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Key premises: The virtual cycle

Linking Infrastructure to Natural Resources Development: A Double Sustainable Development Gain by Antonio M. A. Pedro UNECA, Addis Ababa, Ethiopia. Key premises: The virtual cycle. Africa is richly endowed with natural resources, but most are located in remote areas

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Key premises: The virtual cycle

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  1. Linking Infrastructure to Natural Resources Development: A Double Sustainable Development Gain by Antonio M. A. PedroUNECA, Addis Ababa, Ethiopia

  2. Key premises: The virtual cycle • Africa is richly endowed with natural resources, but most are located in remote areas • Many African countries are natural resources dependent • Natural resources sector would continue to be enclaves if multiplier effects are not engendered: Infrastructure facilitates linkages • Addressing Africa’s infrastructure needs requires substantial investments • Natural resources rents provide opportunities to expand Africa’s infrastructure

  3. Key premises: The virtual cycle (2) • Natural resources rents can bridge the gap, but improving their governance and management, as well as investing the rents smartly (including in infrastructure), are key pre-requisites to lasting development • Linking natural resources development to infrastructure development (SDIs) can make infrastructure projects more bankable • Factor flows in a regional space are important for infrastructure development

  4. Key premises: The virtual cycle (3) • Harmonization of policies, laws, regulations, standards and codes vital for factor flows • Infrastructure development: Key to unlocking Africa’s trade potential and realizing regional integration • Diversification and value addition of natural resources important for intra-African trade

  5. But, the challenges are many • Many natural resources exploited as enclaves • Lack of bankable infrastructure projects • Lack of awareness about the linkages between NRD and infrastructure • The NR Challenges:irreversibility; creation; investment; the distribution; governance and macro-economic; and the capacity. • Unreliable, inefficient and expensive infrastructure services • Restricted access to infrastructure services

  6. But, the challenges are many (2) • Inadequate and non-integrated physical infrastructure • High transaction costs which impact on Africa’s competitiveness • Trade barriers which limit extent of value addition and diversification

  7. However, opportunities are not few • High commodity prices • Rekindled interest on Africa • Second scramble for Africa natural resources • China and India “commanding” the ball game • SSATP/MLTSF/AICDS/ICA • Africa Partnership Forum • Infrastructure Master Plan • Almaty Programme for Land-Locked Countries

  8. However, opportunities are not few (2) • Way Forward on Transport • Africa Water Vision 2025 • Africa Energy Vision 2030 (in development with AUC) • AU Decisions (e.g. Sirte Declaration on Water)

  9. A word about the challenges policy makers face to manage natural resources

  10. The irreversibility challenge • How to balance the relative costs of access and the choices/preferences of the present relative to the future? • What set of policies should be put in place to ensure sustainable exploitation of mineral resources in a manner that is inter-generational equitable? • How to manage resource stress (1-Malthusians: Scarcity leads to war; the honey pot of abundant resources may be a focus for greed and elicits a scramble of gold diggers. 2-Cornucopians: Scarcity leads to adaptation. 3-Anti-globalists: Scarcity is the consequence of the structural violence of an inequitable global system) Jeroen Warner 2004

  11. The creation challenge • How to create and sustain mineral wealth that is consistent with social preferences for environmental quality and social and cultural considerations? • How to ensure an efficient, equitable and predictable legal, regulatory and fiscal regime that encourages mineral creation?

  12. The investment challenge • Mineral wealth is a transitory wealth. How to transform it into permanent wealth? • How to create a stream of wealth that outlasts finite mineral resources? • How much ought to be saved and how much should be invested? • Who should invest? • In what? • Where?

  13. The distribution challenge • How to share benefits from mining equitably (e.g. local vs national)? • What is fair? -Aristotle and Proportionality (Outcomes are allocated in proportion to each party’s contribution) -Jeremy Bentham and Utilitarianism (Outcomes are distributed so that the distribution creates the greatest good for the greatest number) -John Rawls and his Theory of justice (Outcomes should be such that the least well-off group in society be made as well off as possible)

  14. The distribution challenge (2) • What form should the allocation take? • What are the eligibility criteria? Who has the highest priority? • How to reconcile conflicting interests (e.g. The 1999 Nigerian 13% Derivation Principle vs the Nigerian Supreme Court decision on ownership of offshore oil)?

  15. The macro-economic and governance challenge • How to address externalities such as declining and unstable commodity prices? • How to address the Dutch disease? • How to enhance the public interest in wealth conservatism? • How to avoid rent seeking and corruption?

  16. The capacity challenge • How to balance aspirational goals and the reality? • What set of policies, laws, standards, guidelines should countries formulate which are congruent with the capacity to enforce them? • How to bridge the capacity gap?

  17. What should inform policy responses?

  18. Development paradigms: They shift • Nationalizations in the 1970’s • Reforms in the late 1980’s and 90’s • 21st Century: The search for a new social contract for mining

  19. Stage of the development in a minerals cycle • Nascent mineral economy: Requires mineral investment flow, terms might be generous • Youthful mineral economy: Rapid mineral expansion, Dutch Disease, strengthen governance systems • Early-Mature: Slowdown of mineral output, promote sectoral diversification • Late-mature: Decline in mineral output, boost skills acquisition

  20. Policy responses to a minerals-driven cycle (Richard Auty)

  21. Local context • Culture and mining history • Capacity to administer the sector, and manage and restructure the economy • Strength of private sector • Growing awareness about issues from parliamentary bodies (e.g.PNoWB),CSOs, CBOs, and other stakeholders (Pres. Kuffor and oil in Ghana) • The learning curve process followed by a country • Local politics, expectations and “power game” (Chad and the World Bank)

  22. A word on clusters and the NEPAD Spatial Development Programme (SDP)

  23. Defining clusters • Concentration of expertise among closely linked industries and companies in which extensive investment in specialized factors of production encourages growth • A cluster is a geographically proximate group of companies and associated institutions in a particular field, linked by commonalities and complementarities (Michael F. Porter, On Competition, 1998)

  24. Defining clusters (2) • A cluster goes beyond upstream and downstream linkages • It includes indirect activities such as sidestream supply and support activities (financial, transport, communication, energy, water, engineering and consulting services, knowledge, education, and R&D Centres, providers of capital goods and consumables, industry associations, unionsetc)

  25. Characterizing clusters • Flow of information between companies that are functionally linked • Agglomeration/specialization of producers, customers and competitors (based on proximity or complementarity) • Permeable boundaries (firms constantly compete and collaborate) • Reinvention, innovation and technological evolution • Technical spillovers

  26. Levels of clusters • International or global clusters • National or macro clusters based on inter-sectoral linkages in the national economy • Sector or meso clusters focus on intra-sectoral linkages within specific industries • Firm or micro-level clusters

  27. Examples of successful clusters • London and NY financial centres • Hollywood and Bollywood • Silicon Valley and ICT cluster of Nokialand • California wine • SA Gold Industry • Mining Cluster of Northern Chile • Norwegian oil and gas industry • Thailand (and Sri Lanka) gem industry

  28. Drivers of success • Firm strategy and vision/Process and organizational changes • Factor conditions (e.g. resource endowments, good infrastructure, location) • Demand conditions • Related and supporting industries/Competition and constructive cooperation between enterprises • Hives of R&D, innovation, diversification and technology diffusion

  29. Drivers of success (2) • Focus on regional clusters of related industries rather than on single champions: Common vision • Focus on quality and building competence: Knowledge, R&D, and innovation (must be continuos or lose to competition and the cluster dies) • Transfer of know-how, marketing support, critical mass of enterprises • Common platforms for services (legal, regulatory, etc), raising capital, and promoting investment

  30. Drivers of success (3) • Strong instruments for collaboration: industry/professional associations, Chambers of Mines, cluster councils, incubator/technology packs, informal social and other networks • Supportive governments (business environment, infrastructure development, facilitator, promoter of dialogue) • Regional integration to facilitate factor flows and reduce transaction costs

  31. Barriers to cluster development in Africa • Negligible backward and forward linkages/many enclaves • Procurement policies of multinationals • Poor infrastructure and services sector • Skills shortages • Small size and reduced number of enterprises

  32. Barriers to cluster development in Africa (2) • Unfourable business environment • Poor infrastructure and service base • Small local markets and distant markets abroad • Tariff and non-tariff barriers that hinder value addition • Competition from other regions • Neglect of industrial minerals

  33. The key for Africa is • Focus on quality/competitiveness, rather than size • Leverage existing assets and heritage • Focus on acquiring, assimilating and improving knowledge • Explore virtual networks: With the Internet age, regional proximity has become less important/Think globally and explore outsourcing of services • Explore PPS, it cannot succeed if it is top-down and government-driven

  34. The key for Africa is (2) • Explore the potential of regional cooperation and learn from other regions • Unbundle the sector (emphasis on all the value chain) to identify entry points particularly for: - Local supplier/input industries -Cross-sector applications - Local beneficiation and value addition - SME development (procurement/other services)

  35. But avoid • Over regulation, intervention and centralization of decisions • Subsidies • Focus only on local companies and large and formal sector companies • Barriers to competition • Creating clusters where business fundamentals are not right

  36. The SDP: A regional clusterWhat value does it bring? • Effective investment prioritisation based on sound economic and business fundamentals • Better liinks and synchronisation between private sector economic investment project opportunities and key infrastructure projects • Realisation of broader development potential (densification) catalysed by infrastructure provision and anchor investments • Provides spatial focus for strategies to promote regional integration and development

  37. NEPAD SD PROGRAMME

  38. Maghreb Coastal Current SDIs RSDIP NEPAD indicative Spatial Development Program First Pass! Niger: Dakar – Port Harcourt Red Sea - Nile Djibouti Conakry Buchanan Sekondi Ougadougou Douala Mombasa Gulf of Guinea Coastal Libreville Lomie Madagascar Bas Congo NEPAD SDP: 1st Pass

  39. POTENTIAL SDPs IN North and West Africa

  40. Maghreb Coastal SDP Countries: Morocco, Algeria, Tunisia, Libya, Egypt Anchors: Oil/gas & PC industry, iron & steel (gas), tourism (coastal & heritage), phos & fertilisers, agric, fishing & aquaculture, gen. industry (HCs) Infra: HC grid, elec grid, coastal highway, cabotage

  41. Conakry-Buchanan Countries: Guinea-Liberia (Cote d’Ivoire) Anchors: Fe (Nimba) & iron/steel (gas line?), Al (Conakry, Friguia), Au (Siguiri), Ni (Man) & FeNi (gas?), agriculture Infra: gas line, rail (ore), elec grid, port upgrade Gulf of Guinea Coastal SDP Countries: Nigeria, Benin, Togo, Ghana, Cote d’Ivoire, Liberia Anchors: Oil/gas (Delta & pipeline), GTL, Al (Delta), Iron/steel (Sekondi/Takoradi, Buchanan), Mn (Nsuta) & FeMn (Sekondi- gas?); tourism (coast, heritage), gen. industry (gas), agriculture (palm oil/carbon), fishing & mariculture Infra: gas line,, elec grid, ports, cabotage, coastal highway Niger SDP: Countries: Senegal/Gambia, Mali, Niger, Nigeria Anchors: Resource: Fe (Faleme) & iron/steel, Au (Loulou), U (Niger), Oil/gas (Delta), GTL (Escravos), Al (Alscon), Ti (Dakar), Phos (Tiaba), agriculture (cotton), etc. Infra: riverine transport , rail to Dakar (??), Ore terminal (~Dakar), power (elec grid), roads upgrade

  42. Operationalizing the SDP: Way forward • Validation and building consensus on each DC • Appraisal of existing and potential economic activity • Identification and profiling of viable investment opportunities, sectoral anchor projects and the requisite infrastructure • Identification and removal of policy, regulatory, bureaucratic or institutional constraints to investments • Project appraisal for a portfolio of bankable investment projects • Development of investment marketing strategies and implementation of investment facilitation measures • Development and implementation of investment and infrastructure projects by both private and public sectors • Program to commence with high potential DCs

  43. In conclusion • Current commodity price boom offers a window of opportunity for Africa to extract better benefits from NR exploitation • The compact with partners should go beyond infrastructure expansion: Infrastructure not only for resource extraction, but also for integrated development (The NEPAD SDP) • Resource-based Industrialization should be promoted: Vertical, horizontal and lateral linkages • Investments in human and social capital formation are key • Local participation important • Institutional capacity needs to be strengthened, including for contract negotiations and cross-departmental planning • Good governance needed to improve outcomes

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