Equity between state and investor in Africa's mining industry

The decade-long economic expansion in Africa has not translated into improved conditions of living for ordinary Africans. Indeed, many Africans remained trapped in the circle of joblessness, material deprivation, poverty, insecurity, loss of livelihood and mining related environmental disasters. African governments challenged to reinforce ongoing fiscal reforms and mining contract renegotiations with other measures to improve the equity between state and investor in the booming extractive sector and also to finance the AMV in full.

This year's strategy meeting of the African Initiative on Mining, Environment and Society (AIMES), the 14th in the series, was held in Accra, Ghana's capital against a backdrop of a sturdy growth rate right across Africa and a consequential renewed interest in the continent as an emerging “growth pole”.

This optimism is feeding a growing notion of an “Africa rising”, if even this is sometimes misplaced. The benefits of the growth of the last decade fuelled in large parts by high global prices for Africa's primary commodity exports have mainly inured in favour of transnational corporations which dominate the sector. African governments and national elites have also monopolised the relatively minor pickings that are left over.

The meeting was also organised against a gradual softening in the prices of some major minerals, notably gold and iron ore, and the peaking of global efforts, if even half-hearted, to tackle the broken international tax regime that allows rich multinational companies to shift elsewhere the huge profits they generate from their operations in Africa without paying the appropriate taxes to African states.

The Africa Mining Vision (AMV), adopted by African leaders four years ago, makes the case for Africa as a continent to harness its vast finite natural resources to underpin a broad-based growth to structurally transform its raw material export-dependent economy.

Today, Africa's minerals are mainly exported as ores, concentrates or metals without any significant value-addition. In effect, there is a large untapped potential for mineral beneficiation and the creation of high quality jobs.

It is to improve the equity between state and investor in the extractive sector that many African governments have embarked on fiscal reforms and contract renegotiation in the last few years of the current commodity price boom. Needless to say, these reforms fall far short of the radical shift away from the prevailing dominant mining regime that the AMV advocates.

Themed “The Africa Mining Vision: From Promise to Realisation” and co-sponsored by the United Nations Development Programme (UNDP) and Third World Network African (TWN-Africa), the meeting brought together 40 representatives of non-state actors and key social constituencies from Africa to deepen their knowledge of the content of, status and processes around the ongoing mining reform agenda at various levels and define an advocacy agenda and strategy for the network in respect of the AMV reform agenda. Presentations were made on a range of topics including “Contracts Negotiations and Struggles”, “Leakages and Illicit Flows, “Linkages and Diversification”, “Implications of Trade and Investment Regime for AMV” and a three-member panel debate on the “Strengths and Weakness of the AMV”. Sixteen country reports on the extractive sector were also presented.

A key feature of the new optimism about Africa's economic future, as noted by a number of speakers, is the broadening of consensus for a re-orientation of policies towards an agenda for structural transformation of Africa's economies, even as it is possible to discern a spectrum of meanings and consequences in the use of the concept “structural transformation”.

Central to most of the conceptions of Africa's structural transformation is recognition that Africa's economies should evolve from their raw material commodity export dependence, a feature which has been accentuated by the ongoing commodity boom, and must embark on a course of commodity-based industrialisation and transformation. This position re-emphasizes a central thesis of the AMV.

Mineral prices have been declining since 2011, however reliable indicators point to an intensification of mining dependence by African economies. This of course resonates with the logic of an Africa Rising or Africa as a global growth pole as some prefer to call the phenomenon, which assumes a certain predication of strategy.

The current narrative, Yao Graham co­ordinator of Third World Network Africa said, underlines three important elements, namely minerals as engine of growth; a growing African middle class; and Africa's financial market as rich pickings by financial speculators.

However, the decade-long economic expansion in Africa, as rightly noted by a declaration from the AIMES meeting, has not translated into improved conditions of living for ordinary Africans. Indeed, many Africans remained trapped in the circle of joblessness, material deprivation, poverty, insecurity, loss of livelihood and mining related environmental disasters.

It is in the face of this reality that many mineral-rich African countries have set in motion measures towards reforming their extractive sector regimes, mainly fiscal regimes and renegotiation of contracts to improve the benefit of the sector to their economies. The latest to rejoin the list is Mali. President Keita's government announced days after coming into office on September 4th that the administration will undertake a “complete inventory” of its mining contracts and licenses. This exercise is expected to lead to renegotiation of mining contracts and licenses. Mali is Africa's third largest gold producer.

But these reforms are insufficient to resolve the fundamental issues around Africa's extractive industry to fire up sustainable growth and the structural transformation of the continent's primary commodity export dependent economies.

Take for example Guinea, home to over a third of the world's known bauxite reserves, it is one of the first countries to have published all its mining contracts online but is today grappling with one of the world's biggest mining contract scandals.

At the regional level, the Southern African Development Community (SADC) for example has adopted a model bilateral investment treaty. In West Africa, a project on defining the ECOWAS Mineral Development Policy is ongoing.

The AMV has emerged as an important reference point for a wide range of actors, from bilateral and multilateral political and finance institutions, through campaigning CSOs, mining multinational corporations to intellectuals of varying orientations - with all of them expressing their support for it in whole or in parts.

Participants at the Accra meeting were concerned that four years after African leaders adopted the AMV there is very little movement on its implementation. There is also a lack of public awareness about the transformation agenda, although the policy process the AMV has initiated represents a programmatic crystallisation of the questioning by governments and communities as well as decades of demands by CSOs for reform of the operative mining regime.

The AMV is in many ways caught in a web of contested interpretations and there is the danger that donors may dismember it by picking and choosing what they want from it.

In a two-page declaration, AIMES lauded African governments' active pursuit of revising fiscal terms in laws and contracts with mining corporations in a bid to improve equity between state and investor. The group however noted that these steps do not go far enough and therefore urged Africa governments to reinforce efforts at fiscal revision and contract renegotiations with other measures including a stronger commitment to public accountability for contract renegotiations as well as improve states' capacity to prevent illicit flows from the sector through legal and institutional reforms and cooperation with CSOs.

Illicit outflows

Illicit financial outflows constitute a major source of revenue leakage from Africa as it runs down foreign exchange reserves, depresses investment inflows, undermines domestic resource mobilisation efforts, shifts the burden of taxation on to the poor and worsens poverty on the continent.
This form of tax evasion and tax avoidance facilitated by the global tax regime, costs African countries an estimated US$40 billion each year. That is about half of what Sub-Saharan African countries expend on healthcare each year.

This is on top of excessive concessions to international mining companies operating on the continent. The practice is heavily detrimental to these economies because mineral extraction in Africa is also largely an enclave economic activity with limited linkages to the larger economy. Tax revenue is therefore an important source of beneficiation to these economies.

AIMES also challenged African governments to own the AMV package, take steps to operationalise it as an organic policy package and take responsibility for funding the AMV's implementation, including financing the African Mineral Development Centre, rather than adopt the same donor-aid dependent approach.

For non-African governments and donor organisations which proclaim support for the AMV, AIMES challenged them “to support the leadership role and agenda set by African governments and their people, rather than use their resources and leverage to distort the implementation for their own interests”.

Established in 1998, AIMES is a pan-African network of CSOs working on mining and development issues. It brings together a broad array of non-state actor groups working on different aspects of min­ing and development but unites them around the theme of mining's role in Africa's development.

The coalition comprises organisations from Africa's key mining countries and has been an important framework and platform for capacity building, mutual support and collective advocacy engagement.

The annual review and strategy meetings of AIMES have served as an important platform for capacity building, collective reflection on issues, shared analysis and adoption of common campaigns and strategies.

The practice of rotating the meetings among AIMES members in different countries has helped strengthen the domestic legitimacy and influence of AIMES members who have hosted the annual meetings. The last review and strategy meeting in Harare, Zimbabwe, brought together 40 participants from 16 countries.

Kwesi W. Obeng is assistant editor, African Agenda.

Source: African Agenda, Vol.16 No.3