Intergovernmental Forum on Mining,

Minerals, Metals and Sustainable

Development

DOMESTIC PARTICIPATION IN

EXTRACTIVE INDUSTRIES IN

AFRICA

Claudine Sigam

Special Unit on Commodities

16-19 October 2012

Claudine.sigam@unctad.org

The main argument

The background

Expected and actual linkages

Determinants to linkages

The Way Forward

The Role of UNCTAD

Conclusion

Domestic inputs and Natural Resources extraction in Africa Development

AN OUTLINE

2

In Africa, a close look at the mining and oil & gas

sectors reveals that the degree of linkages (backward

and forward) along the production of value chain

continues to be very low due to various reasons,

including limited domestic capacities

Domestic inputs and Natural Resources extraction in Africa Development

THE MAIN ARGUMENT

3

Domestic inputs and Natural Resources extraction in Africa Development

THE BACKGROUND

Commodity

Reserve

World

Share %

Oil 10

Gas 8

Diamond 88

Platinum 73

Gold 40

Uranium 15

Vanadium Phosphates

95 53

Year

Primary

Commodities/GDP

GDP/Unit of energy used -

SSA

Extractive

industries /

Total Exports

2010 21%

(6% less fuels)

3.2% Compared 6.1% Belgium

85% Mineral ores and metals

16%, Fuels 69%

FDI INFLOW IN THE NATURAL

RESOURCE

In 2011, total FDI to Africa was USD 43bn

and FDI stocks totaled USD 570bn

It is estimated that 90% of those amount

went into extractive industries

4

EXPECTED AND ACTUAL LINKAGES

Domestic inputs and Natural Resources extraction in Africa Development

SHIFT IN POLICY APPROACH

Host countries: Explore ways in which mines can become more closely

integrated with local economies

Mining companies: Intensifying competition has meant growing trend for non-

core activities to be outsourced to low cost suppliers and for firms and economies

to specialize in capabilities rather than wholly manufacturing products.

Developmental oriented capitain of industries

Civil society organisations and local communities social licence to operate

ENVIRONMENTAL CONSIDERATION

5

EXPECTED AND ACTUAL LINKAGES

Domestic inputs and Natural Resources extraction in Africa Development

6

NEGATIVE OR LOW POSITIVE

Resource abundance measured as ratio of primary commodities to GDP

ratio negatively correlated with GDP growth

Increased the volume of trade

Exchange rate appreciation (the Dutch Disease) More stable balance of payment

through increased export earnings

Resource exploitation favoured non-tradeables and this undermined

production in the tradeable sectors, including manufacturing

Income in the forms of wages and

other payments for host-country

inputs and most importantly

government revenues

Due to capital intensity in resource extraction, few jobs are created and

weak linkages to local suppliers

Upscale of the technological

capacities of some host low-income

economies

Enclave oriented infrastructure development

Environmental externalities (flare to market ratio of natural gas in

Africa70-80% compare to 1% in the US)

Little technology transfer

Unbalanced regulatory environment for local participation in extractive

industries

The level of linkage to the domestic economy in general remained very low or

negative

DETERMINANTS OF LINKAGES

Domestic inputs and Natural Resources extraction in Africa Development

7

INTRINSIC CONTEXTUAL

The imperative of highly efficient manufacturing

processes: logistics, flexibility and costs

Ownership (origin, place of incorporation,

nationality of foreign ownership and firm

specific attributes)

The specificity of resource deposits –

characteristic of every mining is location specific,

thus the technology, knowledge and skill inputs

need to be applied locally

Infrastructure both physical and social

The technological intensity of extraction and

processing

Domestic capabilities and systems of

innovation (skills and technological

knowledge impact the depth and breath of

linkage )

Policy environment – both resource sector

specific policies and wider set of sector with

important implications for the resource sector

Mineral endowment are by nature finite, suffer long-term real price decline and are susceptible to

cyclical fluctuations. Their extraction and processing generally require many skills and much

capital.

Low linkages/domestic participation mean that natural resources extraction has had very low net

positive effect on Africa development .

Addressing the capacity gaps (corporate, household, regulatory, financial, etc) and other

gaps that hinder the development of linkages

Developing and implementing national policy with regard to linkages

Align and are mutually reinforcing

Balance government short term imperatives with longer term and wider

objectives of sustainable development

Align vision and capabilities between the state, the private sector and the civil

society

Coupling mineral sectoral policy with industrial policy, investment, trade and market access

agendas as recommended by the African Mining Vision

THE WAY FORWARD

Domestic inputs and Natural Resources extraction in Africa Development

8

UN Mandate on Commodities, including Agricultural, minerals, metals and energy

“ensure that commodity‐dependent developing countries (CDDCs) are able to derive increased benefits from the global integration of markets and to meet the Millennium Development Goals”

Objectives: Strengthen the policy making and institutional capacity of CDDCs to:

– formulate strategies and policies to respond to the opportunities and challenges of minerals markets. …

Work in Africa guided by the African Mining Vision

Actions:

Platform for high level policy dialogue on topical issues related to the extractive industries contribution to inclusive development

the 16th OILGASMINE Conference , Niger, 20 to 23 November 2013 on the theme "Natural Resources Development: Governance in the Extractive Industries, Trade and Marketing Structures".

The Global commodity forum 4 to 6 February 2013

Publications

The Natural Resource Information Exchange - NRIE

Proposal to IGF: immediate actions in implementing the MPF on building linkages and information on the mineral value chain

THE ROLE OF UNCTAD

Domestic inputs and Natural Resources extraction in Africa Development

9

CONCLUSION

Domestic inputs and Natural Resources extraction in Africa Development

Three main dimensions

1- Foreign inputs into the extractive activities that team up with domestic participation

by contributing to training of the technical professional and skills and technology

transfer

2- Domestic level

a. Communities

b. Corporates

c. National policies (more efforts to correct the skills mismatch between the

commodity they produce and their active/unemployed labour force. STEM

programme, training and retraining, income distribution, policy coherence, etc)

3- Regional and International level

Global initiatives and multilateral frameworks such as international trade and investment

agreements

10

THANK YOU