African countries maximising on their natural resources
by Jerry Bungu
Never before have African countries become conscious of maximising their natural resources as many governments and beyond are renewing efforts to optimise the value of their natural resource base as a primary driver for social and economic development.
New steps taken by governments to maximise the development impact of natural resources is enviable but creates both challenges and opportunities for governments and the private sector alike. This development has called for the private sector to find ways of harmonising their activities with the economic development agendas of the host countries.
“Resource nationalism” has been orchestrated by the growth in commodity prices and has been facilitated the increasingly sophisticated economic tools available to governments to capture additional value from natural resources exploitation.
In other cycles it has been called “beneficiation” as was witnessed recently in Botswana by the discarding of the old sales and marketing agreement with De Beers in favour of the more lucrative 10 year contract that is going to make beneficiation and downstream economic activity of the country stimulated from the mining of diamonds in the country.
Over the past decade the rapid expansion in emerging markets has created unprecedented levels of demand for raw materials minerals which Africa is heavily endowed with. The increase in demand has raised global commodity prices creating what has come to be known as the “commodity super-cycle”. The growing appetite for commodities has further increased interested in untapped reserves of natural resources, many of which are found in sub-Saharan Africa.
Following the downturn of 2008, commodity prices rapidly recovered with many minerals and metals reaching record prices in 2010 and 2011, including gold and copper. To meet the increasing demand, production and consumption of minerals grew rapidly and major mining companies looked to unexploited resources of key resources.
Consequently, the resurgence in resource nationalism has grown out of African governments looking to capitalise on the commodity super-cycle to fund sustainable development and growth. According to De Beers, Africa caters for 78 percent of diamond production, 54 percent platinum, 24 percent of phosphate, 19 percent of gold, 7.9 percent of copper and 4 percent iron.
This has forced resource rich African states to be keen to translate their mineral wealth into economic growth and they are increasingly looking to policy options to maximise the benefit derived from their natural resources.
Having been out of favour for several decades, resource nationalism is once again strongly on the rise. Over the past year, 25 governments worldwide announced new plants to secure greater proportion of revenue generated by mining, by revising mining codes, forming state mining companies and using other policy tools.
Coupled with fiscal stresses and chronic development challenges, governments are under distinct pressures to generate greater value from their natural resource bases. Despite holding 30 percent of known global minerals reserves and experiencing ever increasing interest in exploration and resource mapping, 26 African countries are still categorised as “low income” by the World Bank.
The list includes resource rich countries such as Democratic Republic of Congo, Mozambique and Zimbabwe.
Resource nationalism is motivated by the frustration that mineral wealth has not translated into broad-based development and sustainable growth and there is the perception that African minerals disproportionately benefiting foreign mining companies and promoting growth in other countries.
Governments are also concerned about the extent to which metals and minerals are exported without significant value added process like manufacturing taking place.
Historically, the combination of mineral wealth and high commodity prices has not always translated into measurable development outcomes. There is the need to address challenges of unemployment, poor service delivery and inequality. Botswana and South Africa, both classified as middle-income countries have two of the highest income inequality indicators in the world and the gap is widening.
In Zambia where copper production has recovered to pre-nationalisation levels of President Kenneth Kaunda, the government has announced that the 2012 budget would increase the royalty on base minerals and precious metals to 6 percent. The new royalties are projected to raise about $195 million that will fund additional spending on health and education programmes that President Sata promised to deliver on the back of Zambia’s mineral deposits.
In Guinea, the new mining code gives the state 15 percent free carry entitlement to all operations plus the right to buy 20 percent. New mining contracts must also meet a quota for local procurement. And the minimum operational investment is set at $1 billion.
Closer by, in Zimbabwe, the indigenisation policy mandates that 51percent of foreign firms must be ceded to indigenous Zimbabweans. There are additional requirements and royalties on specific minerals such as the ban on raw platinum exports and platinum mining royalties.
In Botswana, the new sales agreement dictates that the government will sell 15 percent of Debswana production which has not yet been exercised.
In the same manner, in Namibia, besides De beers having a 50/50 partnership with government, it has also formed a mining company called Epangelo which holds exclusive exploration and mining rights for all strategic minerals such as uranium, copper, gold, zinc, precious metals, diamonds, rare earths and coal. Foreign companies can set up joint ventures with Epangelo for operations thought the state mineral company has set a target of 10-155 free carry in any new mining projects. The list goes on from Ghana, Tanzania to Sierra Leone.
The idea, however, is to capture greater value locally. The goal of beneficiation is to support the creation of globally competitive downstream industries in producer countries through working with mineral companies and break the tradition of mine and go.