Leveraging Minerals for
Domestic Development in Africa
Lessons from Countries Experiences
Harare, September 25, 2013
More minerals exports in Africa,
but no structural transformation

There hasn’t been much
change in structure of
the economies in Africa
in the last ten years:
Africa still remains a
producer of raw
materials and an
importer of finished
goods

Some dynamics are
changing

Fostering structural
transformation is to be
understood as a long
haul task, and a longer
term vision
AFRICA EXPORTS 2000-2011
WORLD BANK, AFRICA PULSE, APRIL 2013
The link between resources and
human development is weak
Human development
indicators are lower in
resource rich countries
LIFE EXPECTANCY 2011 (YEARS)
WORLD BANK, AFRICA PULSE, APRIL 2013
.. illicit flows are a drain
 AFDB
Study finds that between 1980 and 2009
cumulative illicit financial flows from Southern Africa
reached 330 bn 2005US$
 Illicit
Financial Flows were the main driver of net drain
of resources from Africa
… while overall domestic policies
are weak

weak fiscal frameworks to manage boom-busts cycles

non optimal taxation regimes

lack of strong overall business climates

strong rent-captures

poor linkages with the domestic economy
Countries experiences
Economic Transformation, Value
addition and Extraction
•
Wealth of a nation includes natural capital (rent value of proven
reserves), tangible and intangible capital

Wealth of a nation increases if resources are discovered, and
extracted and their rent creates aboveground assets

Inefficient extraction of natural resources and dissipation of
rents does not create value addition, but reduces wealth

Successful management of resources entails the ability to
transform underground wealth into aboveground physical,
intangible, financial) assets, and support economic
transformation
The Mineral Rent
TAX REVENUE
CONTRIBUTES TO
CENTRAL BUDGET
FORWARD
LOOKING
MANAGEMENT
OF TAX REVENUE
POLICIES THAT FOSTER POSITIVE LINKAGES
AND SPILLOVERS INTO ECONOMIC SECTORS
(*) Costs include high sunk costs for exploration and development, and return on capital
Positive linkages and spillovers
Lessons from other countries
l
Linkages have been very successful in other countries where
exploitation of resources was leveraged towards industrialization and
structural transformation e.g. Chile, Indonesia, Peru, Malaysia
l
Financed the upgrading of the countries’ endowments (human and
physical) from high level of savings
l
Helped to reduce production costs in new trade sectors, support
efficiency while encouraging new entries.
l
Good macro-economic policies, fiscal discipline over resource cycles
and overall policies supporting the business environment.
l
Supported development of economic linkages
Malaysia
RUBBER AND
TIN EXPORT
FINANCING
EXPORT
DIVERSIFIC
ATION
EXPORT OF
RICE AND
PALM OIL
SUPPORTED
MEASURES
TO REDUCE
COSTS AND
INCREASE
PRODUCTIVI
TY
MANUFACTURING
COMPETITIVENESS
FDI INFLOWS,
TECHNOLOGY
SPILLOVERS,
TARGET SUPPORT
ZIONES
Indonesia
OIL
EDUCATION
SUPPORTED
FINACING OF
GAS
IRRIGATION/INFR
ASTRUCTURE
FOOD SECURITY
AGRICULTURE
FERTILIZERS
LABORINTENSICE
INDUSTRY AND
EXPORTS
Source: Gelb (2012)
Chile
WELL DESIGNED
TAXATION SYSTEM
COPPER
FDI INFLOWS,
TECHNOLOGY
FORWARD
LOOKING
MANAGE
MENT OF
TAX
REVENUE
WELL DESIGNED
INSTITUTIONAL FRAMEWORK
PENSION RESERVE FUND
ECONOMIC AND SOCIAL
STABILIZATION FUND
Macro-balance
management
Human Capital
Development
Qualified
workforce
LINKAGES and
DEVELOPMENT OF MINING
RELATED SECTORS
Export of engineering services
In the last 12 years mining providers exports rose to US$ 300 million
Overall Lessons
Mineral Investment, Development,
Poverty Reduction

Optimize levels of investment and extraction (includes: developing a
full understanding of mineral potential)

Transform under-ground wealth in above ground assets: Forward
looking management of Mineral Tax Revenues toward development expenditures
(agriculture, infrastructure, human development and poverty reduction)

Leverage on Mineral rent to support strengthening other industries comparative
advantage: Leverage costs-side
of extraction to foster positive
linkages with industry and services

Build a strong
institutional, governance structure, and
regulatory framework moving from short-term rent extraction, to long-term
rent management
Stemming Illicit Flows in Africa
 Comprehensive
measures to address corruption
 Improve
transparency over the entire resource
value chain
 Strengthen
 Improve
 Require
anti-money laundering
investment codes
publication of annual reports
 Improve
business climate
I. Overall lessons: approach
Limited
effectiveness of “one size fits all”
approaches
Essential
question is: “which size fits
what”?
(e.g. Optimal taxation regime is not easy to determine – often
sector specific or project specific)
II. Overall lessons: Efficiency
“It does not matter whether it is a
yellow cat or a black cat, as long as
it catches mice”
(Sichuan Proverb)