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sharing in governance of extractive industries

The Africa Mining Vision After the Boom

Mineral rich Africa confronts its strongest ever headwind since adopting the Africa Mining Vision, in 2009. Prolonged fall in commodity prices, presents a challenging environment for implementing the forward-looking continental framework to promote broad-based linkages from the minerals sector into the wider economy in ways that will diversify economies. Demand-driven factors underpinned by slowdown of growth in China— which consumes over 50% of all metals— as well as industry-specific forces together have significantly weaken mineral prices since their recent high of 2011.

The depressing volatility is hardly new phenomenon. Commodity price peaks and troughs repeat themselves often in painful patterns of vulnerability, risk and crisis. The targeting of revenue while important is not decisive for transforming the sector. The slump in prices therefore reveals fundamental cracks in the revenue-first model, whose unrealistic assumption of sustained high commodity prices dominates extractive-led development. But the adoption of the continentally owned strategy aims to do business differently— integrating the extractive industry greater into the local, national, regional and global value chains. Central to the AMV is the goal to unleash broad-based value beyond maximising revenues, by aligning in a forward looking manner, mineral development projects with infrastructure, industrial and trade policies. After the boom, it is even more imperative for countries to get down to the hard work of implementing the development agenda embodied in the Vision for the sustained structural transformation of economies.

Climb the ladder

It remains unclear how low things may go before they get better. Prices have declined steadily over the past couple of years— in varying degrees – across the board. But they have not collapsed entirely. Depending on macroeconomic situation, governments have also been affected in different ways. Poorly diversified economies and mineral-revenue dependent countries have been worst hit. Investors have also responded in different ways, too including spending cuts and layoffs by some of the world’s biggest mining companies in Africa. For the first time since 2009, the market value of the global mining industry dropped below US$1 trillion, compared to 2.5 trillion just over four years ago[1]. Africa’s growth projection by the IMF remains downbeat: even though finishing 2015 at less than 4 percent, the continent continues to perform above the global average[2][3].

Beyond the mixed picture, the failure of manufacturing to take hold during the boom, remains worrisome. Very few countries have achieved high and sustainable standards of living without developing significant manufacturing sector. Yet the continued focus on exporting commodities in their raw forms, crowded out opportunities to upgrade within value chains— creating more jobs through leveraging comparative advantages of mineral endowments. The Economic Commission for Africa, estimates that continental output from manufacturing during the period even dropped from 12-11%, the smallest share of any developing region. Dependence on exporting minerals in their raw form increased, while mining share of employment contracted from 1.5 % in 1975 to 0.9% in 2010. The revenue model not only exported potential jobs but also stability too. The ECA estimates that annual fluctuation in prices for ores average 23% against 13% for a minimally processed ores.

Some subsectors are bucking the stagnating trend, climbing rather than ‘kicking away’ the manufacturing ladder. And here is why the AMV focus on optimizing the full potential of all minerals is fit for all weather. The low value minerals including limestone and sand often neglected because of their low commodity value, are not only demonstrating strong resilience but also remarkable transformative potentials for economies. Cement manufactured in the continent from abundant limestone deposits is witnessing spectacular growth at five percent annual consumption, correlating strongly with Africa’s GDP as well as suggesting minerals-based structural transformation. In fact, a recent industry report in Nigeria shows that every one percent increase in domestic production of cement adds over 5% to GDP growth[4].

Norms- establishment

The same old medicine will rarely transform Africa, even by doubling the dosage. Stakeholders have responded differently to the changed context with implications for extractive-led development. Some African governments have fallen back to short-term revenue view of the sector, reviewing their mining policies in ways that may misalign with long-term development orientations. While mining companies are encouraged to take a long-term view, seizing the opportunity presented by falling prices to push-back against progress made by countries in implementing local content and value-addition strategies that are aligned with the AMV[5].

At the same time, opportunities are emerging for AMV to establish itself as Africa’s own norms. The newly adopted Sustainable Development Goals commits the global community including businesses to work towards greater participation of African countries in value chains by ‘’encouraging investment in value additions and processing of their natural resources and productive diversification’’. In fact, structural transformation through commodity based industrialization is at the heart of Agenda 2063, the continent’s long-term development framework.

Towards a Compact

But the AMV will only sustain itself as a truly transformative framework by incorporating the interests of all stakeholders. While the Vision has been adopted by all 54 countries, the role of the private sector remains crucial for its implementation. Mining investments are capital intensive, beyond the efforts of governments alone. And aligning them with industrial and trade policies, requires collaborative efforts between investors, governments and communities, in a spirit of shared value and benefits.

The AMV therefore aims to make sense for businesses, through facilitating the emergence of competitive mining economies. As a long-term framework, the Vision provides stable institutional base for partnerships with the private sector. The development priorities of infrastructure, innovations and local content present profitable opportunities for public private partnerships. And where governments have applied AMV compliant policies in a smart and dynamic fashion, the outcomes have been transformative. For example, the spectacular emergence of the Nigeria as a net exporter of cement, has been thanks to focused local content policies for encouraging domestic manufacturing of cement. Consequently, Africa is experiencing its own first world class industrial conglomerate of continental reach. And strikingly, in the downbeat moment, when other mining companies are revisiting their strategies, the multibillion dollar Dangote Cement Group is betting on Africa’s future like never, tripling its expansion across the continent.

Formulating a sustainable future for the extractive industry in Africa requires looking beyond super cycles. Creating an environment for permanent and strategic dialogue is crucial for achieving win-win outcomes particularly in times of subdued markets. The AMV, through the Country Mining Vision, provides the tool for stakeholders to reflect on the long-term future taking into consideration unique country contexts, business opportunities, and challenges as well as creating the enabling environment for transforming the mining sector. Success certainly requires balancing act, trade-offs pragmatism and ambitions. The Africa Minerals Development Center and the African Union Commission are finalizing a compact for greater participation of private sector in implementing the AMV.

It is interesting times for the mining sector. Indeed, more challenging than the many assumptions behind donor-led policy prescriptions to African governments. Yet after the boom, a sense of perspective remains even more imperative. And for those governments and companies smart enough to lay the foundations for the broad-based development of the sector during the doom and gloom period, the future will be transformative for industry, people and planet.

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[1] SNL(2015) Industry Monitor, October Report http://go.snl.com/October-2015-Industry-Monitor-Mining-Industry-Val...

[2] IMF(2015) Regional Economic Outlook: sub-Saharan Africa navigating the headwinds. https://www.imf.org/external/pubs/ft/reo/2015/afr/eng/pdf/sreo0415.pdf

[4] DLM (2015), The Nigerian Cement Industry, Donn Lauren Merrifield Report

[5] PwC(2015) Gloves are off: Review of Global Trends in the Mining Industry https://www.pwc.com/cl/es/publicaciones/assets/mine-report_06-2015.pdf

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