sharing in governance of extractive industries
Recent events in mineral-producing countries, namely Zambia as of late, are shedding renewed light on whether mineral producers have adequately linked their resources to broader socioeconomic development, or whether an opportunity has been missed. Communities with significant mineral reserves have long wrestled with how to make the most of these endowments – how to establish employment-generating industries that build on these reserves both upstream and downstream along the value chain for mineral-based goods. Zambia is currently making international headlines regarding debt and allegations of financial mismanagement, but the source of these controversies is an issue that has been brewing for some time, that of responsible use of mineral sector revenues and the orientation of the sector as a whole towards more productive, sustainable sectors.
As the situation in some mineral producers fluctuates and worsens, it is notable that many aspects of the Africa Mining Vision – the continental framework which outlines the imperative productive use of natural resources for structural transformation, job creation and development – represent a great opportunity if exploited. Short term developments – such as commodity price fluctuations, the issuing of debt and the source country, organization or currency of that debt – while important, do not tell the full story of long-term strategies that countries can pursue regarding the role of resources. A progressive vision would then permeate down to inform sector-specific strategies, macroeconomic policy, resource mobilization, education and training, infrastructure and a whole host of related policy actions. Yet in many mineral producers, a combination of failures to formulate, apply and implement such a developmental vision across the economy has persisted.
The development of Zambia’s economy and copper production since independence has been well studied. What should be emphasized amidst recent uncertainty and anxiety is how Zambia – with relative improvements in governance perceptions as per the Ibrahim Index, external debt as a percentage of GNI which was brought down significantly and then hovered just over 20 per cent for the past decade until recent rises to around 50 per cent (see Figure 1), a clear aspiration for commodity-based value addition and development, and endowments of a mineral increasing in global price and demand – managed to end up in this current state. One factor is the persistence of primary extraction. Mineral rents as a percentage of GDP have been hovering between ten and twenty per cent, and are a larger percentage of exports, while the figure for manufacturing as a percentage of GDP (as a proxy for value addition and diversified sources of jobs and incomes) has remained below ten per cent.
Figure 1: External Debt Stock Figure 2: Ghana's Mineral Sector, 2016
Source: World Bank World Development Indicators 2018 Source: AMDC forthcoming report “Scaling up
value creation and local development
in the upstream mining sector in Ghana"
In the case of Ghana, despite relatively strong performances, worrying trends abound. While Ghana ranks 8th in Africa as per the Ibrahim Index, its score has been slightly declining in recent years. Similar to Zambia, debt-to-GNI was brought down markedly but has begun to steadily rise from an average around 30 per cent per year to over fifty per cent by 2016. Ghana’s mineral rents have played an outsized role in some areas, accounting for 22 per cent of government revenue and 45.5 per cent of exports as of 2016. Yet it has not been similarly significant for income and job creation (see Figure 2), while manufacturing value added, in comparison, stagnates below five per cent.
In light of these developments, there are a number of takeaway messages of the crisis we see unfolding for other mineral producers, many of which are echoed in ongoing work of the African Minerals Development Centre (AMDC) as it assists countries in implementing the Africa Mining Vision.
 AMDC forthcoming report, “Scaling up value creation and local development in the upstream mining sector in Ghana”
Add a Comment