- Email: [email protected]
Strategy for African mining
Book review Attracting private investors STRATEGY
FOR AFRICAN MINING
Mining Unit, Industry and Energy Division, World Bank, Washington, DC, 1992. The World Bank has accumulated a great deal of knowledge about mining in Africa over the past decades. In this report the Bank draws on that knowledge to deliver an unambiguous message: African governments must undertake major institutional reform if they are to reverse the declining trend of mining in their countries. The report shows that Africa’s share of world production of most minerals has decreased continuously over the past two decades (‘Africa’ means subSaharan Africa except South Africa in World Bank terminology). According to the Bank, this is due to an excessive degree of state control of mining activity, which leads to two problems: first, an unfriendly environment for foreign investment, leading to a shortage of investment funds and too little exploration; and second, shortcomings in the management of state-owned mining companies. The Bank’s view that most African countries lack attraction for the foreign investor is borne out by other recent surveys in which international mining companies, asked to rank investment conditions in different countries, have consistently placed African countries towards the bottom of the list. The Bank has posed the question somewhat differently by asking 40 international mining companies what influences their investment decisions in developing countries. In the replies, mineral potential and infrastructure were given as decisive factors but mining rights, fiscal terms, ownership and control and availability of geological information were the other factors most often quoted. Based on general geological know-
230
ledge and comparisons with areas in other parts of the world having similar geological characteristics to parts of Africa, the Bank argues that large parts of Africa must be considered prospective from a purely geological point of view. However, from the foreign investor’s point of view, conditions in Africa do not compare favourably with those in other parts of the world. Since international mining companies do not lack potential investment projects, they have consequently left Africa out of their exploration and investment plans. The Bank has drawn up a comprehensive list of actions that African governments will have to undertake in order to increase the attractiveness of their countries to foreign investors. The list includes: adjustment of macroeconomic policies; improved fiscal terms and other incentives for mining; legislation which ensures access to land as well as provision for tradable exploration and mining rights; and strengthened and reorganized government institutions. For each of these items, the Bank presents detailed prescriptions. Regarding the role of state-owned enterprises, the Bank recognizes that there are examples in developing countries of successful state-owned mining enterprises, and quotes the example of Codelco in Chile. However, the Bank maintains that in Chile there are fundamental differences in the role and power of the state. These have included the setting up of an independent legislature, central bank and regulatory bodies, and the development of stake holders prepared and capable of defending the new arrangements. These conditions are rarely found in Africa. State-owned enterprises in Africa have less operational independence, are conceived as convenient sources of income for the government and are, to a larger extent than elsewhere, ex-
pected to take non-commercial objectives into account in their operations. In many cases they have not shown sufficient flexibility and have neglected technological and market developments. Because of this, the prospects for improvements in the operations of parastatal mining companies in Africa are poor. The World Bank recommends the total or partial privatization of state mining operations in Africa, and argues that early privatization of state mining assets will be the most effective signal to international mining companies that African governments are serious about a private sector strategy. The Bank has calculated the financial requirements and potential benefits of increased exploration and investment by international mining companies in Africa. Based on its estimates of geological potential, the Bank believes that annual exploration expenditure of US$250 to 500 million is warranted; this is two to four times the present level of expenditure. This investment would result in a sequence of five to ten medium to large mining projects by the late 1990s. To finance the investment and continued exploration, Africa would need to raise US$2500 million per year by the late 1990s which would raise its share of world exploration and development expenditure from the present 5% to 14%. The Bank’s recommendations are presented as necessary conditions for change. The actions proposed to promote foreign investment and to improve the economic sustainability of existing mining operations are certainly necessary if governments wish to see a higher rate of growth in their mining output. The Bank is certainly also aware of the problems that governments will face when trying to implement its agenda for change. Nevertheless, in making the case for policy changes, the Bank may have understated the political and institutional obstacles to change and exaggerated the potential benefits of foreign investment in mining. One area where the difficulties may prove to be larger than the Bank appears to believe could be the privatization of parastatal mining enter-
RESOURCES
POLICY
September
1993
Book reviewlcalendar
in concluding an agreement with a potential buyer: no investor is likely to be willing to assume financial responsibility for past environmental damage, while the government will wish to ensure that the buyer conforms to the best available environmental practice for all mine-related damage. It is easy to agree with the World Bank about the potential benefits of a revitalization of African mining in terms of increased export income and government budget revenues. However, macroeconomic management in a developing country with a large mineral export sector poses difficult problems and the development experience of countries with a large mineral sector is negative in most cases. These problems clearly need to be taken into account when formulating policy proposals. The Bank argues for the continued adjustment of macroeconomic policies, especially market-based foreign exchange and trade policies. On specific policies, the Bank makes
prises. The Bank surrounds its recommendations in this regard with thoughtful advice and cautionary comments. Nevertheless, the experience of privatization programmes in general in developing countries, or in developed ones for that matter, shows that the programmes nearly always take longer to implement than foreseen and that results are often modest compared to initial ambitions. Furthermore, examples of successful privatizations of parastatal mining companies in developing countries are hard to find: difficult - perhaps insuperable - problems may well exist. The number of potential buyers is very small and the privatization of a mining company is likely to engender more political controversy than the privatization of, say, a brewery. How the social obligations of parastatal mining enterprises are to be transferred to other institutions will easily give rise to conflict. Finally, environmental considerations may cause difficulties
World Zinc. More details from The Australasian Institute of Mining and Metallurgy, PO Box 122, Parkville, Victoria 3052, Australia.
Conferences This calendar of events is compiled from information provided by the respective organizers and from secondary sources. RESOURCES POLICY welcomes information on all conferences relevant to mineral resources issues for listing in this section. The copy deadline is three months before publication. An asterisk indicates a new entry. 7-10 September 1993, Aberdeen, UK
Scotland,
Offshore Europe 93, with the theme: Managing Change in a New Era. Six technical categories are to be explored: drilling; economics and management; formation evaluation; production engineering; related technology and other; and reservoir engineering. More details from Offshore Europe Partnership, Rowe House, 55-59 Fife kd, Kingston- upon Thames, ‘Surrey KTl lTA, UK. Tel: +44 (0)Sl 549 5831; fax: +44 (0)81 541 5657. 12-17 September 1993, Banff, AL, Canada 7th International Conference on Coal Science. More details from Dr David Brown, Conference Chair, PO Bag 1280, Devon, Alberta, Canada TOC 1EO. Tel: +1 403 987 8214; fax: +l 403 987 3430.
RESOURCES
POLICY
September
detailed recommendations on the tax package. There is no discussion of how large and fluctuating mineral export earnings affect the prospects for achieving macroeconomic equilibrium; this is somewhat surprising, not least in view of the attention that the Dutch disease problem has received in recent years. The World Bank deserves to be congratulated for having successfully undertaken a most difficult task. It has provided a well documented account of the failure of African mining to keep pace with the rest of the world. The ambitious list of constructive proposals which the Bank has put forward will not solve all the problems faced by African governments in the mining sector, but the proposals will certanly be a valuable source of ideas for a better future for mining in Africa. Olle Ostensson UNCTAD Geneva, Switzerland
*14-16 September 1993, University of Leeds, UK Strategic Planning in the Minerals Industry: an IMM conference. More details from The Conference Office, The Institution of
Mining and Metallurgy, 44 Portland Place, London WlN 4BR. UK. Tel: +44 71 580 3802; fax: +44 71 436 5388 *8-13 October 1993, Tokyo, Japan The 16th WEC Congress: Energy for our Common World: What will the future ask of us? More details from The Organizing Committee of the 16th Congress of the World Energy Council, MatsuokaTamuracho Bldg., 22-10 Shimbashichome, Minato-ku, Tokyo 105, Japan. Tel: +81 3 3437 4727; fax: +81 3 3437 4678. lo-13 October 1993, Hobart, Australia Zinc ‘93 - the International Confrence
1993
on
20-21 October 1993, London, UK Oil and Money: International Herald Tribune Conference. More details from Brenda Hagerty, Conference Organizer, International Herald Tribune, 63 Long Acre, London WC2E 9JH, UK. Tel: +44 71836 4802: fax: +44 71 836 0717. *27-28 October 1993, Washington, DC, USA Earth Observations and Global Change Decision Making: A National Partnership. Global Change: A New Direction for Decision Making. More details from ERIM Conferences, PO Box 134001, Ann Arbor, MI 48113-4001, USA. Tel: +1 313 994 1200 ext 3453; fax: +1 313 994 5123. 3-4 November 1993, Brussels, Belgium 93 EUROPEAN AUTUMN GAS. More details from Overview Conferences, EconoMatters Ltd, 82 Rivington St, London EC2A 3AY, UK. Tel: +44 71 613 0087; fax: +44 71 613 0094. 9-11 November 1993, Valletta, Malta Clean Seas 93: Focusing on the Mediterranean. More details from Lesley Ann Sandbath, Project and Conference Director, Spearhead Exhibitions Ltd, 55-59 Fife Rd,
231
FOR AFRICAN MINING
Mining Unit, Industry and Energy Division, World Bank, Washington, DC, 1992. The World Bank has accumulated a great deal of knowledge about mining in Africa over the past decades. In this report the Bank draws on that knowledge to deliver an unambiguous message: African governments must undertake major institutional reform if they are to reverse the declining trend of mining in their countries. The report shows that Africa’s share of world production of most minerals has decreased continuously over the past two decades (‘Africa’ means subSaharan Africa except South Africa in World Bank terminology). According to the Bank, this is due to an excessive degree of state control of mining activity, which leads to two problems: first, an unfriendly environment for foreign investment, leading to a shortage of investment funds and too little exploration; and second, shortcomings in the management of state-owned mining companies. The Bank’s view that most African countries lack attraction for the foreign investor is borne out by other recent surveys in which international mining companies, asked to rank investment conditions in different countries, have consistently placed African countries towards the bottom of the list. The Bank has posed the question somewhat differently by asking 40 international mining companies what influences their investment decisions in developing countries. In the replies, mineral potential and infrastructure were given as decisive factors but mining rights, fiscal terms, ownership and control and availability of geological information were the other factors most often quoted. Based on general geological know-
230
ledge and comparisons with areas in other parts of the world having similar geological characteristics to parts of Africa, the Bank argues that large parts of Africa must be considered prospective from a purely geological point of view. However, from the foreign investor’s point of view, conditions in Africa do not compare favourably with those in other parts of the world. Since international mining companies do not lack potential investment projects, they have consequently left Africa out of their exploration and investment plans. The Bank has drawn up a comprehensive list of actions that African governments will have to undertake in order to increase the attractiveness of their countries to foreign investors. The list includes: adjustment of macroeconomic policies; improved fiscal terms and other incentives for mining; legislation which ensures access to land as well as provision for tradable exploration and mining rights; and strengthened and reorganized government institutions. For each of these items, the Bank presents detailed prescriptions. Regarding the role of state-owned enterprises, the Bank recognizes that there are examples in developing countries of successful state-owned mining enterprises, and quotes the example of Codelco in Chile. However, the Bank maintains that in Chile there are fundamental differences in the role and power of the state. These have included the setting up of an independent legislature, central bank and regulatory bodies, and the development of stake holders prepared and capable of defending the new arrangements. These conditions are rarely found in Africa. State-owned enterprises in Africa have less operational independence, are conceived as convenient sources of income for the government and are, to a larger extent than elsewhere, ex-
pected to take non-commercial objectives into account in their operations. In many cases they have not shown sufficient flexibility and have neglected technological and market developments. Because of this, the prospects for improvements in the operations of parastatal mining companies in Africa are poor. The World Bank recommends the total or partial privatization of state mining operations in Africa, and argues that early privatization of state mining assets will be the most effective signal to international mining companies that African governments are serious about a private sector strategy. The Bank has calculated the financial requirements and potential benefits of increased exploration and investment by international mining companies in Africa. Based on its estimates of geological potential, the Bank believes that annual exploration expenditure of US$250 to 500 million is warranted; this is two to four times the present level of expenditure. This investment would result in a sequence of five to ten medium to large mining projects by the late 1990s. To finance the investment and continued exploration, Africa would need to raise US$2500 million per year by the late 1990s which would raise its share of world exploration and development expenditure from the present 5% to 14%. The Bank’s recommendations are presented as necessary conditions for change. The actions proposed to promote foreign investment and to improve the economic sustainability of existing mining operations are certainly necessary if governments wish to see a higher rate of growth in their mining output. The Bank is certainly also aware of the problems that governments will face when trying to implement its agenda for change. Nevertheless, in making the case for policy changes, the Bank may have understated the political and institutional obstacles to change and exaggerated the potential benefits of foreign investment in mining. One area where the difficulties may prove to be larger than the Bank appears to believe could be the privatization of parastatal mining enter-
RESOURCES
POLICY
September
1993
Book reviewlcalendar
in concluding an agreement with a potential buyer: no investor is likely to be willing to assume financial responsibility for past environmental damage, while the government will wish to ensure that the buyer conforms to the best available environmental practice for all mine-related damage. It is easy to agree with the World Bank about the potential benefits of a revitalization of African mining in terms of increased export income and government budget revenues. However, macroeconomic management in a developing country with a large mineral export sector poses difficult problems and the development experience of countries with a large mineral sector is negative in most cases. These problems clearly need to be taken into account when formulating policy proposals. The Bank argues for the continued adjustment of macroeconomic policies, especially market-based foreign exchange and trade policies. On specific policies, the Bank makes
prises. The Bank surrounds its recommendations in this regard with thoughtful advice and cautionary comments. Nevertheless, the experience of privatization programmes in general in developing countries, or in developed ones for that matter, shows that the programmes nearly always take longer to implement than foreseen and that results are often modest compared to initial ambitions. Furthermore, examples of successful privatizations of parastatal mining companies in developing countries are hard to find: difficult - perhaps insuperable - problems may well exist. The number of potential buyers is very small and the privatization of a mining company is likely to engender more political controversy than the privatization of, say, a brewery. How the social obligations of parastatal mining enterprises are to be transferred to other institutions will easily give rise to conflict. Finally, environmental considerations may cause difficulties
World Zinc. More details from The Australasian Institute of Mining and Metallurgy, PO Box 122, Parkville, Victoria 3052, Australia.
Conferences This calendar of events is compiled from information provided by the respective organizers and from secondary sources. RESOURCES POLICY welcomes information on all conferences relevant to mineral resources issues for listing in this section. The copy deadline is three months before publication. An asterisk indicates a new entry. 7-10 September 1993, Aberdeen, UK
Scotland,
Offshore Europe 93, with the theme: Managing Change in a New Era. Six technical categories are to be explored: drilling; economics and management; formation evaluation; production engineering; related technology and other; and reservoir engineering. More details from Offshore Europe Partnership, Rowe House, 55-59 Fife kd, Kingston- upon Thames, ‘Surrey KTl lTA, UK. Tel: +44 (0)Sl 549 5831; fax: +44 (0)81 541 5657. 12-17 September 1993, Banff, AL, Canada 7th International Conference on Coal Science. More details from Dr David Brown, Conference Chair, PO Bag 1280, Devon, Alberta, Canada TOC 1EO. Tel: +1 403 987 8214; fax: +l 403 987 3430.
RESOURCES
POLICY
September
detailed recommendations on the tax package. There is no discussion of how large and fluctuating mineral export earnings affect the prospects for achieving macroeconomic equilibrium; this is somewhat surprising, not least in view of the attention that the Dutch disease problem has received in recent years. The World Bank deserves to be congratulated for having successfully undertaken a most difficult task. It has provided a well documented account of the failure of African mining to keep pace with the rest of the world. The ambitious list of constructive proposals which the Bank has put forward will not solve all the problems faced by African governments in the mining sector, but the proposals will certanly be a valuable source of ideas for a better future for mining in Africa. Olle Ostensson UNCTAD Geneva, Switzerland
*14-16 September 1993, University of Leeds, UK Strategic Planning in the Minerals Industry: an IMM conference. More details from The Conference Office, The Institution of
Mining and Metallurgy, 44 Portland Place, London WlN 4BR. UK. Tel: +44 71 580 3802; fax: +44 71 436 5388 *8-13 October 1993, Tokyo, Japan The 16th WEC Congress: Energy for our Common World: What will the future ask of us? More details from The Organizing Committee of the 16th Congress of the World Energy Council, MatsuokaTamuracho Bldg., 22-10 Shimbashichome, Minato-ku, Tokyo 105, Japan. Tel: +81 3 3437 4727; fax: +81 3 3437 4678. lo-13 October 1993, Hobart, Australia Zinc ‘93 - the International Confrence
1993
on
20-21 October 1993, London, UK Oil and Money: International Herald Tribune Conference. More details from Brenda Hagerty, Conference Organizer, International Herald Tribune, 63 Long Acre, London WC2E 9JH, UK. Tel: +44 71836 4802: fax: +44 71 836 0717. *27-28 October 1993, Washington, DC, USA Earth Observations and Global Change Decision Making: A National Partnership. Global Change: A New Direction for Decision Making. More details from ERIM Conferences, PO Box 134001, Ann Arbor, MI 48113-4001, USA. Tel: +1 313 994 1200 ext 3453; fax: +1 313 994 5123. 3-4 November 1993, Brussels, Belgium 93 EUROPEAN AUTUMN GAS. More details from Overview Conferences, EconoMatters Ltd, 82 Rivington St, London EC2A 3AY, UK. Tel: +44 71 613 0087; fax: +44 71 613 0094. 9-11 November 1993, Valletta, Malta Clean Seas 93: Focusing on the Mediterranean. More details from Lesley Ann Sandbath, Project and Conference Director, Spearhead Exhibitions Ltd, 55-59 Fife Rd,
231