The Quiet B4 The Storm!, page-35

There are many advantages for mining in Africa and often people do not understand the facts. Here are a few.

1| MINING sometimes gets a bad rap in Africa, but this is partly because it is finite and so important to the overall wellbeing of the region—minerals, gas and oil account for the largest investments on the continent, and together with linked projects make up Africa’s largest contributors to gross domestic product and public revenue, according to the African Development Bank, which sees extractives contributing $30 billion annually to public revenue for the next 20 years.

2 | The numbers around extractives speak for themselves: the continent has about a third of the world’s known reserves of minerals. This includes 10% of its oil, 8% of its gas resources, and the world’s largest reserves of uranium, platinum, cobalt and diamonds. The cake is that the minerals are still relatively unexploited, highlighting their potential to change the continent’s fortunes.

3| Despite the well-publicised controversies—think locals protesting and grounding exploration and operations demanding employment or electricity— mining is a jobs scarce industry. Its real value comes from the linkages it creates—such as new infrastructure and markets, and its tax contribution to the national purse.

4| Conflict around African mining tends to be overblown: according to a study by the ACP-EU Development Minerals Programme researched by among others the Harvard Kennedy School, sub-Saharan Africa has less than two in every 10 of mineral-related conflicts (18%). Oceania (28%), South America (26%) and Asia (20%) are much more challenging areas for the industry.

5| Surprisingly, oil is not a source for the majority of conflicts—gold causes 34% of most extractives conflict, with copper (22%) and coal (10%) the next highest, according tothe study. Of the 11 commodities studied, only shale oil features (which is different from crude or “tight” oil), causing just 4% of conflicts.

6| Another head-scratcher is that on average, economies that depend on oil, gas and minerals score lower in human development indices (see chart below), and cut poverty rates slower, according to the United Nations Development Programme. The answer to this lies in management of the extractives industry—allowing dependency, letting the resource become an “enclave” where it operates away from local enterprises and markets, corruption, and poor use of human and physical capital.

7| Further reinforcing this, of all the underlying (or “hard”) issues that fuel disgruntlement over mining, the distribution of benefits ranks top. Population and demographics, interference with culture and customs and the lack of communication rank highly too, according to research on issues that cause disputes. Pollution is the highest ranked “proximate” or trigger cause—think the Niger delta—, ahead of competition for resources, all issues that efficient governments can solve.

8| What keeps management and boards awake at night? If the capital expenditure sunk into a project ranges from $3-5 billion it is estimated that the business would lose $20 million a week due to delays. In the exploration stage, delays run anywhere between $10,000-$50,000 daily.
Managers also find they typically spend 10-15% of their time managing social risk in Africa, against the ideal average of 5% or less, a majority of which are minute (so-called “mosquito bites”). Due to this risks, insurer premiums are on the rise. In other words, communities are not powerless in the face of multinationals as they are painted; indeed they are very effective at raising the costs to them.

9| Mining companies have been hard hit by the commodities slump, leading to a pull back in exploration and operations, cost-cutting and shedding thousands of jobs. But research suggests that they are missing the potential opportunities for making bigger savings if they focused on improving relations with the communities around where they operate—in other words they would not have to cut jobs and taxes.

10| Extractive industries are adding impetus to Africa’s slow-pace of regional integration: infrastructure meant to aid mining companies is crossing into other countries, helping open them up including agricultural areas in the hinterland, such as the Lobito corridor which links Angola’s Lobito port to the mining centres of DR Congo and Zambia. Regional blocs are seeing the opportunity: ECOWAS is developing a single mining code, while the SADC bloc looks to develop common standards. They also create larger transnational markets especially for suppliers, adding to the value chain. In turn, regional integration attracts more miners, making it a win-win situation.


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