Extractive resources in Africa : When riches mean war, poverty and corruption

Regrettably, natural resource gifted continent in the world is also home to a staggering level of poverty and corruption

Alem C. 

It is a widely held belief both by economists and policy makers that extractive resources worldwide have dictated to a wider extent economic policies and outcomes of countries endowed by them. According to a 2002 World Bank report on mining in developing countries, extractive resources are the decisive economic factors to almost half of the world’s population.  

Many countries around the world, including a few in Africa, such as Botswana and South Africa, have woken up to this reality early enough to have developed their extractive resources industry using both smart polices and tough negotiations with foreign companies that helped them make the best of their riches. As a result, both countries are the largest cut diamonds exporters from the whole of Africa.

Not just diamonds

Today Africa accounts for three quarters of the world’s platinum supply, according to Carlos Lopes, UN under-Secretary General and Executive Secretary of the UNECA, “It [Africa] has up to one-fifth of gold and uranium supplies and it is increasingly home to oil and gas production with over 30 countries now in this category,” Lopes said at the opening of this year’s Africa Development Forum (VIII) held at the UNECA here in Addis Ababa from 23 -25 of October 2012. Alas, the other side of the story tells exactly because of that Africa has become home to some terrifying wars fought over who should control what.

“In resource-rich countries, the prospects of rents have largely shaped the behavior of political powers, to the extent that the contrastingly poor economic performance of resource-abundant countries cannot be explained by pure economic rationale,” affirms a 34 page discussion paper entitled “From Curse to purse: making extractive resources work for development,” and presented by Isabelle Ramadoo of the European Center for Development Policy Management.

According to  a 2008 report by World Economic Forum that shows mining and metal scenario of the share of world production to 2030, Africa is home to 80% of platinum, 54% of diamonds, 20% of gold, 6% of copper and 4% of iron ore, placing the continent ahead of others including Latin America and Asia in terms of hosting the largest reserves of both platinum and diamonds.

Ramadoo has more to add: Africa is “known to host about 30% of world’s reserves [in extractive resources] and to produce more than 60 % types of metals, ores and minerals. South Africa, for instance, is the world’s largest producer of platinum group of metals (PGMs), DR Congo is the main producer of cobalt (40% of world’s production), Rwanda is an important producer of tantalum and Angola and Nigeria are the largest petroleum producers of Africa.”

I have you, and then I don’t

The theme for this year’s ADF VIII summit can’t get any more fitting to the continent: “Governing and harnessing natural resources for Africa’s development.” Today nowhere in the world is mismanagement of natural resources felt deeper than it is in Africa. Despite its overwhelming amounts of natural resources, the continent has remained in the bottom of every human development index done so far.

Africa is also more damaged by its abundance than has benefited from it. From border wars to blood diamonds, the continent of the lowest population density and the highest land resource in the world has seen and continued to see more than its share of bloodshed. More than once, transboundary conflicts over natural resources have threatened regional and continental stability. Currently Malawi and Tanzania are locked in dispute over who owns Lake Malawi’s oil and gas deposit; no one knows the next thing to happen between Sudan and South Sudan, two countries that had divorced recently but quickly found themselves fighting over oil resources; the ongoing conflicts in Democratic Republic of Congo and neighboring countries trace their roots deep in the jungles where irresistible amounts of natural resources are found; and in the past Sierra Leone’s civil war had invited vulgar Liberian warlords for its reserve of diamonds – no need of telling what happened next.

 It shouldn’t be

Botswana, one of the few exceptions, is widely praised for effectively using its diamonds reserve to significantly change the general outlook of its economy. But even if it used it effectively and knows its reserve may cushion its economy for just two decades to come, it hasn’t developed a diamond industry – it is more dependent on exporting the raw diamond than developing a value chain diamond industry; Nigeria is the fifth largest exporter of oil in the world but imports its fuel; and according to Ramadoo, “new discoveries of hydrocarbons estimates show that Sub Saharan Africa is home to some 115 billion barrels of oil, 75% of which are in the Atlantic ocean, and 744 trillion cubic feet of gas, most of it lie offshore of East Africa, mainly in Tanzania, Mozambique, Madagascar or Seychelles,” but none of these countries are in the rightful position to pass the raw material export trend and develop a value chain industry from their natural resources that will help them create high value employments to their citizens; in fact most of them are known for having no transparent mechanisms of conducting international contracts, leading to a staggering amount of corruption involving governments and international companies.

A global initiative called Extractive Industries Transparency Initiative (EITI), a coalition of governments, international organizations, civil society groups, investors and international companies, has established an encouraging system in which companies publish what they pay and governments publish what they receive from contracts involving natural resource extractions. But out of 54 African countries only 21 are members of which only eight meet all the requirements in EITI standard.

Most countries in Africa are also known for their erratic law enforcement mechanisms that keep genuine international companies at bay. Evidences showing dodgy contracts for land and water resources between African countries and international companies reveal a disturbing level of corruption and disrespect both to the domestic and international rule of laws.

“Land resources are being exploited with up to 754 land deals, covering over 56 million hectares, already concluded,” said Lopes, “in Burkina Faso alone, the share of the mining sector in exports expanded from 2% to 41% in the last five years.  The conclusion that can then be drawn from this situation is that the current resource-for-development model is not working to bring about equity or boost development.”

Mekonnen Manyazewal, Ethiopia’s Minister of Industry expressed it in a short sentence when he admitted “in all honesty, it is fair to say that so far, Africa has lost out on this window of opportunity.”  Sadly, he is right.