Business

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.

Resource Revenue Management 101

Jan 18th, 2013 11:28 AM UTC
By Katherine Lay

Say that your country is blessed with natural resources. Oil, gas, minerals – it has it all. The future looks good. But deep down you worry that the bonanza could turn into a bust – maybe you live in Africa and have seen how windfalls have been wasted before. How do you know that’s not going to happen now? Are there any tell-tale signs of sound management of “commodity wealth”?

Marcelo Giugale, the World Bank’s Director of Economic Policy and Poverty Reduction Programs for Africa, recently asked these questions and, in response, offers us a combination of measures that every government should have in place to help citizens get a good deal from their resources.

We’ve looked at four of these measures and how they’re playing out in Africa.

First Measure: Governments publish their extractives contracts

Extractive resources are public assets and decisions about their use should be subject to public oversight. But many African governments are keeping their oil, gas and mining contracts firmly under wraps. This is a problem because confidential contracts prevent citizens from holding political and corporate leaders to account for the deals they’ve struck. Closed contracts may contain unreasonable tax breaks, terms that contravene national legislation or clauses that allow companies to ignore changes in national law. By contrast open contracts help maximize gains for citizens, and are a deterrent to self-serving actions on the part of government leaders. They also increase investment stability for companies by securing balanced deals from the outset.

Contrary to warnings that contract disclosure turns investors away, the countries that have elected to go the transparency route have watched investor interest in their resources grow. After Liberia and Nigeria signed up to the Extractive Industries Transparency Initiative (EITI) – a voluntary global standard that promotes revenue transparency and open extractives governance – their credit ratings improved and foreign investment increased. Both countries have passed national EITI laws that make independently audited reporting of resource revenue payments and receipts legally binding. Sierra Leone, with its devastating history of mineral wars, is now publishing all its mining contracts online. Guinea’s new mining code mandates the same. Ghana has made its most important petroleum agreements publicly available and has established a Public Interest and Accountability Committee made up of government, corporate and civil society representatives to oversee oil revenue flows. It is also an EITI member, with a national EITI law in the legislative pipeline. Zambia’s parliament is set to enact its EITI law this year. In fact, the majority of member countries of the EITI are African (22 of 37 members), although some key extractives producers – notably South Africa – have yet to sign up.

Second Measure: Rent from the exploitation of extractive resources is saved for bad times and for future generations

Massive offshore oil and gas discoveries in East Africa, from Tanzania to Mozambique, are catapulting countries in the region into global energy players, and will bring in billions in windfall revenues that could transform entire economies. Planned investments exceed the current GDP of some host countries. Barely a month goes by without new discoveries of extractive resources across the continent. These provide unprecedented opportunities for countries to tackle poverty and to ensure more prosperous futures for their citizens. But for this to happen, a substantial share of revenues need to be invested in assets, with a sense of responsibility to future generations, rather than used for immediate consumption. Too many countries have made the mistake of depleting their resources, allowing revenues to disappear through unsustainable spending and consumption, and finding their coffers quickly exhausted.

Although there are mixed views on whether current African producers – even those with relatively strong governance records – are investing revenues adequately or distributing them equitably, there is no doubt that issues of rent beneficiation and the importance of long-term saving is now high on the African radar. Governments are recognizing that beating the resource curse requires prudent fiscal policies with long-term expenditure frameworks that prioritize investment in human capital and infrastructure.

Sovereign wealth funds can help countries smooth the volatility of resource-driven revenues by lowering the effect of boom and bust cycles resulting from fluctuating commodity prices. They can also help a country diversify its wealth. The continent is currently witnessing a scramble for sovereign funds, reflecting a healthy interest by African governments in saving for future generations and in buffering their economies against financial shocks. As long as these funds are transparently managed and well-structured, they can help keep a country’s economic trajectory firmly on the upswing. Botswana’s long-standing Pula Fund, financed for the most part by diamond revenues, has been a strong source of growth for a country that was one of Africa’s poorest in the 1970s and now finances the university education of over 90% of its students. As oil revenue starts to flow into Ghana’s coffers from newly discovered offshore reserves, the government is eager to reap the profits and pressure to spend is high. But the rapid development of the oil industry and the associated challenges for the government have made it critical to assure investors that a framework is in place to save oil money when energy prices are high. In response, Ghana launched its sovereign wealth fund last year. Africa now accounts for 14 sovereign wealth funds – Angola, Botswana, Nigeria, Libya and Algeria have them in place, and Tanzania will soon follow.

Third Measure: Governments pay off their debt

Debt dynamics have been driving global economic change over the last decade, not least in Africa. Overall, the benefits of debt relief and sustainable debt management are persisting. African governments are servicing their debt and borrowing responsibly. Debt stock ratios – which fell dramatically with debt relief – have risen only slightly since, and “debt-distress” risk ratings prepared by the World Bank and the IMF have improved markedly. The number of African countries rated as high-risk has halved since 2006 (from 18 to 9) and low-risk ratings are becoming the norm (from 5 to 13). Nigeria, South Africa, Namibia, Senegal, Cote d’Ivoire, Gabon, Ghana and Zambia are all issuing sovereign bonds on international markets and getting high levels of international investor interest as bond buyers seek higher yields than in the US and less default risk than in some Asian economies. Last year, Senegal issued its second sovereign bond, breaking new ground by successfully concluding a joint bond issue and exchange.

But risks remain high, especially for fragile states. Some emerging African economies have exceeded the globally acceptable benchmark of a no higher than 30% debt to GDP ratio, over which debt burdens become over-bearing. The IMF has warned that the build-up of public debt levels in South Africa since the global financial crisis is now a constraint on the government’s fiscal space as additional debt accumulation will likely raise funding costs. South Africa’s debt to GDP ratio for 2012-13 is 40%. Ghana’s ratio stands at 41%. Nigeria‘s ratio of 18% is relatively low, but, in contrast to South Africa and Ghana, a large portion of this debt has been used to plug holes in its budget rather than on capital projects. Kenya continues to be one of Africa’s debt success stories: in 2003, the debt ratio stood at 60%, declining to 40% by 2008 through prudent fiscal policies, economic reforms and sound budget management. Its debt currently stands at 45%, but is on track to return to 40% by 2014.

Fourth Measure: An audit of the government’s budget execution is done on time and made available to the public

The budget audit closes the accountability loop by giving an authoritative account of whether the government’s reporting of how it raised taxes and spent public funds during the budget year is accurate and whether it has complied with financial management laws and regulations. Budget audits are a key deterrent to corruption as they provide a means for public scrutiny during budget evaluation phases and, when published, promote a sense of trust in elected representatives.

The Open Budget Survey rates South Africa one of the world’s top performers, both on audit reporting and broader budget transparency. The government gives citizens a full picture of its plans for taxing and spending, publishing all key budget documents and an understandable citizen-friendly version of the official budget. Budget audits are published on time and online. The country’s budget framework creates disincentives for misappropriation of public funds and formalizes the participation of citizens in the budgeting process, developing a sense of ownership of outcomes through collective decision-making and helping ensure that expenditures are better directed towards pro-poor programs.

Uganda and Ghana – East and West Africa’s top performers – are also producing and publishing comprehensive audit reports, although their timeliness is problematic. Liberia’s audit institutions have been exceptionally active in promoting budget accountability, publishing audit reports on time and issuing press releases to signal their submission to parliament. The audits are discussed with citizens in public hearings and open forums all over the country, and are made available in schools and public libraries. Liberia’s legislature has also enacted a Public Finance Management Law that lays down the budget system to be followed by the government, and approved a law that limits the amount of funds the executive can transfer from one administrative unit to another at its own discretion. But Liberia’s story is not common. An ongoing problem across the continent is the limited time given to parliaments to look over budget proposals and audits, and limited powers to amend or challenge them.

Conclusion

Strong accountability institutions – parliaments, audit institutions, civil society organizations and the media – are essential to maintaining a connection between citizens and the public purse, and to ensuring that resource revenues are invested in social sectors that help secure better development outcomes. A broken connection enables diversion of public revenue from the policies they’re intended to finance and the services they’re supposed to deliver. This diversion, whether through misappropriation, embezzlement or plain inefficiencies, thrives when transparency and accountability are weak.

On a positive note, we’re seeing an emerging trend in Africa toward the adoption of practices that make it easier for citizens to follow public money and track spending results. South Africa, Ghana, Liberia, Tanzania and Kenya are all members of the new Open Government Partnership – a multilateral global initiative to promote compliance with open governance standards – and they’re showing commitment to strengthening their systems and opening up their practices to public oversight. But many African governments are still resistant to this trend. Whether they can remain so, in the face of citizen pressure to reform and in the wake of mass protests against corruption and the persistent lack of economic opportunities, is the question. As owners of their countries’ extractive resources, citizens are demanding their rights to profit from them. Public information and government accountability for what resources are available, how they’re spent and what results they achieve are the best guarantee that a country’s resource wealth will translate into lasting benefits for its citizens.

Green Growth Now: An African Perspective

Jun 8th, 2011 12:45 PM UTC
By Edith Jibunoh

Edith Jibunoh is in Lisbon this week attending the African Development Bank’s (AfDB) Annual Meetings in Lisbon.

The AfDB is the premier finance development institution in Africa, building a track record for responsiveness to Africa’s development challenges, especially in infrastructure, as well as support in traditional social sector development.

On Tuesday, June 7th, the African Development Bank convened a stellar group of panelists to debate – “Green Growth Now: An African Perspective” where the discussions centered around the opportunities and trade offs of climate smart development in Africa, including the key issues that policy makers must address, and the role of different stakeholders in promoting green growth. Two new AfDB products were launched at this event, the Sustainable Energy Fund for Africa (SEFA), which will support small and medium scale entrepreneurs in the renewable energy and energy efficiency subsectors, and the Africa Carbon Facility (ACF) which will support low carbon investments in Africa. Hela Cheikhrouhou, the Director of the AfDB’s Department for Energy, Environment and Climate Change, told me that SEFA is being supported by initial seed resources (approximately $60 million) from the Danish government and they are expecting other donors to support this instrument. Hela is also hopeful that these two funds will be able to access the “fast start” climate resources that have were committed by climate compliance countries during COP15 in December 2009.

Green growth is a very important topic in development today and is key to breaking the link between economic growth and the destruction of the environment. Hannah Ryder, a Senior Economist with the UK’s Department for International Development (DFID) told the audience that the her organization is doing it’s part to promote green growth and spoke about the importance of placing more emphasis on the “green” in green growth and stated that access to information and the encouragement of innovative solutions for Africa are the major critical tools needed for delivering green growth.

AfDB staff and counterpart government officials from the Government of the Democratic Republic of Congo (DRC) and the Central African Republic presented the projected clean energy potential of the Inga site on the Congo River which is estimated to deliver up to 40,000 MW and will benefit not just the people of the DRC but also people in countries well beyond the DRC borders.

In this early seminar in the series of events the AfDB will roll out this week, the institution showcased their willingness to take risks, promote innovation and be responsive to African countries need to adopt clean energy solutions that are adapted to the African context.

Creative Industries: Driving Economic Growth in Africa

Mar 4th, 2011 9:25 AM UTC
By Osahon Akpata

My mother wanted me to be a doctor, lawyer, engineer, architect or at least an accountant. Those were the African parent approved professions, with some sort of a future. Chasing after a dream might be impractical, but isn’t that how legends are made?

One such icon is Caine Prize winning author and provocateur, Binyavanga Wainaina, who will be participating in a panel discussion about the creative industries at Columbia University’s African Economic Forum on March 25-26, 2011. I first learned about Binyavanga when I read his famous piece, How to Write about Africa, in Granta. I have been a fan ever since.

The last decade has seen an explosion in the entertainment sector in Africa, from Nollywood’s growth to a reputed $250 million industry, the emergence of several award winning authors, and the development of world class musical stars who are giving foreign acts stiff competition on the continent. It is not unusual to see the crowd in a nightclub in Lagos, Accra or Nairobi go wild when the DJ switches from an American to a local artist. This trend has also spread into the fashion industry. I was pleasantly surprised to notice on a recent trip to Nigeria, that my peers now find it more appropriate to wear traditional attire.

According to a UN report entitled Creative Economy: A feasible development option, during the recent global recession, the creative industries proved to be very resilient, growing over 14% worldwide. So, does mother know best when it comes to pursuing and building wealth in Africa?

Come and find out more about this and other related topics at Columbia University’s African Economic Forum. For more information or to register, please visit www.aef2011.com

How the private sector is transforming Africa

Feb 15th, 2011 7:30 AM UTC
By Jacqueline Chimhanzi

In 2000, there was the famous cover of the Economist that read “Africa: The Hopeless Continent.”  In 2010, a complete reversal of tone: “…Africa Is Becoming the Next Asia” and “Africa Is Investing’s Final Frontier.” Whilst in a New York Times editorial “Africa Reboots,” Bono wrote that his March 2010 trip across the continent left him with “a deep sense that the people of Africa are writing up some new rules for the game.”  It would appear that reporting on Africa is finally starting to achieve balance with such headlines heralding a significant shift in perceptions of the continent.  But these perceptions are, in turn, founded on hard facts.  Going forward to 2014, Africa is the region in the world with the highest concentration of high growth economies – Ethiopia at 10%, Ghana at 9.9% – while the rest of the world is still floundering and reeling from the effects of the financial crisis.  Africa is also the region in the world that yields the highest returns on investments.