Policy News

Hard talking at the African Mining Indaba

Feb 12th, 2013 3:45 PM UTC
By Katherine Lay

The annual African Mining Indaba is the world’s largest gathering of mining professionals. This year it brought 7500 investors, corporates, government officials, advocates and academics to Cape Town’s International Convention Centre for four days of discussion about the state of Africa’s mining sector.

While the customary deal-making happened on the sidelines, the walls of the conference halls resounded with some hard truths.

In a keynote address to the Indaba, South African activist and business leader Dr Mamphela Ramphele, told delegates that the benefits of mineral resources are simply not reaching the majority of the continent’s citizens.

Instead, they’re watching mining revenues vanishing into their national treasuries and waiting for development outcomes that don’t materialize. In South Africa, their discontent is exploding in wildcat labor strikes across the platinum belt. The country’s current challenges are a microcosm of a broader continental crisis that is showing no sign of resolution.

The issues are complex, but there is a common thread running through them: a deep distrust between stakeholders involved in the extraction and management of mineral resources, the labor forces working the mines, communities living in the environs of these mines, and the broader population.

The secrecy entrenched throughout the minerals supply chain is breeding a level of suspicion amongst stakeholders that is destabilizing the mining sector.

We know well the negative socio-political impact that mineral reserves can present to a region. In Africa, mineral revenues have, in the past, financed cycles of civil wars and left collapsed states with populations living in extreme poverty. Millions of displaced people in refugee camps, child soldiers kept from classrooms and forced to kill as no child ever should, generations of women subjected to the worst sexual violence under the brutality of militias desperate to hold onto gold fields and diamond pans.

It’s the most extraordinary paradox. States sitting on massive riches and profits exchanged between a few powerful hands while surrounding communities are barely able to feed themselves.

Some are speculating that an African Spring is near. Citizen anger at corrupt and secretive resource governance could very well trigger it. It’s essential that every African government and every company operating within African borders recognize this and acknowledge that responsible and transparent mineral extraction and revenue management offer a genuinely feasible solution.

The costs involved in transforming opaque management and reporting practices are miniscule compared to the alternatives: escalating labor strikes, operational shut-downs, investment withdrawal and crashing share prices.

This solution demands public disclosure by governments and mining companies of their fiscal audits, contracts and licenses. It demands mandatory reporting regulations governing the world’s major stock exchanges through legal instruments that require listed multi-national companies to publish their payments to foreign governments on a country- and project-specific basis, and commitment by major financial centers to harmonize disclosure rules in a way that ensures a transparent and accountable global mining sector.

It’s a solution that helps stabilize investment environments and builds more efficient public-private partnerships that are able to maintain high profit margins while enabling citizens to perform a much-needed oversight function.

It’s also at the heart of the Africa Mining Vision. Endorsed by the African Union as a roadmap to harness the continent’s mineral revenues for more sustainable human development, this vision’s realization hinges on action to institutionalize open and accountable mineral revenue management in every AU member state.  Its success requires trust between governments, companies and civil society. This adds an even stronger urgency to Dr Ramphele’s message. The only antidote to the hostility and suspicion of actors with competing interests is more transparency in the way they seek to satisfy those interests.

Making transparency work for development in Nigeria

Jan 4th, 2013 11:59 AM UTC
By Katherine Lay

The Secretariat of the Nigeria Extractive Industries Transparency Initiative (NEITI) recently announced that it has recovered US$443 million of the $2.6 billion owed to the government as revenue by oil and gas companies.

Audits produced for the period 1999 to 2008 uncovered huge discrepancies in reported payments and receipts. This information spearheaded efforts by the NEITI Secretariat to recover revenue owed by companies to the government – funds that are critical for the country’s socio-economic development.

Nigeria’s leaders have long supported the Extractive Industries Transparency Initiative (EITI)’s transparency standards to promote open and efficient management of the extractive resources sector. Hailing the EITI as a vehicle for greater economic and political stability, former President Obasanjo signed up to the initiative in 2004. This provided a clear signal to investors and international finance institutions that the government is committed to more transparent governance.

The country’s current Finance Minister Ngozi Okonjo-Iweala affirmed that compliance with the EITI lifted Nigeria’s profile in the eyes of investors, and that its improved credit rating led to sizeable increases in foreign direct investment. Recognizing that transparency is beneficial for business in the extractive industries, where investments are capital intensive and dependent on long-term stability to generate returns, Minister Okonjo-Iweala noted that the EITI has helped to mitigate political and reputational risks for companies operating in Nigeria and has generated information necessary for accurate revenue collection by government.

As the first African country to make reporting of payments and receipts legally binding through the NEITI Act, Nigeria has set the “gold standard” for audits under EITI regulations. Its reports investigate the conduct of government and extractive industry practices in greater depth than any other EITI member country has attempted. These audits have assisted efforts to overcome the country’s institutionalized corruption. Before joining the EITI, Nigeria ranked at the bottom of Transparency International’s Corruption Perception Index (CPI). Every year from 1999 to 2004 – when Nigeria joined EITI – the country ranked last or second-to-last globally. By 2010, the CPI ranked Nigeria 134th out of 178 countries.

However, if the NEITI objectives are to translate into visible improvements in the lives of Nigerian citizens, government agencies must make concerted efforts to recover revenue, and to allocate it to areas that need it most. The NEITI Secretariat’s announcement of recovered funds indicates positive commitment to the first part of this process. The amounts are significant: $81 million for the audit period 1999 to 2004, $91 million for 2005, and $208 million for 2006 to 2008. They now need to be allocated efficiently.

In a country that has the second highest maternal mortality rate in the world, and where 52, 000 women die in childbirth each year owing to the absence of healthcare facilities, the recovered amount could fund the construction of 20 new health centers in each of Nigeria’s 774 Local Government Areas. It can provide insecticide-treated bed-nets to 44 300 000 more people, thereby helping to control Nigeria’s malaria pandemic. It can reduce the 42% youth unemployment rate by extending youth employment and social support operations to all states. And it can salvage roads that form key trade networks across the country, including the East-West Road and the Benin-Ore-Sagamu Highway, which are currently death traps.

In its vigilant monitoring of extractive revenue flows, Nigerian civil society has played its part in demanding this recovery of funds. NGOs represented in the NEITI National Stakeholders Working Group have proactively used the NEITI Act and the Freedom of Information Act to encourage more companies and government agencies to disclose information to NEITI auditors. The NEITI process has empowered civil society to ask informed questions and to hold the government to account for the extractives revenue that it manages on behalf of citizens.

An Extractives Transparency Milestone for Tanzania

Dec 15th, 2012 10:51 AM UTC
By Katherine Lay

3.5 billion people live in resource-rich countries but many are not profiting from these resources. Weak governance is leaving countries “cursed” by conflict and corruption. The Extractives Industry Transparency Initiative (EITI) was created to help change this. The EITI’s globally developed standard promotes extractives revenue transparency by calling for the full publication and verification of company payments and government revenues from oil, gas and mining.

Tanzania has just reached an extractives transparency milestone. On 12 December, the EITI declared Tanzania compliant with its standard. Tanzania joins 9 other African countries with EITI compliance status. The Tanzanian government is now obliged to produce annual EITI reports that disclose and reconcile all revenues from the extractives sector. Independent audits will indicate payments made to governments by companies and payments received by governments from companies.

A gold miner in Shinyanga, Tanzania

Regular monitoring of government and company performance will beam a spotlight on a sector that is traditionally opaque, opening its operations to the public and empowering citizens and oversight institutions with information about extractives financial flows that will enable them to hold governments and companies to account. Tanzanian citizens, journalists and parliamentarians will be able to play their part in monitoring government and company performance and preventing corruption, misuse of public resources and illicit capital flight. Compliance with the EITI is an essential step towards opening the entire extractives supply chain – from how access to those resources is granted, to monitoring operations, to collecting taxes, to sound macroeconomic management and distribution of revenues, and to spending resources effectively for sustainable growth and poverty reduction.

This milestone is timely. 79% of Tanzania’s population lives below the poverty line. The current commodity price boom represents a unique opportunity for the government to mobilize home-generated wealth from its natural resources to tackle the country’s socio-economic development challenges. Improved transparency in the management of revenue from these resources will be critical to Tanzania’s growth trajectory.

The EITI’s endorsement will also be sending a clear signal to investors that the Tanzanian government is committed to open management of its extractives sector and to making itself more accountable for the use of revenue that it manages on behalf of its citizens. The Tanzanian EITI multi-stakeholder working group of government, civil society and company representatives, which is overseeing the country’s EITI reporting, will continue to help build partnership and trust between different stakeholders, and to give civil society a critical voice in the extractives resource management process.

The EITI and Tanzania’s compliance with its standard is not a cure-all for the massive problems and leakages plaguing the extractives sector. It is, however, an important starting point for progress.

From Curse to Catalyst?

Nov 14th, 2012 10:00 PM UTC
By Katherine Lay

A Development-Driven Consensus to Improve Africa’s Natural Resource Governance

Africa’s natural resources are an untapped catalyst for massive socio-economic growth. With accountable leadership, responsible investment and the right regulations in place, the natural resource sector can spur Africa’s development trajectory into the stratosphere.

This was the conclusion of participants in the BBC’s Africa Debate on 26th October, held in Addis Ababa, Ethiopia, during the 8th African Development Forum. Both the debate and the forum tried to answer the same question: can Africa overcome its natural resource curse and manage its abundant resource endowments for the benefit of its people rather than the bank accounts of political and corporate elites?

After alerting members to the upcoming debate, ONE received a record number of comments and tweets responding to this question. Your concerns focused on the critical problem of corrupt natural resource management by both governments and multinational corporations, and your emphasis on the disconnect between state and society on resource policy and practice made clear that the relationship of accountability between governments and citizens has broken down.

Participants in the Africa Debate highlighted these concerns. They reached a swift consensus: mismanagement, graft and corporate tax evasion in the natural resource sector are robbing citizens of the revenues needed to achieve the Millennium Development Goals and to deliver essential services that remain non-existent for people across the continent. The gap between rich and poor in Africa is growing, and will not be bridged unless accountable governments and companies commit to an equitable pro-poor development approach to natural resource exploitation rooted on strong political will, visionary corporate leadership and an empowered civil society that, together, build partnerships for change.

The African Development Forum also produced a consensus. Its 800 delegates endorsed a formal Consensus Statement suggesting better ways in which Africa can use its natural resources for people-centered sustainable development. It’s a consensus that recognizes that although Africa has shown strong economic growth over the last decade, it still faces the challenge of translating this into effective poverty reduction, quality social services and opportunities for political and economic participation. With the number of youth in Africa set to double by 2045 – and with 27 percent of them currently unemployed – harnessing the natural resource sector to create jobs isn’t just crucial for social cohesion and stability, it also generates a virtuous cycle of productivity, innovation and growth.

We need solutions that tap into this productivity and that build platforms for citizen participation in resource governance. Solutions like the Africa Mining Vision, the Extractive Industries Transparency Initiative and other instruments that create a rights-based, transparent and accountable natural resource sector in Africa, and that encourage both governments and companies to improve rather than destroy the social wellbeing of the continent’s citizens.

This Consensus Statement is timely. More reserves of oil, gas and minerals are being discovered each day. Over the next decade, billions of dollars will flow into African countries previously starved of financial capital. These revenue flows must be transparent and regulated through open natural resource governance processes. Secret contracts, tax avoidance and illicit financial outflows from Africa are in no citizen’s interest. You’ve stressed it in your comments and tweets, participants in the Africa Debate echoed it, and delegates to the African Development Forum committed to it: we need to follow the money to make sure that natural resources are transformed from a curse into a catalyst for growth.

Thank you to everyone who submitted questions and comments!

In case you missed it, you can listen to the debate on the BBC website.