Beyond mining taxes to Development

Obuasi, about 200 kilometres northwest of Accra, Ghana’s capital, is home to one of the world’s richest gold mines. For more than a hundred years the precious metal mined there has been taken to jewellers in the West and beyond, earning millions of dollars for mining companies and their shareholders.

But for inhabitants of villages around this rich mine, the tenth-largest in the world at the end of the 20th century , years of extracting what lies beneath the rocks have brought only hardship. Cyanide-polluted streams and farmland contaminated by toxic water are just two of the harmful outcomes. As in many mining communities in Africa, infrastructure is very limited.

“Obuasi is the ultimate example of how mining is developed in Africa,” says Yao Graham of the Third World Network, a civil society group. “The resources are taken out and very little is left for the community or the country where the mineral is produced,” he said.

The paradox

African nations possess an enviable share of the world’s reserves of minerals. These include the six most traded commodities on the London Metal Exchange, aluminum, copper, lead, nickel, tin and zinc. Other valuable minerals coming out of Africa include chromium, cobalt, diamonds, gold, iron, manganese, phosphate, platinum, rutile, uranium and vanadium.

The unprecedented industrial expansion of China, Brazil and India depends in part on Africa’s vast natural resources. Experts contend, however, that African economies are net losers in this global trade. Through taxes, they earn only a fraction of the profits from the decades-long mineral boom. The workers employed by mining corporations receive low wages, while they and their communities pay a hefty price in environmental pollution and social disruption, breeding feelings of resentment.

“This sentiment has become particularly pronounced since the early years of the current mineral commodity price boom, which has substantially lifted profits for mining companies,” observes a new report, Minerals and Africa’s Development, launched in Addis Ababa, Ethiopia, last December at the second African Union Conference of Ministers Responsible for Mineral Resources Development.

In 2010, net profits for the top 40 mining companies grew by 156 per cent over the previous years. However, Africa’s “own share of windfall earnings has been minuscule,” laments Stephen Karingi, a director at the UN Economic Commission for Africa.

Meanwhile, across Africa, mining communities are experiencing the negative effects: few schools and roads, health problems associated with poisonous chemicals and unsafe drinking water, forced relocation and the disruption of livelihoods. In research on water quality in Ghanaian mining communities around Obuasi and Tarkwa, the Wassa Association of Communities Affected by Mining, an advocacy group, found in 2010 that 250 rivers had been poisoned by cyanide and heavy metals. Such communities feel that their interests are never taken into account when their leaders sign contracts with mining companies.

Shifting policy

Participants at the Addis Ababa conference focused on ways to implement the ambitious African Mining Vision (AMV) approved by African heads of state in 2009. The AMV is a policy guideline for ensuring the optimal exploitation of Africa’s mineral resources for economic transformation and poverty eradication.

Mineral-rich nations, the experts concur, must make strategic policy decisions to maximize mining’s contribution to development. This would require shifting from simply extracting minerals to a broader framework that integrates policies for mining, industry, economic development and environmental protection.

An action plan for achieving the AMV was adopted at the Addis Ababa meeting. It calls on governments to improve their policies, strengthen mining institutions and legal and regulatory structures, and invest in human skills and data collection to more effectively manage the sector.

Poor mining management and regulation have fuelled criticism of mining companies and governments, and in some cases hostility. In February 2012, angry villagers from a string of settlements marched across a platinum-rich corner of South Africa to demand a better deal from Xstrata, a multinational mining company.

The AMV acknowledges the importance of mineral rents and taxes. But it also calls for governments to link mining to the development of energy, roads, railways, agriculture and social infrastructure, both in issuing new mineral contracts and in renegotiating existing ones.

To avoid conflicts and address the adverse impacts of mining, the AMV says that it is essential to have “a transparent and inclusive mining sector that is environmentally and socially responsible” and that “provides lasting benefits to the community and pursues an integrated view of the rights of various stakeholders.”

Contract negotiation critical
With the current minerals boom, Africa is today being touted as the next global frontier. But the balance of power will not automatically tilt to African governments at the negotiating table. Since mining companies are often better financed and more skilled than African delegations, the AMV stresses the importance of improving African governments� negotiating capacities.

In Sierra Leone the UN Development Programme provides a presidential task force on mining contract negotiations with access to some of the best legal and technical experts in the world. The result has been more income for the government and better deals for affected communities.

In 2010 the African Development Bank (AfDB) established a legal advisory body to back governments in long-term contract negotiations. Aside from supporting legal fees and recommending world-class law firms with special skills, the AfDB also insists that local lawyers be involved in the process. “It is very crucial,” the AfDB’s Coumba Doucoure Ngalani said. “We are not only supporting countries to get the best deal out of the contract; we also build local legal capacity.”

Community dialogue

Ms. Ngalani acknowledges that it is important for governments to engage in dialogue with local communities before signing mining contracts. “At the end of the day, if you explore, it is going to affect the community. You touch on the environment, people are displaced, and livelihoods are lost. If everything is included in the contract at the start, the companies would have to respect that,” she emphasizes.

According to the AMV, governments’ ability to optimize the benefits of mining contracts is concentrated at the outset. “It is difficult,” says the AMV, “to fundamentally renegotiate contracts at a later stage without sending negative signals to investors.”

Mr. Graham says it is key to replace the old order with the new thinking outlined in the AMV and Action Plan. “It needs political will and domestic mobilization.”

Indeed, where mining has contributed to better development outcomes, as in Botswana, South Africa and Namibia, success can be linked to sound management, good governance, adequate infrastructure and a favourable business environment. The Addis Ababa conference could not emphasize that enough.?

(Courtesy of African renewal)