4 November 2012

Africa: Resource for Development Model Obsolete


Africa has a long way to go in order to harness the full potential of its natural resources. It is obvious that it is not there yet. It is gearing up to cope with increasing global demand for natural resources, at a time of global concern about environmental sustainability and climate change.

Africa, for example, accounts for three-quarters of the world's platinum supply, and half of its diamonds and chromium. It has up to one-fifth of gold and uranium supplies and it is increasingly home to oil and gas production with over 30 countries now in this category.

Yet, with minor exceptions, Africa does not consume or add significant value to these and other mineral products which it has in abundance. Rather, it is a net exporter of raw materials that fuel prosperity and development in other regions.

The case of land is equally telling. Africahas 60pc of the world uncultivated arable land. This means that most of the available land to feed a rapidly growing global population will have to be found here. However, current crop yields are low and land issues are caught up in the vortex of economic needs versus cultural and historical rights.

Similarly, Africa has forest resources covering over 23pc of its land area. This is a valuable resource, both in the context of climate change as well as the demand for forest services, which is expected to rise globally. The same can be said about fisheries and aquaculture endowments which, if properly managed, could be more valuable than familiar non-renewable resources.

Given these vast endowments, the question that arises is why the continent continues to struggle with limited economic transformation, and scarce employment. Certainly, it is not due to lack of exploitation!

Mineral resources continue to attract high levels of foreign direct investment and account for the highest share of economic activity in four out of every five African countries. Land resources are also being exploited with up to 754 land deals, covering over 56 million hectares, already concluded. The conclusion that can, then, be drawn from this is that the current resource-for-development model is not working to bring about equity or boost development.

In the last 10 years, for instance, commodity prices have hit a supercycle, yet Africa's share of windfall earnings have been miniscule, compared to what global resource majors have realised. Average net profits for the top 40 mining companies grew by 156pc in 2010 whereas the take for governments grew by only 60pc.

Indeed, most African countries got much less than this due to generous tax holidays given to mining companies. However, the profit made by the same set of mining companies in 2010 was 110 billion dollars which was equivalent to the merchandise exports of all African least developed countries in the same year. It is fair to say, therefore, that the resource-to-development model puts raw materials suppliers at a significant disadvantage.

There are other examples of inequitable returns to other African natural resources. A lot of illegal and unreported fishing takes place in African waters. Annual losses amounting to 629 million dollars can cover the infrastructure funding gap of a country like Mozambique, which is very dependent on fisheries. Similarly, in the case of Somalia, its revenue losses from illegal fishing could easily have funded the United Nations Coordinated Development Programme for 2011, covering poverty reduction, governance, rule of law, security, gender and HIV/AIDS.

Given this state of affairs, it is imperative thatAfricaexercise greater strategic control over its natural resources. Rising purchasing power in emerging global players is indeed increasing demand for natural resources. It is important forAfricato retain and capture more value.

Similarly, the extensive agricultural land leased or sold to meet global food security challenges should be configured to meetAfrica's food security and other needs first, now and in the future. The same considerations apply to logging particularly the export of low-value unprocessed wood products.

There is also a well-known link between natural resources exploitation and conflicts which, of course, impacts on development. Poor governance of the natural resources sector has led to conflicts that are fuelled by many grievances. They arise from excluded or disenfranchised groups, issues of access, rights, perceptions of unfair distributions of benefits or, indeed, the business of war!

Structural measures to address grievances and improve transparency, and overall governance of the sector, will require time and concerted effort by all stakeholders. There are related short-term actions that could giveAfricaquick wins.

Internationally, the Dodd Frank Act and similar efforts by the European Union Commission to adopt legislation requiring publicly traded and private EU companies to disclose payments to governments made in exchange for oil, gas, mineral and forest resources is welcome.

These actions need to move from paper to reality. But African needs to do more, in and of itself.

Embedding long-term development objectives firmly into the processes for extracting natural resources is essential. To take the example of mining, the current focus seems to be mainly on collecting taxes, whereas it should be on using the sector and its resource rents to drive socio-economic development.

This involves investment in infrastructure, research and human capital development, through conditionality for local content. It is what other regions have done; it is whatAfricaneeds to do.

African natural resources sectors must also become socially and environmentally accountable. This implies increased participation, so that a broader share of citizens contribute to policy and benefits from economic and social returns in the natural resources sector, including gainful employment.

Moreover, a significant push to use natural resources as a springboard for diversification and eventual industrialisation must be made.

This would require policies that deliberately encourage innovation and that establish local content goals. It would require ensuring backward and forward linkages to promote internally articulated economies and regional value chains.

Continuously building human and institutional capacities, to create knowledge based and competitive natural resources sectors underlies these fixes. This requires strengtheningAfrica's bargaining power to negotiate better contracts. Notable examples are unjustifiable tax holidays, illicit financial flows, or poorly articulated resources for infrastructure swaps.

It will also mean building up domestic capacities and skills to participate in the natural resources value chain. Similarly, institutional frameworks and political processes must steer the natural resources sector in such a way that its supports transformation.

The good news is that Africahas made strides to formulate credible blueprints such as the African Mining Vision and the Land Policy Initiative, which if implemented will inclusive growth and economic transformation. What needs to be done now is to start operationalising such frameworks.

In sum, the shift in focus from the short-term and limited financial benefits to long-term development options is in high demand inAfrica. This is a joint responsibility of governments, private sector, civil society organizations and ordinary citizens, shareholders and workers.

Carlos Lopes is an undersecretary general of the United Nations and executive secretary of the Economic Commission for Africa (ECA). This commentary is an excerpt of a speech that he made at the eighth African Development Forum (ADF) held in Addis Abeba, Ethiopia.

Copyright © 2012 Addis Fortune. All rights reserved. Distributed by AllAfrica Global Media (allAfrica.com). To contact the copyright holder directly for corrections — or for permission to republish or make other authorized use of this material, click here.

AllAfrica publishes around 2,000 reports a day from more than 130 news organizations and over 200 other institutions and individuals, representing a diversity of positions on every topic. We publish news and views ranging from vigorous opponents of governments to government publications and spokespersons. Publishers named above each report are responsible for their own content, which AllAfrica does not have the legal right to edit or correct.

Articles and commentaries that identify allAfrica.com as the publisher are produced or commissioned by AllAfrica. To address comments or complaints, please Contact us.