Resource-based African Development Strategy

1. Resources Value Addition Towards a Resource-based African Industrialisation Strategy (RAIS) Dr Paul Jourdan OM

2. Presentation Structure Africa’s Natural Resources Commodity Prices- Where to? Resource-based industrialisation Resource s Linkages: Fiscal, Spatial, Backward, Forward, Knowledge Conclusion Way Forward OM

3. Africa’s Natural Resources Africa’s natural (static) comparative advantages lie in its natural resources endowment & potential, particularly: Agriculture & Animal husbandry; Water; Minerals; Energy; Forestry & Biomass; Fisheries & Aquaculture; and Tourism (natural endowment-based). This static advantage MUST be transformed into a dynamic advantage OM

4. Postulation: Africa’s unique natural resource base could provide it with an important lever to achieve its industrialisation objectives through realising the resource linkages opportunities (backward & forward). Alternatively, These assets could be squandered under “free entry” resource regimes (such as the “free mining”FIFA mineral regimes) and a continued “free market” (non-interventionist) scenario, which is likely to leave the Africa with little more than ghost-towns (like Kabwe & Stilfontein)with holes in the ground, desertification & exhausted soils anddepleted natural fisheries & forests. OM

5. Africa’s Natural Resources Agricultural resources : Due to its high variety of climatic zones, geology/soils and topography (plateaus), Africa has almost all the biomes necessary for the production of the bulk of agricultural products. Water resources: Africa is well watered between the Tropics, but above & below them water is scarce. Overall Africa uses 4% of its water. Minerals resources are spectacular: aluminium, iron ore, copper, PGMs, gold, phosphates, nickel, chromium, vanadium, manganese, etc, giving virtual mineral resources integrity. Energy resources are exceptional comprising: huge coal reserves, massive hydro-power (HEP) potential, hydrocarbons, nuclear (U resources) and potential solar & geothermal energy. Fisheries: Natural harvesting of sea fisheries has peaked, but Africa’s coastline, with several oceanic systems, could give it a relative mariculture advantage and aquaculture is still nascent. Forestry resources: Natural harvesting of forests is in decline, but there is enormous potential for plantation forestry in the Tropics. Tourism resources: Major potential due to world’s greatest diversity: genetic, culture, flora, fauna, geomorphology, etc.)

6. Africa has significantAgro-potential(especially between the Tropics) OM

7. And water potential…(except for North Africa) Africa uses less than 4% of its water OM

9. The level of water resource exploitation low with only 3% to 5% of the total amount used under managed conditions

10. Per capita water storage capacity in Africa is 100 times lower than in Europe and North America

11. An average investment of US$ 20 billion/an is required to attain the MDG and African Water Vision targetsAfrica is the world’s highest continent- most of central, southern & eastern Africa is >500m

12. And has abundant known fertiliser minerals for agriculture! Agri-mineral deposits (ex- gas/coal & K) Nitrogen sources (oil/gas & coal) & K resources But, generally undeveloped for the African market, mainly due to severe logistics constraints. OM

13. Africa is well-endowed with mineral resources OM

14. African Geology & Mineral Resources OM

15. Areas covered with recent overburden (unknown underlying geology) African Geology OM

16. Africa has diverse energy resources: fossil fuels, solar, HEP & geothermal potential Goethermal Potential: Great African Rift Valley Solar Potential: Deserts And Africa has huge HEP (Congo R: 200GW) OM

17. Africa also has huge biomass potential. Giving it large bio-fuels production potential: (mainly between the Tropics) OM

18. Commodity (resources) PricesBeyond the US Toxic Assets Crisis? OM Source: IMF: www.imf.org/external/np/res/commod/chart1.pdf

19. Commodity (resources) PricesBeyond the US Toxic Assets Crisis? OM Source: IMF: www.imf.org/external/np/res/commod/chart1.pdf

20. Commodity (resources) PricesBeyond the US Toxic Assets Crisis? OM Source: IMF: www.imf.org/external/np/res/commod/chart1.pdf

21. Asian Boom:New “scramble for resources”? High intensity, Africa’s new opportunity? High intensity, sellers market: Colonial system Low intensity, buyers market: stagnation & instability OM Steel- good proxy for most minerals

22. How long will boom last? 2025? Steel Intensity (all metals proxy) PRC China + India > 2X pop’n of First World! India Africa ~$16k/capita Data Source: BHPB 2006 However, prices will fall with increasing supply over the medium-long term, but at a higher level (lower grades) OM

23. Resource-based Industrialisation?Maximise the 5 VA resource linkages 5. FORWARD Value-addition: (beneficiation) Export of resource-based articles 1. FISCAL: Capture & invest of resource rents (RRT) in long-term economic physical & human infra (inter-generational) Use depleting assets to underpin growth in sustainable sectors 4. KNOWLEDGE Linkages: “Nursery” for new tech clusters, adaptable to other sectors 2. SPATIAL Puts in critical infra-structure (transport, energy) to realise other economic potential & intra-regional trade 3. BACKWARD Inputs: Capital goods, consumables, services, (also export) HRD, R&D If the linkages cannot be made, the people’s resources would be best left unexploited- Need to maximise the developmental & inter-generational impact whilst still extant! PJ

24. African Mining Vision “Transparent, equitable and optimal exploitation of mineral resources to underpin broad-based sustainable growth and socio-economic development” Promotion of Linkages Fiscal linkages (reinvest of rents) Downstream beneficiation & manufacturing Upstream into capital goods, consumables and services Spatial linkages (infrastructure, logistics, ICT) Knowledge linkages (skills, HRD & R&D) PJ

26. cutting

27. hauling

29. hydromet plant

30. materials handling

32. Moulding

33. Machining

35. consumables/spares

36. sub-contracting

37. financing

39. grinding media

40. chem/reagects

41. process control

43. analytical

44. data processing

45. financing

47. Chemicals

48. Assaying

50. Marketing

51. Distribution

53. Furnaces

54. Electro winning cells

56. drilling

57. survey

58. etc.Resources inputs sector (up-stream) has a comparative advantage in: Relatively large local market Development of techs for local conditions National assets: permits for concessioning with linkages conditionality PJ

59. The resource curse can be avoided! “Deepening” the resource sector linkages: development of the resource inputs & outputs industries is critical , but requires the development of a resources tech capacity! Finland: 1970 on primary commodities (pc- mining & forestry) inverted U-curve, but shifts to 1998 manufacturing curve (mf- resources inputs & outputs/beneficiation). Chile: 1970 on manufacturing U-curve (ISI), but shifts to 1998 primary commodities (mining & agriculture) curve, after opening up its economy (coup) in the 70’s. Finland: e.g. Forestry- grew capital goods (machinery) & value-added exports (wood manufactures, pulp/paper) Thru’ investment in R&D! Finland managed to shift from a 1970 resources (pc) trajectory to a 1998 manufactures (mf) trajectory, through the development of its resources inputs (machinery) and outputs (value-addition) sectors (source Palma, G. 2004) PJ

60. Using a natural comparative advantage to develop a competitive advantage Finland: The mature forestry industrial cluster 1997a NATURAL COMPARATIVE ADVANTAGE Abundant forestry reserves and plantations (400-600m3 per capita)b FORWARD LINKAGES Roundwood Sawnwood Plywood (40% of the world market) Wood products Furniture For construction Wood pulp Paper and cardboard Newsprint Art paper (25% of the world market) Toilet paper Packaging Special products BACKWARD LINKAGES Specialized inputs Chemical and biological inputs (for production of fibres, fillers, bleaches) Machinery and equipment For harvesting (cutting, stripping, haulage) For processing (for production of chips, sawmills, pulverization) For paper manufacture (30% of the world market) Specialized services Consultancy services on forest management Research institutes on biogenetics, chemistry and silviculture SIDE LINKAGES Related activities Electricity generation Process automation Marketing Logistics Environment industries (paper) Mining (sulphuric acid) Source: Ramos 1998 p111 (CEPAL Review, #68, 12/1998); a: Generates 25% of Finland’s exports; b: Compared with 25-30m3 per capita in the rest of the world. PJ

61. Oil & Gas Development Strategy: (Norway: OG21 tech strategy) Prolong the life of the resources, migrate to exports of resource techs and value-added products: survive beyond resource depletion! >Tech exports >Gas VA R&D HRD Extraction ex-linkages >resources >recovery PJ

62. The foreign resource capital “trade-off” In order to rapidly acquire the requisite capital and skills, African states have opted to realise their resource endowments through attracting foreign resource companies (TNCs & JRCs), rather than mainly relying on domestic capital. This foreign investment (DFI) “trade-off” could comprimise resources linkages TNCs usually have global purchasing strategies which are less likely to develop local suppliers (backward linkages), impose local content milestones TNCs tend to optimise their global processing (beneficiation) facilities which can deny local VA opportunities (forward linkages); Impose local VA targets TNCs locate their tech development (R&D) in OECD countries, thereby denying Africa the development of these critical knowledge linkages; Local tech development conditions TNCs also tend to locate their high level HRD in OECD countries (often linked to their R&D university partners), which could deny African states the development of these seminal knowledge linkages; Local HRD conditions In the longer term there are clearly political downsides to a resource sector dominated by foreign capital; Facilitate indigenous resource companies Finally there is the TNC “core competence” (dirt-digging = no linkages) conundrum. Competitive auctions against linkages realisation Nevertheless, all of these threats can be overcome or ameliorated through appropriate state actions, policies and interventions! PJ

63. The foreign resource capital “trade-off” Resources TNC (DFI) distortions PJ

64. e.g: Inappropriate Mineral RegimesAfrica is not capturing mineral rents & linkages! High Prices: WB “free mining” regimes- NEED REVISION! High prices: colonial mineral regimes: Pro- colonisers/TNCs Low prices: WB revisions: Overly pro-TNC! minimal linkages! High prices: Post-colonial regimes: Strongly national Steel- good proxy for most minerals

65. “Free Mining” Colonial Mineral Regimes Almost all African Mining Regimes are based on the principle of free mining, or “free entry”. Free mining includes: “a right of free access to lands in which the minerals are in public ownership, a right to take possession of them and acquire title by one’s own act of staking a claim, and a right to proceed to develop and mine the minerals discovered.”* The Africa minerals regimes broadly fit into the World Bank’s revision of African mineral regimes from the 80’s till current. “..certain elements of the free mining doctrine that animated the nineteenth-century formulation of mining regimes in the American and British spheres have also guided the liberalisation process of African mining regimes over the 1980s and 1990s. One of the ways this came about was through the retrenchment of state authority, which in turn contributed to the institutionalisation of asym-metrical relations of power and influence that had important consequences for local political processes, local participation, and community welfare.”* Free mining originated in small enclaves in Medieval Europe but was formalised in California and other European colonies in the 19th century, as a vehicle to promote dispossession & colonisation. But is the wholesale application of this doctrine in the interests of the Africa’s people? PJ *Sources: Barton 1993 & Campbell 2010

67. Rent share (RRT)

68. Infra development

69. Upstream- local VA

70. Downstream VA

71. HRD & R&D, tech transfer

74. Rent share (RRT)

75. Infra development

76. Upstream- local VA

77. Downstream VA

78. HRD & R&D, tech transfer

80. Forward linkages: Critical Industrial Feedstocks Manufacturing Steel Polymers Base metals Agriculture Fertilisers (NPK) Infrastructure Cement Steel (rebar) Copper (precious metals mainly only offer fiscal linkages!) OM

81. Key Challenges to VA linkages Requisite Infrastructure Transport (road/rail/ports) Energy Water Investment environment Knowledge: HEIs- Skills development OECD et al bi/multilateral accords EU EPAs & REACH curtail value addition Kyoto? Doha? Technology development Well functioning R&D required to drive linkages. Regional approach through: Networking of R&D Institutions, universities Joint research & funding – pooling resources OM

82. Steel is the most important material into manufacturing By value, steel is the 2nd largest global commodity: Steel PJ

83. Steel Demand (uses) PJ

84. Steel is followed by Polymers... (2nd most important feedstock into manufacturing) PJ

85. Uses of POLYMERS PJ

86. Regional African Steel & Energy Strategies- 1st step? Regional integration started in EU with steel & coal (energy)- ECSA; Need to be close to raw materials for steel (iron ore & coal/gas) and polymer (hydrocarbons) production; High economies-of-scale for steel, petrochems and energy; Africa should assess regional steel & energy integration – “customs unions” with compensatory mechs – as a 1st step to full economic integration PJ

88. Avoid: Industrial Polarisation (bambazonke)

89. Enhance: Equitable regional growth & developmentResource Rent Tax (RRT) Sovereign Wealth Fund Regional Dev Funds Regional Infrastructure Intra-regional trade & invest PJ

90. Spatial (infrastructure) Linkages Proving Adam Smith Wrong 240y later? “There are in Africa none of those great inlets, such as the Baltic and Adriatic seas in Europe, the Mediterranean and Euxine seas in both Europe and Asia, and the gulphs of Arabia, Persia, India, Bengal, and Siam in Asia, to carry maritime commerce into the interior parts of that great continent: and the great rivers of Africa are at too great a distance from one another to give occasion to any considerable inland navigation.” Smith, Adam, 1776, An Inquiry into the Nature and Causes of the Wealth of Nations. Africa has extremely high logistics costs due to NTBs and bad transport infrastructure! Resources could finance the infrastructure intra-continental trade & development! PJ

91. e.g: Sn African SDIs under development or consideration Use high rent resources to catalyse sustainable high-impact sectors, esp. agriculture & agro-processing PJ

92. Catalyse other Sectors & Areas (agri, tourism, etc.) Infrastructure: transport, energy, skills, R&D Manufacturing (e.g. cap goods) Processing Intermediates (feedstocks) Resources Exploitation Feedstocks & Tech. (bene.) Recap: Exploitation capital goods: e.g.plant, equipment, after-market, etc. Processing capital goods Intermediates capital goods . BEYOND COMMODITIES? Use Asian resource demand to kick-start a Resource-based African Industrialisation Strategy “RAIS” Exploitation services: e.g. financial, technical, consumables, logistics, energy, skills, etc. Processing services Intermediates services Resource Linkages: key to growth & development OM

93. Resource Beneficiation (value-addition) Resource Exploitation Densification Infrastructure Resource Infrastructure Skill intensity (HRD) Unskilled resource labour Rents from Resource diversification industries Diverse tax base Resource rents (tax) Resource Inputs production & Lateral migration (diversification) Import of Resource Inputs From AMV: Schematic RAIS Phasing (relative economic importance) Resource R&D. high level skills and tech development Phase 1 Phase 2 Phase 3 Phase 4 Import of Resource Technologies I II III IV V VI VII Complex regulation, M&E, arbitration, governance Local judicial system Contract/license resource & infra (PPP) governance Most African states in Ph I-2 Resource Consumables & HRD phase Resource R&D, capital goods & services phase Lateral migration & diversification phase Resource Exploitation & infrastructure phase OM

95. Such a RAIS must optimise the developmental impact of resources by ensuring that the resource economic linkages are made (fiscal, spatial, knowledge, backward and forward)

96. African resource regimes (particularly mineral regimes) need to be overhauled to allow for the competitive concessioning of the region’s resource endowments (land, minerals, water, fisheries, state rights, etc.), to maximise price discovery and developmental objectives (linkages)

97. VA economies-of-scale and competition would be greatly enhanced by a common Africa markets (customs unions) which could start with regional steel & energy groupings.PJ

98. Way Forward Align with the AU minerals strategy: Develop an “AFRICA INDUSTRIALISATION VISION” Unpack the VISION into a coherent African value addition Industrialisation Strategy (in sync with the AU minerals & other strategies), using regional validation workshops; Concretise the AU Industrialisation Strategy with templates, toolkits, model resources concession agreements, model legislation/regulation, sub-sector strategies and other useable tools/aids Establish ongoing continental & regional peer learning fora to develop African “best practice” strategies for VA Establish regional African Steel and Energy economic groupings (RECs) Impose a Resource Rent Tax, on all excess profits above the expected return, on all resource exploitation concessions. Should be kept offshore (<DD) to capitalise regional development funds to finance long-term regional physical and knowledge (HRD & R&D) infrastructure for more equitable regional economic integration (<IP, bambazonke) PJ

99. Thank YouMerciShukranObrigadopaulj1952@gmail.com

101. Catalyse other Sectors & areas (agri, tourism, etc.) Infrastructure: transport, energy, skills (SDP) Manufacturing (e.g. cap goods) Processing Intermediates (feedstocks) Resources Exploitation Feedstocks & Tech. (bene.) RADS Recap: Exploitation capital goods: e.g.plant, equipment, after-market, etc. Processing capital goods Intermediates capital goods . BEYOND COMMODITIES? Use Asian resource demand to kick-start an integrated Resource-based Development Strategy “M4D” Exploitation services: e.g. financial, technical, consumables, logistics, energy, skills, etc. Processing services Intermediates services Resource-inputs key to diversification (e.g. Nordics)