Securing the Transformational Potential of Africa’s Mineral Resources

1. Securing the Transformational Potential of Africa’s Mineral Resources Jamal Saghir Director Sustainable Development Africa Region World Bank Cape Town February 4, 2013

2. The continent’s under developed mineral riches 1 Mining output by value USD386bn in 2009 Africa’s share of mining output is less than 10%, including South Africa … but its share of proven mineral reserves is higher South Africa … and average investment in discovering minerals is just 1/5th of the OECD average Source: Raw Materials Group, Stockholm 2011 Global mining investment was USD980bn from 2000-11 (RMG) Africa’s share of that may have been no more than 5% but is on a rising trend (15% recently according to RMG) Projected investment is quadruple that of the last decade Source: McMahon, World Bank (forthcoming)

3. Three reasons why mineral investments will continue to grow in Africa 2 • Fundamentals based on increasing resource intensity of global growth, marked by industrial development in emerging economies, are likely to support high commodity prices over the longer run. This is a thesis supported by McKinsey1 and Chatham House2. • Africa’s mineral endowment, coupled with exhaustion, scarcity and barriers to access elsewhere, has already attracted intense competition for Africa’s resources, involving both traditional multi-nationals and newcomers from the emerging economies. • The increasingly stable andopen economies of Africa are more conducive to investment flows, even though there have been cross-currents generated by more assertiveness by governments on issues of rent sharing and ownership and infrastructure challenges remain immense. Gold Base Other Metal 1 McKinsey Global Institute, Resource Revolution: Meeting the world’s energy, materials, food and water needs, November 2011 2 Chatham House, Resources Futures, December 2012

4. The continent’s mineral dependency 3 Minerals (excl. oil & gas) 2010 > 50% of exports > 20% of exports emerging

5. Tremendous opportunity for mineral-driven transformation on this continent 4 • Revenue mobilization through mineral rents can displace aid dependence and leverage commercial finance. Data from IMF reports indicates that on average mineral rent collection in mineral dependent economies amounts to 5% of GDP (with considerable variation) and is on a rising trend. • Africa needs USD93 billion per year in infrastructure3. Mineral rents can support public capital programs and mining projects can serve as anchors for road, rail, port, water, power and telecoms investment. This morning’s session will focus on how joint solutions can be found by mining investors and governments. • The scale of annual spending implied by mining investment offers opportunities for development of local supply chains, thereby increasing income and job multipliers • Where economies of scale, transportation savings and power reliability allow, new downstream value addition opportunities will increase • These kinds of linkages with wider economic development must be capitalized upon. This means a clean break with the old model of enclave mining development. • 3 Africa Energy Strategy 2011, World Bank

6. Evidence of positive human development outcomes 5 Resource economies have fared better than non-resource economies in terms of human development Mineral economies have fared better than oil rich economies in terms of human development 12 Mineral rich Oil rich Angola Sierra Leone Chad Mozambique Tanzania Sudan Nigeria Ghana Mali GDP Growth % Botswana Namibia Zambia Burkina Faso Mauritania Cameroon DRC Gabon 0 HDI Growth % 3.5

7. Better governance platform for mineral resource development 6 • Sunday’s program was devoted to the governance dimension of mineral resources development – evidence shows that poor governance is more likely to inhibit beneficial use of mineral resources • Sunday’s AUC keynote and the presentation on the role of the Africa Peer Review Mechanism sounded a note of optimism on governance trends, while recognizing governance risks that have to be managed • Participation in global good governance initiatives is growing on the continent – several governments have joined the Open Government Partnership and there is a large block of EITI implementers and several are moving beyond EITI • There is a proliferation of good practice guidance: • Sessions yesterday focused on: • moves towards greater disclosure of mineral right holding and contracts • wider adoption of budget tracking tools • It remains the case that mineral resources are still coveted by rent-seekers, rebels and criminals, policy-making and regulatory institutions are often weak and access to the benefits of minerals is highly uneven in many countries r ICMM Mining Partnerships for Development Toolkit WEF Responsible Mineral Development Initiative Natural Resources Charter

8. Better deals that are better managed for more development impact 7 Fair contracts The benefits of mineral resources will remain elusive if governments and mining companies strike deals that are one-sided and narrowly focused Responsible conduct of mining Even the benefits of fair contracts can be undone if mining is allowed to be conducted irresponsibly Optimal use of resource wealth Ultimately responsibility falls on the Government to ensure that citizens are better off because of minerals are harnessed for sustainable development

9. Fair contracts 8 • Better knowledge of the mineral endowment to underpin policy choices and enhance government’s bargaining position • Bank TA on geo-data acquisition, interpretation and dissemination (Uganda, Malawi) • African Mineral Geoscience Initiative (meeting this PM) • Open and competitive allocation of mineral rights to obtain best terms from the most qualified investors • Bank TA on rules based mineral rights management (Madagascar, Mozambique) • Advice on design and conduct of mineral deposit tenders (Liberia) • Fair and predictable sharing of mineral rent to maximize long-term benefits • Bank TA on mining fiscal regime and model mining agreements (Mozambique) • Negotiations support (Sierra Leone) • Strong government policy making and negotiating capacity • EI Sourcebook; Training; South-South exchanges • Eliminating opacity and rent seeking that leads to unfair contracts • GEI work on contracts database / how to interpret contracts

10. Responsible conduct of mining 9 • Good corporate governance and ethics • Enhanced home country disclosure requirements (Dodd-Frank; EU Directive) • IFC Performance Standards for investees • Social contract with the host community • Emerging best practice on CSR and community development agreements (Bank guidance on CDAs, IFC’s CommDev) • Community engagement support (incl. gender) • Preserving environmental, social and cultural assets • Strategic Environmental and Social Assessments of mining development and resettlement frameworks now mainstreamed into mining technical assistance; • New Africa Trust Fund to enhance local sustainability and address impacts on conflict and communities of mining • Effective monitoring and enforcement • Capacity building for government regulators (12 Bank TA projects in Africa under implementation worth over USD600mn) • Strengthening mineral tax administration (How to Guide for administrators based on West Africa pilot) • Enhancing community-based monitoring (under WBI’s GEI)

11. Optimal use of mineral resources 10 • Macro-fiscal prudence; managing volatility and Dutch Disease • Guidance note on prudent macro-fiscal policies in resource rich countries (forthcoming) • New Sovereign Wealth Fund community of practice • Using mineral rents to create manufactured and human capital • Enhancing public investment management; procurement reform (highlighted on Sunday) • Using mineral rents to distribute wealth (spatially/future generations) • Sub-national transfers; citizen rent distributions; social safety nets; savings/trusts for future generations • Fostering economic linkages between mining and the wider economy • Shared infrastructure (IFC study on transport infra under Africa Special Initiative; Bank – Vale Center study on mining & energy) • Resource corridors & growth pole diagnostics – focus of today’s first session • Supply chain development – planned West Africa regional local content project; Zambia Local Content Initiative • Mining skills development – focus of one of today’s session – Africa Centers of Excellence Project; scope for PPPs in educational provision • Outcome A vibrant post-mining economy

12. An integrated approach at work with partners: Mozambique 11 • Fair contracts: • Legal support for mining negotiations and gas (LNG) negotiations financed by a global multi donor trust fund (EI-TAF) • Front end support to improve mining sector policy framework financed by an AusAid grant to the Bank • Functional management review of institutional arrangements for mining and gas financed by a DfID grant to the Bank • Preparation of a Gas Master Plan including downstream potential financed by AAPF and Norwegian TF (PGI) • Responsible mining: • 6yr regulatory capacity building project for both mining and gas going to Board in April 2013 financed by $50mn IDA loan + $10mn DFID co-financing • Revenue transparency – support to EITI implementation and CSO engagement financed by global MDTF • Demand side governance work financed by Governance Partnership Facility • Optimal use of mineral resources: • Fiscal policy and revenue management financed under Budget Support • Rail and port infrastructure study on mining infrastructure feeding into proposed Spatial Development project • Support development of mine supply chain linkages (proposed under new Growth Poles project)

13. Scaling up the World Bank’s commitment 12 World Bank Group Africa Strategy Emerging themes for Africa are Energy, Skills/Education, Agriculture/Dry Lands, Social Protection, Women’s Economic Empowerment, and Natural Resource Management Extractive Industries Practice for Africa • New Extractive Industries Practice to focus on knowledge and partnerships in Africa: • Draw on global knowledge programs in the World Bank like Extractives for Development (E4D), Governance for Extractive Industries (GEI), EI Task Group and communities of practice on topics such as SWFs, PPPs and SESAs • Identify joint solutions using analytics, advisory services, technical assistance and capacity building • Explore potential partnerships with other donors’ mining development programs: Australia’s M4D; Canada’s CIIEID, Germany’s GeRi; UNDP’s EI for HD, OECDs Policy Dialogue, etc. • Seek possible partnerships with institutions in Africa • AMDC under the inter-governmental Africa Mining Vision • with think tanks and academia (e.g ACET, SAIIA) • Collaborate with industry groups: ICMM, World Gold Council and multi-stakeholder alliances: WEF, EITI Secretariat

14. Take Away Messages • Africa is the under explored continent but a growing destination for mineral investment • While previous scrambles for Africa’s natural resources conjure up images of plunder and squandered opportunity, the past should not be a predictor of the future • This time the chances of better development outcomes are greater – this depends on fairer contracts, responsible conduct of mining and wise stewardship of mineral wealth by the government • The Africa Mining Vision offers a roadmap for mining to be better integrated into socio-economic development setting a foundation for sustained growth after minerals are exhausted • The World Bank Group’s Africa Strategy is aligned with this vision and together with other partners the WBG will deploy its fund of knowledge, advisory services, technical assistance, development policy lending, investments and guarantees to secure Africa’s transformation through minerals

15. Thank You