31 March 2014

Africa: Knowledge Is Power - World Bank to Chart Africa's Minerals in 'Billion Dollar Map'

analysis

Africa loses vast sums of money by underpricing its resources. Can a map help change that?

Nairobi: Last month, the World Bank announced an ambitious new project aimed at helping African governments earn a better price for their natural resources and accelerate the pace of mining across the continent.

Dubbed the 'Billion Dollar Map' for its meteoric price tag, the decade-long initiative will scour a century of historical research into the continent's mineral makeup and collate it in a public database. The project will then finance governments to conduct exploration to fill in the gaps.

The need for better research into the continent's minerals is clear and urgent. When it comes to negotiating contracts, knowledge is power, and African government's uncertainty over the levels of the resources they possess has contributed to them signing some hugely unfavourable deals.

According to a 2013 report by the think tank Global Financial Integrity, African countries have lost between $600 billion and $1.4 trillion in net resource transfers over the past 30 years.

Often, governments sell their assets for cheap to foreign investors, who immediately re-sell the resources for as much as five times the original price.

Sometimes the mark up is even more extreme. For example, in the mineral-rich Democratic Republic of Congo (DRC), where these trends have been particularly pronounced, Reuters reported in January that the Israeli oil and minerals tycoon Dan Gertler sold oil assets at 300 times the price he bought them.

As a report by the transparency NGO Global Witness notes: "Since early 2010 the Congolese state has sold off stakes in six prize mining projects... in secret and at vastly undervalued prices, according to commercial valuations by several internationally recognised brokerage houses.

Those stakes were divested to offshore companies, most of which are associated with Mr Gertler but whose precise beneficial owners are not known."

The DRC's vast reserves of copper, cobalt, oil and other minerals mean it has a huge opportunity to profit. But it is also means that when resources are undervalued or subject to nefarious transactions, it has a lot to lose.

A 2013 report by the Africa Progress Panel sadly observes, "Between 2010 and 2012, the DRC lost at least US$1.36 billion in revenues from the underpricing of mining assets."

Because these deals often involve offshore shell companies, it is unclear who is ultimately profiting from them and whether kickbacks are being paid to Congolese officials or businessmen for facilitating the transactions. But what is clear is who is losing out from all of this: the Congolese government and the people it represents.

Knowledge is power

One of the reasons Africa's wealth can been so easily exploited and relocated to wherever that foreign mining company is listed is the fact that African countries are often unaware how much of a resource it has. This means governments are poorly placed to negotiate and that the public is unable to assess the value of any particular deal.

"A mining company comes to you and says 'this is what we've found, this is the reserves, so this is the total value'... and that's all that you have," says Gerhard Graham, a scientist at South Africa's Council for Geoscience.

This is the exact problem the World Bank's Billion Dollar Map hopes to resolve. "This data gives you insight into... what is there, and you can determine what is ultimately the value so you don't sell a ton of talc [a mineral used in ceramics and steel] for $1 billion that is actually worth $10 billion," says Graham.

Paulo de Sa, manager of the gas, oil and mining unit of the World Bank's Sustainable Energy Department, argues that if the Billion Dollar Map had already existed, some mispriced deals of the past might have been avoided.

In the DRC, for example, he claims that the state mining agency Gecamines is selling its own properties well below the market price. "If that data was publicly available," he says, "the public would have been able to contest that transaction."

The same is true in Kenya, where Martin Nyakinye, a government geologist, praises a $70 million initiative to conduct aerial mineral surveys of the whole country, a project that the Chinese government has offered to finance.

"This should have been done a long time ago," he says. "The only way to assess and evaluate the real potential of the lands which we occupy is by knowing - locating every mineral occurrence."

To achieve that, Nyakinye says Kenya must first take advantage of the mineral information it already has.

"The fact that Kenya is underexplored is not entirely due to lack of data... companies have come in and done some very good work, detailed mineral exploration, and they have either gone away with it after the expiry of the license or the data is lying somewhere and people are not aware.

If this project is going to help dig up such data and then put it in a format that everything is accounted for, then that is going to be very good for Kenya."

Looking a trillion dollars

As well as ensuring that governments are well-prepared to negotiate when foreign mining companies come calling, mineral maps can also encourage investment in the first place, and one hope is that the Billion Dollar Map will encourage exploration.

Mining companies are often reluctant to invest unless they are confident that they are likely to find considerable deposits. And while exploration may be costly for some African governments, the returns are usually worth it.

"Typically for every $5 spent from a regional survey - the World Bank type of survey - you can grow about $1,000 of investment into mining in the country," says Graham.

Once the potential for a deposit has been demonstrated, he explains, mining companies will be attracted to come in and start drilling, which is a far more expensive part of the operation. "A country that suddenly has access to this data for a large area can use that data to leverage a much higher level of investment," he says.

De Sa similarly notes, "The private companies are interested. Initial exploration is very costly and the success rate is very very low. If the companies have good maps, good information, they can much more easily target their investment to the areas with the best potential."

So far, the mapping project is only expecting to raise around $65 million in financing before the project's intended start date this July. But De Sa expects other governments to begin buying in soon and that mineral exploration investors will follow suit.

After all, while the map may cost a billion dollars to make, its real worth for governments, citizens and mining companies could eventually measure in the trillions.

Jacob Kushner is a freelance journalist currently based in Nairobi. He is the author of China's Congo Plan, an eBook from the Pulitzer Centre on Crisis Reporting avaiable on iPad, iPhone and Kindle.

He reports on international peacekeeping, foreign aid and development, offshore tax havens, and Chinese mining and other investments in Africa.

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