trade and aid in africa 27may13
TRANSCRIPT
Trade and aid in Africa
Dr Brian Fisher, Anna Fisher & Marie Gillardeau
Africa Update 2013: Celebra@ng the 50th Anniversary of the Organisa@on of African Unity/Africa Union, 27 May 2013, Australian Na@onal University, Canberra
Contents
1 • Capital investment in Africa
2 • Aid to Africa
3 • Pros and cons of mining investment in Africa
4 • How can mining contribute to economic development in Africa?
5 • How can the Australian government assist with economic development in Africa?
Capital investment in Africa
Although Africa is the least important region in the world for total FDI, together with Latin America it is the most important for greenfield mining, quarrying and petroleum FDI
African FDI = US $42.7 billion
African greenfield mining, quarrying & petroleum FDI = US $22.8 billion
UNCTAD – World Investment Report 2012
North America 19%
Africa 3%
Latin America 15%
Transition economies
5% Asia 29%
EU 29%
Regional division of global FDI in 2011:
Asia 7%
Africa 31%
Latin America 30%
Transition economies
7%
Developed economies
25%
Regional division of global greenfield mining, quarrying & petroleum FDI in 2011:
Other FDI = US $19.9 billion
What are the key industries and key countries?
South Africa Platinum group elements (world’s largest producer), gold, chronium, iron ore, diamonds, coal, manganese, nickel, chrome, zinc, uranium, copper, tin, salt, mineral sands
Mozambique Aluminium, coal, minerals sands, gas
Zambia Copper, gold, diamonds, zinc
Namibia Diamond, lead, zinc, tin, silver, tungsten, uranium, copper
Zimbabwe Coal, gold, platinum, copper, nickel, in, diamonds, clay, numerous metallic and non-‐metallic ores
Democratic Republic of Congo
Tin, platinum, iron, tungsten, gold, copper, diamonds
Botswana Diamonds, copper, nickel, salt, soda ash, potash, coal, iron ore, silver
Ghana Gold, bauxite, copper, iron
2013 KPMG
Africa contains approximately:
30 per cent of the global
mineral reserves
40 per cent of gold
60 per cent of cobalt
80 per cent of manganese
90 per cent of platinum group
elements
How much of this investment is sourced from Australia and what for?
230 Australian mining and oil and gas companies, including mining
services
AU $50 billion worth of investment (realised and
projected)
650 projects across 42 countries
150 ASX listed mining and exploration companies with a
collective market capitalisation of over A$260 billion in 2010
International Mining for Development Centre -‐ 2013
10 of the key countries for Australian Investment
South Africa Namibia The Democratic Republic of Congo
Ghana Zambia Mozambique
Tanzania Botswana Burkina Faso
Guinea
10 of the key industries for Australian Investment
Mineral sands Iron ore Copper
Diamonds Coal Platinum group
elements
Gold Uranium Nickel
Alumina refining / Aluminium Smelting
Aid to Africa
What is the total aid flow to Africa?
In 2011, total Official Development Assistance from members of the OEDC Development
Assistance Committee was US $51.3 billion.
US $3.6 billion for North Africa
US $45.7 billion for Sub Saharan Africa
US $2.0 billion for Africa (non country specific)
OECD – Statistics on resource flows to developing countries 2012
The following ranks the DAC countries in terms of how many African nations form part of their top 15 aid recipients:
The more important are trade linkages between regions the higher the probability that aid will flow between them
No. of African countries
Amount donated in 2011 (2010 US$ million)*
Belgium 12 719 Ireland 12 379 Sweden 11 1,115 United Kingdom
11 3,012
Canada 10 1,380 Netherlands 10 1,332 Denmark 9 782 France 9 3,257 Italy 9 731 United States 8 8,898 Finland 7 244 Luxembourg 7 108
Portugal 7 383
Austria 6 101 Switzerland 5 393 Germany 4 1,880 Greece 4 7
Spain 3 406 Korea 2 140
Japan 2 1,474
Australia 1 255
New Zealand 0 12 WTO – International Trade Statistics 2012 OECD – Statistics on resource flows to developing countries 2012
Europe 41.4%
North America 20.6%
South & Central America 3.8%
Asia & CIS 29.9%
Middle East 4.2%
Share of Africa’s trade in 2011 with world regions:
Europe is Africa’s key
trading region and aid
follows that trade
*Note – Only takes into account donations to Sub Saharan Africa
South & Central Asia 15%
Sub Saharan Africa 47% Other
Asia & Oceania 10%
Middle East & North Africa 11%
Europe 5%
Latin America
& Carribean
12%
European DAC members’ aid destinations in 2011:
Many African nations that are important destinations for FDI also receive the largest amount of Official Development Assistance
Top 20 Official Development Assistance recipients in Africa in 2011:
OECD – Statistics on resource flows to developing countries 2012 World Bank – World Databank 2013
2011 US$ billion
% of gross national income
1 Democratic Republic of Congo 5.52 38.4
2 Ethiopia 3.56 11.8
3 Kenya 2.47 7.4
4 Tanzania 2.45 10.4
5 Mozambique 2.05 16.3
6 Ghana 1.82 4.8
7 Nigeria 1.81 0.8
8 Uganda 1.58 9.6
9 Ivory Coast 1.44 6.2
10 Rwanda 1.28 20.2
2011 US$ billion
% of gross national income
11 South Africa 1.27 0.3
12 Mali 1.27 12.3
13 Morocco 1.24 1.3
14 Somalia 1.14 NA
14 Sudan 1.10 1.9
16 South Sudan 1.09 NA
17 Zambia 1.07 6.1
18 Senegal 1.05 7.4
19 Burkina Faso 0.99 9.5
20 Malawi 0.80 14.5
Although Guinea is an important country for FDI for Australia and other nations, it ranks number 40 on the list of Official Development Assistance recipients, receiving US$0.21 billion in 2011.
What is Australia’s contribution and to what countries?
Australia’s key projects in Africa have included:
• Supporting Zimbabwe with its economic recovery and assisting with the the restoration of basic services in the country.
• A four year global food security initiative, dedicating just under $100 million to assist countries in Africa (announced in 2009).
• A three year water and sanitation initiative, which committed $300 million to Asia, the Pacific and Africa (announced in 2007).
• Funding given to the World Bank’s Water and Sanitation Program. This has resulted in simplification of domestic water distribution in countries such as Mozambique.
• A scholarship program, which will provide 1000 scholarships by 2012-‐13 to participate in postgraduate study and training in Australia and overseas.
Ausaid – Australian aid work in Africa 2010
Pros and cons of mining investment in Africa
What are the positives of investing in Africa?
Resources
• More than 30 per cent of the world’s mineral reserves are located in Africa.
• Despite this, of the total global mineral exploration and extraction budget, less than 5 per cent is invested in Africa.
• Africa has 12 per cent of the world’s petroleum reserves.
Tax advantages
• In some African nations tax exemptions exist to increase the incentive for foreign companies to invest in the country’s extractive sector.
• These include exemptions from:
• VAT • Property taxes • Custom duties
What are the challenges of investing in African mining?
Infrastructure
• Quality of existing infrastructure tends to be low.
• African governments are currently unable to meet demands for mining infrastructure including railways and ports and therefore additional investment is required to transport ore and provide water and energy to the mine site.
• In cases where government controls the infrastructure, the government’s and mining company’s views may not be aligned in respect of competing uses of the infrastructure.
• Government owners may seek excess rent for the use of infrastructure, thus increasing costs.
Labour
• Acute shortage of skilled labour in all industries. This shortage is particularly apparent in the mining industry.
• Quality of entrants into the workforce is a result of the average low level of education due to poor attendance as well as a high variability of the quality of education.
• Due to this shortage, in many instances foreign companies resort to importing workers from abroad.
What are the challenges of investing in African mining?
Corruption
• Although perceived corruption has improved in some African nations, the majority of countries are still toward the highly corrupt end of the spectrum.
• Many countries have laws regarding bribery and corruption and foreign companies working in nations where bribes are a common part of corporate culture, can find navigating the business environment a challenge.
Very clean
� 90-100
� 80-89
� 70-79
� 60-69
� 50-59
� 40-49
� 30-39
� 20-29
� 10-19
� 0-9
� No data
Highly corrupt
Transparency international: 2012 corruption perceptions index
Niger
Burkina Faso
Guinea
Liberia
Cameroon
Congo
Malawi
Mozambique
Namibia
Botswana
South Africa
driven by Australian mining companies, was having a positive impact directly and indirectly in terms of economic growth and social development, raising standards of living and delivering to the corporate bottom line at the same time.
Bob Carr highlighted mining opportunities and social programmes of Australian companies in 11 countries, all of which are prominent locations for resource groups looking to explore and develop African assets.
We would like to think that Bob Carr is right and that the development of a mine has the added benefit of raising the physical and social capital of host communities and countries. But how can we tell if that assertion is true?
One measure might be to chart these 11 countries over Transparency International’s recent Corruption Perception Index (CPI) scores and rankings to see if progress is being made. The connection between corruption and low levels of economic and social development is often made. Transparency International estimates that bribery raises the average Kenyan family’s cost of living by 15% and that 83% of deaths by building collapses in earthquakes over the last 30 years have occurred in countries were corruption is rife. The World Bank estimates that $1 trillion is paid in bribes each year and contends that the standard of living in the poorest countries, where a high proportion of the bribes are paid, would be measurably better if that money was put to productive use. Those countries developing faster tend to do better on eliminating corruption than those that languish at the bottom of social and economic tables.
Transparency in Africa: Combatting corruption
At Africa Downunder last year, in front of African ministers and key figures in the Australian resources community, the Australian Minister for Foreign Affairs Bob Carr delivered a hopeful speech regarding the prospects for Africa as a consequence of Australian investment there.
By Jon Greenaway
Fraud and corruption adviser
Western Australian Stock Exchange Index | 23
2012 Transparency International – Corruption Index
(30-‐39)
(30-‐39)
(20-‐29)
(40-‐49)
(20-‐29)
(20-‐29)
(30-‐39)
(30-‐39)
(40-‐49)
(60-‐69)
(40-‐49)
What are the challenges of investing in African mining?
Civil disruption and violence
• Civil disruption and violence can break out during periods of political unrest and can affect the mining industry.
• For example, in the Ivory Coast a dispute regarding the 2010 election results initiated civil unrest and the operation of various mines was suspended.
Lawlessness and health
• Theft of metal from mine sites, such as railway lines, is becoming increasingly common.
• This is not only costing mining companies the price of the metal but also the costs associated with disruption and delays.
• Tropical diseases and public health challenges increase costs of doing business.
How can mining contribute to economic development in Africa?
How can mining companies contribute to economic development and help offset the effects of Dutch disease?
Mining companies can do the following:
Increase human capital through training and ensure that any resettlement plans result in viable new communities
Recruiting, developing and retaining a highly skilled local workforce is beneficial and offsets the low availability of in-‐country skilled labour. As the demand for labour grows during the initial construction phase and then slows when the mine is operational, adequate training can facilitate the transfer of construction workers to operations or preferably a series of projects is developed in order to maintain a skilled construction workforce.
Resettlement plans should ensure that newly established communities are economically and socially viable.
Invest in infrastructure This can help mitigate political risks and win and maintain a social license to operate.
Introduce up-‐to-‐date technology and equipment
Helps to lift labour productivity and together with training helps to develop a skilled labour force that can continue to work in mining or move into other sectors in the economy.
Procure locally
Develop partnerships with small and medium companies, buy locally where possible and provide services to local suppliers. An example of this is a scheme introduced by Rio Tinto in Mongolia where locally made uniforms are now used elsewhere in the company.
What should the government’s role be in economic development?
Government’s should attempt the following:
• Reducing fraud and corruption.
• Raising human capital by reducing potential skill gaps and investing in education.
• Addressing Africa’s infrastructure deficit.
• Reducing resource nationalism: reducing any impediments to foreign investment and ownership, facilitating access to permits, which normally require years of advanced-‐planning.
• Creating incentives and rules for business that are comparable with competing jurisdictions.
• Improving fiscal and monetary policy to help smooth out boom/bust cycles and encourage domestic savings thus making capital available for domestic investment.
• Enacting trade reforms. This can help with the diversification of exports although it often requires associated reforms as well, for example improved transportation infrastructure.
What should governments avoid?
The following aggravate Dutch disease effects:
Trade restrictions and subsidies that attempt to protect traditional sectors
Such restrictions, tariffs and subsidies are effectively a tax on internationally competitive export sectors and distort the allocation of resources within the economy thus reducing welfare in the long run.
Misguided industrial policies that attempt to stimulate the development of new industries
Attempts to stimulate so called ‘value-‐adding’ industries in which the country has no comparative advantage will inevitably lead to a long run loss of welfare by drawing resources away from export competitive industries (effectively imposing a tax on those industries).
Excessive borrowing Leads to a monetary crisis, collapse of the exchange rate and in severe cases international default with negative consequences for the cost of future borrowings.
Malfunctioning institutions and poor governance
Results in domestic and macroeconomic policies failures, which lead to poor economic outcomes.
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• Africa is a key region for Australia in terms of FDI in the mining and energy sectors with $50 billion worth of realised and projected investment in the continent.
• Africa is also the recipient of Australian aid through food security and water and sanitation initiatives, as well as scholarship programs.
• Africa is rich in mineral resources but there are many challenges to developing those resources including lack of infrastructure, skilled labour shortages, public health issues and a challenging business operating environment.
• To contribute to economic development mining companies should attempt to procure locally, contribute to the development of human capital and invest in infrastructure or form partnerships with governments to invest in infrastructure.
• To enhance mining companies’ efforts government should attempt to improve fiscal policy, reduce fraud and corruption and establish business rules that are internationally competitive.
• To boost economic development in African the Australian government should continue to support Africa in the development of its mining industry by sharing expertise and contributing to training.
Conclusion