Resource-base African Development Strategy (RADS)
Africa Task Force Meeting: Preparing for TICAD V
November 13-14, 2012
PaulJourdan
ROUGH DRAFT, NOT FOR CITATION
"Towards a Resource-based African Industrialisation Strategy"[1]
This paper outlines how Africa’s unique natural resource base could provide its peoples with an important lever to achieve industrialisation and development objectives if the seminal resources linkages industries and clusters are realised. Alternatively, these assets could be squandered under ‘free entry’ resource regimesand a continued ‘free market’, non-interventionist scenario, which is likely to leave Africa with little more than ghosttowns, or with exhausted soils and depleted fisheries, forests and other natural endowments. The paper assesses Africa’s natural resource endowments (agriculture, water, minerals, forestry, energy, fisheries, tourism) before discussing the current African “free mining” mineral regimes inherited from colonialism. It then analyses theimpact of the current crisis and the underlying commodities boom and proposes a resource-based African development strategy that maximises the crucial resources economic linkages (fiscal, backward, forward, knowledge and spatial).
Development Theory is in Need Of Rethinking?
Justin Lin (2010) has argued that that the traditional minority world development theories have run out of steam and need radical rethinking.
Source: Justin Lin
He argues that “a developing country can change its industrial and economic structure by changing its endowment structure” consisting of both its factor endowments (land/natural resources, labour, and physical & human capital) and its infrastructure endowments: both hard/tangible infrastructure and soft/ intangible infrastructure (institutions, regulations, social capital, value systems, etc.). Africa has spectacular land/natural resources endowments that could provide the catalyst for building its capital and infrastructure endowments. Lin proposes that “following comparative advantage determined by the endowment structure to develop industries, is the best way to upgrade endowment structure and to sustain industrial upgrading, income growth and poverty reduction” and that the best models are from other countries that managed industrialise with a similar set of endowments. In Africa’s case this would entail the identification of the crucial interventions of countries that succeeded in industrialising off their natural resource endowments[2]. This paper attempts to explore such a framework for African resource-based industrialisation.
Africa’s natural resources
Africa’s natural comparative advantages lie in its natural resources endowment as well as in its potential, particularly in minerals and energy; agriculture and animal husbandry; forestry and biomass; water; fisheries and aquaculture; and tourism[3].
The continent’s energy resources are exceptional, comprising enormous coal reserves, massive hydro-power potential, hydrocarbons, nuclear minerals and potential solar and geothermal energy.
It has spectacular mineral resources such as the platinum group metals, as well as iron, aluminium, copper, nickel, chromium, vanadium, manganese and cobalt.Its resources of ferrous ores (Fe, Cr, Mn, Ti, V, etc.), combined with its reductants (coal, gas) and energy resources could provide it with the most important industrial feedstock, iron/steel, and its fossil fuel resources (hydrocarbons and coal) could also provide the critical polymer feedstocks essential to modern industrialisation.
Africa is well-watered between the tropics, but above and below them its water resources are constrained. Overall, Africa uses less than 4% of its water, but water is generally scarce in terms of access,with the rivers and lakes often in deep valleys or rifts, requiring major access infrastructure[4].
Due to its high variety of climatic zones, geology/soils and topography, Africa has almost all the biomes necessary for the production of the bulk of agricultural products, both foodstuffs and industrial feedstocks.A FAO study has estimated the potential land area for rain-fed crops, excluding built up areas and forests, for the whole of Africa at ~300 million hectares[5]. Fertilizer consumption (kilograms per hectare of arable land) is less than 10% of the global average despite Africa possessing large and diverse sources of fertilizer minerals (NPK)[6].
Natural harvesting of sea fisheries has peaked and although Africa’s approximate 28000km coastline with two major oceanic systems could give it a relative mariculture advantage, this industry is still in its infancy. Natural harvesting of forests is in decline but there is enormous potential for plantation forestry, particularly between the tropics.
Africa has huge tourism potential based on its enormous cultural, ecological and geographic diversity. This labour-intensive industry is growing rapidly and could become a major job creator if the natural assets are conserved and effectively managed.
Consequently, Africa’s natural resource endowment gives it a potential static comparative advantage, albeit a declining advantage in the case of finite mineral deposits based on its diminishing mineral resources. A critical endeavour of an Africa development strategy must be to transform this unsustainable comparative minerals advantage into a sustainable competitive advantage.
Africa’s natural resources.
Africa’s mineral resources
Africa has the world’s largest resources of the platinum group metalsas well as aluminium, chromium, gold, manganese (high-grade ore), cobalt and vanadium and large resources of several other minerals. The continent is also a major producer of these minerals (see Table). In terms of minerals, including hydrocarbons, Africa has virtually all the important minerals for diversified industrialisation, particularly iron/steel and polymers. However, almost all of its mineral wealth is currently exported as ores, concentrates, alloys or metals with very little transformation into fabricated products.
Africa has ample resources of the two most important mineral inputs into manufacturing, namely iron/steel and polymers (from oil, gas and coal). Unfortunately, the resources for both are generally exported as crude ores or minerals, severely curtailing manufacturingpotentialand job creation.
Critical minerals for agriculture are nitrogen (from natural gas or coal), phosphates and potassium which Africa has considerable reserves of. In terms of infrastructure, the most important materials are cement (limestone, clay, gypsum, energy), construction steel (iron ore, reductant, energy) and copper. Although Africa has ample resources for their cost-effective production, unfortunately they are undeveloped or production is sold at monopoly prices, significantly raising costs.
Common African markets could make a difference in facilitating greater economiesofscale, competition and competitive prices for the essential industrialisation of mineral feedstocks.
Mineral production and reserves in Africa.
Mineral / Production / Rank / ReservesPlatinum group metals / 54% / 1 / 60+%
Phosphate / 27% / 1 / 66%
Gold / 20% / 1 / 42%
Chromium / 40% / 1 / 44%
Manganese / 28% / 2 / 82%
Vanadium / 51% / 1 / 95%
Cobalt / 18% / 1 / 55+%
Diamonds / 78% / 1 / 88%
Aluminium / 4% / 7 / 45%
Also Ti (20%), U (20%), Fe (17%), Cu (13%), etc.
(Source: USGS 2010)
Africa’s mineral regimes
African mineral regimes are essentially based on the principle of free mining, or ‘free entry’. Legal mining expert Barry Barton defines free mining as including:
- “a right of free access to lands in which the minerals are in public ownership;
- a right to take possession of them and acquire title by one’s own act of staking a claim; and
- a right to proceed to develop and mine the minerals discovered” (p. 193).
The mining laws broadly fit into the African mineral regimes reformulation process initiated and/or sponsored by the World Bank from the late 1980s until the present and in this regard Professor Bonnie Campbell notes in the Canadian Journal of Development Studies:
“. . . certain elements of the free mining doctrine that animated the nineteenth-century formulation of mining regimes in the American and British spheres have also guided the liberalisation process of African mining regimes over the 1980s and 1990s. One of the ways this came about was through the retrenchment of state authority, which in turn contributed to the institutionalisation of asymmetrical relations of power and influence that had important consequences for local political processes, local participation, and community welfare. The approach consequently helps explain some of the social, economic, environmental, or human rights impacts of these regimes, and prompts one to question the extent to which current mining regime reform processes in Africa can transform the asymmetrical power relations that have typified mining activities on the continent in the past” (p. 199).
Free mining refers to the mining regimes that were established in the European conquests. Authors Myriam Laforce, Ugo Lapointe and Véronique Lebuis maintain that free mining ‘privileges the values and interests of mining companies in contrast to those of Aboriginal groups’, and that it was primarily designed to attract European settlers to expropriate the land and minerals and to neutralise the indigenous populations in the Americas, Africa, Oceania and elsewhere. The mineral regimes of Canada and Australia are modern equivalents of free-mining regimes, which are unsurprisingly strongly favoured by the mining transnational corporations and the World Bank. African mining laws contain many elements of a free-mining regime, particularly the first-come-first-assessed(FIFA) principle, which dispenses the people’s mineral assets gratis, rather than seeking price discovery and the maximisation of the developmental impacts. Fundamentally, according to Ugo Lapointe, ‘The free-mining system limits the authority and discretionary powers of governments, and as such, governments’ abilities to discharge some of their responsibilities.’
An African industrialisation strategy should rather seek to establish a mineral regime that competitively and transparently concessions all ‘known’ mineral assets as 25–30 year leases to achieve the optimal resource rents and linkages. Price discovery could include both bidding up fiscal criteria (tax rates, such as resource rent taxes) and developmental criteria (industrial linkages, infrastructure and product pricing).
The wholesale handing out of Africa’s mineral assets over the last two decades has probably cost over a million jobs, including those that could have been catalysed in other sectors, particularly in up- and downstream investments. In general, mineral investors will tend to have a much better idea of the value of the state’s mineral assets than the state itself, and competitive auctioning (concessions) would be an effective method of achieving fair value and developmental goals, through testing the market’s appetite for establishing industrial linkages. However, where there is little or no geodata, an auction is unlikely to flush out fair value and these terrains should first be thoroughly surveyed by the state (geosurvey departments or sub-contractors) before auctioning via a time-limited mining concession(licence) or opened up for private exploration (where the asset is considered to be non-auctionable).
Accordingly, following best practice in the oil and gas sector, African statesshould demarcate their territory into areas of unknown mineral assets (high risk), areas of low risk over known metallogenic terrains and areas of partly known deposits. The first (high risk) would be open to private exploration (FIFA), the second (known assets) would be auctioned off as blocks with the state tax-take (resource rent share) as the main evaluation criteria (price discovery) in order to flush out the optimal net present value over the life of the concession for the state, as well as developmental criteria such as jobs, infrastructure, linkages and local capital participation (“indigenisation”). The third category (partly known occurrences) could be reserved for further geosurvey by the respective geosurvey departments, or explored in partnership with private capital.
With increased investment in resource mapping and geodata acquisition, areas would be reclassified from high risk to low risk. Unfortunately, the most geologically prospective parts of the continent have already been concessioned, usually with no attempt at price discovery or the maximisation of their industrial development potential. Over 90% of all new African mines in the last boom decade were not “discovered”, but were based on known assets, particularly old mines or workings and old exploration targets.
Known and unencumbered mineral terrains could be prepared for public tender by the geo-survey department (the GTK in Finland develops targets for tender[7]) or transferred to a state minerals development vehicle and prepared for competitive concessions. However, oversight of the auctioning process might be best undertaken by an adequately resourced dedicated resources concessions and compliance commission under the respective national treasuries, which could also carry out the ongoing monitoring and evaluation of the concession conditions (including industrialcommitments).
Possible mineral rights licensing regime.
However, it remains to be seen whether the juxtaposition of national and international forces will permit the optimisation of the developmental impact of Africa’s substantial resources endowment. The resource companies and their international allies (particularly the Bretton Woods institutions) appear to have prevailed in subverting the first post-colonial industrialisation agenda (particularly through Structural Adjustment Programmes and free mining regimes), but will they prevail again over a new developmental agenda? The counter-agenda has arguably been weakened over the last decade by:
- the exit (relisting) of the main African mining conglomerates (Anglo, Lonrho, Union Minière, Gencor and Goldfields): their control of African economies, particularly southern Africa, has been dramatically reduced through ‘unbundling’ and a refocus on their core competence of mining (‘dirt-digging’);
- the widespread discrediting of the ‘free market’ non-interventionist ideology by the recent global US toxic debt crisis; and
- the increasing success and importance of China and other Asian economies in the global balance of power and economic strategies (the “Beijing Consensus” versus the “Washington Consensus”).
Consequently, the time may be right for establishing a resource-based African industrialisation and development trajectory.
The current crisis and the underlying commodities boom
Any strategy utilising a resource endowment clearly requires a degree of comfort that resources demand will be sustained and that prices will not suddenly collapse as happened in the 1980s and 1990s and in the second half of 2008.
From 2002 to 2008, many developing countries displayed strong growth after several decades of stagnation due to the recent commodities boom, which was provoked by robust demand from China and, to a lesser extent, other emerging economies such as India and Vietnam. Many developing countries have significant potential for commodities production, especially minerals, and consequently foreign direct investment (FDI) into the majority world has, according to the UNCTADWorld Investment Report (WIR), displayed a marked upturn since 2002/3, mainly into the mineral resources and telecommunications sectors. The commodities boom faltered during the second half of 2008 due to the global recession caused by the US sub-prime debt crisis, but most commodity prices have recovered to 2007/8 the levels and foreign direct investment is reviving.
FDI inflows, global and by group of economies, 1995-2010 (Billions of dollars)
(Source: UNCTAD 2011)[8]
The resources boom took off in 2002/3 with dramatic increases in the prices of minerals, which was followed by agricultural bio-fuels feedstocks in 2006 and other agricultural commodities in 2007. The lag in the price response of agricultural commodities to Asian demand was most probably caused by the price-depressing effects of minority world agro-subsidies, combined with mineral supply inelasticity.
Indices of primary commodity prices.
(Source:
Nevertheless, the two seminal questions remain: when will the current global US toxic assets and Euro debt recession abate; and how long will the underlying demand last? Or will it peter out like so many earlier commodity booms?
The underlying driver of mineral demand is the metals intensity of global gross domestic product (GDP) growth. The Figure below displays the global steel intensity, which is a good proxy for metals intensity, per world real GDP per capita.
Global Minerals Intensity of GDP
Source: Adapted from
Phases of Global Steel Intensity of GDP
The global steel intensity of GDP shows three distinct phases since the Second World War:
Phase 1 (1950 to ~1970): high intensity – Post-Second World War minority world (first world) reconstruction and increasing buying power within the minority world, resulting in strong minerals demand and prices and widespread move to greater state control (nationalization) of resources. Negligible majority world (third world) industrialization impact.
Phase 2 (1970 to 2000): low intensity – minority world infrastructure installed, move to services (only Asian tigers in high-intensity phase, but too small to impact on global trend). This resulted in over-supply and low prices for most minerals. Stagnation and political instability in resource exporting states (majority world). Widespread privatization of resources and return to colonial “free mining” regimes, often dictated by Bretton Woods Institutions (SAPs) under minority world “Washington Consensus” ideology. This growth gap reflected a failure of continuous global growth due mainly to minority world hegemony over international trade regimes and widespread use of subsidies.
Phase 3 (2000 to present): High intensity (higher rate than Phase 1) as the majority world takes off (Brazil, Russia, India, China – BRIC countries) and trade rules are increasingly revised, reflecting a partial loss of minority world hegemony over global trade systems. Period of high demand and prices and a return of “resources nationalism”, but temporarily stalled due to the extraneous US toxic debt crisis, but by the second half of 2009 demand was already showing signs of recovery through stimulus packages and by 2011 most commodity prices had regained pre-crisis levels.