Dr Paul Jourdan, Integrated
Development Consultant
SAIMM, Cape Town,
August 2010
Part I
Africa’s
Natural
Resources
•
•
•
•
•
•
Africa’s Natural Resources
Agriculture
– Contributes 40% of African GDP % provides livelihood for 60% of
population, but largest user of scarce water
– Enormous unrealised potential (low yields & only x% under cultivation)
– But, agri-commodities exported without processing (beneficiation)
Minerals
– World’s top producer of numerous mineral commodities;
– Has world’s greatest resources of many more;
– Africa lacks systematic geo-survey: could be > resources;
– But exported as ores, concs, metals: Need > beneficiation.
Energy
– Significant fossil fuels (oil, gas and coal)
– Large biomass and bio-fuels potential (ethanol, bio-diesel)
– Massive hydro-electric potential (Inga 45GW, Congo River 200GW)
Forestry
– 22% of African land is forested (650m hectares= 17% of world total);
– Deforestation: Africa’s net change highest globally = -0.78% p.a;
– Huge silviculture potential, but exported as logs/chips: need > bene.
Fishing
– Decline in catch rate (international poaching! over-harvesting);
– 68% of marine protected areas under threat;
– Aquaculture/mariculture still nascent (large potential)
Tourism
– Major potential (world’s greatest diversity: culture, flora, fauna,
geomorphology)
– Increasingly important source of livelihood
Africa is well-endowed with mineral resources
Mineral Production & Known Resources (‘04)
(however, much of Africa is still un-surveyed)
Mineral
Production
Rank
Reserves
Rank
PGMs*
54%
1
60+%
1
Phosphate
27%
1
66%
1
Gold
20%
1
42%
1
Chromium
40%
1
44%
1
Manganese
28%
2
82%
1
Vanadium
51%
1
95%
1
Cobalt
18%
1
55+%
1
Diamonds
78%
1
88%
1
Aluminium
4%
7
45%
1
Also Ti (20%), U (20%), Fe (17%), Cu (13%), etc.
*PGMs: Platinum Group Minerals
Geology & Mineral Resources
Areas covered with
recent overburden
(unknown underlying
geology)
African Geology
Africa’s Undiscovered Resources
Source: USGS; USGS Mineral Resources Program. The
Global Mineral Resource Assessment Project
Although private exploration spend is increasing, this
isn’t an alternative to systematic geo-survey!
Arica is 20%
of the crust
area and 15%
of exploration
spend
Africa also has significant energy resources:
fossil fuels (oil, gas, coal), HEP & geothermal
Goethermal
Potential:
Great African
Rift Valley
Gulf of Guinea
considered to be one of
the world’s most
prospective oil & gas
terrains
And Africa has huge HEP (Congo R: 200GW)
Yet most Africans don’t have access to
electricity and rely on biomass for energy!
And Africa has huge water potential…
(except for North Africa)
Withdrawals by sector
Region
Agriculture Communities Industries
Total
As % of
total
% of internal
resources
x 10 6 m³/yr
x 10 6 m³/yr
x 10 6 m³/yr x 10 6 m³/yr %
%
65 000
(85%)
5 500
(7%)
5 800
18%)
76 300
(100 %)
50.9
152.6
Sudano-Sahelian 22 600
(94%)
1 200
(5%)
300
(1%)
24 100
(100%)
16.1
14.2
Gulf of Guinea
3 800
(62%)
1 600
(26%)
700
(12%)
6 100
(100%)
4.1
0.6
Central
600
(43%)
600
(43%)
200
(14%)
1 400
(100%)
0.9
0.1
Eastern
5 400
(83%)
900
(14%)
200
(3%)
6 500
(100%)
4.3
2.5
Southern
14 100
(75%)
3 000
(16%)
1 800
(9%)
18 900
(100%)
12.6
6.9
Total
127 900
(85%)
13 000
(9%)
9 020
(6%)
149 920
(100%)
100 0
3.8
Northern
But access (water infrastructure) is lacking!
Source: FAO
And agricultural potential...
Part II
Future
Resources
Demand &
Prices
The demand boom has disproportionately
increased mineral prices!
(also lower mineral supply elasticity)
FeMn
Ni
Cu
Cotton
Cocoa
Oil
Soy
Sugar
Maize
Beyond the US Toxic Assets Crisis?
Source: IMF: www.imf.org/external/np/res/commod/chart1.pdf
Asian Boom:
New “scramble for resources”?
High intensity,
Africa’s new
opportunity?
High intensity,
sellers market:
Colonial system
Low intensity,
buyers market:
stagnation &
instability
Steel- good proxy for most minerals
How long will boom last?
However, prices will fall with increasing supply over the
medium-long term, but at a higher level (lower grades)
Steel
Intensity
?
(all metals proxy)
PRC
India
China + India > 2X
pop’n of First World!
~$16k/capita
Data Source: BHPB 2006
Part III
Beyond a hole in the ground:
Resource Sustainability?
Minerals Sustainability?
Resource Industry Linkages
(beyond resource rents)
3. DOWNSTREAM
1. INFRASTRUCTURE:
Puts in critical infra
Use wasting asset
(transport, energy) for
other non-minerals to underpin growth in
economic potential
sustainable sectors
2. UPSTREAM
Inputs:
Plant, machinery,
equipment, consumables,
services, (export)
Value-addition
Beneficiation
Export of resourcebased articles
4. TECHNOLOGICAL
Linkages:
HRD, R&D
“Nursery” for new tech
clusters, adaptable to
other sectors
The direct potential linkage is the provision of infrastructure that
could be used to realise other resources potential (e.g. agriculture)
expl. capital goods
• geophysical
• drilling
• survey
• etc.
mining capital goods
• drilling
• cutting
• hauling
• hoisting, etc.
processing cap. goods
• crushers/mills
• hydromet plant
• materials handling
• furnaces, etc.
Refining Cap. Goods
•Smelters
•Furnaces
•Electro winning cells
•Casters
Exploration
Mining
Mineral
Processing
Smelting &
Refining
exploration services
• GIS
• analytical
• data processing
• financing
• etc
mining services
• mine planning
•consumables/spares
• sub-contracting
• financing
• analytical, etc
processing services
• comminution
• grinding media
• chem/reagects
• process control
• analytical, etc
Refining services
•Reductants
•Chemicals
•Assaying
•Gas & elec supply
Resources inputs sector (up-stream) has a
comparative advantage in:
Fabrication Cap.goods
•Rolling
•Moulding
•Machining
•assembling
Fabrication
Value adding services
•Design
•Marketing
•Distribution
•Services
1. Relatively large local market
2. Development of techs for local conditions
3. National asset: permits for concessioning with
linkages conditionality
The resource curse can be avoided!
“Deepening” the resource sector linkages: development of
the resource inputs & outputs industries is critical ,
Finland: 1970 on primary
commodities (pc- mining & forestry)
inverted U-curve,
shifts
to 1998
Finland:but
e.g.
Forestrymanufacturing
curvegoods
(mfgrew capital
resources
inputs
&
(machinery)
& value-added
outputs/beneficiation).
exports (wood
manufactures, pulp/paper)
Thru’on
investment
in R&D!
Chile: 1970
manufacturing
Ucurve (ISI), but shifts to 1998
primary commodities (mining &
agriculture) curve, after opening up
its economy (coup) in the 70’s.
Finland managed to shift from a 1970 resources (pc) trajectory to
a 1998 manufactures (mf) trajectory, through the development of
its resources inputs (machinery) and outputs (value-addition)
sectors (source Palma, G. 2004)
Using a natural comparative advantage
to develop a competitive advantage
Finland: The mature forestry industrial cluster 1997a
FORWARD LINKAGES
BACKWARD LINKAGES
1. Specialized inputs
Chemical and biological
inputs (for production of
fibres, fillers, bleaches)
2. Machinery and equipment
For harvesting (cutting,
stripping, haulage)
For processing (for
production of chips,
sawmills, pulverization)
For paper manufacture
(30% of the world market)
3. Specialized services
Consultancy services on
forest management
Research institutes on
biogenetics, chemistry and
silviculture
Source: Ramos 1998 p111
(CEPAL Review, #68,
12/1998);
NATURAL COMPARATIVE
ADVANTAGE
Abundant forestry reserves
and plantations
(400-600m3 per capita)b
SIDE LINKAGES
Related activities
Electricity generation
Process automation
Marketing
Logistics
Environment industries
(paper)
Mining (sulphuric acid)
1. Roundwood
Sawnwood
Plywood (40% of the
world market)
2. Wood products
Furniture
For construction
3. Wood pulp
4. Paper and cardboard
Newsprint
Art paper (25% of the
world market)
Toilet paper
Packaging
Special products
a: Generates 25% of Finland’s exports;
b: Compared with 25-30m3 per capita in the rest of the world.
HC Technology Strategy:
(Norway: OG21 tech strategy)
Prolong the life of the resources, migrate to
exports of resource techs and value-added
products: survive beyond resource depletion!
>Tech exports
>Gas VA
R&D
>recovery
>resources
The foreign resource capital “trade-off”
In order to rapidly acquire the requisite capital and skills, African states
have generally opted to realise their resource endowments through attracting
foreign resource companies (TNCs & JRCs), rather than mainly relying on
domestic capital. However, this “trade-off” comes with several possible “threats”
1.TNCs often have global purchasing strategies which are less
likely to develop local suppliers (linkages),
2.TNCs tend to optimise their global processing (beneficiation)
facilities which can deny local downstream opportunities;
3.TNCs locate their tech development (R&D) in OECD countries,
thereby denying Africa the development of this critical sidestream capacity;
4.TNCs also tend to locate their high level HRD in OECD countries
(often linked to their R&D university partners), which could deny
African states the development of this seminal capacity;
5.In the longer term there are clearly political downsides to a
resource sector dominated by foreign capital;
6.Finally there is the TNC “core competence” conundrum.
Inappropriate Mineral Regimes
Africa is not capturing mineral rents!
High prices:
colonial mineral
regimes: Procolonisers/TNCs
High Prices: WB
“free mining”
regimes- minimal
linkages!
High prices:
Post-colonial
regimes:
Strongly national
Steel- good proxy for most minerals
Low prices: WB
revisions:
Overly pro-TNC!
Extracting Greater Benefits?
Beyond 1st-come-1st-served regimes?
Exploration Terrains
HIGH RISK
Exploration
Terrain
Exploration License
Automaticity
RoR*/RRT tax
Mining Charter
type conditions
*ROR: Rate-of-Return
MID RISK
Geo-Reserve
Terrain
•Further geosurvey;
•Risk exploration
for future stepin rights.
Mining Licence
LOW RISK
Delineation
Terrain
Auction on:
• rent share
• Infra development
• Up/downstream invest
• equity (“mining charter”)
• local HRD & R&D: Tech!
Key Elements in Maximising the
Developmental Impact (price discovery)
Bid evaluation should be based on several
transparent weighted criteria:
• State revenue over the life of the concession;
–
–
–
–
Tax,
Royalties,
Resource rent taxes (RRT),
Annual investment into local HRD & R&D!
• Excess capex: over-dimensioning of project
infrastructure for use by other sectors:(transport,
power, water, etc.)
• Upstream investments (project inputs);
• Downstream investments (beneficiation)
• Technology transfer & local R&D
Recent W.African Fe ore concession example: Direct project capex
(mine, power, rail, port, water) circa $1.5bn, but by using the above
concession criteria the top bid was at $4.4bn, including a downstream
steel plant, river basin management (irrigation & agro-industries), a
cement plant, 50%-100% extra infrastructure capacity and higher RRT.
SA Example- The lost potential impact of concessioning the
state’s manganese assets against developmental goals
In 2002/3 the state’s manganese assets were given a diverse group of B-B BEE companies that
have failed to optimise the potential developmental impacts of this world-class mineral asset
(possibly the best unexploited manganese property in the world).
Before these assets were “given” to the B-B BEE interests several steel majors had shown a great
interest in acquiring them. This led to a high level check, in India & China, on the appetite for
steel companies to establish a world scale steel plant in South Africa in exchange for this asset
and the response was positive. Consequently it was that the state’s unique manganese resources
should rather be auctioned against the following criteria:
 Job creation (direct & indirect);
 Downstream beneficiation (ferro-alloys, Mn, Mn salts, etc.);
 The establishment of a world-scale steel plant for flat & long products that would sell into the
SA market at EPPs (export parity prices) and thereby discipline Mittal’s monopoly pricing;
 Revenue stream to government (royalty, taxes: RRT?);
 Technology transfer & local R&D;
 B-B BEE.
Unfortunately this proposal was rejected and instead these assets were given to several B-B BEE
companies that lacked the resources to optimise the propulsive impact of these national assets. A
rough calculation on the potential jobs lost by this “give away” came up with a figure of over
100,000, mainly due to the impact of lowering steel prices to our manufacturing sector by 30% to
50% (after labour, steel is the most important input by value into SA’s capital goods sector).
One of numerous opportunities lost!
Facilitation of up- and down-stream linkages
1.Minerals are a finite national asset: build linkages into the
concession (license) conditions (through “price discovery”)
2.Access to competitively priced feedstocks:
• Downstream: restrict exports of crude resources: export tariffs?
• Upstream: Capital goods- steel and special steels (poss. for regional
iron/steel production facilities);
3.Access to concessionary capital: DFIs: local, regional,continental
& global. Venture capital funds (PPPs with TNCs?);
4.Competitive currency (forex rate): Ameliorate the Dutch Disease
by keeping windfall rents offshore and committing to long term
physical & social infrastructure (drip-feed back into economy)?
5.Access to requisite skills: Dedicated HRD institutions (JV’s
w/foreign Universities). Concession HR “indigenisation” conditions.
Strategy to repatriate the huge African skills “Diaspora”?
6.Access to technology: Establish resources up- and down-stream
research facilities (R&D PPPs?) and use of resource rents for R&D.
Make tech transfer/development a concession condition!
7.Access to supply contracts: Ensure that equitable access for local
suppliers. Judicious use of tariffs for infant industries. Ensure
foreign supplier localisation through local content milestones?
8.Infrastructure: Establish world-class human (skills)& physical
infra (transport, energy, water, telecoms, etc.) using resource rents.
However!
Africa’s huge resources potential is critically
constrained by poor infrastructure
•Africa is the highest continent (few navigable
rivers), > infra cost and O&M cost;
•93% of Africa in the tropics (ITCZ, high ppt):
>cost of infrastructure provision and O&M;
•Incoherent European balkanisation resulted in
many African states being landlocked;
•Africa has only 10% of land within 100km of
coast (cf. 18% OECD & 27% Latin America) and
•Only 21% of its people live within 100km of coast
(cf. 69% OECD & 42% Latin America);
 Resulting in Africa having the world’s highest
relative logistics costs (poor infrastructure)
Africa’s potential could be realised through
integrated Development Corridors (not a neocolonial “scramble for resources”)
Resource-based African Development Strategy:
4 sub-strategies
Minerals,
Agric,
Forestry
Resource
Processing
Refining
Resource Capital Goods &
Services (generic tech)
Lateral Migration into
Unrelated knowledgebased Industries
Intermediate
products
Fabrication
Enhance resource-tech
(HRD, R&D) capacity
eg: process control
construction equipment,
atmospheric control,
pumping, materials handling,
etc, etc….
Resource-based African Development Strategy:
4 sub-strategies
Minerals,
Agric,
Forestry
Resource
Processing
Intermediate
products
Fabrication
Refining
Strategy 1: Beneficiation
(RBI)
Resource
Capital
Goods
&
Enhance
resource-tech
Strategy
2:
Resource
Inputs
Services (generic tech)
(HRD, R&D) capacity
eg: process control
construction equipment,
atmospheric control,
pumping, materials handling,
etc, etc….
Lateral Migration into
Strategy
3: Lateral
Unrelated
knowledgebased Industries
Migration
Strategy 4: Infrastructure
Africa’s huge resources potential is critically
constrained by poor infrastructure
•Africa is the highest continent (few navigable rivers),
> infra cost and O&M cost;
•93% of Africa in the tropics (ITCZ, high ppt): >cost of
infrastructure provision and O&M;
•Incoherent European balkanisation resulted in many
African states being landlocked;
•Africa has only 10% of land within 100km of coast
(cf. 18% OECD & 27% Latin America) and
•Only 21% of its people live within 100km of coast (cf.
69% OECD & 42% Latin America);
 Resulting in Africa having the world’s highest
relative logistics costs (poor infrastructure)
Insurance and freight import values for
selected groups of countries
Freight & insurance as a % of cost
1985
1990 1995
1997
World total
4.6
5.5
4.4
4.1
Developed market economy countries
3.8
4.2
3.5
3.4
Developing countries total: of which:
7.7
11.2
7.4
6.5
Africa
11.3
10.6 11.3
10
America
6.7
12.8
6.4
5.6
Asia
7.7
11.2
7.4
6.5
Landlocked Africa:
14.8
15.8
10.7
..
East Africa
17.9
20.2
16.7
14.6
Southern Africa
12.5
11.5
9.9
..
West Africa
30
30.2
24.6
..
Least developed countries
13.8
14.6
12.5
Source:
UNCTAD
Africa’s logistics costs ~250% global average!
“There are in Africa none of those great inlets, such
as the Baltic and Adriatic seas in Europe, the
Mediterranean and Euxine seas in both Europe and
Asia, and the gulphs of Arabia, Persia, India, Bengal,
and Siam in Asia, to carry maritime commerce into
the interior parts of that great continent: and the
great rivers of Africa are at too great a distance from
one another to give occasion to any considerable
inland navigation.”
Smith, Adam. 1976 [1776]. An Inquiry into the Nature and Causes of the Wealth of Nations.
Chicago: University of Chicago Press (Cannan’s edition of the Wealth of Nations was
originally published in 1904 by Methuen & Co. Ltd. First Edition in 1776). page 21
Catalyse other Sectors & Areas (agri, tourism, etc.)
Infrastructure: transport, energy, skills, R&D
e.g. plant, equipment,
after-market, etc.
Processing
capital goods
Intermediates
capital goods
Feedstocks & Tech. (bene.)
Exploitation
.
capital
goods:
BEYOND COMMODITIES?
Use Asian resource demand
to kick-start a
Intermediates
Resources
Processing
(feedstocks) Strategy
Exploitation
Resource-based African Development
“RADS”
Exploitation
services:
e.g. financial, technical,
consumables, logistics,
energy, skills, etc.
Processing
services
Intermediates
services
Resource inputs: key to tech development
Manufacturing (e.g. cap goods)
Recap:
Schematic RADS Phasing (relative economic importance)
Phase 1
I
Phase 2
Phase 3
Phase 4
Resource Beneficiation (value-addition)
Resource Exploitation
Densification Infrastructure
II
Resource Infrastructure
Skill intensity (HRD)
III
IV
Unskilled resource labour
Rents from Resource diversification industries
Diverse tax base
Resource rents (tax)
Resource Inputs production & Lateral migration
(diversification)
V
Resource R&D. high level skills and tech development
VI
Complex regulation, M&E, arbitration, governance
Local judicial system
VII
Contract/license resource & infra (PPP) governance
Resource Exploitation
& infrastructure phase
Resource Consumables &
HRD phase
Resource R&D, capital
goods & services phase
Lateral migration &
diversification phase
Schematic RADS Phasing (relative economic importance)
Phase 1
I
Phase 2
Phase 3
Phase 4
Resource Beneficiation (value-addition)
Resource Exploitation
Densification Infrastructure
II
Resource Infrastructure
Skill intensity (HRD)
III
IV
V
VI
Unskilled resource labour
Resource rents (tax)
Rents from Resource diversification industries
Diverse tax base
Resource Inputs production & Lateral migration
(diversification)
Local Resources Technology
Development
isR&D.
Critical
for
Resource
high level skills
and tech development
Progression!
Complex regulation, M&E, arbitration, governance
Local judicial system
VII
Contract/license resource & infra (PPP) governance
Resource Exploitation
& infrastructure phase
Resource Consumables &
HRD phase
Resource R&D, capital
goods & services phase
Lateral migration &
diversification phase
Parliament
SA Government
Stakeholders:
Labour, Business,
Civil Society
Ministries:
DMR, DME, EDD, DTI, DST, NT, DPE, etc.
SOEs & State Institutions
(Nat. Treasury)
(EDD) IDC:
(Nat. Treasury)
(DMR)
(DST)
“Future Fund”
“Mindevco”*
“RCCC”*
CGS
“MRTC”*
• Hold all state equity in
mining & beneficiation;
• Hold & develop state
Strategic Mineral assets;
• Hold & dev. “partially
known” mineral assets;
• 1st sight of all new CGS
geo-data (3m);
• Partner BEE co’s,
<50%.
• Develop systems for
resources competitive
concessioning;
• Dev. assessment
criteria & relative
weightings;
• Oversee resource
auctions/concessions;
• M&E of concessions
& licenses.
• Categorise SA into
“known”, “unknown” &
“partially known” assets;
• M&E of all exploration/
prospecting licenses;
• Work w/Mindevco in
ID & dev. of new assets;
• Accel. geo-mapping &
ID of new assets
• Offshore fund to
accumulate min. rents:
RRT &, poss, royalties.
• “Drip feed” back into
local & regional
economies for longterm:
1. infrastructure,
2. HRD,
3. geo-knowledge &
4. tech development
• Develop a SA
resources tech & HRD
strategy;
• Rebuild/reinforce the
tech cluster: Mintek,
Necsa, CSIR (ex Comro),
etc. & HRD cluster
(HEIs);
• M&E of resource tech
cluster & resource HRD
institutions (HEIs, etc.).
* proposed “Mineral Development Corporation”, “Resources Concessions & Compliance Commission”, “Mineral Resources Technology Commission”
1. Mineral resources are a wasting
asset that must be optimised whilst
still extant;
2. Resource-rich economies generally
perform worse than resource-rich
economies (“resource curse”);
3. If the resource-linkages cannot be
made, then the minerals are probably
best left in the ground!
Thank You
paulj1952@gmail.com