Creating regional economic dynamics in extractive industry

30Dec 2017
The Guardian
Creating regional economic dynamics in extractive industry

QUESTIONS are being posed at high levels of policy making and brainstorming both in the country and outside as to fashioning an extractive industries policy that best suits interests of minerals rich countries or Africa as such.

It was in this context that Uongozi Institute organized, in collaboration with the office of the Ghanaian Vice President, a conference to ponder on the subject, 'Enhancing Value Addition in the Extractive Sector in Africa: Why Is it Important and How Can It Be Achieved?' holding a number of panel discussions in Accra.  It is unlikely that any hard and fast answers were given, but the issues may have become clearer.

When one looks at the leading angle a flagship supplement used on that event, the summation that 'continental forum urges African govenrments to invest more in extractive industries' highlighted not just the problem, but even the confusion.

The minerals sector is an area where the real battle is how its earnings are shared, and how far that can be rectified within both the rule of law and investment attraction, not where governments are under pressure to invest more, that is, allocate more budgetary resources.

This kind of pressure is for instance quite the case in agriculture, where sharing earnings isn't at issue but enhancing it.

One among the more pernicious issues being discussed was ownership status in minerals sector depletion processes, where Witwatersrand adjunct visiting professor Paul Jourdan raised the question of ‘allowing’ foreign capital to dominate in minerals extraction as a 'historic compromise.'

Otherwise the sector ought to be reserved for local extraction, a subject that has invited scores of debates with varying viewpoints, where a valid example is the local scene, whether in the mid-1990s foreign mining firms ought to have been invited or local firms allowed to enter and do some work. It doesn't appear though that any such case study was made.

Just how far our experience differs from that of other African countries is a case in point, for instance in Ghana there is Ashanti Gold and in South Africa the minerals industry can rightly said to be local, the main firms trading on the Johannesburg stock exchange, and then in London.

But Ghana has many features that resemble Tanzania, with large foreign shareholding in Ashanti Goldmines which is often discussed in the media as an aspect of Barrick Gold activities, and in the case of South Africa, distinguishing the localisation and foreign ownership in shareholding of Anglo-American Corporation, etc is difficult. It's a colonial legacy.

It is possible that the recent spat between the Tanzzania government and Barrick Gold will help sort out a few of those issues, for instance how far Acacia Mining - as the African arm of the parent company - remains solid and localized, as this is an aspect of accorded reached under evident duress for Barrick Gold.

It is not this type of stressful negotiations that the Uongozi Institute panel discussants would have primed their audience, but it is equally difficult to show how this kind of interaction can be avoided, if the issue is localisation of management, stopping hemorrhage of funds in the sector. Is it management or value chains?

The more difficult part of the panels or exchanges appears to have been in relation to how African countries move to extract more benefits from the sector, or localizes its activities much further, where the focus thus moved to minerals sector value chains. 

Here the stream of suggestions from the Wits University adjunct visiting professor did not relate to the minerals sector per se but the need to back up minerals sector dependency with moving to industries.

There was a pivotal suggestion that African countries need to buy from one another (to make industries viable) but EAC background experience in the pre-1967 period is bad.

What ails suggestions of how to build industries on a regional basis also falsifies ideas of a regional policy towards the mineral sector, where countries can move together as regional economic blocs.

This is what appears to have been the gist of remarks by two key contributors from Tanzania, one the Commissioner for Minerals Benjamin Mchampaka, and another as Executive Secretary of the Tanzania Chamber of Mines and Energy, Gerald Mturi, where the commissioner said Africa needs to develop regional mining visions for its economic blocs.  The trouble with that idea is that a bloc doesn't form a stock exchange, of sourcing capital.

Mturi noted realistically that Africa's private sector participation in the minerals sector was still passive, and that "no country in Africa has the capacity to provide the full cycle of skills needs," as if that was the main issue, instead of vision (of what to do in the sector) and capital (oriented towards that objective).

President John Magufuli sort of put the skills issue to rest when he observed that smelters come in various capacity ranges, and that a small smelter was actually stationed somewhere in Geita, which means the local private sector can acquire smelters if the conditions are ripe. Synergies with other African states are hardly required.

So when the chamber executive secretary talks about pooling resources at a regional level for the purpose, that appears to be a policy stylistic for large projects needing regional justification since at the local level they are left to the private sector.

The other alternative is almost out of reach, that is, infusion of aid, but in a regional context it is possible to imagine that this level of scale will instill confidence in would be financiers as the project has greater peer review merit when it ties down several governments, and less susceptible to policy twists and turns with each general elections. Still, banks with branches all over don't lack the capital.

As a matter of fact the South African don found it difficult to propose that a South African sort of model be applied in other countries, that foreign shareholders in minerals sector activities, or banks investing money in Africa acquire residence and citizenship status.

This way the purchase of traditionally held immobile assets would accelerate, and fresh mining areas would result from heavy compensation of the population, which also create a consumption base for industry as ex-peasants open projects with the capital infusion. This generalised expansion of credit also propels service sector expansion and boost middle class formation.

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