AfDB, World Bank host High-Level Panel on concessions and contracts in the natural resource sector in fragile situations

04/03/2016
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The African Development Bank (AfDB) and the World Bank jointly hosted a High-Level Panel session on March 3, 2016. The session was part of the World Bank’s Fragility, Conflict and Violence Forum, which took place from March 1-3, 2016 in Washington, DC.

The natural resource sector is an important part of Africa’s economic activities, contributing more than 20% of Gross Domestic Product (GDP) in 22 resource-rich countries on the continent. However, fragility presents a major constraint on the extent to which natural resources contribute to equitable and sustainable development on the continent.

Through its 2014-2019 Strategy for Addressing Fragility and Building Resilience in Africa, the African Development Bank has reaffirmed its commitment to assist regional member countries affected by fragility to move toward a more sustainable and inclusive development trajectory.

In this context, the High-Level Panel brought together experts of diverse backgrounds to focus on ways to enhance the effectiveness, transparency and accountability in natural resource management. The objective of the session was to explore ways and means by which an improvement in the governance framework and improved capacity of governments to negotiate contracts and concessions in the natural resources sector could contribute to higher economic growth, sustainable development as well as stability and resilience in Africa.

High-quality investments in the natural resource sector represent enormous opportunities for socioeconomic development in Africa and have the potential to create jobs, build skills, enable value addition, and expand opportunities for communities and local businesses. A good example, as presented by Ed Garcia, the President and Managing Director of Firestone Liberia, is the role played the company in containing the spread of Ebola virus disease and its investments in education and health for its employees and the communities around its operational area. Yet, there are also many examples of investors in natural resources whose record leave a lot to be desired.

On a positive note, Winnie Byanyima, Head of Oxfam International, noted that civil society organisations have in the recent past scored successes in their demands for transparency in the operations of investors in the natural resource sector. The United States and Sweden, for instance, now have legislations that require companies registered in their jurisdictions to be more transparent, although the regulations to guide this process have been slow to be produced.

Concession and licensing agreements play an important role in determining the revenues that countries receive for their natural resource wealth. Africa loses double the amount it receives in official development assistance (ODA) through illicit financial outflows, including in the natural resource sector.

There is need to stem these losses, but it will require concerted effort to build the capacity of governments to understand the complex structure of multinational corporations and how that affects the design and structuring of natural resource investments. Among the important issues to explore are the implications of complex company structures, registered in multiple jurisdictions and how this could impact tax compliance and potential revenue earnings. Such capacity in Africa’s fragile contexts are often lacking, hence the less-than-optimal benefits from natural resource activities. 

The good news is that African countries can draw important lessons from Botswana, one of the countries that has transformed its socio-economic fortunes through better management of contracts and concessions in the diamond sector, in particular. However, Linah Mohohlo, Governor of the Bank of Botswana, warned that this process has not been without its challenges, as the authorities had to learn by doing. There are also pitfalls that need to be avoided, she said. In particular, an early move to diversification of the economy through better investments of the revenue from natural resources is a necessity for building economic resilience.

The panelists represented key voices from multinational development institutions, think-tanks, the public sector, civil society and private sector. They discussed the experiences of African governments, private sector, and international organizations in this area and reflected on the key issues surrounding design and structuring of concessions and contracts in Africa. The Bank also took the opportunity to showcase its work in support of the member states through the Africa Legal Support Facility.