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African Agency in Mineral Resource Governance

Genuine partnership between international industry and African governments can unlock mining's potential and give it greater influence in the global economy.

Citizens of resource-rich countries are demanding greater social and economic benefits from their natural resource endowments, and governments have moved to exert increased control of resource rents for national benefit or, in the worst cases, personal enrichment.

In Africa, these tensions are exacerbated by the vestiges of colonialism and narratives of exploitation, legacies of prior waves of nationalization – and now the devastating impact of the COVID-19 pandemic on societies and economies across the continent.

For international mining companies and investors, ‘African agency’ is often synonymous with state intervention, resource nationalism, and risk amid unquestionable opportunity.

Africa accounts for around 30 percent of the world's mineral resources but attracts only around 15 percent of global exploration spend and accounts for only about 8 percent of global production concentrated in a few jurisdictions.

To change this perception, and to support a rejuvenation of the industry across the continent, there is an urgent need for open and collaborative dialogue between government and industry that goes beyond revenue management.

Only by working together can the government and industry create a well-managed and sustainable resource sector that continues to work as a force for the development of Africa.

Regulation and impact

Mining remains a significant source of foreign direct investment (FDI) for Africa, as new mining projects brought in $18 billion in investment across the continent between 2015 and 2018, with a further $10.5 billion is planned.

Automation and new technology makes mining less labour-intensive – a trend that may be accelerated by COVID-19 – but jobs are now safer and higher paid, while localized supply chains are increasing opportunities, along with industry attention and ‘local content’ policies in many African states.

Most African mining jurisdictions already have in place some form of local ownership requirement, with international mining houses sharing ownership at levels from 30-51 percent or sometimes more with local partners.

But well-intended regulations and tax regimes, restrictive local content, or empowerment criteria can have the unintended consequence of stifling investment and diminishing long-term positive impacts from the industry.

Over the past five years alone there have been regulatory changes, such as mining codes and tax regimes, across the continent, especially in the major mining economies of South Africa, Namibia, Botswana, Zambia, the Democratic Republic of Congo and Tanzania.

In many cases, this has put industry and government on opposing sides and fueled perceptions of investment risk, even when seeking the same developmental outcomes.

This is because complex tax regimes struggle to deliver on developmental objectives. In South Africa, companies pay taxes at a national level, royalties at a regional level, and pay into local community trusts. But a survey of one mining community found 79 percent of community members felt no benefit from the industry.

Many countries have also legislated local and national procurement requirements, with up to 80 percent of procurement spend required to stay in-country. This creates two challenges: firstly, because mining projects are usually built in rural and remote areas, there is limited local capability to fulfil the operation’s needs; and secondly, once developed, local supply chains often remain dependent on a mining operation with a limited life.

However, revenues can be used to mitigate these challenges – creating opportunity for businesses, industry and supply chains not just linked to the resources industry, but also attuned to the needs of the wider community and regional market. This creates the foundation for truly sustainable development.

Decision-making and delivering ‘benefit’

Mining is often seen as a ‘zero-sum’ competition between citizens and international mining companies, so bridging this gap requires a new collaborative approach to creating value and delivering ‘benefit’. Conversations around host country agency, and control over resource revenues, do not need to be confrontational.

National governments control access to the resource, but often lack the capital and know-how to exploit it in an efficient, profitable and sustainable manner. International mining companies bring with them the skills and resources for extraction – but can only do so in partnership with host government and citizens, securing regulatory and social license to operate.

Industry can certainly improve the coordination efforts and do more to recognise local decision-making processes and accountability mechanisms. However, this is only one side of the coin – corporate accountability must go hand-in-hand with government accountability.

In most places in Africa, the majority of the cashflow from mining stays in-country with only dividends taken overseas. But in too many instances there is little to show for the revenues generated, and local ownership often provides little material benefit for local communities.

The debate on spending royalties often focuses on infrastructure without taking into account the need for critical enablers – doctors and nurses in medical facilities, teachers in schools, or coaches on sports fields – or the importance of avoiding duplication.

Governments can also do more to understand modern mining and explain to citizens the risk the industry accepts when investing and entering into partnerships. There is no substitute for dialogue and coordination to maximize value from the expanded economic opportunities the industry can generate.

Companies, governments and communities have a shared responsibility to manage natural resources in a sustainable and mutually beneficial way. License to operate is not a just a compliance exercise, but an ongoing relationship, and a partnership between an international company and its host country extends beyond paying taxes and royalties, towards genuine shared value.

Nationally-defined mechanisms for distributing revenues, through taxes, or procurement and ownership legislation, must broaden the space for citizen participation beyond a narrow elite and ensure decision-makers are accountable to wider society.

The increasing importance of environment, social and governance (ESG) criteria set by socially-conscious investors requires a deeper appreciation of socio-cultural dynamics and strategies that recognize environmental factors. Having a diversity of voices involved in decision-making and reflected in board composition is an important step towards achieving this.

Empowering agency

Talent is also both a major challenge and opportunity, as few Africans are employed in the international private sector, especially in senior management and decision-making positions. There is still a ‘glass ceiling’ for Africans with misperceptions and bias exacerbated by disparities in the quality of local and international education systems.

This can result in a pay gap between expatriates, or returning diaspora, and local staff despite local employees often having a better and more realistic understanding of the local context, community needs, and how companies can navigate them.

Conversely, African staff have historically not been afforded opportunities to gain experience and knowledge by working in other parts of the world, thereby limiting their opportunities for building experience and career progression.

Corporate ‘inclusion and diversity’ strategies must be about more than just jobs – African perspectives and ways of doing things should be embedded into operating practices. Skills transfers go both ways and international businesses need to be prepared to absorb best practice learned on the continent into international operations, from health and safety innovations through to corporate and community relations.

Companies must give Africans a voice not just in their local operations, but also at a global level. There must be clear recognition that host communities and governments in Africa are not seeking largess, but instead desire sustainable development on the back of mineral wealth – creating economies to be major future customers and markets for the industry.

Governments and industry stakeholders have a mutual responsibility to ensure the contribution of Africa to the global economy is both recognized and heard. Only an equal commitment on both sides can create the trust required for genuine partnership.

This article is part of a series on African agency in international affairs.

 

Channel website: https://www.chathamhouse.org/

Original article link: https://www.chathamhouse.org/2020/10/african-agency-mineral-resource-governance

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