Governance for Development in Africa: Natural Resources Governance

1. Governance for Development in Africa: Natural Resources Governance Presentation by Yao Graham Third World Network-Africa Addis Ababa, 26th March 2012

2. Structure of Presentation • Key concepts – “Governance” and “Natural Resources” • Minerals in African Economies • Construction of current mineral regime and its governance • Governance experience • Resource curse focus • Governance as process • Outcomes of governance: lessons and issues • Towards a mineral governance for development: The African Mining Vision • Terms of the AMV and associated processes • Drivers of Change • Implementation challenges

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

5. Minerals in Africa’s Economies • Finite publicly owned resource • Exploit in manner which: • Transform into sustainable and greater value • Prevent/ minimise negative social and environmental impacts • Develops local economic capabilities and enterprise ownership • Fundamentally enhances local economy • Enhances local livelihoods • Distribute benefits equitably

6. Minerals in Africa’s Economies • Mineral Resource endowment • Colonial construction of raw material(mineral) export dependence and production enclaves dominated by foreign firms • Post colonial attempts at regaining control • Crisis, SAPs, FDI led growth and new governance

8. Minerals in Africa’s Economies • Historically created by colonialism as foreign enclave economic activity dominated by foreign capital with weak linkages to rest of economy • Choice of which mineral exploited and how driven by conception of role of mineral resources in development of colonial powers • Colonial strategy interested in raw mineral for export

9. Minerals in Africa’s economies

13. 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

14. 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

15. Mineral Development Strategy since mid 1980s • No policy framework for minerals and economic development including: • Upstream and downstream linkages • local enterprise development • Focus on developing minerals with export value • Emphasis on attracting foreign investment into sector • Creating enabling environment for FDI • Creating institutions and processes that deemed necessary for export led-FDI based mineral development strategy

16. Generations of Mining Policy and Legal Reform in Africa Since 1980s -1 • During the 1980s: The main emphasis of these regulations was the withdrawal of the State through extensive privatisation processes deemed necessary to opening up the sector and attract FDI. The Minerals and Mining Law (Law 153/1986) of Ghana is one the earliest example. • Early 1990s: Regulations passed involved and increasing recognition of the need for certain forms of regulation, notably with respect to the environment, with responsibility for this assigned mainly to the private actors. An example of this generation is the Guinean Mining Code (1995)

17. Generations of Mining Policy and Legal Reform in Africa Since 1980s -2 Late 1990s: They intend to enhance participation and consultation aspects and address regulatory questions Tanzania (1998), Mali and Madagascar (both 1999) exemplify this generation. After 2000s: This generation broadens further the scope of law and regulations to include allocation and redistribution of mineral revenues to local governments and communities, compensation criteria, enhancing environmental and social dimensions, public participation and government accountability. The Mining Laws of Ghana (2006) and DRC illustrate these reforms.

18. Overgenerous Incentives for FDI Liberal tax regime No local content policy -- best endeavour in employment and procurement Informalisation of work in mines Instinctive siding with foreign investors against communities

19. Over generous tax regimes • Roughly similar trends across continent • Sweeping exemptions and holidays • No export or import taxes • Low CIT rates (30% or lower vs 40% in 70s/80s) • Extremely low withholding taxes • No windfall or additional profit taxes • Low royalty rates: average 3% (0.6% in Zambia) • Stability agreements freezing fiscal terms • External retention of earnings

20. Consequences of Strategy • Huge inflow of foreign capital into high demand export mineral sector –gold • Expansion in mineral production and exports • Revenue stream main planned benefit of mining • Industrialisation involving exploitation of industrial minerals fell off the agenda • Revival of colonial style mining enclave with weak linkages to rest of economy • Promotion of institutions that support FDI • Weak attention to local enterprise promotion and support

21. Consequences of Strategy-2 • Weak development of regulatory institutions and enforcement and policy incoherence • Trade policy, industrialisation and mining • Race to the bottom among African countries • 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)

22. Consequences of Strategy-3 • Limited employment in mines • Wage disparities • Displacement and rights violations • Rural development as CSR • Discontent in mining areas

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

24. 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.

25. Resource Curse focus • Influence mainly from outside • 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 • Taxation regime

26. 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

27. 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;

28. 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;

29. 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.

30. 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

31. Key elements of new framework • 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

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

33. Key elements • Policy harmonisation and coherence • Institutional and HR development • Domesticate transparency processes (APRM) and strengthen overall governance (CSOs, legislature) • ASM and rural livelihoods and employment • Estimated 5m

34. National Actions to build competitive skill base that drives an African industrial economy • Assess human resources and skills need for the mining sector • Resource and strengthen training and public institutions to attract, train, • Diversify education, academic and professional training funding sources to include private sector, • Strengthen continuing professional development through short courses; • Align human resources development to AMV policy direction and needs of industry

35. National Actions to build competitive skill base that drives an African industrial economy-2 • Build capacities of government officials and other stakeholders on aspects of the mineral value chain, such as minerals marketing, taxation, accounting, auditing and contract negotiations • Build stakeholder knowledge and capacities on policies, legal frameworks and regulation of the mineral sector • Develop strategies and guidelines to retain competent staff, and to acquire necessary technologies and equipment to perform their functions • Coordinate and ensure policy coherence within and across public sectors

36. Regional Actions to build competitive skill base that drives an African industrial economy • Compile database of existing education and training institutions • Establish a strong inter university collaborative programmes • Develop a uniform accreditation and competence framework at sub regional level; • Improve cross-country accessibility of learning centres. • AUC and RECs to promote the movement of skills within and between regions • Promote the development of mining centres of excellence

37. National 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

38. 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

39. 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

40. Drivers of Change from below • Community struggles against and CSOs exposure of negative HR, social (loss of livelihoods) and environmental impacts and brutal policing • Growing fundamental societal questioning of overall cost-benefits of mining boom and operative frameworks and organisations for change; pan-African reaching out • e.g. AIMES (1999); NCOM (2001) • Studies, Reports on taxation, investment agreements, mining codes across Africa

41. 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

42. 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

43. COPPER PRICE MOVEMENT 2001-2011

44. GOLD PRICE MOVEMENT 2001-2011

45. Aluminium Price Movement 2001-2011

46. Platinum Price Movement 2001-2011

49. Unmet expectations- Revenue Between 2002-2007 average prices of minerals and metals rose by 260%. 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) • 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

50. Loopholes in benefit sharing • Windfall gains for developing countries “have been partly offset by increased profit remittances by transnational corporations” -UNCTAD • 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