Mining as an engine of growth

International Conference on Mining for Sustainable Economic Development in the Great Lake Region

Bujumbura, Burundi22 – 23 November 2012

Isabelle RamdooEuropean Centre for Development Policy Management (ECDPM)

Making Extractive Sectors work for Development

African countries are known to host 30% of world’s reserves of minerals and metals and over 10% of oil reserves;•Mining in Africa, 2012 Estimates of oil and gas reserves, 2012

But reserves are largely underestimated: known sub-soil assets is only one fifth that of OECD;

1. Setting the scene

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• Recent discoveries, both in the continent and offshore, likely to increase the visibility of African countries on the global market

• East African countries, including a number of Great Lakes countries are likely to become producers of hydrocarbons e.g DRC, Kenya, Uganda, Tanzania

• Put together, the region will be the biggest producer of oil (and potentially gas) in Africa;

• Regarding other mining products: DRC is already the largest producer of some strategic minerals such as cobalt, Rwanda is an important producer of tantalum, Zambia is a key copper producer etc.

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2.1 Overall, impressive growth rates over the past 2 decades

1. Robust growth rates despite crisis 2. Among the fastest growing eco.

Source: Africa Pulse, World Bank, Oct 2012

2. But are minerals Africa’s best friend?

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3. Attracted significant FDI, despite credit squeeze in 2009

Source: E&Y (2011): It’s time for Africa

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Poverty rate decreased by 1% on av. per annum from 57.6%in 1995 to 50.9% in 2005, and expected to reach 35.8% in 2015 it growth rates are maintained at the current level

Africa’s number of MICs on the rise

Source: Africa Pulse, World Bank, October 2012

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2.2 But numerous challenges remain1. Overdependence on extractive sectorsValue added by economic activity as a % of GDP, 2010. Export concentration, 2010

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2. Income inequality remain high despite high GNI per capitaGINI Index for Mineral rich countries GINI Index for oil rich countries

Mineral rich GNI per capita, $ 2010 Oil rich GNI per capita, $ 2010

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3.1 Extractive sectors as an engine of structural transformation

Conventional wisdom: resource-rich countries have poor economic performance

Good news: Causal relationship not verified; commodity super-cycle there to stay for a while

Economic environment has evolved: more integrated and less protective

But first, need to have a conducive environment

3. Making resources work

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We observe a delink between extraction and value addition

Share of diamond prod v/s share of cuts Share of gold production v/s share of jewelry fab

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How can Governments address this?

1. Commodity cycle here to stay. Good news for 2 reasons:a. Continued investmentb. Financial resources from minerals to foster broader development

agenda

1. Consistent policies and adequate policy sequencing (coupling industrial, fiscal and trade policies in a holistic and sector-specific cluster approach: 2 channels

a. Domestic policies to foster industries policiesb. Take advantage of fracturing global value chains

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Economic reforms and structural transformation: Setting the fundamentals

1.Addressing governance issues at all levels – governments, private sector, home countries of multinationals, donors and banking system.

1. Addressing infrastructure and energy gaps

1.Reducing cost of doing business

2.Addressing crippling effects of skills, technology, research, innovation gaps;

1.Ensuring resource efficiency for a balance between sustainable consumption and production processes.

1.Good market intelligence to tap national, regional and international markets

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(i) Channel 1: Moving up value chain: Promoting linkages

• Purpose in NOT to turn mining companies into manufacturing companies, but rather to set the right enabling environment to encourage entrepreneurs in developing manufacturing clusters.

• Requires to build competitive advantage by setting fundamentals right

• Maximising use local procurement and local content (side linkages)

• Promoting value addition within the extractive sector – involves activities in the mining cluster (downstream linkages such as smelting and refining) and activities in the manufacturing cluster (jewelry industry, metal fabrication)

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Stages of Value Addition: Where value added is created

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Mining cluster Manufacturing cluster

High labour and capital intensity

Low labour, high capital

intensity

Low labour, high capital

intensity

Med to high labour and

capital intensity

Different types of linkages• Backward (or upstream) linkages• Forward (or downstream) linkages• Horizontal (or sidestream linkages), important to link extractive

sectors with other productive sectors

Important also to bear in mind the nature of different extractive sectors – sometimes some forms of linkages make more sense than others

But benefits will only take place where commercial opportunities exist = CHANNEL 2

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(ii) Channel 2: Linking domestic industries to global value chains

• Extractive sector characterised mostly by large multinationals that are increasingly engaged in diversified activities

• Increasingly outsource parts of their value chains towards more competitive places

• Renders industrial policy complex but at the same time presents opportunities for resource-rich countries to develop win-win partnerships with such companies to conduct industrial transformation locally

• Quantum leap in productivity is essential

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Thank you

Contact: Isabelle Ramdooir@ecdpm.org

Website: www.ecdpm.orgwww.slideshare.net/ecdpm

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