Governing and Harnessing Natural Resources for Development: Can Africa Take the Lead?By Kevin Chika Urama // Monday, November 5, 2012
By Professor Kevin Chika Urama, Executive Director, African Technology Policy Studies (ATPS)
I am writing this piece while attending the eighth African Development Forum being hosted in Addis Ababa, Ethiopia, 23 – 25 October 2012. The conference focused on “Governing and harnessing natural resources for Africa’s development”. This forum could not have been better timed for Africa to reconsider how its abundant natural resources have been governed and harnessed for development on the continent.
Africa accounts for about 75% of the world’s platinum supply, 50% of diamonds and chromium, and one-fifth of gold and uranium supplies. The continent is also endowed with vast renewable and non-renewable sources of energy, with up to 1,750 TWh potential of hydropower and 14,000 MW of geothermal. Many of her countries are also blessed with oil and gas deposits. Over 23% of her land area is still covered with forests. Only about 5% of Africa’s hydropower potential has been exploited, while the same figure for geothermal is 0.6%. Vast populations of the continent still have no access to electricity, and the majority rely primarily on wood fuel for cooking and heating. Africa’s energy intensity (i.e. total energy consumed per GDP) is at least twice the global average. This all seems like doom and gloom.
However, there is a silver lining emerging. Africa’s growth record in the past decade has been encouraging. The IMF suggests that the continent’s GDP will grow by 5% in 2012 and 5.7% in 2013 – faster than most continents. A new study by two World Bank economists suggests that if Africa were one country, it would already be “middle income”, that is if the law of average is applied. The World Bank defines middle income countries as those having income per person of more than US$1,000.00, and Africa is now at US$1,700.00 income per person. Even the skeptics now accept that the future of the continent is promising. In my view, this is a silver lining, not a sunrise!
Although “political risks and regulatory uncertainties” remain high, anemic growth in the developed world has made Sub-Saharan Africa an attractive area for smart investors seeking cheap resources (natural and human capital), as well as weak institutional and regulatory regimes that allows for “supra-normal profits”. While prices of natural resources turned the tide in the past decade, rising significantly compared to historic records, the dividends of this growth in the market value of resources has hardly trickled down for development, even along the resource corridors in the continent. African governments receive only a small percentage of the windfall profits due to poorly negotiated contracts, inefficient tax regimes, and perverse subsidies, etc. The African communities and citizens mostly watch themselves dispossessed of their resources and are left with little support to deal with the downstream effects of displacement, pollution, poverty, etc. Average net profits for the top 40 mining companies grew by more than 150% in 2010, but the rents to African governments grew by about 60%, most of which was accounted for by Australia and Canada. Call this “land grab”, “oxymoronic natural resource exploitation”, or what you may, the rule of the market still prevails, at least until an alternative global model of exchange is devised and generally accepted. This is what Africa governments are asked to grapple with – “globalization”. The illusion that markets will solve the resource pricing and resource efficiency challenge remains the norm, even after several recessions serve as stark reminders of the limits of the market in delivering efficient use of resources in a world in which “power”, “information”, and “knowledge” are asymmetric.
There seem to be a general realization that African governments and African people must now stop doing different things and do things differently. Unfettered competition cannot be the panacea for Africa. Ample examples now exist in all corners of the planet for Africa to learn from. This is the so called benefit of “late comers” in development. Africa can learn from the successes and failures of those who have gone before to “fast-track” our development process. The recent Marikana example in South Africa offer a warning for the unsustainability of maintaining “power asymmetries” between mining companies and local communities/workers. So does the Arab Spring in Egypt, Tunisia, Libya and, who knows where? On the other hand, the Chinese story (including their policy on rare earth minerals), the Australian and Canadian experiences in mining industry governance, and the United States’ history of an unending quest to push the boundaries of science, technology, and innovations through the exploitation of the human ingenuity, amongst others, offer alternatives for harnessing resources for development.
For the first time since 1949, the U.S. became a net exporter of refined petroleum products in 2011. It is predicted that the U.S. will surpass both Russia and Saudi Arabia, and become the world’s largest producer of oil and liquid natural gas by the end of this decade. The U.S.’s greenhouse-gas emissions in 2011 were 9% lower than in 2007, largely because gas (which is replacing coal in the US energy mix) emits half as much carbon dioxide as coal. So, in this sense, this is good for “brown” growth and for “inclusive green” growth as well. This is arguably good for “pink” growth as well – if one uses pink as a more feminine colour that will address the huge inequities in distribution of rents from economic growth amongst communities, countries, continents, and for a stretch of imaginations, between man and his environment. The U.S. did not, however, forget the common sense approach to energy security – diversification of energy supply. The development and deployment of renewable energy options is also progressing in the U.S., albeit for national security reasons.
Reversing the “Resource Curse” into a “Resource Blessing”
There are multiple factors that need to be considered in addressing the complex geo-politics and political economy of “resource curse.” Most discussions will navigate around “political capture” and/or “corruption.” I recognize that these are important, but they are rather well discussed, I believe. The three main sources of wealth from mineral and energy resources are: (i) rents and taxes, (ii) beneficiation, by which I mean the transformation of minerals into manufactured goods, the refining of crude hydrocarbons into distillates, and, ultimately, into useable energy, and (iii) upstream and side-stream linkages into wider economy. The first accrues directly to the governments making it easy for political capture or corruption, whichever word one wishes to use. I’d argue that the social ills of “political capture” is not limited to Africa, as “the revolving doors” that lead to the corridors of power often makes the privileged few that go in and out of it somehow richer that when they first pass through it. The second is both capital and technology intensive and may take decades for African countries to catch up. Of the three I prefer the third, which has the advantage of being modular in nature, creating opportunities for all entrepreneurs to create wealth along the natural resources value chain. In many ways, it is an engine for economic diversification, robustness, and resilience in many countries. In 1848, Sam Brannan shouted, “Gold, gold, gold!” in the streets of San Francisco. It was reported that he went on to become the city’s first millionaire. He was not a prospector or miner, but he did sell the miners and prospectors shovels and everything else they needed. One would ask then: Where are the Sam Brannans of Africa?
There are three cross-cutting features needed for economic success in any country/continent: (i) good governance, (ii) endogenous capacity development and utilization; and (iii) innovative financing for the development, deployment, and diffusion of required science, technology, and innovations. Much of the opportunity in U.S. comes largely from the existing governance infrastructure (having the right policies, regulatory frameworks and institutions, and market conditions) that allow for an unending advancement in the required science, technologies, and innovations for development, and functioning financial markets that supports entrepreneurship and innovation incubation. These have, and remain the difference.
Technology-led development is a leadership decision.
The United States’ repositioning in the global energy market in 2010 has largely come from newfound technologies to draw oil and gas from geological formations that geologists deemed impenetrable just a few years ago. Analysts suggest that this can lead to a manufacturing renaissance in the U.S. or to a decline of the geopolitical clout of Russia and the Middle East in the global oil market. The U.S., though not necessarily pro-global agreement on greenhouse gas emission cuts, has not let go her drive to lead in technology development. U.S. leadership understands that, ultimately, the planet has a better future if the available abundance of renewable energy potentials is exploited as well – namely hydro, geothermal, wind, solar, etc. These have potentials of providing energy supply at increasingly competitive price ranges and almost no environmental damage.
Many African countries still fall far short in each of the three critical conditions needed to govern and harness natural resources for development. While success stories now exist in many African countries in the area of governance, STI development, and also financing mechanisms, it would not be completely misleading to conclude that much more needs to be done on all these fronts. Regulatory uncertainty, among other things, is almost stagnating Nigeria’s oil industry; the Marikana riots are threatening to erode the glories of South Africa’s mining legacy; and the Arab Spring is taking its toll on North Africa. As I drafted this thought piece, news of a leaked report on Nigeria’s oil sector suggests some disturbing figures of billions of US$ that may have been lost over the past decade – an amount that could go a long way to building endogenous capacity to make oil refineries in Nigeria function much better, and perhaps reduce the importation of refined petroleum products into Africa’s oil rich giant.
At the same time, one cannot overemphasize the significant strides made during the past decade. Africa is now the pioneer of mobile banking (M-Pesa technology) and the technology is now spreading to other sectors, such as fake drug detection (M-pedigree technology) and predicting crises (Ushahidi). Nigeria has successfully launched communication satellites, including NigComSat 1R, and mobile telephone markets in Africa are amongst the most profitable, globally. African experts hold leadership positions in various sectors, both at home and in the diaspora. At the same time, the skills in the global knowledge economy with genuine interest on Africa’s development for global sustainability are innumerable. What remains to be seen are African governments and Africans regaining confidence in their newfound skill pool spread around the world, finding ways of utilizing them effectively, and providing favorable governance frameworks and appropriate institutions to allow the three global comparative advantages it now has: (i) huge endowments in both natural and human capital, (ii) prime positioning in the global market, and (iii) the scale of its growing market (population size) to effectively reverse the “resource curse” into a “resource blessing.”
This “thought piece” is aimed at starting a discussion on what needs to be done to reverse the “resource curse,” which prevailed during the industrial revolutions of the past, to a “resource blessing” in Africa, especially now that most of the Breton Woods Institutions and leading international organisations are encouraging countries to embrace “inclusive green growth” (World Bank), “green economy” (UNEP), “Green Growth” (OECD), and Sustainable Development Goals (SDGs) agreed at Rio+20; amongst other emerging paradigms that encourages sustainable development and equity.
In 1848, Sam Brannan’s cry for “gold, gold, gold” in the streets of San Francisco began the construction of a formidable endogenous capacity in the manufacturing and financial services sectors in the United States. The rush for natural resources is on again, with a great focus on Africa for reasons outlined above. The questions posed below hope to ignite contemplation and dialogue surrounding Africa’s resource future:
- What should African governments and African people do to ensure that the “resource course” can be reversed into a “resource blessing” in Africa?
- How can Africa grow her knowledge economy from which the “shovels of our day” (mining software, mine safety equipment, exploration and analytical capabilities, design, engineering, environmental impact and remediation, and all the goods and services needed for the modern extractive industries) can be produced to ensure beneficiation along the resource corridors?
- What examples of success and/or failures are there on the continent and elsewhere that we can learn from to ensure full beneficiation along resource corridors on the continent?
- In a world of market capitalism – with firms seeking to maximize profit and minimize costs, is it really possible for Corporate Social Responsibility (CSR) to deliver the magic pill for beneficiation, or should Africa seek alternatives?
- Can technology transfer deliver benefits in a world of power and knowledge asymmetries in a manner that enhances endogenous capacity?.
- And finally, what is the place for the artisanal scale mining endeavor in Africa? And can we (to borrow an American phrase) “walk and chew gum at the same time,” by simultaneously developing equitable partnerships for well-negotiated foreign direct investment for large scale mining, and at the same time provide much needed governance, technological, and financial support to artisanal scale mining endeavors in Africa?
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