Four tough issues to address to beat the "resource curse"
29 January 2014
Posted by: Author: Keith Slack
Author: Keith Slack (Trust)
Any views expressed in this article are those of the author and not of Thomson Reuters Foundation.
The global mining industry, government officials and representatives from international financial institutions will gather once again in Cape Town, South Africa next week for Mining Indaba, the largest annual global mining industry conference. There will be a lot of networking, deal-making, and wine-drinking, but probably not much discussion of the tougher issues facing African countries as they try to use their mineral resources to develop their nations. This is unfortunate for Africans trying to beat the "resource curse," a phenomenon where countries that are rich in natural resources are frequently plagued by poverty, corruption and instability.
1. Most critically, African countries need to find ways to capture more added-value from the raw minerals they produce.
Africa will never develop based on the export of raw ores alone. Adding value or "beneficiation” is critical to helping economies grow and move up the economic ladder. Value-adding industries create down-stream and spin-off activities that, in turn, create higher-paying jobs leading to development.
The problem is that it is extremely difficult for countries to develop high-value industries in the face of intense global competition.
Zambia, for example, is hard-pressed to create a copper processing industry because of cost competition from China. The same could be said for gold and bauxite smelting and diamond polishing. Other countries already do these things cost-effectively, so there is no incentive to invest in African countries’ ability to do so.
2. African countries should assert their rights to keep more of the profits from their own resources.
The continent is riddled with woefully bad deals negotiated between mining companies and governments who either didn’t know any better or didn’t care. Abusive transfer pricing, in which companies shift profits out of Africa in order to avoid taxes, is a loathsome tactic that cheats poor African countries out of tens of billions of dollars every year.
Zambia is an example again. The current government estimates that it is losing $2 billion per year in revenues due to tax avoidance. Some countries have begun to try to claw back some of what they lost, which has opened them to the charge of "resource nationalism.”
Niger's current negotiations with French uranium conglomerate Areva, in which Niger is seeking a greater take of uranium revenues, is another example.
3. More progress is needed in the mining industry’s corporate social responsibility (CSR) practices.
Progress has been made in recent years on key issues like free, prior and informed consent (FPIC) and transparency. In a positive step, earlier this month two Canadian mining associations, the Mining Association of Canada and the Prospectors and Developers Association of Canada, announced support for mandatory payment disclosure. But we still see situations like that highlighted last year by Human Rights Watch involving giant companies Vale and Rio Tinto in Mozambique. The companies, both members of the International Council on Mining and Metals (ICMM), were accused of shoddy relocation processes for thousands of poor Mozambicans amounting to human rights violations.
That kind of situation simply must not occur anymore, especially with big, modern companies like Rio Tinto and Vale.
Mining companies should also publicly support the expansion of mandatory reporting requirements into key mining jurisdictions like South Africa and Australia. It’s time for companies to apply corporate social responsibility principles to their fiscal practices as well, making deal-making and contracting fully transparent.
4. The political dynamics around resource revenue management have to be addressed.
Mining companies play a vital role by fully disclosing all payments and contracts they make with government officials. They should ensure strict compliance with global anti-corruption regulations. Donor governments, international financial institutions, and non-governmental organizations can support effective citizen oversight of revenue management by strengthening public participation and citizen voice. They can also support the creation of formal oversight mechanisms such as the Public Interest and Accountability Committee in Ghana and strengthen government environmental and human rights agencies vis-à-vis powerful mining and energy ministries.
These are a few of the more difficult issues facing mining-based development in Africa that delegates gathering in Cape Town should be discussing. I’ll be participating on a panel sponsored by ICMM on sustainable sourcing, so I’ll raise these issues if and when I can. I’ll also be attending the Alternative Mining Indaba, a civil-society convened parallel event that is seeking to respond to some of these gaps in the agenda of the official conference. Hopefully future editions of that event will take them up more directly.
This article first appeared on trust.org.