MIDLANDS STATE UNIVERSITY

DEPARTMENT OF GEOGRAPHY AND ENVIRONMENTAL STUDIES

Surname name Reg number

MUDZAMIRI ALLDELIGHT R162754R
GUYO ARCHIFORD R155145W
MASHIRI RONNIE. F R162074V
ZHOU AZARAEL R162636R
CHIPANDAMBIRA NIGEL. K R16
CHANDIGERE NDINASHE R16
MTHUNZI MQEDISI R16

MODULE NAME: REGIONAL GEOGRAPHY OF SUB-SAHARAN AFRICA

MODULE CODE: GES 402

MODE OF ENTRY: PARALLEL

LEVEL: 4.2

LECTURER: DR. T. MARAMBANYIKA

Group 7: Discuss with specific examples measures that may be considered

to improve economic returns from mining sectors in Central and Southern
African countries.
Africa's mining industry is leaking billions of pounds from unreliable deals and tax evasion.
Change needs to happen now to ensure its commodity wealth translates into better social and
economic growth ten years on. There are a lot of measures that can be put in place in order to
improve economic returns from these mining sectors. These include, nationalisation,
indigenization, promoting FDI, promoting mineral beneficiation as well as to refocus on its
mineral production. Therefore as the essay unfolds one will be able to see how the above
mentioned measures can be implemented by both Central and Southern African countries in
order to improve its mining sector’s economic returns.

To begin with promotion of mineral beneficiation as a measure that can be implemented by

Central and Southern African countries in order to improve their economic returns from
mineral sectors. Mineral beneficiation is a process by which valuable constituents of an ore
are concentrated by means of a physical separation process. As one of the initial steps of
extractive metallurgy, the main purpose is to prepare the ore prior to downstream purification
processes. A greater focus on the production of input goods could yield better results. This is
because it offers an easier development path that’s within technical grasp of many African
countries. The scale of Africa’s mining industry means that it has a readymade market for
input goods and services. This includes the supply of heavy mining spares and consumables,
contract mining as well as security and catering services. It makes business sense to have the
input goods and services of these activities close to where they are needed. Close proximity
gives African companies an advantage over multinational mining firms. Even more critical,
proximity reduces the need for the mining industry to hold huge inventories of imported
spares and consumables – a nightmare for cash flow.

Industries developed to support mines isn’t alien to the continent. For example the supply of
ball-mills that crush the ore-bearing rock in the ore processing plants is established in some
Africa countries i.e. South Africa, Zambia and Zimbabwe. This small start could be
expanded, in both scope and magnitude relatively easily. Recommending that African
countries focus on the processes that precede mineral beneficiation isn’t hypothetical. The
historical experiences of the US and Norway, for example, confirm the positive stimulus that
these processes had for the overall industrialisation journeys of these countries. The two
countries transformed within 30 years to be leading suppliers of mining inputs that include
mine dump trucks and drill rigs.
African states can follow the same strategy, with the necessary adjustments, and harvest the
low hanging fruits of resource endowment, leap-frogging to achieve the same over a shorter
period. African governments are routinely advised to add value to their own natural resources
to drive economic development. This is presented as a way of getting a slice of the huge
returns enjoyed by others at the expense of countries in which the minerals are mined. This
seemingly obvious reasoning is the basis of a growing policy focus on mineral beneficiation
which involves improving the economic value of a mineral by turning it into a final or
intermediate product.

The argument sounds logical. But accessing the rewards of this approach isn’t that simple.
Those in favour of beneficiation tend to ignore the complexity of industry and markets of
beneficiated products and the rules and regulations of supply chains. Most products,
components and operations of the beneficiation industry and markets are currently alien to
many African economies. This means that, for the moment, beneficiation remains out of
reach. Take the case of steel. To use steel to manufacture washing machines for global
markets, a country would need to either establish its own brands and outcompete established
ones, such as Samsung, Defy and Hisense, or, alternatively, supply these popular producers
with components. In Africa, this is unlikely to happen immediately because of small markets
and brand loyalty among other challenges.

This is not to say that adding value to mineral resources shouldn’t be part of the agenda for
African countries. But the focus should be elsewhere – the production of input goods like
machinery, spares and services that support processes that precede beneficiation –
exploration, mine construction and extraction itself. These are known as backward linkage
industries and are ready for picking. This approach served countries such as the US and
Norway where they gave rise to globally competitive manufacturing and services industries
serving the mining and oil industries.

More so, the Central and Southern Africa should do more processing in their countries and
less export products. ‘Africa is not the only country in the world that loses tax income due to
companies shifting money to offshore tax havens and offshore companies.” In the APP
report, one of the key changes it says is needed in order for the continent to benefit more
from its resource wealth is the processing of raw minerals in-country before being exporting.
In regards to this, many have questioned the fairness of Africa’s relationship with the
Chinese, who, unlike Western companies – who are interested primarily in pleasing
shareholders and profits – are interested almost entirely in acquiring commodities to feed
China’s growing demand. "Chinese mining companies are very focused, not necessarily on
the profitability or on the shareholders, they are focused on a pure access to raw materials
that they want to go back in their factories," says Botha. Lamido Sanusi, who has been
governor of the Central Bank of Nigeria since 2009, writing in the Financial Times, said:
"Africans need to wake up to the realities of their romance with China.” Referring to Nigeria,
he says: "China takes our primary goods and sells us manufactured ones." Which is
essentially an essence of colonialism, he adds. This is clearly an arrangement that needs re-
evaluating and change could go some way into making mining fairer in Africa. For Western
companies who choose to process its minerals elsewhere, Shapiro says: "Certainly it is a
question of both facilities and infrastructure. Some of the processing plants are very
expensive and out of reach for poorer countries. "Of course as beneficiation is an added
value; there is reluctance for the importing country to give up this benefit."

It is certainly a pivotal time for change in Africa. While evolving the management of its
resource wealth looks complicated, there is certainly increased optimism. Issues such as
transparency, accountability and how to combat tax avoidance are now being discussed by
global leaders at events such as the G8.It’s also important to remember that the mining
industry cannot alone transform the development of Africa. Baissac, in his Forbes article,
says that reliance on resource rent is an unsafe economic strategy. In 2009, when growth
collapsed following the global economic climate, rent tumbled and Africa’s resource rich
countries saw their growth perform worse than regions that are resource poor, he says.
Although a vital source of wealth for Africa there is a need to focus on other areas, like
infrastructure development, as well. Nevertheless, change is desperately needed for both
Africans and foreign investors and when considering its implementation it’s perhaps
important to remember Annan’s words: "Mutually beneficial agreements are the only ones
that will stand the test of time. We all stand to win from an Africa that is truly prosperous,
stable and fair."

In addition, indigenization can be implemented so as to increase, economic returns from

mining sectors of Southern and Central African Countries. This involves setting of
regulations that are meant to regulate businesses, compelling foreign-owned firms to sell 51-
percent of their business to blacks over the following years. The intent of the law is to ensure
the country's black members fulfil a more prominent role in the economy.
Furthermore, nationalisation can be implemented so as to improve economic returns from the
mining sectors of Southern and Central African countries. Nationalisation in mineral sector
involves the transformation of minerals by bringing them under the public ownership of a
national government.

While the FDI role in the mining sector in the promotion of growth in Ghana's mineral export

and foreign exchange is indisputable, however, the sector is yet to make any impact on the
country's overall economy. The input of capital into the sector has not been translated into
significant increase in employment.

The African Mining Vision, jointly developed by the AU, ECA, ADB and other UN agencies
was adopted by the African Union Heads of States in 2009. The Vision advocates for
“transparent, equitable and optimal exploitation of mineral resources to underpin broad-based
sustainable growth and socio-economic development”.

At the core of the African Mining Vision is the realization that Africa’s mineral resources can
be better utilized to address the continents social and economic needs; the focus on
environmental and social sustainability, the advantages of regional and international
integration with attendance hard and soft infrastructure challenges, the emphasis of building
of backward, forward and sideward linkages from the core mining sector and equitable
principles of fairness in benefit sharing and use of resource revenues. To achieve the high
aspirations of this vision, Africa needs to get back to the fundamentals and rectify some of
the initial problems that have continued to plague the management of the continent’s natural
resources.

At the fore of this endeavour is the capacity of governments to get the best deals for their
countries during contract negotiations. Capacity deficits have also been identified in critical
areas of auditing, monitoring, regulation and improving resource exploitation regimes. In
DRC, a government committee reviewed 61 mining deals over a decade up to 2006 and found
none acceptable. It recommended renegotiating 39 and cancelling 22. Zambia, in the wake of
increased international Copper prices and after years of subsidizing large multi-national
companies working in its copper belt, successfully raised taxes for mining companies from 25
to 30% and introduced a windfall tax for exceptional profits. This earned it an extra $415
million in supplementary revenues. Other African countries have initiated similar
cancellation or review of resource contract such as Guinea, Zambia, Tanzania, Liberia and
Nigeria in order to increase their resource revenue base. This trend will continue to grow as
civil society organizations and states increasingly realize the loss of revenue from their
resources.

International processes such as the Kimberly Process for diamonds and the Extractive
Industries Transparency Initiatives (EITI) for other minerals, though with their won
weaknesses, have contributed to improving transparency and accountability in contract
negotiation processes from the production side whilst the Dodd-Frank Wall Street Reform
and Consumer Protection Act and other similar acts have also created avenues for fair play
within the international circles.

On the other hand, the reducing policy space available for Africa within international trade
negotiation processes must also be checked. Unfair trade treaties and rules set out by
international bodies that penalize Africa’s value addition process to its primary commodities
need to be reviewed in light of the increased demand and competition for Africa’s minerals
from the rising south especially China and the Far East.

Secondly, in geological terms, Africa is still the ‘unknown continent’ with vastly unexplored
quantities of extractive potential. Geological mapping and mineral inventory has not covered
the entire continent thus masking the true geological potential of the continent. African
governments do not have the capacity to take stock of their mineral resources relying on
trans-national companies to access commercial capacities of newly found discoveries
especially oil and gas. This lack of verified data severely compromises negotiation capacity
and the continents bargaining power. New technologies abound that will make it easy for
Africa to have a better appreciation of its natural resource base but this is held back by a lack
of sustained and well-financial commitments with exploration largely left in the hands of the
private sector.

A third and important structural measure is a better integration of Africa’s development

policies. Africa needs to embed long term development objectives firmly into the processes
for extracting natural resources. For mining to benefit Africa’s people, strong backward and
forward linkages in the local economy should allow local entrepreneurs and industrialists to
take advantage of service provision and technology transfer opportunities as a result of
proximity to the mining industry. This means investment in infrastructure, research and
human capital development, through conditionality for local content.   This is what other
regions have done; this is what Africa needs to do.
Within this paradigm of development-led mining, the potential of small-scale mining should
also be harnessed and improved to improve rural livelihoods and integration into the rural and
national economy. Other factors such as the building of human and institutional capacities
towards a knowledge economy that supports innovation, research and development and the
promotion of good governance of the mineral sector in which communities and citizens
participate in decision making and in mineral assets, and in which there is equity in the
distribution of benefits are also necessary pre requisites.

In conclusion, Africa’s natural resource is a blessing and not a curse and can and will be used
as a precursor for the continent’s continuous rise and in the face of the insatiable appetite for
natural resources on the world stage. To make this possible, frameworks such as the AMV
must be implemented and used as a template at country and regional level.