At the just ended Mining Indaba, the African Union Commission launched the Africa Mining Vision day, with a high level ministerial symposium bringing together key stakeholders. The 2016 commemoration was set against a particularly challenging background. Unlike last year, when signs of grim were just emerging, the present outlook for the commodity sector has changed markedly. A simple google search, tags mining and gloom together in an upwardly trend.
Below is excerpt of the speech presented by UNECA's Director Ms. Fatima Denton on behalf of Ms. Fatima Haram Acyl Fatima the African Union Commissioner for Trade and Industry
It is hard to say how low mineral prices may go, before they can get better. Every day seems to come with renewed uncertainties. The continuous sharp fall, certainly marks an end of more-than-a-decade long upward movement of prices. A period, whose fading phase, with hindsight, now seems to coincide with the adoption of the Africa Mining Vision, in 2009. The slowdown in China, an economy which consumes almost half of world’s commodities, and the continued glut in the market, call for profound and renewed reflections about extractive governance. Indeed, the downturn presents the strongest ever headwind to the AMV.
The painful and depressing patterns of collapsing prices are nothing new to the industry. Development practitioners in general agree on the following: Managing the sector based on externally-driven cycles and events is unsustainable; Broad-based development of mining won’t happen on its own without deliberate policy and institutional choices; Policy choices to effectively transform the sector will have to anchor in a long-term vision, which is inclusive and truly owned by all stakeholders.
The broad areas of agreement outlined, underpinned the forward-looking African Union continental framework for the mining sector, which has been adopted by all African countries. The Africa Mining Vision seeks to create a transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development. The Vision is motivated by the longstanding need to unleash broader value of the mining sector beyond just taxing rents and deploying them through investments, afterwards. The framework puts development first and foremost. Now at this time, after the boom, it is even more imperative for all stakeholders to get down to the hard work of implementing the development agenda embodied in the Vision for sustainable structural transformation of economies.
Now is the time to walk the talk and prepare for the next boom. It is opportune moment to strengthen and build credible, predictable and stable institutions— which are going to outlast commodity booms and busts as well as domestic election cycles.The once in a generation tailwind of commodity-supercycle has arguably faded. Examining its performance, three key trends emerge which challenge stakeholders to work together and plan long-term for the diversification of economies:
First, Africa deindustrialized over the period of the boom. This is surprising given Africa’s comparative natural resource advantage and worrisome to the prospect of long-term structural change for economies. While growth was impressive, with the continent’s performance averaging 4.9 percent a year, over the period 2000-2013, the structures of most economies however continue to remain untransformed. The Economic Commission for Africa reckons that the manufacturing sector’s contribution to total output has actually declined, from 12 to 11 percent. The share of industry which has fallen in most African countries over the last twenty five years, remains the smallest among developing regions. Put simply, Africa is less industrialized today than it was in 1990. And this is a tragedy we cannot continue to ignore. At the same time, that Africa is failing to climb the manufacturing ladder, dependence on exporting commodities in their raw forms is increasing. This trend further marginalizes Africa’s position in international trade. A situation which underscores the need for more efforts at diversifying economies.
Second, the impressive growth performance which has been driven in part by the high commodities prices remains poor in creating jobs and weak in reducing poverty. Very few countries have achieved high and sustainable standards of living without developing significant manufacturing sector. The International Labour Organization observes that most people who enter the job market during the boom period, ended up in vulnerable jobs. Vulnerable employment in 2012 was estimated at 77.4 percent of all jobs, the highest of all developing regions in the world— this was only 2.3 percentage points lower than in 2001.This situation contrasts with other developing regions which have shown a larger reduction in the vulnerable employment rate, over the same period. This includes even those regions who have experienced slower economic growth, such as Latin America and Caribbean. In fact, due to their diversified industrial base, with the same level of growth, Asian countries perform better in reducing poverty than Africa. The World Bank reckons that a 10 percent increase in national income translates into 20 percent reduction in poverty in Asia, against only 7 percent reduction in Africa.
Third, countries did not take full advantage of the boom to strengthen their institutions and infrastructure in an effective and sustainable manner. Without coherent Vison and ambition, countries remain stuck with inefficient fiscal institutions, unable to respond optimally to change. Progressivity is yet to become a core principle in the design of fiscal regimes in the mining sector. The inadequate use of profit-based tax instruments leads to a tendency where rules may change in an ad hoc and ‘opportunistic manner— in the middle of the game’. Which may not be efficient for businesses. Which may not be encouraging for rule of law. Which may not be optimal for domestic resource mobilisation. According to a survey conducted by the African Development Bank, with the exception of South Africa, which imposed a profit-based royalty, all other African countries utilized ad-valorem royalty as of mid-2011. The Africa Progress Panel reports that mining companies’ profits increased at four times the rate of government revenues between 2000 and 2011.
It is not for weak institutions and ineffective regulations that countries continue to remain unable to take advantage of booms. It is the lack of long-term vision and effective policies that create weak institutions and laws, unfit for transforming the mining sector.
Addressing the challenge for sustainable development, requires thinking outside the ‘mining box’. It requires a transformative agenda, effective and forward-looking institutions— an unusual business approach. The same old approaches will only lead to the same suboptimal results— entrenching the sector as enclave within the wider economy. The Africa Mining Vision provides the bold Vision to empower countries in ways that harness the transformative potentials of their mineral endowments. The AMV supports countries to develop stable and effective institutions. The AMV ensures an efficient environment for businesses to plan and take advantage of long-term opportunities. The AMV empowers countries to look long-term, beyond boom and bust.
In fact, the Africa Mining Vision goes beyond just mining. It is more than the singular focus on taxing more and spending more. It is about minerals for development. It is trade, industry, infrastructure and educational policies functioning together in a coherent whole with minerals policies.
Now is the time to implement the continental framework and address market and government failures in the way of deepening linkages from the mining sector into other sectors. The Vision supports countries to develop and implement focused and smart local content policies, for greater upstream, sidestream and downstream linkages. It remains imperative to deepen linkages. A typical mining company spends over 61 percent of its total investment on infrastructure and procurement— more than three times what is paid in taxes. Investment presents opportunities for governments to align their skills development and employment policies in ways that capture greater value from mining.
Now is the time to set up effective institutions to harness the full potential of all Africa’s minerals including those that are of low commodity value. The minerals and portfolio approach adopted by the Vision, stands out at this time of gloom, as a strategy whose time has come. Every minerals offers unique opportunities for diversifying economies through linkages. Some minerals offer greater potential for linkages. Some are capable of withstanding better global commodity downturns than others.
The consumption of low value minerals provides critical feedstocks and inputs for Africa’s industrialization. Domestically produced products from limestone and sand, minerals often neglected, because of their low commodity value, are not only demonstrating strong resilience but also remarkable transformative potentials of African 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 point increase in domestic production of cement adds over 5 percent points to GDP growth.
The same story remains true for phosphate, another low value mineral used for manufacturing fertilizers. While phosphate prices have fallen globally in line depressing commodity prices, investment into the phosphate sector in Africa remains buoyant. Africa’s consumption of fertilizer remains the lowest in the world with per capita utilization of 9kg per hectare against a global average of 107kg. Same for cement where per capita consumption remains only at 100kg per person as compared to 500kg per person globally(Wanzala & Groot, 2013).
Now is the time to lay the foundations for internationally competitive national and regional mining economies, in accordance with the AMV. This is an area where the AMV seems to be poorly understood by some stakeholders. Not every minerals can beneficiated in competitive and profitable manner. Not every economy is large enough to support demand for domestic beneficiation, for every mineral.
And here is where the AMV stands out. With its demand-side approach, the AMV targets market failures in the way of regional integration for the emergence of viable regional value chains around mining. AMV therefore seeks to strengthen regional markets which offers greater opportunities for harnessing the transformative potentials of mining. Africa’s participation in Regional Value Chains remains greater than participation in Global Value Chains, suggesting untapped potential for regional approaches towards linkages. While intra-African trade remains very modest at 12 percent, it should be noted that more 60 percent of the trade between countries are in manufactured or intermediate products, which contrast with Africa’s participation in global trade dominated by the export of primary commodities. The Economic Commission for Africa recently estimated that intra-African export of intermediates products in mining has jumped six folds, while export outside Africa has increased only by four folds (UNECA, 2015).
In fact, according to sectoral participation in the global value chains, mining and quarrying ranked 13th , compared with 8th in the regional value chains. This further suggests greater scope for mining-driven regional integration. A scope much greater for industrial, agricultural and construction minerals.
Now is the time to lay the foundations for a commodity-based industrialization that will transform the structures of economies. Here is an African rising success story, an achievement that gets barely noticed, offering hope for implementing the AMV. 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. As a consequence of development-oriented policy choices, Africa has produced its first ever world-class industrial conglomerate of continental reach. And strikingly, in the downbeat moment, when other mining companies are revisiting their strategies, without any publicity, the multibillion dollar Dangote Cement Group is betting on Africa’s future like never, tripling its expansion across the continent (African Business, 2015).
Now is the time to get politics right, for many more mining businesses that are well integrated into African economies. Now is the time to seize on the emerging opportunities. Now is the time to support the implementation of the AMV.
The global community has launched a new era of development interventions. An era marked by the implementation of the sustainable development goals which will guide our collective efforts at transforming economies. The 17 goals and 169 targets for the next fifteen year, strongly resonates with the principles and priorities of the Africa Mining Vision. Member States including development stakeholders have committed to support countries to integrate greater into value chains and markets by 2030.Member States have also committed to halve illicit financial outflows including from the mineral sector which are costing the continent over 50 billion dollars in lost tax revenues.
Africa has demonstrated political will to take control over its destiny. The continent has taken steps to collectively formulate its own long-term development path— and the world seems to follow its lead. African countries have adopted the outcome of the Mbeki Report on illicit financial flows, recognized by the international community as the way forward for other regions to tackle the global problem of IFFs. Member States have also adopted Agenda 2063 in 2013, a comprehensive vision to bring about the structural transformation of African economies through industrialization and greater trade. Africa has also taken important steps to boost regional integration including expanding markets.
Deeper integration will not only boost regional trade, but also overcome barriers imposed by international trade rules. The Economic Commission for Africa projects a boost in two-way EU-Africa trade as well as offset of the likely negative impact of EPAs, if the Continental Free Trade Agreement (CFTA) is launched before their full implementation. The Economic Commission for Africa further reckons that metal products as well as non-metallic minerals will benefit significantly when trade facilitation is added to the CFTA package. CFTA could boost Africa’s export by up to $40 billion, with more than two-third of them coming from industrial products (UNECA, 2015).
Harmonization of mining regimes is emerging too. Let me cite some important regional initiatives including the SADC Regional Indicative Strategic Development Plan (RISDP), which aims to leverage the regions rich natural resource endowment. The Economic Community of West African States (ECOWAS) recently adopted a Directive on the Harmonization of Guiding Principles and Policies in the Mining Sector.
At the country level, the implementation of the Country Mining Vision provides an opportunity to domesticate the AMV. As an institutional process, the Country Mining Vision facilitates the emergence of much needed ‘policy space’ for a different kind of conversation with all stakeholders including mining companies for a ‘new social contract.’ The CMV process supports countries to develop their mining sector in ways that are ‘’responsive to geopolitics, political economy of extractives and of change, societal pressures, market dynamics, business fundamentals and the concerns of today and tomorrow’’
There is just much governments can do all alone. Now is the time to align what happens in the realm of politics with what happens in the realm of economy. Now is the time for policy makers, business and civil society leaders to work together for the broad-based development of Africa’s minerals. The business community remains front and center to the success of the Africa Mining Vision. In fact, sectors don’t produce and trade. Only companies— small and big --do: through constantly seizing opportunities for upgrading within value chains.
It is only in the spirit of sustained dialogue and mutual understanding that an effective partnership can be forged between the public and private sectors, to better prepare for the next boom. In this interesting times, it is even more imperative for all stakeholders to get down to the hard work of implementing the development agenda embodied in the Vision. Now is the time for mining companies to support governments to implement the AMV.