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Home > Corporate Governance Viewpoints > Working Toward Equity in Africa’s Extractive Industries

Corporate Governance Viewpoints

Working Toward Equity in Africa’s Extractive Industries

by Caroline Kende-Robb

Standing on the Edge of Opportunity

In 2013 the Africa Progress Panel (APP)1 focused on equity in Africa’s extractive industries. Africa is experiencing what is probably going to be a long-running bull market in commodities, driven by continued rapid expansion in emerging markets like China and India. What Africa does not need is to find that it comes out at the other end of this commodities bull market with very little to show for all the mineral and oil wealth that has vanished in terms of raising standards for the people of Africa. Former UN secretary-general Kofi Annan, chair of the APP, put this very well in his foreword to the 2013 APP report. He said: “Africa is standing on the edge of enormous opportunity. Will we invest our natural resource revenue in people, generating jobs and opportunities for millions in present and future generations? Or will we squander this opportunity, allowing jobless growth and inequality to take root?”

There are plenty of pessimists who claim that Africa is irredeemably blighted by the so-called “resource curse,” also known as the “paradox of plenty.” This refers to the large body of historical data that shows that countries blessed with abundant natural, nonrenewable resources, be they mineral wealth or oil and gas, tend to find other parts of their economy shrinking or remaining stunted as all investment and opportunity flows to the commodities sector. There are a number of reasons for the difficulty countries find in overcoming the resource curse, not least because it causes their currencies to appreciate, which makes it easy for them to buy overseas goods, cranking up imports and further stifling producers in the home market.

Worst of all, in Africa’s case particularly, while there are shining examples of good practice, there are far more instances where government secrecy over the nature of extractive contracts with big multinationals has allowed corrupt practices to flourish, draining much needed revenues away from the state and encouraging the perpetuation of kleptocratic regimes and the growth of vast inequalities between rich and poor.

In sharp contrast to the pessimists, though recognizing the long history of corruption that has plagued the extractive industries in Africa, the APP argues that there is nothing inevitable about the “resource curse” and that there is a great deal that both African countries and multinationals, along with governments and regulatory bodies in the multinationals’ home markets, can do to bring about fair play for all stakeholders.

Simandou Iron Ore Project, Guinea: A New Model of Resource Development?

First, let us look at the resources themselves. Africa’s petroleum gas and mining resources have become a powerful magnet for foreign investment over the last 10 years. New exploration has, in many instances, revealed much larger reserves than were previously known. As a result, Africa stands to reap a natural resource windfall. One instance which helps to make this case is the vast iron ore deposits that have been found in the green highlands of Simandou, in southeastern Guinea. This is one of the world’s richest, but least developed repositories of iron ore and there is now huge demand for new sources of supply. Multinational companies from six continents are competing for a stake in Simandou’s ore, with billions of dollars of investment in prospect. Guinea is one of the world’s poorest countries, so, on past form, one might have expected to find that the contracts were all secretive and opaque, with iron ore extraction remaining a “silo” industry with very little benefit trickling down to the wider population.

In fact, what has taken place has been an almost unprecedented exercise in transparency. The government in Guinea has acted with determination to ensure that more than 60 contracts with multinationals are viewable online by the public, enforcing a standard of transparency over contract terms and resource and asset pricing that sets a new benchmark for Africa as a whole.

Instances like this demonstrate that far from being hostage to a noncurable resource curse, the present generation of political leaders in Africa has an opportunity to harness resource wealth for a transformation in human development that could—and should—unlock the tremendous potential in Africa’s positive demographic. Africa, after all, is the best placed continent on the planet in terms of the ratio of young to old. Sub-Saharan Africa entered the 21st century with a population of 670 million. By 2025 the region will be home to 1.2 billion people, rising to two billion by mid-century. Equipped with skills and opportunities, Africa’s youthful population could become a powerful—and positive—force for change. Conversely, denied a chance to realize their potential through education and improvements in health, nutrition, and access to water and energy, children born in Africa today are in danger of becoming a lost generation. Well-managed resource wealth has the potential to lift millions of Africans out of poverty over the next decade, while giving hope to future generations.

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Further reading

Articles

  • Africa Progress Panel (APP). “Africa progress report 2013. Equity in extractives: Stewarding Africa’s natural resources for all.” 2013. Online: http://tinyurl.com/p2zwfw6
  • Boyes, Steve. “Rio Tinto Simandou” National Geographic, Explorers Journal, January 27 and 28, 2014.
  • Part 1: “Exporting iron mountains”: http://tinyurl.com/pxvg6os
  • Part 2: “World’s richest poor country!?”: http://tinyurl.com/nk3yj4s
  • Cobain, Ian. “FBI arrest agent over bribery cover up claim in battle over $10bn mountain.” The Guardian April 16, 2013. Online: http://tinyurl.com/q48yywx
  • Cobain, Ian, and Afua Hirsch. “The tycoon, the dictator’s wife and the $2.5bn Guinea mining deal.” The Guardian July 30, 2013. Online: http://tinyurl.com/lqk5o62
  • Jamasmie, Cecilia. “Guinea government to strip Vale, BSGR of all Simandou rights.” Mining.com April 17, 2014. Online: http://tinyurl.com/nlfbvo5
  • United Nations Economic Commission for Africa (UNECA). “Minerals and Africa’s development. The International Study Group report on Africa’s mineral regimes.” November 2011. Online: http://tinyurl.com/qd2mhtl

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