay between investment, governance, development and conflict in the natural resource sectors in sub-Saharan Africa.

4. Promoting legal mineral trade in Africa • Africa’s future is one of promise: • 6 out of the 10 most rapidly expanding economies in the world over the past decade were in sub-Saharan Africa • Mineral trade should be an opportunity for development, although often associated, especially in the Great Lakes region and in West Africa, with: • Militarisation • Weak governance structures/poor management • Informalisation • As a result, revenues from minerals in some countries often support political elites more than the population

5. Structure of the presentation • Current proposed solutions to help shift an informal mineral trade to a legal mineral trade are: • Sanctions and embargoes • Due diligence and certification schemes • Transparency initiatives • Why and how are current proposed solutions limited? What else is required?

6. Proposed solutions: Sanctions and Embargoes • International trade restrictions and individual sanctions are often identified by the international community as means to demilitarise mineral trade. • Examples: • The UN Security Council sanctions over entities supporting armed groups in the DRC through their mineral purchase. • The general NGO support of the punitive approach to compel legal trade and deter illegal activity.

7. Proposed solutions: Certification and Assurance Schemes • Usually designed to assure the origin of a mineral and its chain of custody. • Often identified as a solution to prevent military groups from benefiting from mineral resources and to ensure ‘conflict-free’ mineral trading chains. • Examples: • The Kimberley Process Certification Scheme (KPCS) • The Certified Trading Chains (CTC) initiative

8. Proposed solutions: Transparency Initiatives • Identified by donors, civil society and policy-makers as central to revenue transparency in extractive sectors • Revenue transparency seen as: • Helpful for accountability which is helpful for good governance • The first step to ensuring people benefit from resource wealth • Helpful for investors to avoid socio-political risks • Examples: • The EITI • The Dodd-Frank Wall Street Reform and Consumer Protection Act Section 1504

9. Limitations to proposed solutions • Many of these measures were developed according to the realities of the 1990’s (natural resources associated with conflicts). • Needs might be different today, rending approaches to promoting mineral trade different.

10. Limitations to sanctions and embargoes • Individual sanctions are ineffective because: • The informal mineral trade is often big enough to absorb all the trade. Operators are replaceable. • National authorities do not implement the sanctions • Bans can be harmful because they: • Create direct incentives for further informalisation of trade • Deprive all stakeholders along the value chain • E.g.: Ghana’s Akwatia area in 2006-7

11. Limitations to certification and assurance schemes • The Kimberley Process: • It aims at verifying the origins of diamonds but has difficulties doing so. • Instead, the KPCS: • Formalises the diamond trade at the point of export • Imposes control mechanisms that are not adapted to the realities of the artisanal mining sector

12. Limitations to transparency initiatives • The EITI: • Is insufficient by itself: it needs to be combined with other governance reforms and capacity-building initiatives • Focus is only on revenue disclosure and ignores the expenditure side – which is absolutely crucial to ensuring generational benefit from natural resource wealth • Once a country gets validation, it has a certain protection over corruption criticisms when in reality EITI only address a small part of the corruption problem • Many of these issues were discussed at the EITI conference in Paris in March and the initiative is evolving.

13. Limitations to proposed solutions: summary • To summarise, all three proposed approaches have had limited effects: • Sanctions are difficult to implement successfully and have severe effects on regional/local economic development • Certification schemes have unproven link to preventing conflict and are often not adapted to realities on the ground • Transparency initiatives alone do not solve corruption

14. Limitations to proposed solutions: conclusion • Proposed solutions have often been designed to meet Western consumer-driven standards without always taking into account local realities and needs of African states and businesses. • There is a ‘tick the box’ danger, as if joining these schemes will solve all problems of natural resource management.

15. What else is required? • Solutions should be African generated. However, while there are some very qualified people, there is a tangible capacity and knowledge gap. Initiatives should be multi-stakeholder. • Capacity-building initiatives are necessary to ensure ownership is with African states and stakeholders: • E.g.: World Bank Mining Sector Assistance Projects in the DRC, Cameroon, Uganda, Mauretania, Burkina Faso, Sierra Leone • E.g.: PROMINES project in DRC

16. What else is required? • Policies developed for states and businesses should: • Be informed by an assessment of how natural resources sectors function on the ground. Includes an assessment of key stakeholders and the institutional infrastructure of the natural resources sectors. • Take into account what is feasible in the light of local realities and capacities in the short to medium term, while fixing aspirations on international standards in the long term.

17. Examples of tools Political economy analysis • A framework that helps assess the existing power structures, institutional capacities and the interaction between business and politics in a specific sector such as mining • Helps assess and mitigate risks, and make more effective the engagement with local communities, government, non-state actors, civil society and other stakeholders of the mining sector. Socio-economic impact assessment • Examines the effects of a mining project on the economy of the host country and its intended and unintended social consequences • Helps develop strategies to meet local concerns and build local support • Helps mitigate risks for investors

18. Conclusion: Relevance to Ghana • Africa’s future is one of great promise • Promoting mineral trade should be an opportunity for development for Africa. • Oil, in many respect, is different from minerals but broad principles that were discussed can hopefully be applied to this sector.

19. Thank you for your attention! www.resourceglobal.co.uk marielintzer@resourceglobal.co.uk