Africa's Rising Resource Challenges

Natural resources are playing an important role in Africa's economic growth. Experts from NSI's Ottawa Forum explain why governance of the extractive industry is critical if the benefits and risks are to be shared equitably.
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June 17, 2013

This week, state and civil society leaders are gathering in Rio de Janeiro for Rio +20, the United Nations Conference on Sustainable Development. Energy will be a priority for discussion at this year’s conference. Natural resources present significant challenges to sustainable development not only from an environmental perspective, but a human one as well. To better understand these challenges and how they can be overcome, we interviewed experts at the NSI Ottawa Forum, Governing Natural Resources for Africa’s Development, on corporate social responsibility in the mining industry and the role of natural resources in Africa’s economic rise. Read their answers below.

Huguette LaBelle
Chair of Transparency International Canada Inc

Ian Smillie
Chair of the Diamond Development Initiative

Bruce Shapiro

Director of Mine Africa and President of A.P.O.C Inc

Dr. Fantu Cheru

Former member of UN Panel on Mobilizing International Support for the new Partnership for African Development; Convenor of the Global Economic Agenda Track of the Helsinki Process on Globalization and Democracy; UN Special Rapporteur on Foreign Debt and Structural Adjustment for the UN Commission for Human Rights

How can we realize corporate social responsibility in extractive industries?

Peter Eigen

You can often find a few enlightened leaders, both on the business side and government side, but even more often you find people who cannot resist temptations of stealing and misusing money. The temptation and vulnerability in this sector is particularly great. Also, the temptation for the company representatives – if they go into a country like Equatorial Guinea and they see fragility, and no stable legal system—is to buy the loyalty of the main decision makers because to do so costs very little. I consider this to be one of the great difficulties.

The negotiation capacity of many African governments is very weak compared with that of many investors. If Exxon goes into Africa to negotiate a billion dollar deal, they bring the best lawyers from Houston or New York and the best geologists and the best financial analysts. And they find that the government ministers, secretaries, and civil servants are not experienced enough to deal with such a powerful team. This is something we are trying to change by creating a negotiation support facility to empower host governments to get a better deal from the investors.

A capacity enabling environment has to be created involving new legislation, institutions, and policies, as well as coordination among different ministries in the host country. This improves the negotiating capacity of governments dramatically.

Fantu Cheru

The rules and regulations you follow here at home–paying taxes on time, labor standards– should be applied everywhere. You must also invest in capacity building and knowledge support in the host country. You have nothing to lose when engaging in those kinds of activities, and global citizenship is important. Standards should be the same. You shouldn’t settle for second-best approaches when working abroad.

Bruce Shapiro

Rand Gold is a poster child company in Africa. Until 6 months ago, Rand didn’t even have a CSR department, and yet they have operated all over Africa unbelievably successfully. They’ve done it because it’s in the DNA structure of their business: the ideas and processes that everybody now is coming along and saying makes for a good CSR system are ones that Rand has been utilizing for some time. Now, 97% of Rand staff in any particular location is made up of locals. The training, the people, all of it is done locally.

African countries and their governments want Rand to be around because its operations contribute heavily to their society and communities. Rand doesn’t behave this way because of pressure to implement csr but because it’s intelligent business practice. And I think if you look at the results of their business versus others, it works.

The problem is, that kind of behaviour can’t come from the top. It has to be part of the culture of the business. You’ve got to feel it. Your company has to talk the talk and walk the walk. You cannot impose a structure on a company that is not ready to adopt it, the same way you can’t do that to a country if its not part of their of their culture or history.

What role should natural resources play in Africa’s continuing development? Can they be leveraged in a non-harmful way?

Peter Eigen

The natural resources of Africa provide it with a tremendous opportunity to fight poverty, and strengthen economic and social development. However, the key to leveraging this opportunity is better governance, both in terms of overall governmental structure and also in the sense of accountability and integrity among African leaders. There is also a very special aspect of extractive industry governance that has to do with the way in which investments are designed negotiated, monitored, and implemented.

A whole range of government issues are involved in extractive industry governance, such as developing a fiscal regime that ensures benefits are shared, as well as employment, training,  and human development issues. The treatment of local communities needs to be governed, including the environmental questions as to whether and how you’re allowed to discard your waste or impact the living conditions of surrounding populations. There also needs to be macroeconomic management of diversification in terms of what resources are developed.

All of these things demand a high degree of integrity and professionalism from those involved in governance structures, both on the side of the host government and the side of the investor and their government.

In the past, in all of these areas, Africa has done very poorly. If we want to change this, we all have to work together. That includes the companies investing there – large Canadian companies who need to find a beneficial way of developing their projects even if this means certain sacrifices in the short term, whether in terms of profitability or rate of recovery of the invested capital. It includes the home governments of the investors, who need to support good governance as the Canadian government has been doing for a long time. It also has to do a lot with governments in the host countries, of course, where in my opinion, a strong role for civil society has to be recognized. In some countries, you have government suppressing civil society, harassing and imprisoning them. If you want to have accountability and transparency, you have to empower society to raise their voices and help decision makers do the right thing. Transparency International, which I founded 20 years ago, has focused on this and has been able to make a difference in global markets. I feel that in the extractive industry sector, empowering civil society can be particularly effective in encouraging extractive firms to operate in a non-exploitative way.

Huguette Labelle

I think that natural resources in many countries, especially in Africa, remain important in terms of economic development if they are developed responsibly, both by the country, and the companies that go in to exploit them.

There is no question that the basic fundamental is that you have to have transparency in terms of what the companies pay to the government—this must be fully accessible to the public. The contracts that have been agreed upon have to be accessible.

The revenues of the companies should be publicized, in each country, project by project. Equally, and even beyond that, companies have to play and important role, along with the government, in involving the local communities from day one. This is so that they are part of the development, and so that they understand not only what mining can do for their communities, as well as its limitations. It takes a long time to build a mine, to drill for oil.

Local communities also need to be able to express what their needs and priorities are. Very often, this requires developments in education, especially new technical programs, so that the community’s members can be involved with the industry at higher levels. That is very important, for if they are part of the discussions to negotiate contracts, hopefully they will have a chance to ensure better returns to their own communities. Very often, locals watch as the minerals are removed or the oil and gas is pumped out, but they don’t see improvements in their lives, even several years later.

Environmental stewardship issue is part of responsible mineral development. Climate change is looming. Transparency International has been promoting the need for transparency on climate impacts, including at the World Economic Forum, and as part of the Responsible Mineral Development Initiative and the UN Global Compact. This is a big, serious issue.

Transparency International’s efforts have had a lot of positive impacts on mining contracts negotiated in many parts of the world, not just in Africa. From our point of view, the reason why we press so much for transparency in regards to payments made and revenues collected is that it invites the participation of the people. Their awareness can be a strong deterrent for corruption.

Ian Smillie

It’s all about whether you can get the minerals out in a way that is mutually beneficial. In the past, the mutual benefit was viewed from a short-term perspective. It’s important to think longer term – from and African perspective, the benefits have to be more than just the cash that might be derived today, cash on the barrelhead, so to speak. Governments have to think about what the proceeds will be used for over time and what kind of environmental impact there may be.

It’s important for all countries, including African ones, to think about various costs—social, environmental, and human, and to think about what’s going to happen when their resources are depleted.

The Liberian government is an example of the kind of predicament many resource-rich African countries face: they can’t afford to think too far down the road because they need development today, but at the same time they have to, because their resources are finite. Liberia badly needs infrastructure support: the country has 2 percent coverage in electricity as compared with 28 percent in Sierra Leone and 60-something percent in Ghana. So when the Chinese offer electricity in return for iron mining concessions, it’s pretty attractive. And if they make a better short term offer than a Canadian company for example, then they’ll be taken up on it, even if the longer-term impacts may be more severe.

One of the things that I think has been missing in the discussions, papers, charters, and guidelines that people are producing in order to encourage better governance in this sector is a discussion of artisanal miners. There are millions of artisanal miners in the world, over 30 million of them in Africa. There are 1.5 million artisanal diamond miners and probably many more in gold and coltan. This is a development issue; the challenge goes far beyond regulation. These people don’t dig to get rich—they dig in order to live. They don’t earn a lot of money, the conditions are terrible, and they do it because they have no alternative. If we’re really serious about promoting  better governance for the extractive sector, we have to think about those people as well. If they continue to be marginalized, or if we think they can be handled by chasing them away or shooting them, as some governments do, then the problem will continue.

Fantu Cheru

On the democracy side, in Africa is has been two steps forward, one step backwards since the 1990s, to the point where it has become ridiculous. You have undemocratic rulers, who are extending their stays in power through the ballot box, masking it as democracy. Democracy increasingly has become, for most, an ideology of domination. The governance of the natural resource sector is tied to this undemocratic style of government; where deals aren’t open to the public, parliament has no scrutinizing role, and basically everything is negotiated at the state house where the head of government lives. There’s no way you can get to a more transparent governance situation in an environment where the state has been captured by a small number of elites, and there is no normal set of business practices around the financing of natural resource development

Another issue is that since 2000, Africa’s growth trajectory has been driven by the increasing appetites of emerging economies. China is a great example – 50 percent of oil imported into China comes from oil sectors controlled by China. They’re investors with huge ownership. The discussions among Western countries about coherence, host country ownership, and mutual accountability are basically a foreign language to China and other emerging economies – they will never harmonize their policies with the OECD countries. Increasingly, they are focused on developing bilateral relationships in Africa and for China, the more undemocratic the country, the better.

We cannot discuss the natural resource sector without discussing these actors; they are going to be the biggest players in Africa. China, India, Brazil, and Malaysia—these countries are responsible for a huge percentage of major acquisitions handled on the continent. The future of Africa will be driven by competition over natural resources among these countries. And no charter for governing the extractive sectors is going to sweep away the problems this creates for social equality and democracy.

Is the “Africa Rising” accurate? How will faster economic growth impact social equity?

Huguette Labelle

Absolutely Africa is rising. There are a lot of challenges left to overcome, but at the same time African countries have increased the percentage of their populations with higher education. That’s a very positive aspect – hopefully they won’t all immigrate.

The quantities of natural resources available mean the continent has high potential – the important part is to make sure that potential is realized. As Jose Ocampo, former minister of Colombia has explained, hopefully African countries will use these resources judiciously, negotiate solid contracts, and build the social and physical infrastructure that is still required.

Also, we need the future to involve diversification so that Africa doest not become a slave to natural resources. African countries shouldn’t make natural resources their only or even their major source of revenue, because there will be a bust eventually. Mines will eventually be used up, so African countries need to do as others have done and establish special heritage funds for the future, and they need to do this early They don’t need to save all revenue, and they don’t need to establish a fund on day one, but they also shouldn’t wait too long. These countries need to ensure that when the resource boom is over, they not only have good physical and social infrastructure, but also a way to soften the blow going forward.

Ian Smillie

"Africa Rising’” has become kind of a catch phrase, often followed by a discussion about the amazing uptake in cell phone usage and all sorts of other wonderful but usually vague things about Africa. In the context of a discussion about the extractive sector, we hear about how good mining is for development, how it’s all growth-oriented. But growth and development are not the same things. When something grows it gets bigger, when something develops it becomes different. Not all growth is development. Not all growth leads to development. If a country’s GDP is going up as a result of mining investment, this doesn’t necessarily mean that it’s turning into real benefits for people. Where mining projects are prominent, too often little changes for poor communities.

Fantu Cheru

Civil society is doing well. They are articulating an alternative agenda and at the end of the day, if we have a more transparent system of governance in Africa, that will be a result of the strength of civil society.

Pressure has to come from below – from communities, peasants, and labor unions.  New conventions and charters are not enough. That’s one of the lessons we’ve learned from the struggle in North Africa—there are so many groups with strong vested interests that the issues are unlikely to really change from a charter.

There is an unfinished democracy agenda in Africa. One cannot predict if it’ll take a peaceful route and we don’t know what the final outcome will be. It’s not something that can be created with a charter. You need a social contract between the state, the private sector, and society that is worth fighting for, for then it will function. When societal groups feel they have nothing to fight for, if they feel excluded, they will question the legitimacy of the regime. There will be social harmony if there is a social contract. This is what’s missing now —it is one of the reasons you see such dissatisfaction among African people. Citizens feel that they’re subjects, like they’re very small.

I would call the present an “African moment’ but I wouldn’t say we’re embarking on an African renaissance yet. We have a long way to go before that.

Bruce Shapiro

Is Africa rising? It’s certainly moving forward. GDP growth is higher in Africa than anywhere else. It’s somewhat insulated from the international financial crisis that we went through and many are still suffering from, but it’s going forward, there’s no question about that. But it’s also been pointed out that different parts are moving forward at different speeds, which I think is true. Overall, it goes forward a little bit and then comes back a little bit, but I think it’s moving in the right direction.