In 2008, the global production of mineral resources stood at USD 463 billion -up 100% on 2005 (Figure 1). The recent financial and economic crisis has only caused a slight slow-down in this trend. Indeed, the Raw Materials Group1 (RMG) estimates the total value of global production in 2010 at roughly USD 430 billion -this is a new record, and yet it does not include the spectacular rise in mining raw mate-rial prices. For example, on 12 November 2010, the prices of tin (USD 27,500 a ton), copper (USD 8,966 a ton) and aluminum (USD 2,500 a ton) reached or exceeded the levels of the end of the summer of 2008 (AWPress, 2010).
The sharp rise in demand for mineral raw materials since the early 21st century can be mainly put down to growth and urbanization in emerging countries -particularly in China, which has become a key player in the global mining market. The country is the world’s largest importer of nickel, copper, aluminum, lead, tin, etc. It is also the undisputed leader in the production of 26 mineral substances (Bateman Beijing Axis, 2010; Bureau de Recherche Géologique et Minière – BRGM, 2010).
With prices once again on the rise, global investments for exploration have started to pick up again in 2010 after a sharp fall in 2008-2009 and are back to the record level reached in 2005, USD 8 billion (Figure 2). Major corporates’ exploration budgets are now on a par with levels posted prior to the crisis. China also wants to invest USD 4.2 billion in exploration by 2015 in order to reduce its dependence on imports (Reuters, 2010).
Mining potential under-exploited
Given that the mining sector has extremely favorable development prospects, Africa enjoys a particularly interesting “window of opportunity”. It holds 30% of global reserves of raw mineral materials and is already a major producer of a large number of resources. For example, in 2005, Africa produced 77% of platinum, 56% of cobalt, 46% of diamonds and 21% of gold (Performance Consulting, 2007).
Mining activities are mainly conducted by Western companies – with the notable exception of South African companies –, with private or public capital. Since 2002, and more significantly since 2005, companies from emerging countries have become serious competitors for access to African resources.2 In addition to the major players, a whole host of small independent operators – registered and listed in Australia, Canada or the United Kingdom – are scaling up their exploration campaigns.
And yet in 2009, Africa only accounted for 15% of exploration budgets (excluding uranium) for nonferrous metals. This share is slightly higher than Australia (13%) and lower than Canada (16%) – Metals Economic Group – MEG, 2010.3 Collier and Venables (2008) highlight the fact that the average wealth of Africa’s mineral resources per km² of land is roughly USD 25,000, against USD 125,000 for developed countries where mineral resources have been exploited for much longer. It is consequently highly likely that the value of Africa’s mineral resources is underestimated.
This relative lack of investment can partly be explained by geopolitical tensions, infrastructure deficits, and competition from other continents (particularly Latin America). However, companies have been prompted to scale up their investments in Africa as a result of the continuous rise in prices and the need to identify new resources in order to meet demand. Despite this, Africa struggles to fully benefit from its mineral resources. Africa’s mineral industry continues to be dominated by the extraction and export of raw ore. Although raw materials exports generate high levels of income, they only account for a small proportion of what finished or semi-finished product exports could represent (United Nations Conference on Trade and Development -UNCTAD, 2007). One of the main challenges facing Africa is to develop an industry to process mining raw materials in sustainable economic conditions.
Meeting this challenge requires taking into account the importance of the mining craft industry in Africa – a reality that many are unaware of. According to the French Ministry of Foreign and European Affairs (2008), there are five to six million Africans involved in the extraction of building materials, precious stones, diamonds, base metals and gold. On a global scale, it is estimated that the mining craft industry concerned 15 million people in 2005 (BRGM, 2005). This activity directly contributes to local economies, yet it is badly organized and causes negative impacts (contraband, insecurity, health and environmental risks). It is essential for it to be integrated into the formal economy.
Avenues for developing africa’s mining sector
The sustainable economic, social and environmental development of Africa’s mining sector mainly hinges on the implementation of good governance practices at the national, regionalor international level. Moreover, infrastructure must be developed and both investments and local capacities must be increased.
One of the priorities must be to define a balanced legislative and fiscal framework that can both receive mining investments and preserve the interests of governments and local industries. The way revenues are managed – a sensitive issue that is a matter of national sovereignty – must comply with good governance practices. Finally, a policy for a global development plan must be defined and applied. It must integrate the mining sector and serve the industrialization and economic diversification of producing countries. It is essential to combat the illegal exploitation of resources in order to put an end to the financing of local conflicts and civil wars; in addition to the aspect which strictly concerns security, transparency must be strengthened in industrial supply chains that are dependent on resources produced in conflict regions – in the manner put forward by the Kimberley process.4
Infrastructure construction (particularly in the transport and power sectors) constitutes another challenge for growth in the industry in Africa. Many mining basins suffer from being isolated. This often puts investors off, as they do not necessarily have sufficient financial resources to single-handedly finance infrastructure construction, when this need does not compromise the very rofitability of the project. This is exactly the case, for example, of the Tambao manganese fields in Burkina Faso. The strengthening of Africa’s infrastructure network – one of the objectives of the G20 – must make a significant improvement to the attractiveness of Africa’s mining sector and more widely serve the expansion of other economic sectors that are also shackled by deficiencies in transport networks and power distribution
Moreover, it is essential for African States to develop and take on board a geological and economic understanding of their mining potential. This requires greater investment in inventories of their mineral resources and the creation of entities to promote countries’ mining potential. This would correct the strong asymmetry of information and capacities, which often penalizes producing governments during negotiations with international investors.
Finally, it is essential for administrations to be sound and have sufficient human resources to ensure that sustainable development strategies for Africa’s mining sector are successful. One of the major stumbling blocks to growth in African economies in general, and the mining sector in particular, is the absence or lack of experienced executives in administrations.
Growing international involvement
The report of the “World Summit on Sustainable Development”, organized in Johannesburg in 2002 by the United Nations (UN), in the presence of around a hundred Heads of State and some 40,000 delegates, addresses the mining sector in paragraph 46. This is – at the very least – a sign of international awareness of the fact that this industry can, in certain conditions, constitute a real engine of growth for producing countries (UN, 2002).
In 2008, the French authorities, having observed the turmoil in Africa’s mining sector, defined a cooperation strategy that aimed to optimize the contribution made by Africa’s mineral resources to the sustainable development of the continent. This strategy is based on improving the management of the information required to develop mineral assets, and improving attractiveness, governance and transparency in the sector. It also aims to support the transition from a rent economy to an economy of shared growth. For example, France very recently accepted to convert Malawi’s sovereign debt (EUR 9 million) into a development project aiming to map the country’s mineral resources and develop entities to provide training and promote the sector.
The European Commission (EC), for its part, established a “Raw Materials Initiative” in November 2008. Although the main objective is to secure supplies for European industries, the Initiative also comprises a sizeable “development” component supported by the European Union and the African Union, which will lead to specific projects starting in 2011 (EC, 2008).
Other international programs to promote good governance in the mining sector have been implemented since 2002. The Extractive Industries Transparency Initiative, which gathers governments, private companies and civil society on a voluntary basis, seeks to promote a better governance of revenues fr
om natural resource exploitation in producing countries. Moreover, since 2009, the World Bank and African Development Bank have been offering technical and legal assistance to producing countries that do not have the capacity to equitably negotiate prospecting and production contracts.
The challenges and obstacles may be huge – for example, there is a lack of reliable data on the scale of the economic impact of the sector –, but the expected continuation of the mining super-cycle,5 in addition to the growing involvement of governments and international institutions, can lead one to believe that in the coming years Africa’s mining sector could play an increasing role in the economic development of the continent.
It does, however, remain necessary to scale up regional cooperation. For example, mining products exported by landlocked countries require regional infrastructure. In addition, the emergence of regional economic spaces requires implementing common external tariffs, fiscal convergence, the free circulation of goods, capital and persons, as well as common standards that benefit both mining industries and other sectors of activity. Moreover, the cross-border trade of high-value products from the informal (or even criminal) sector requires close cooperation among control services. Finally, the lack of training capacities for all the required skills could be bridged thanks to regional academic cooperation at the different levels of specialization.