Africa Renewal (United Nations)
Mary Kimani
29 April 2009
analysis
Large mining operations in Africa have generated big profits for foreign companies, with little local benefit. Now governments are trying to harness more mining revenues for development purposes.
Mineral-rich countries in Africa enjoyed a mining boom between 2002 and 2007 as metal and oil prices nearly tripled. Companies competed furiously for new mines to meet growing world demand. As a result, a number of African nations found themselves in a much stronger bargaining position with foreign investors, who previously were able to demand - and get - huge breaks before they would invest. Now governments could strike better deals with new investors, and even renegotiate old mining contracts. "We just want to make sure that we are getting the best [deal] for our deposits," Alhaji Abubakarr Jalloh, Sierra Leone's minister of mines, said in September 2007.
But since then, amidst a global economic downturn, world metals and oil prices have fallen substantially, raising concerns that investors will once again shy away, and to some extent undercutting Africa's bargaining power. Zambia, for example, had hoped to impose windfall profit taxes on copper mining to finance an infrastructure fund, but shelved those plans after copper prices plunged from $9,000 to $3,000 a tonne.
Though richly endowed with mineral and oil deposits, Africa has generally drawn little benefit from that wealth. Mining and oil profits have long gone abroad or been squandered, leaving many people in poverty. But the emergence of more democratic and accountable governments, along with agitation by communities and civil society groups, has contributed to efforts to better harness mining for development.
'Negotiate fair deals'
So despite the recent fall in world prices, African countries will likely continue to bargain for better contracts. The goal is not just to ensure higher national revenues, but also to address long-standing community concerns about environmental pollution and compensation for people displaced by mining operations.
Planting new trees near a manganese mine in Ghana: Many mining companies are now obliged to compensate for any environmental damage they may cause.
Most mining contracts in Africa were negotiated in the 1980s and 1990s when low world prices and high political risks discouraged foreign investments in the continent's mining sector, observes Festus Mogae, the former president of Botswana, a country widely regarded as one of Africa's most successful mineral exporters. Speaking at a meeting of the Africa Development Bank (ADB) in December 2008, he noted that previously African countries had to entice investors by granting incentives such as extensive tax and royalty exemptions. Consequently, many countries earned very little from such contracts. "That is why it is necessary to renegotiate some of them," he said. "We should use our best endeavours to negotiate fair deals with multinationals."
But reviewing mining contracts is important for more than earning greater revenues. Governments are also responding to pressures from civil society groups and communities to ensure that contracts and mining codes address environmental protection, adequate compensation to affected communities and the rehabilitation of land after mining operations have ceased.
Ibrahim Aidara, the West Africa extractive industry programme coordinator for the UK-based non-governmental group Oxfam, notes that few countries have proper mechanisms to regulate the impact of mining on communities. Even where environmental and compensation laws are in place, they are rarely enforced. So companies spend very little in compensation or on post-mining clean-up efforts. Local communities, moreover, often have little say in how mining contracts and codes are formulated, even though their livelihoods are the most affected. Nor do governments have adequate mechanisms for reinvesting mining revenues in development programmes.
"Mines are a public resource and the negotiations between countries and companies should be transparent, accessible and easily understandable by citizens," Mr. Aidara told Africa Renewal. "Communities should be able to review mining contracts, find out how much revenue has been generated and how, and on what it is being spent, and have access to information about all other impacts of a mining operation."
Reviewing contracts
Partly in response to such concerns, and despite the recent decline in world mineral prices, governments are continuing to press for reviews of old contracts and to be more demanding in negotiations for new ones. "Most of our policymakers now understand that their national economies are not benefiting from mining and that to do so, it is important to have good policy in the sector and be more transparent," says Mr. Aidara. "They understand that they have to reform. This is a good start."
Tanzania has made some progress in this area. In the past, gold- and diamond-mining investors often received tax concessions lasting up to 20 years. So while mining accounted for nearly half of Tanzania's exports, the total taxes paid by all the mining companies combined amounted to less than the tax paid by a single local company, Tanzania Breweries.
To address the problem, Tanzania set up an 11-member committee of government officials, mining experts and civil society representatives to look at how to make mining contracts work better for all. The committee's recommendations were used in renegotiating existing agreements.
A woman carries her son from a Mozambican health clinic, partially funded by the Australian mining company BHP Billiton: Across Africa, more mining projects include direct benefits for local communities.
Subsequently, Tanzanian Minister of Energy and Minerals Nazir Karamagi announced to Parliament that mining companies AngloGold, Barrick and Resolute had agreed to pay annual levies equivalent to US$200,000 directly to local governments in the areas where their mines were located. The funds would be used for community projects. An additional $125,000 annually would be paid to an "empowerment fund" to finance national development projects. The companies would also be required to buy local products and services where these are available, instead of importing them.
Civil society support
Governments are reaching out to civil society groups in attempts to better respond to community concerns. In April 2008 the secretariat of the Economic Community of West African States (ECOWAS) invited Oxfam to help facilitate civil society participation in the drafting of a new regional mining code. "When we have the regional mining code ratified," explains Mr. Aidara, "it will be binding for all the member countries, and will supersede all existing national codes." He notes that the new code would standardize compensation and environmental rules, eliminate contradictions and align the mining codes of all 15 ECOWAS countries.
But better contracts alone may not be enough to ensure that citizens of resource-rich countries benefit from their natural wealth. According to Paolo Desea of the World Bank, speaking at a meeting of African mining officials in Guinea in early 2008, widespread poverty in these countries often has less to do with bad contracts than with a "lack of clear laws for national governments [on how] to distribute the money."
Guinea illustrates the problem. Mining companies there are legally obliged to pay a tax to the owners of the land on which they mine. They are also required to support local development projects. But civil society representatives, in a June 2008 interview with UN Integrated Regional Information Networks, pointed out that hundreds of thousands of dollars paid as taxes to support development in Guinean villages rarely reached the communities themselves. They cited the case of Russian bauxite-mining company ACG-Rusal, which over three years gave $100,000 in development assistance to a local prefecture. But the 25,000 citizens of Mambia, the village where ACG-Rusal operates, received only a single small payment, in 2006. Mambia remains without electricity or piped water.
More transparency
Former President Mogae of Botswana acknowledges the problems of corruption and poor management of Africa's mineral resources. "Some of our countries' individual leaders use their access to financial resources from extractive industries to advance their own personal agendas, instead of using them in the best interest of the nation as a whole," he said at the December 2008 ADB meeting.
Read comments. Write your own.
AllAfrica aggregates and indexes content from over 125 African news organizations, plus more than 200 other sources, who are responsible for their own reporting and views. Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica.
1. The Bakken Oil Field Find
2. 55 gallon drums fulls of unprocessed diamonds.
* These are just a few of the suppressed world riches this beautiful world created by God (Jehovah, Father of Jesus Christ)..
3. Minister Lindsey Williams has known for 30 years of a major oil find in Alaska.
* He says that he sat in on meetings of the rich and powerful. These men decided not to use this oil to help America.
* Beware Africans, the wolves of deception are always around riches.
* Hosea said we perish for two reasons. Most people only remember… [Read Full Text]
1. The Bakken Oil Field Find
2. 55 gallon drums fulls of unprocessed diamonds.
* These are just a few of the suppressed world riches this beautiful world created by God (Jehovah, Father of Jesus Christ)..
3. Minister Lindsey Williams has known for 30 years of a major oil find in Alaska.
* He says that he sat in on meetings of the rich and powerful. These men decided not to use this oil to help America.
* Beware Africans, the wolves of deception are always around riches.
* Hosea said we perish for two reasons. Most people only remember… [Read Full Text]