Africa’s mineral wealth: A blessing or a curse?


Oct 7th 2013

The question is so often asked, and about so many of the determinants of development on the continent of Africa.

There are well-worn arguments both about the potential of Africa’s exceptional natural wealth, and the reasons why it fails to deliver. The debate goes on, and intensifies with every new discovery – oil in Ghana, manganese in Gabon, coal in Mozambique, to name a few. We estimate that Africa has 120bn barrels of oil reserves, no less than half of Saudi Arabia, and 600 million hectares of uncultivated arable land, half of the world total. There is no doubt that the potential is truly transformative, as we have seen in countries like Angola. We at the African Development Bank AfDB estimate that the continent’s natural resources will contribute over $30bn per annum in government revenues over the next 20 years.

We also know that the figure could be even greater if governments had more information on the true value of their natural resources, and if they were supported in the complexity of negotiating contracts with private companies. Africa is said to be losing over $60 billion a year in illegal outflows and price manipulation in the extraction of minerals, with most of the proceeds going offshore. Natural resources industries, and especially extractives, have developed as ‘enclave economies’, generating wealth that is exported rather than shared, or ploughed into the areas where it is needed most, in meeting human development challenges and building infrastructure. There needs to be robust policy, sound regulatory and legal frameworks, and transparency in how decisions on the exploitation of resources are taken, and the revenues distributed.

That is why the first priorities in dealing with natural resources are not so much about exploration or exploitation or the environment… but about best policy and practice.

That is why the African Development Bank supports African countries (some 13 to date) to implement the Extractive Industries Transparency Initiative for the management of natural resource revenues, and – through its Africa Legal Support Facility – supports their negotiation of contracts and complex commercial transactions. It will continue to support the EITI and other natural resource gold standards, such as the African Mining Vision and the Land Policy Initiative. And while continuing to operate across Africa – strengthening the governance and maximizing the yields of the forestry, fishery, water, agriculture and extractive industries, for example – it will continue to advocate globally for the G8’s current ‘Trade, Tax and Transparency’ agenda, so much of which revolves around natural resource revenues in developing countries.

The task is to unleash the full potential of the continent’s natural capital – to which its growth is so closely tied – and in so doing to empower its human capital, which is what will ultimately sustain it, far beyond the time when the continent’s natural resources and their high prices run out. We need to turn finite wealth into infinite wealth, natural wealth into created wealth, and resource-based economies into diverse knowledge- and industry-based economies which create jobs. Maximising natural and human capital is intrinsically linked, and the two constitute the twin and overarching objectives of the Bank’s 2013-2022 Strategy, At the center of Africa’s transformation.

The African Development Bank’s experience and expertise gives it trust and access across the continent. Within the inherently political world of vested interests in Africa’s natural resources, it offers an apolitical and highly qualified source of advice. A new African Natural Resources Management Centre has been set up within the Bank, offering real-time and coordinated responses in advisory services, technical assistance, training, advocacy, and knowledge generation.

Returning to the question: a blessing, or a curse?  The answer should be a huge blessing. The mistakes of the past can be avoided: best practices are well known, and so are natural resource management models. We have a chance in a generation, so this time we must get it right.


Comments

A M - 13/02/2014 20:15
Ultimately, bad governance is the key enemy of development in Africa. You can craft the the best laws and policies, but so long as they are not operational, they are not worth the paper/website, etc they are printed/logged on.

Infact bad governance may inhibit the development of such necessary legal and policy tools/frameworks
MB B - South Africa 30/10/2013 15:20
I would like to take a contrarian view to Pres. Kaberuka and suggest that the main reason why African aren’t benefiting from their natural resource wealth is because we are not making any use of it. Yes we have vast potential of oil, gas, mineral deposits, but we and foreign partners are exploiting a tiny fraction of it. And this tiny fraction can’t answer the oversized expectations and needs. How much of the 120bn barrels of oil are produced each year? How much of our arable land is producing? Until you monetize this wealth it’s just potential, and potential doesn’t feed Africa.
Amara Dabo - Guinea 22/10/2013 18:10
Le probleme majeur de notre continent dans la gestion efficace et efficiente de nos richesses reste inevitablement le niveau de formation de nos cadres. Les personnes qui sont censees defendre les interets des pays face aux multinationales qui regorgent des personnes competentes et bien formees pour mieux defendre l'interet des societes pour lesquelles elles travaillent. Nous sommes confrontes a un serieux problemes de formation surtout dans le domaine des negociations et si nous voulons tirer profit de nos richesses, nous devons imperativement relever le niveau de formation de nos cadres.
K. M. - 15/10/2013 13:05
In reference to the 'Resource Curse,' adage, I concur that establishment of rigorous quantitative metrics as a benchmark to more accurately depict the 'hidden' value in the Mining & Extractive industries in Sub-Sahara Africa (SSA) are of necessity.

More importantly, as posited in your excellent blog, a better gauge of performance is engagement of a critical mass of highly skilled & qualified human capital -not just exclusively in the extractives industries, but other sectors as well. Transparent and sound economic governance, including strong institutional frameworks are keys to unlocking the holy grail.

One point to possibly further illustrate the fair Trade, Tax & Transparency regime, is the model adapted by the state of Alaska which has an equitable stake for every Alaskan resident. Similar templates (adjusting for country-specific variables) adopted in SSA mineral-rich countries would be a boon for the continent.
Marcel Urayeneza - United States 10/10/2013 05:44
A blessing definitely!!
To me however, I feel like mineral wealth is not as valuable as character wealth that we have seen in some of the African icons like Mandela just to name one. We all should learn from the kind of leadership that Mandela and the likes have shown us.
For this then, well said when you talked about empowering the continent human capital. I have lived in the US close to 10 years now. When I see the eagerness of young Africans here and how hard working they are, it only gives me hope that Africa not only has 120bn barrels of oil reserves but has thousands of hundreds of brains to tap in.
Expertise in almost every domain of life is still lacking compared to the scope of work that has to be done on the continental level. I salute the bank's initiative to develop young Africans around the globe.
Coming back to minerals, yes policies, best practices,... are the pillar of a sustainable development. However until we hit the balance between complying with policies and pursuit of personal interest the mistakes of the past will be the mistakes of the future and our blessing will perpetually be unfortunately a curse.
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Donald Kaberuka

Mr. Donald Kaberuka is currently serving his second five-year term as President of the African Development Bank Group (AfDB). He was first elected in 2005, becoming the seventh president of the Bank Group since its establishment in 1963. Find out more

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