Mining to profit Africa’s people

Governments bargain for “fair deals” that enhance development
From Africa Renewal: 
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Large mining operations in AfricaLarge mining operations in Africa have generated big profits for foreign companies, with little local benefit. Now governments are trying to harness more mining revenues for development purposes.
Photograph: Panos / Jacob Silberberg

Mineral-rich countries in Africa enjoyed a mining boom between 2002 and 2007 as metal and oil prices nearly tripled. Companies competed furiously for new mines to meet growing world demand. As a result, a number of African nations found themselves in a much stronger bargaining position with foreign investors, who previously were able to demand — and get — huge breaks before they would invest. Now governments could strike better deals with new investors, and even renegotiate old mining contracts. “We just want to make sure that we are getting the best [deal] for our deposits,” Alhaji Abubakarr Jalloh, Sierra Leone’s minister of mines, said in September 2007.

But since then, amidst a global economic downturn, world metals and oil prices have fallen substantially, raising concerns that investors will once again shy away, and to some extent undercutting Africa’s bargaining power. Zambia, for example, had hoped to impose windfall profit taxes on copper mining to finance an infrastructure fund, but shelved those plans after copper prices plunged from $9,000 to $3,000 a tonne.

Though richly endowed with mineral and oil deposits, Africa has generally drawn little benefit from that wealth. Mining and oil profits have long gone abroad or been squandered, leaving many people in poverty. But the emergence of more democratic and accountable governments, along with agitation by communities and civil society groups, has contributed to efforts to better harness mining for development.

‘Negotiate fair deals’

So despite the recent fall in world prices, African countries will likely continue to bargain for better contracts. The goal is not just to ensure higher national revenues, but also to address long-standing community concerns about environmental pollution and compensation for people displaced by mining operations.

Planting new trees near a manganese mine in GhanaPlanting new trees near a manganese mine in Ghana: Many mining companies are now obliged to compensate for any environmental damage they may cause.
Photograph: Peter Arnol, Inc. / Ron Giling

Most mining contracts in Africa were negotiated in the 1980s and 1990s when low world prices and high political risks discouraged foreign investments in the continent’s mining sector, observes Festus Mogae, the former president of Botswana, a country widely regarded as one of Africa’s most successful mineral exporters. Speaking at a meeting of the Africa Development Bank (ADB) in December 2008, he noted that previously African countries had to entice investors by granting incentives such as extensive tax and royalty exemptions. Consequently, many countries earned very little from such contracts. “That is why it is necessary to renegotiate some of them,” he said. “We should use our best endeavours to negotiate fair deals with multinationals.”

But reviewing mining contracts is important for more than earning greater revenues. Governments are also responding to pressures from civil society groups and communities to ensure that contracts and mining codes address environmental protection, adequate compensation to affected communities and the rehabilitation of land after mining operations have ceased.

Ibrahim Aidara, the West Africa extractive industry programme coordinator for the UK-based non-governmental group Oxfam, notes that few countries have proper mechanisms to regulate the impact of mining on communities. Even where environmental and compensation laws are in place, they are rarely enforced. So companies spend very little in compensation or on post-mining clean-up efforts. Local communities, moreover, often have little say in how mining contracts and codes are formulated, even though their livelihoods are the most affected. Nor do governments have adequate mechanisms for reinvesting mining revenues in development programmes.

“Mines are a public resource and the negotiations between countries and companies should be transparent, accessible and easily understandable by citizens,” Mr. Aidara told Africa Renewal. “Communities should be able to review mining contracts, find out how much revenue has been generated and how, and on what it is being spent, and have access to information about all other impacts of a mining operation.”

Reviewing contracts

Partly in response to such concerns, and despite the recent decline in world mineral prices, governments are continuing to press for reviews of old contracts and to be more demanding in negotiations for new ones. “Most of our policymakers now understand that their national economies are not benefiting from mining and that to do so, it is important to have good policy in the sector and be more transparent,” says Mr. Aidara. “They understand that they have to reform. This is a good start.”

Tanzania has made some progress in this area. In the past, gold- and diamond-mining investors often received tax concessions lasting up to 20 years. So while mining accounted for nearly half of Tanzania’s exports, the total taxes paid by all the mining companies combined amounted to less than the tax paid by a single local company, Tanzania Breweries.

To address the problem, Tanzania set up an 11-member committee of government officials, mining experts and civil society representatives to look at how to make mining contracts work better for all. The committee’s recommendations were used in renegotiating existing agreements.

A woman carries her son from a Mozambican health clinicA woman carries her son from a Mozambican health clinic, partially funded by the Australian mining company BHP Billiton: Across Africa, more mining projects include direct benefits for local communities.
Photograph: New York Times / Joao Silva

Subsequently, Tanzanian Minister of Energy and Minerals Nazir Karamagi announced to Parliament that mining companies AngloGold, Barrick and Resolute had agreed to pay annual levies equivalent to US$200,000 directly to local governments in the areas where their mines were located. The funds would be used for community projects. An additional $125,000 annually would be paid to an “empowerment fund” to finance national development projects. The companies would also be required to buy local products and services where these are available, instead of importing them.

Civil society support

Governments are reaching out to civil society groups in attempts to better respond to community concerns. In April 2008 the secretariat of the Economic Community of West African States (ECOWAS) invited Oxfam to help facilitate civil society participation in the drafting of a new regional mining code. “When we have the regional mining code ratified,” explains Mr. Aidara, “it will be binding for all the member countries, and will supersede all existing national codes.” He notes that the new code would standardize compensation and environmental rules, eliminate contradictions and align the mining codes of all 15 ECOWAS countries.

But better contracts alone may not be enough to ensure that citizens of resource-rich countries benefit from their natural wealth. According to Paolo Desea of the World Bank, speaking at a meeting of African mining officials in Guinea in early 2008, widespread poverty in these countries often has less to do with bad contracts than with a “lack of clear laws for national governments [on how] to distribute the money.”

Guinea illustrates the problem. Mining companies there are legally obliged to pay a tax to the owners of the land on which they mine. They are also required to support local development projects. But civil society representatives, in a June 2008 interview with UN Integrated Regional Information Networks, pointed out that hundreds of thousands of dollars paid as taxes to support development in Guinean villages rarely reached the communities themselves. They cited the case of Russian bauxite-mining company ACG-Rusal, which over three years gave $100,000 in development assistance to a local prefecture. But the 25,000 citizens of Mambia, the village where ACG-Rusal operates, received only a single small payment, in 2006. Mambia remains without electricity or piped water.

More transparency

Former President Mogae of Botswana acknowledges the problems of corruption and poor management of Africa’s mineral resources. “Some of our countries’ individual leaders use their access to financial resources from extractive industries to advance their own personal agendas, instead of using them in the best interest of the nation as a whole,” he said at the December 2008 ADB meeting.

Burkina Faso’s former Minister of Economy and Finance Jean-Baptiste Compaoré agrees. But he adds that countries such as his are taking steps to avoid such pitfalls. Burkina Faso has recently joined the Extractive Industries Transparency Initiative (EITI). Launched in 2002 by the UK prime minister, the initiative requires members to publish all data on revenues from mining and oil operations. By joining the EITI, Mr. Compaoré said in June 2008, “Burkina Faso has undertaken to ensure transparency in the exploitation of its mineral resources and the use of resources arising from them.” This, he hopes, will “maximize the positive development of the mining sector on growth and the fight against poverty.”

In theory, publishing all data on mining revenues and on what mining companies pay to governments should make it possible for citizens and development experts to track how much of the wealth is being used to help reduce poverty. This, it is hoped, will encourage transparency and accountability on the part of governments and mining companies. Sixteen African countries, including Burkina Faso, Ghana, Liberia, Guinea and Sierra Leone have joined the initiative.

Mining after war

Transparency is especially difficult in countries coming out of war. Civil society activists often cite the mining industry in the Democratic Republic of the Congo. In March 2007 a coalition of more than 100 international and local Congolese non-governmental organizations (NGOs) demanded that the government “renegotiate, revoke, or cancel” disadvantageous mining contracts that had been signed during the war or under the transitional government that was in power from 2002 to 2006. The NGOs claimed that three of the largest contracts approved by the transitional government had “collectively signed away over 70 per cent of the government’s most valuable copper and cobalt reserves to international companies.” None were negotiated in a transparent manner, the NGOs assert.

A month later the new government — which came out of the first democratic elections at the end of 2006 — set up an inter-ministerial commission to examine more than 60 mining contracts. It finished its work in October 2007, but did not published the results until March 2008, after concerted lobbying by the NGOs. The commission’s report recommended that all the reviewed contracts be renegotiated to increase the government’s stake in the mines — and thus the state’s share of earnings.

But environmental degradation, compensation for people affected by mining operations, and post-mine recovery concerns were not addressed. NGOs also protested the fact that a task force set up to oversee implementation was staffed entirely by government officials. Given the history of corruption and lack of transparency in the Congo’s mining sector, the NGOs argued that the task force should have included independent and international legal experts, as well as members of civil society.

‘Sanitize the industry’

Since civil war ended in Sierra Leone in January 2002, various governments have sought to start operations on the country’s first industrial-scale gold mine and increase investment in bauxite and iron ore. But disputes over multiple licences granted by various authorities during the conflict and after have hampered the process. “We … need to sanitize the whole industry,” President Ernest Bai Koroma, who was elected in 2007, told reporters. “We hope to lay to rest all of the difficulties we have in this mining sector and open it up, because it has a huge potential.”

In neighboring Liberia the government has just completed a review of major mining contracts, including one with the iron-mining company Arcelor Mittal of India. The revised contract removed clauses exempting the company from Liberian environmental and human rights law, removed certain tax holidays and enforced compensation and property rights for people living in areas affected by the mines.

Patrick Alley, director of Global Witness, an NGO that campaigns for better mining contracts, says that such reviews are vital. “Predatory and unfair investments in natural resources in developing countries, especially post-conflict countries, set back development,” he says. “It is good that the Liberian government brought Mittal back to the negotiating table, and good that Mittal renegotiated the contract. In countries coming out of wars that were fuelled by natural resources, [bad] deals like this are playing with fire.”

Promoting development

African countries have been through cycles of high and low metal and oil prices before. Previously, bad contracts, mismanagement, corruption and poor investment of windfall revenues continued to leave populations poor and economies undiversified even after bountiful times. Turning this situation around, experts say, will require greater transparency, improved planning for the use of revenues and better partnerships among companies, governments and communities.

In Burkina Faso, gold-mining companies such as Cluff Mining of the UK, the Australian conglomerate Metal Mass and the Canadian-owned Société d’exploitation minière d’Afrique de l’Ouest (Semafo) are already actively involved in helping the country better channel revenues from natural resources to local populations.

Elie Ouédraogo, the national director of Semafo, told local media that his company recognizes that a mine is a finite resource. “We must think about the post-mine phase,” he said. “We must act to ensure that people living close to the mine, do not face desolation…. We will certainly give the fish to local people, but we will also teach them how to fish,” he said, recalling a popular proverb. To meet this goal, Semafo is working with the UN Development Programme (UNDP), NGOs and local communities to put together a sustainable development plan. Near its Mana gold mine, in the western part of the country, it is also building two villages of 425 houses, with meeting rooms for youth people and women, places of worship, schools, wells and roads.

Such cases give reason for optimism that Africa will come out of the current price decline much stronger than it did in previous cycles. “Resource-rich countries have been using their windfall profits to scale up outlays on infrastructure and social services, and they’ve also been saving a lot more than in previous episodes,” says Abdoulaye Bio-Tchane, president of the West Africa Development Bank and a former director of the International Monetary Fund’s Africa department. “In contrast to earlier commodity booms, this time around Africa has been coping remarkably well.”