Africans Struggle to See Oil, Mineral Revenues
27 January 2014

Cape Town— A major new survey of African countries which depend on mining or oil revenues shows that six in 10 people have difficulty in finding out how their governments spend the proceeds of the resources.

This is among the findings of a report published by Afrobarometer, the survey network based in academic institutions around the continent which measures African public opinion. The report was written by senior Afrobarometer staff in the Centre for Democratic Development in Ghana.

The survey - of 22 countries - shows that 62 percent of their citizens say it is “very difficult” or “difficult” to establish how governments use revenues from taxes and fees.

Bottom of the list is Guinea, where 77 percent of survey respondents report difficulty, followed by Uganda (73 percent), Tanzania (72 percent), Sierra Leone (71 percent) and Nigeria (69 percent).

In only two countries do a majority of citizens say it is “very easy” or “easy” to determine where tax revenue is spent: Botswana, where the lowest number (43 percent) reports difficulties, and South Africa (47 percent).

Also, most citizens believe that government officials in countries with oil and mineral resources go unpunished for improper behaviour. On average, 54 percent of people in the 22 countries say officials who commit crimes often or always go unpunished.

Morocco falls at the bottom of this list, where 79 percent of respondents do not believe officials will be held accountable, followed by Egypt (69 percent), Zimbabwe (68 percent), Sudan (67 percent) and Nigeria (67 percent).

At the other end of the scale, Botswana performs well in this area too: only 28 percent of its people believe officials go unpunished. Following up behind Botswana are Namibia, where 33 percent feel the same, then Mozambique (34 percent), Ghana (44 percent) and Niger (44 percent).

In 14 countries which Afrobarometer has surveyed since 2005, the perception of crimes going unpunished has risen.

The biggest deterioration in public confidence has occurred in South Africa, where the perception that officials will not be punished has increased by 23 percentage points. In Ghana, it has gone up by 20 points, in Tanzania by 19 points and Nigeria by 17 points.

However, perceptions of justice being done have improved in Zambia, Botswana, Namibia and Zimbabwe - although those who say officials go unpunished still constitute a majority in Zimbabwe and Namibia.

The report also says that most people surveyed do not feel they have complete freedom of speech: “Six in ten people in extractive countries say that they must often or always be careful about what they say about politics.”

Nevertheless, most see their countries as meeting criteria for democracy.

“Against gaps in transparency and official impunity,” the report says, “majorities in oil- and mineral-rich states say they enjoy basic freedoms of speech and membership in political parties. Majorities also perceive their media as effective in monitoring government or reporting corruption, and say their presidents follow the rule of law.”

The report concludes: “Institutional opacity and official impunity, two key enablers of corruption and self-dealing among public officials and politicians, seem to remain endemic on the continent...

“Noticeable progress has been made across the board in election credibility and some aspects of personal freedoms. But much work remains to be done to reduce governmental impunity among public officials if African governments are committed to using the burgeoning extractive industry wealth to secure substantial social and economic transformation of their societies in the coming years.”

The Afrobarometer report is entitled Oil & Mining Countries: Transparency Low, Official Impunity High.

The report was written by E. Gyimah-Boadi, executive director of Afrobarometer and of the Centre for Democratic Development in Accra; Daniel Armah-Attoh, Afrobarometer project manager for Anglophone West Africa and senior research associate at the CDD; Mohammed Awal, research officer at the CDD; and Joseph Luna, a PhD student from Harvard University.

The report covers 22 countries. Minerals contribute 25 percent or more of GDP in 11 of them: Algeria, Botswana, Cameroon, Ghana, Liberia, Namibia, Nigeria, Sierra Leone, South Africa, Sudan and Zambia. In Burkina Faso, Mali, Niger and Senegal, mineral extraction produces eight percent or more of GDP. Another seven countries - Egypt, Guinea, Morocco, Mozambique, Tanzania, Zimbabwe and Uganda - were included in the survey as “prospective extractive resource-endowed” countries.

Africa: Billions That the Poor Won't Touch
By Miriam Gathigah and Jeffrey Moyo, 17 January 2014

Nairobi/Harare —

With its two-trillion-dollar economy, recent discoveries of billions of dollars worth of minerals and oil, and the number of investment opportunities it has to offer global players, Africa is slowly shedding its image as a development burden. "While global direct investment has shown some decline, dropping by 18 percent in 2012, in Africa foreign direct investment rose by five percent," Ken Ogwang, an economic expert affiliated with the Kenya Private Sector Alliance (KEPSA), which has a membership of over 60 businesses, told IPS.

"Underhand dealings in the mining of diamonds and other rich minerals here have fuelled poverty." -- economic analyst, Jameson Gatawa

Since 2012, Kenya has made a series of mineral discoveries, including unearthing 62.4 billion dollars worth of Niobium - a rare earth deposit. The discovery in Kenya's Kwale County has made the area among the world's top five rare earth deposits sites, and allows Kenya to enter a market that has long been dominated by China.

In 2012, Kenya discovered 600 million barrels of oil reserves in Turkana county, one of the country's poorest regions. It was announced on Jan. 15 that two more wells struck oil, increasing estimate reserves to one billion barrels of oil.

But Kenya, East Africa's economic powerhouse, is not the only African nation that has made fresh mineral discoveries.

"The recent boom in new mining discoveries in countries such as Niger, Sierra Leone and Zambia will attract billions in foreign direct investments. Other countries like Mozambique, Tanzania and Uganda will similarly attract billions due to petroleum discoveries there," Antony Mokaya of the Kenya Land Alliance, a local umbrella network of NGOs and individuals working on land reforms, told IPS.

Last year, both Uganda and Mozambique discovered oil. In 2006, an estimated two billion barrels of oil reserves were discovered in western Uganda, but last year's discovery brings Uganda's total oil deposits to 3.5 billion barrels. Mozambique's first oil discovery last year is estimated to be 200 million barrels.

Ogwang predicts that these discoveries will soon see African countries dominating the list of the 15 fastest-growing economies in the world.

"More African countries, Kenya being a model example in East Africa, now favour a market-based economy, which is highly competitive and the most liberal economic system.

"In this system, market trends are driven by supply and demand with very few restrictions on who the actors are. [It is] a favourable environment for foreign investors," he said, referring to the local mobile phone industry, which has been dominated by foreign investors because of its favourable regulatory policies.

"As a result, growth in this sector is phenomenal. In the first 11 months of 2013, Kenya's mobile phone money transactions were 19.5 billion dollars, which is more than the country's current 18.4-billion-dollar national budget."

Ogwang says that even more importantly, African countries are increasingly strengthening their partnerships with the East.

Statistics by the Africa Economic Outlook, which provides comprehensive data on Africa economies, show that China is the largest destination for African exports, accounting for a quarter of all exports.

Trade with Brazil, Russia, India and China - the economic bloc referred to as BRICs - now accounts for 36 percent or 144 billion dollars of Africa's exports, up from only nine percent in 2002.

In comparison, Africa's trade with the European Union and the United States combined totals 148 billion dollars.

But Terry Mutsvanga, director of the Coalition Against Corruption, an anti-corruption lobby group in Zimbabwe, cautioned that Africa will first have to rein in its corrupt politicians before its resources can enrich its own people.

According to the World Bank, some of the world's poorest people live in Africa, with one out of two Africans living in extreme poverty.

"Without Africa dealing with the cancer of political corruption blighting the continent and robbing it of revenue from mineral resources through corrupt politicians receiving bribes from investors ... the continent shall [continue to have] the worst poverty levels globally," Mutsvanga told IPS.

Independent economic analyst Jameson Gatawa from Zimbabwe agreed.

"Underhanded dealings in the mining of diamonds and other rich minerals here have fuelled poverty. The rich are getting richer with the poor becoming poorer," Gatawa told IPS.

For 54-year-old Sarudzai Mutavara, a widow who lives in the midst of Zimbabwe's Marange diamond fields, poverty remains a daily reality.

Zimbabwe is one of the world's top 10 diamond producers. But six out of every 10 households in Zimbabwe, a country of about 13 million people, are living in dire poverty. This is according to a 2013 poverty assessment report by the Zimbabwe National Statistics Agency.

"Here in Marange, the diamond wealth has not [helped] in any way to change our lives for the better, but rather for the worse as we have strayed further into poverty," Mutavara told IPS.

The Democratic Republic of Congo (DRC) is another African country rich in diamonds, with its mineral wealth estimated in the trillions of dollars. But according to the United Nations, about 75 percent of its people live below the poverty line.

More than half of these have no access to drinking water or to basic healthcare. Three out of every 10 children are poorly nourished, with up to 20 percent of them predicted to die by the age of five.

While Ogwang says Africa's best economic years are yet to come, it remains to be seen if the billions of dollars Africa has in natural resources will trickle down to people like Mutavara.

Mining Companies Cutting $10 Billion Heralds Boom: Commodities

Elisabeth Behrmann and Rebecca KeenanJan 17, 2014 7:05 am ET

Jan. 17, 2014 (Bloomberg) -- Mining companies are extending massive cuts in exploration budgets for a second year, setting up the next price boom as China continues its relentless pursuit of metals and energy.

Exploration spending plunged by 30 percent or $10 billion last year, squeezing budgets to search for minerals and sustain supplies, according to MinEx Consulting Pty, whose clients include BHP Billiton Ltd., the world’s biggest miner. Payments may drop another 10 percent this year for geologists, drilling exploratory holes and analyzing mineral specks to unearth the next copper, iron ore or gold El Dorado, MinEx said.

Investors in mining companies and metals may welcome the cuts because they’ll help propel a rebound in prices. Platinum, aluminum, silver, nickel, zinc, lead and uranium all are forecast to rise by 2017, according to the median of analyst estimates compiled Jan. 16 by Bloomberg. The losers will be buyers of cans, cars and all the goods made from metals.

“Companies are doing the right thing by cutting back on exploration,” said Daniel Sacks, who helps manage $107 billion at Investec Asset Management in Cape Town. “It’s a cyclical industry.”

Budgets Tumble

Rio Tinto Group yesterday said it more than halved exploration and evaluation spending to $948 million last year from $1.97 billion in 2012. OZ Minerals Ltd., an Australian copper producer, this week cut its 2014 exploration budget by 62 percent.

Rio Tinto rose 1.1 percent to A$66.32 at the close in Sydney, the highest level since Jan. 6. BHP climbed 2.9 percent, the most in six months, as the Australian benchmark index ended little changed.

The austerity has been triggered after a decade-long mining boom peaked in 2012. That forced producers including BHP, Rio Tinto and Glencore Xstrata Plc to slash spending and sell assets to bolster earnings as more than $60 billion of writedowns mounted and shareholders demanded changes.

Although China, the biggest metals consumer, has slowed its rapid economic expansion, it’s still forecast to grow 7.5 percent this year and 7.2 percent in 2015, the fastest in the world, according to data compiled by Bloomberg. The Asian nation will be the major driver of world economic growth and could increase demand for some commodities as much as a 75 percent over the next 15 years, BHP Chairman Jac Nasser said on Nov. 20 at a shareholder meeting in Perth.

Enthusiasm Missing

“Are we actually finding enough deposits to replenish what we mine? The answer is, we struggle,” Richard Schodde, managing director of Melbourne-based MinEx Consulting, whose clients also include Barrick Gold Corp., the largest gold producer. “Enthusiasm or financial capability to fund exploration is fairly limited,” he said in a phone interview.

Today’s slower growth rates in mine output increasingly are being priced into metals, Macquarie Group Ltd. analysts led by Colin Hamilton said in a Jan. 8 report. The market’s focus may shift toward potential deficits of supply in 2015 and 2016, they said.

“The irony is that the biggest investment cycle in history hasn’t produced enough capacity,” said Markus Bachmann, CEO of Craton Capital, which manages about $80 million, in a telephone interview from Johannesburg.

Aluminum is forecast to rise 22 percent to $2,204 a metric ton in 2017 from the first quarter this year, according to the median estimate. Uranium is seen 69 percent higher at $66.03 a pound.

The drop in exploration now may create supply shortages because it can take between 10 and 12 years to develop a mine from when a deposit is discovered, MinEx’s Schodde said.

BHP Halved Spending

Companies were pressured to retrench as metals prices tumbled about 12 percent from last year’s high in February, according to the London Metals Exchange Index, a measure of six primary metals. Iron ore has declined about 16 percent from a year ago. Shares fell even more. The Bloomberg World Mining Index lost 26 percent in 2013.

BHP, the world’s third biggest producer of nickel, iron ore and copper, almost halved its exploration spending last financial year from a peak of $2.45 billion in the 2012 fiscal year, according to its annual report.

“We simply can’t expect to push forward with every opportunity at the same time and so have prioritized and sequenced our spend on longer-dated evaluation projects,” Rio Tinto’s Chief Financial Officer Chris Lynch said on Dec. 2.

“We are always looking at our overall cash position and you taper the expenditure to what your expectation is,” Dan Lougher, managing director of nickel producer Western Areas Ltd. said by phone from Perth. His company reduced its exploration budget by 25 percent for this financial year.

Strong Demand

Lougher assesses his budget quarterly and will boost exploration spending should the nickel price increase, he said. Prices, currently at about $6.67 a pound, would need to gain to at least $7.50 a pound before spending would rise, he said. The company has two nickel mines and a concentrator at its Forrestania operation in Western Australia.

“It is a challenge for these mining companies because they have to balance the still strong demand that is coming out of Asia -- and particular China in relation to our iron ore -- but with cash flows from operations decreasing from lower commodity prices,” PricewaterhouseCoopers LLP partner Justin Eve said in a phone interview from Perth.

Investors are demanding improved profits this year and further retrenchment in project spending as Citigroup Inc. and Goldman Sachs Group Inc. predict the current commodities slump will deepen in the next few years.

“Anyone who is wisely investing in exploration because they have a long-term picture, they are smart but extraordinarily rare,” said Tom Price, a commodities analyst at UBS AG in Sydney.

--With assistance from Jesse Riseborough and Thomas Biesheuvel in London. Editors: Keith Gosman, Todd White

Africa Has to Shed Off the Resource Curse Stigma

By Sindiso Ngwenya, 3 January 2014 (The Star)

Africa has 10 per cent of the world's known reserves of oil, 40 per cent of its gold, and 80 to 90 per cent of the chromium and the platinum metal group, to list only a few. But a number of commentators still refer to this wealth of natural resources and minerals as "Africa's curse."

They associate the many wars, poverty and untold suffering of ordinary Africans to this abundance. It is true that the abundance of natural resources has been the catalyst for wars and conflict. But should an abundance of natural resources lead to Africa's decline? The answer must surely be a resounding no. Recent literature on the 'Resource Curse and Dutch Disease ' suggest that the real problem affecting commodity rich countries may be of commodities specialisation in an economy with little or no history of industrial development.

The curse and the disease refer to a situation in which a country's seeming good fortune proves ultimately to have a detrimental effect on the economy. Commentators on African economies still insist that the continent's future lies in export of commodities; that Africa should continue to export almost all they produce, without adding value, and import virtually all that the people living on the continent consume.

They claim that if Africa adopts this economic growth model, and assuming that commodity prices remain high (which seems to be the projection of most analysts) then the projected growth rates of the continent of an average of six per cent over the next 30 years or so will no doubt materialise. But at what cost to Africa? Africa's population is expected to double in the next 30-40 years to over two billion.

Already we are seeing civil and economic unrest as a result of a lack of employment opportunities. Many of them have had access to education and, with the consolidation of the democratic process, expect their popularly elected governments to deliver on their promises of employment and improved quality of life for the majority. If African countries adopt the economic model of commodity-export led economic growth, the most probable outcome will be economic growth but with a heavily skewed income distribution curve. In 30 to 40 years' time there will be a tiny minority of mega-wealthy Africans but the majority will be jobless.

Many will be surviving on the margins of poverty, alienated from their mineral wealth and living in communities characterised by civil unrest and personal insecurity. Africa's future is bright but only if Africans can use the resources they have as anchors for regional growth clusters and then ensure that they attract value-addition industries. Already the continent has a number of good examples of value addition though not many in the area of minerals; Kenya has a well-established export base of horticultural products to UK supermarkets.

With time, Kenyan producers have been able to meet increasingly stringent food safety regulations, demanding market requirements and private standards, but have also upgraded into value added products, such as chopped and ready to eat products. Ethiopia's strategy for the leather sector has revolved around a combination of an export tax on unprocessed hides, incentives for value added manufacturing firms, and aggressive measures on technology and skills transfer.

In particular, the export tax has forced reluctant European manufacturers to relocate tanning and manufacturing activities in Ethiopia. As a result, the composition of Ethiopia's leather exports has changed dramatically: the share of hides in leather group exports declined from 70 per cent in 2004 to 0 per cent in 2011. The share of finished leather increased from less than a third to 93% in the same period.

A recent success story has been the export of shoes under the Italian brand name Geox, a global leader in the footwear sector, with the 'Made in Ethiopia' trademark. There are exciting and lucrative value-addition opportunities throughout the Comesa and the Comesa-EAC-SADC tripartite region in a number of mineral sectors including coal, natural gas, mineral oil, copper, iron and steel, manganese, phosphates and nickel.

However it is the beneficiation and value addition of the mineral deposits and other commodities that holds the potential for the growth of industrial clusters in Africa. In this way Africa will be able to create jobs, regional markets, and equitable wealth. The author is the secretary-general, Common Market for Eastern and Southern Africa (COMESA)