Securing the Transformational Potential of Africa’s Mineral Resources

Jamal SaghirDirector

Sustainable Development Africa Region

World Bank

Cape TownFebruary 4, 2013

Source: Raw Materials Group, Stockholm 2011

Mining output by value USD386bn in 2009

SouthAfrica

Africa’s share of mining output is lessthan 10%, including South Africa

… but its share of proven mineralreserves is higher

… and average investment in discoveringminerals is just 1/5th of the OECD average

Global mining investment was USD980bnfrom 2000-11 (RMG)

Africa’s share of that may have been nomore than 5% but is on a rising trend(15% recently according to RMG)

Country Primary Mineral

Investment,2000-2011

Forecast Investment, 2012-17

GDP, 2010

Burkina Faso Gold 1 0.5-1.5 8.8DRC Copper 3.1-4.1 9-14 13.1Ghana Gold 7-8 1-1.5 31.3Guinea Iron Ore 4-5 12-20 4.5Liberia Iron Ore 3-4 9-12 1.0Mauritania Iron Ore 2-3 3-5 3.6Mozambique Coal 6.1 11.6 9.6

Namibia Uranium 4 3.5 12.2Niger Uranium 0.25-0.5 1.5 5.5Sierra Leone Iron Ore 1-2 4-5 1.9Tanzania Gold 3 4-6 23.1Zambia Copper 3-3.5 4-6 16.2Total 37.4-44.1 63.1-87.6 132.8

Source: McMahon, World Bank (forthcoming)

Projected investment isquadruple that of the last decade

The continent’s under developed mineral riches1

Gold Base Other Metal

Three reasons why mineral investments will continue to grow in Africa2

Fundamentals based on increasing resource intensity of global growth, marked by industrial development in emerging economies, are likely to support high commodity prices over the longer run. This is a thesis supported by McKinsey1 and Chatham House2.

Africa’s mineral endowment, coupled with exhaustion, scarcity and barriers

to access elsewhere, has already attracted intense competition for Africa’s resources, involving both traditional multi-nationals and newcomers from the emerging economies.

The increasingly stable and open economies of Africa are more conducive

to investment flows, even though there have been cross-currents generated by more assertiveness by governments on issues of rent sharing and ownership and infrastructure challenges remain immense.

1 McKinsey Global Institute, Resource Revolution: Meeting the world’s energy, materials, food and water needs, November 20112 Chatham House, Resources Futures, December 2012

> 50% of exports

> 20% of exports

emerging

Minerals (excl. oil & gas) 2010

The continent’s mineral dependency3

Revenue mobilization through mineral rents can displace aid dependence and leverage commercial finance. Data from IMF reports indicates that on average mineral rent collection in mineral dependent economies amounts to 5% of GDP (with considerable variation) and is on a rising trend.

Africa needs USD93 billion per year in infrastructure3. Mineral rents can support public capital programs and mining projects can serve as anchors for road, rail, port, water, power and telecoms investment. This morning’s session will focus on how joint solutions can be found by mining investors and governments.

The scale of annual spending implied by mining investment offers opportunities for development of local supply chains, thereby increasing income and job multipliers

Where economies of scale, transportation savings and power reliability allow, new downstream value addition opportunities will increase

These kinds of linkages with wider economic development must be capitalized upon. This means a clean break with the old model of enclave mining development.

Tremendous opportunity for mineral-driven transformation on this continent4

3 Africa Energy Strategy 2011, World Bank

GD

P G

row

th %

H D I G r o w t h %0 0.5 1 1.5 2 2.5 3 3.50

2

4

6

8

10

12Annual GDP and HDI Growth Rates 2000-2010

Mineral richOil rich

0

12

3.5

Evidence of positive human development outcomes5

Resource economies have fared betterthan non-resource economies interms of human development

0

0.5

1

1.5

Average annual HDI Growth RateSSA 2000 - 2010

Mineral economies have fared betterthan oil rich economies in termsof human development

Mauritania

Mali

Zambia

Sierra LeoneAngola

NigeriaGhana

Burkina FasoBotswana

Chad

Mozambique

Sudan Tanzania

Namibia

DRC

Gabon

Cameroon

Better governance platform for mineral resource development6

Sunday’s program was devoted to the governance dimension of mineral resources development – evidence shows that poor governance is more likely to inhibit beneficial use of mineral resources

Sunday’s AUC keynote and the presentation on the role of the Africa Peer Review Mechanism sounded a note of optimism on governance trends, while recognizing governance risks that have to be managed

Participation in global good governance initiatives is growing on the continent – several governments have joined the Open Government Partnership and there is a large block of EITI implementers and several are moving beyond EITI

There is a proliferation of good practice guidance:

Sessions yesterday focused on:o moves towards greater disclosure of mineral right holding and contractso wider adoption of budget tracking tools

It remains the case that mineral resources are still coveted by rent-seekers, rebels and criminals, policy-making and regulatory institutions are often weak and access to the benefits of minerals is highly uneven in many countries

rNatural

ResourcesCharter

WEFResponsible Mineral

DevelopmentInitiative

ICMMMining Partnerships

for DevelopmentToolkit

Fair contractsThe benefits of mineralresources will remainelusive if governmentsand mining companiesstrike deals that areone-sided and narrowlyfocused

Responsible conduct of miningEven the benefits of fair contractscan be undone if mining is allowedto be conducted irresponsibly

Optimal use of resource wealthUltimately responsibility falls on theGovernment to ensure that citizens arebetter off because of minerals areharnessed for sustainable development

Better deals that are better managed for more development impact7

Fair contracts8

Better knowledge of the mineral endowment to underpin policy choices and enhance government’s bargaining positiono Bank TA on geo-data acquisition, interpretation and dissemination (Uganda, Malawi)o African Mineral Geoscience Initiative (meeting this PM)

Open and competitive allocation of mineral rights to obtain best terms from the most qualified investorso Bank TA on rules based mineral rights management (Madagascar, Mozambique)o Advice on design and conduct of mineral deposit tenders (Liberia)

Fair and predictable sharing of mineral rent to maximize long-term benefitso Bank TA on mining fiscal regime and model mining agreements (Mozambique)o Negotiations support (Sierra Leone)

Strong government policy making and negotiating capacityo EI Sourcebook; Training; South-South exchanges

Eliminating opacity and rent seeking that leads to unfair contractso GEI work on contracts database / how to interpret contracts

Responsible conduct of mining9

Good corporate governance and ethicso Enhanced home country disclosure requirements (Dodd-Frank; EU Directive)o IFC Performance Standards for investees

Social contract with the host community o Emerging best practice on CSR and community development agreements (Bank guidance

on CDAs, IFC’s CommDev)o Community engagement support (incl. gender)

Preserving environmental, social and cultural assetso Strategic Environmental and Social Assessments of mining development and resettlement

frameworks now mainstreamed into mining technical assistance; o New Africa Trust Fund to enhance local sustainability and address impacts on conflict and

communities of mining

Effective monitoring and enforcemento Capacity building for government regulators (12 Bank TA projects in Africa under

implementation worth over USD600mn)o Strengthening mineral tax administration (How to Guide for administrators based on West

Africa pilot)o Enhancing community-based monitoring (under WBI’s GEI)

Optimal use of mineral resources10

Macro-fiscal prudence; managing volatility and Dutch Diseaseo Guidance note on prudent macro-fiscal policies in resource rich countries (forthcoming)o New Sovereign Wealth Fund community of practice

Using mineral rents to create manufactured and human capitalo Enhancing public investment management; procurement reform (highlighted on Sunday)

Using mineral rents to distribute wealth (spatially/future generations)o Sub-national transfers; citizen rent distributions; social safety nets; savings/trusts for

future generations

Fostering economic linkages between mining and the wider economyo Shared infrastructure (IFC study on transport infra under Africa Special Initiative; Bank –

Vale Center study on mining & energy)o Resource corridors & growth pole diagnostics – focus of today’s first sessiono Supply chain development – planned West Africa regional local content project; Zambia

Local Content Initiativeo Mining skills development – focus of one of today’s session – Africa Centers of Excellence

Project; scope for PPPs in educational provision

Outcome A vibrant post-mining economy

An integrated approach at work with partners: Mozambique11

Fair contracts:o Legal support for mining negotiations and gas (LNG) negotiations financed

by a global multi donor trust fund (EI-TAF)o Front end support to improve mining sector policy framework financed by

an AusAid grant to the Banko Functional management review of institutional arrangements for mining and

gas financed by a DfID grant to the Banko Preparation of a Gas Master Plan including downstream potential financed

by AAPF and Norwegian TF (PGI)

Responsible mining:o 6yr regulatory capacity building project for both mining and gas going to

Board in April 2013 financed by $50mn IDA loan + $10mn DFID co-financingo Revenue transparency – support to EITI implementation and CSO

engagement financed by global MDTFo Demand side governance work financed by Governance Partnership Facility

Optimal use of mineral resources:o Fiscal policy and revenue management financed under Budget Supporto Rail and port infrastructure study on mining infrastructure feeding into

proposed Spatial Development projecto Support development of mine supply chain linkages (proposed under new

Growth Poles project)

Scaling up the World Bank’s commitment12

World Bank Group Africa StrategyEmerging themes for Africa are Energy, Skills/Education, Agriculture/Dry Lands, Social Protection, Women’s Economic Empowerment, and Natural Resource Management

• New Extractive Industries Practice to focus on knowledge and partnerships in Africa:

• Draw on global knowledge programs in the World Bank like Extractives for Development (E4D), Governance for Extractive Industries (GEI), EI Task Group and communities of practice on topics such as SWFs, PPPs and SESAs

• Identify joint solutions using analytics, advisory services, technical assistance and capacity building

• Explore potential partnerships with other donors’ mining development programs: Australia’s M4D; Canada’s CIIEID, Germany’s GeRi; UNDP’s EI for HD, OECDs Policy Dialogue, etc.

• Seek possible partnerships with institutions in Africa• AMDC under the inter-governmental Africa Mining

Vision• with think tanks and academia (e.g ACET, SAIIA)

• Collaborate with industry groups: ICMM, World Gold Council and multi-stakeholder alliances: WEF, EITI Secretariat

Extractive Industries Practice for Africa

Take Away Messages

• Africa is the under explored continent but a growing destination for mineral investment

• While previous scrambles for Africa’s natural resources conjure up images of plunder and squandered opportunity, the past should not be a predictor of the future

• This time the chances of better development outcomes are greater – this depends on fairer contracts, responsible conduct of mining and wise stewardship of mineral wealth by the government

• The Africa Mining Vision offers a roadmap for mining to be better integrated into socio-economic development setting a foundation for sustained growth after minerals are exhausted

• The World Bank Group’s Africa Strategy is aligned with this vision and together with other partners the WBG will deploy its fund of knowledge, advisory services, technical assistance, development policy lending, investments and guarantees to secure Africa’s transformation through minerals

Thank You