26 September 2017

Africa: Stage Set for African Countries to Renegotiate for Fair Mining Deals

Photo: Google
Map of Africa.

The paradox of plenty is a reality for many African countries. There's an abundance of natural resources such as oil, gas and minerals, but there hasn't been much economic growth and development for many countries. The natural resources abundant in most African countries tend to benefit not the communities and countries within which the minerals are extracted. Tanzania's President John Magufuli has started the process of renegotiating the mining contracts his country has with various mining companies. Other African countries need to borrow a leaf out of Tanzania's book.

The resource curse, also known as the paradox of plenty, is a reality for many African countries. The term refers to the paradox that countries with an abundance of natural resources such as oil and certain minerals, tend to have less economic growth, and worse development outcomes than countries with fewer natural resources, for various reasons. The natural resources abundant in most African countries tend to benefit not the communities and countries within which the minerals are found and extracted.

It is concerning to note that many of the mining deals on the continent benefit the American, European and Asian companies operating in the various communities more than they benefit African people. The resources should be a blessing for the African countries and communities. Recently, Tanzania's President John Magufuli ordered a review of a Petra Diamonds Ltd contract. Petra Diamonds owns 75% of the mines while the Tanzanian government owns 25%. Magufuli asked public officials to resign over the outcome of an investigation conducted into the mining sector.

The Tanzanian government confiscated diamonds worth $15 million. The diamonds were being exported to Antwerp, Belgium. The Tanzania government claimed the diamonds were undervalued and placed the value of the diamonds at $29.5 million.

The Tanzanian government plans to increase the ownership of the mines to 50%. The story of the Tanzanian mining industry is no different from what happens in many places in Africa. Most foreign mining companies come to the continent and have ownership of more than 70% of the mines.

Tanzania's Finance and Planning Minister, Phillip Mpango said "Tanzania is likely losing more than $46 million each year from the export of under-cleared diamonds through this airport."

Zimbabwe's Finance Minister Patrick Chinamasa this year told Zeina Badawi on the BBC programme Hardtalk that the missing $15 billion from Marange diamonds was a result of "trade mispricing". Trade mispricing has reportedly been costing Africa billions of dollars. While not exonerating political figures alleged to have benefitted from corrupt deals in the mining industry, the issue of trade misplacing in the oil, gas, and minerals industries in Africa is a fundamental issue, which needs to be addressed. There needs to be transparency, and legislation enacted to ensure that extractive and trading companies across the continent are more transparent with their payments for minerals.

It is concerning to note that Zambia is Africa's second largest producer of copper yet one of the poorest countries on the continent. In 2004, the Konkola Copper Mine (KCM) was sold to Vedanta Resources in 2004 at a cost of US$25million from a sale price of US$400 million. The Zambian government and people were ripped off by the Vedanta Resources, an Indian company. The Konkola Copper Mine is the largest copper mine in Africa.

Years after buying KCM, the owner of Vedanta Anil Agarwal was quoted as saying in a widely circulated video that "We took over the company. It's been 9 years, and since then, every year it is giving us a minimum of $500 million plus $1 billion every year; it has been continuously giving back. It's a matter of taking a chance."

Zambia's copper production is in the hands of four big companies, Barrick Lumwana, First Quantum Minerals (FQM) Kansanshi, Mopani and KCM (Konkola Copper Mines). Barrick Lumwana is wholly owned by the Canadian company Barrick, which is the world's largest gold-mining company. The Zambian government is a minority shareholder in all the companies.

Overwhelming evidence was presented about the operations of Vedanta by Foil Vedanta. The organisation, Foil Vedanta exposed actions such as tax evasion, misdeclaration of profits, environmental devastation and abuses of worker's rights. The copper industry is responsible for 60% of Zambia's foreign earnings.

Unlike Zambia and many other African countries, Botswana is one country that got things right. Botswana is the world's leading producer of diamond and it is a great example of how to convert mineral wealth into social and economic growth. World Bank early this year called on Botswana to make its large mining contracts public so as to improve transparency. Botswana's Minerals Minister Sadique Kebonang said in response that "no country signs transparent agreements. Commercial agreements are confidential by nature because of the sensitive of information they have... even the World Bank, when they give us loans some details of the loan agreement are kept secret."

Most of Botswana's foreign exchange comes from its mining industry. In 1966, Botswana was the third poorest country in the world. The country had just gained independence from the 80 year occupation of Britain and was faced with famine. The landlocked country only had 12km of paved road and 22 graduates. In 1967, Botswana discovered diamonds and that was all it needed to discover.

While other African countries were fighting wars after discovering oil, or in the case of Congo and Nigeria fighting secession, Botswana was rapidly developing. When Botswana gained independence its diamond mines were under De Beers. Just like other foreign mining companises such as Vedanta in Zambia, which exploited the countries they were extracting from, De Beers was no different. Botswana renegotiated the contract they had with De Beers. According to Venatius Oforka's book The Bleeding Continent: How Africa Became Impoverished and Why It Remains Poor he said, "Botswana's moral rectitude in relation to governance is clearly manifested in the struggle for renegotiation of the diamond contract. It was essentially pursued for the interests of the country at large and not for the benefit of any particular individual person or group of persons or for political cronyism."

The mining industries in many African countries benefit a few individuals and the foreign companies that come to extract the mineral resources. African governments have to renegotiate the mining contracts signed in the interest of their countries and communities to convert mineral wealth into tangible social and economic growth.

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